SEC Adopts New Disclosure Requirements Regarding Share Repurchases

On May 3, 2023, the U.S. Securities and Exchange Commission (the "Commission") adopted amendments, available here, to its rules regarding disclosure with respect to repurchases of equity securities by issuers, commonly known as "share repurchases" or "buybacks." Also included in the final amendments are disclosure requirements regarding an issuer's use of Rule 10b5-1 trading plans, which the Commission considered previously in connection with the recent amendments to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which amendments were discussed in our prior client update here.

Highlights of New Disclosure Requirements

The final amendments introduce the following requirements as to repurchases by an issuer (or any "affiliated purchaser" as defined in Rule 10b-18 under the Exchange Act) of shares or other units of any class of securities that are registered by the issuer pursuant to Section 12 of the Exchange Act:

Periodic Reporting of Daily Share Repurchases

Under the final rule, issuers are required to disclose, in tabular format, for each day on which a share repurchase was made during the covered period:

• the date on which the purchase is executed;
• the class of shares (even if the issuer has only one class of shares outstanding);
• the number of shares repurchased on that day;
• the average price paid per share (exclusive of brokerage commissions and other execution costs);
• the total number of shares purchased on that day as part of publicly announced repurchase plans;
• the aggregate maximum number (or approximate dollar value) of shares that may yet be purchased under publicly announced repurchase plans;
• the total number of shares purchased on that day in open-market transactions (not including, among others, purchases in tender offers);
• the total number of shares purchased on that day intended by the issuer to qualify for the safe harbor in Rule 10b-18 under the Exchange Act; and
• the total number of shares purchased pursuant to a plan that is intended by the issuer to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (a "10b5-1 Trading Plan"). Additionally, issuers are required to disclose, by footnote to the daily repurchase table, the date any such 10b5-1 Trading Plan was adopted or terminated.

For corporate issuers reporting on domestic forms, the daily share repurchase data is required to be disclosed on a quarterly basis in an exhibit to their Form 10-Q and Form 10-K (for the issuer's fourth fiscal quarter), as applicable. For registered closed-end management investment companies that are exchange traded ("Listed Closed-End Funds"), the daily share repurchase data is required to be disclosed on a semi-annual basis in Form N-CSR. For foreign private issuers, the daily share repurchase data is required to be disclosed on a new Form F-SR, which will be due 45 days after the end of each of the foreign private issuer's fiscal quarters.

The requirement for reporting daily share repurchases replaces the prior requirement to include repurchase data aggregated on a monthly basis in an issuer's periodic reports.

Checkbox Disclosure for Officer and Director Purchases and Sales Within Four Business Days of Announcement of a Share Repurchase Plan

The final rule requires issuers to include a checkbox above its tabular disclosures indicating whether certain officers and directors purchased or sold equity securities that are the subject of a share repurchase plan within 4 business days before or after the announcement of such share repurchase plan.

Expanded Narrative Disclosure Requirements

Issuers will be required to provide narrative disclosure that describes (1) the objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases and (2) any policies and procedures relating to purchases and sales of the issuer's securities during a share repurchase program by its officers and directors, including any restriction on such transactions. In addition, certain information about publicly announced repurchase plans, including the date each plan was announced, the dollar (or share) amount approved, the expiration date of a plan (if any), and each plan that expired during the period covered in the periodic report, will now be required to be included in the main text of the narrative discussion. This information about previously announced repurchase plans had been required to be included in a footnote to the monthly quantitative share repurchase disclosure table that is being eliminated in connection with the final amendments.

Disclosure Regarding Issuer 10b5-1 Trading Plans

The Commission adopted new Rule 408(d) that requires an issuer to disclose whether, during its most recently completed fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report), the issuer adopted or terminated a 10b5-1 Trading Plan. Issuers are also required to provide a description of the material terms of any such 10b5-1 Trading Plan, such as:

• the date on which the issuer adopted or terminated the 10b5-1 Trading Plan;
• the duration of the 10b5-1 Trading Plan; and
• the aggregate number of securities to be purchased or sold pursuant to the 10b5-1 Trading Plan.

The Commission stated that new Item 408(d) does not require disclosure of the price at which the party executing the arrangement is authorized to trade, noting that price information would be reported on a historical basis for repurchases covered by the new tabular disclosure.

Notable Changes from the Proposing Release

The Commission initially proposed a requirement that issuers report daily repurchase disclosure on a new Form SR one business day after execution of an issuer's share repurchase order. The final amendments reduce the frequency in which issuers report their daily share repurchase data so that issuers only report this data on a periodic basis. The Commission initially proposed that the checkbox disclosure indicating whether any of the issuer's officers or directors purchased or sold equity securities that are the subject of the repurchase plan cover a period of 10 business days before or after the announcement of the repurchase plan. In the final amendments, this time period was reduced from 10 business days to 4 business days. Additionally, issuers not being required to disclose price information regarding their 10b5-1 Trading Plans was a change from the Commission's initial proposal.

Compliance Dates and Looking Ahead

The final rules will become effective 60 days after publication of the Adopting Release in the Federal Register. Issuers using domestic forms will be required to include the quantitative data as an exhibit to their Forms 10-Q and 10-K and provide the narrative disclosure in their Forms 10-Q and 10-K beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023. Foreign private issuers that file on foreign private issuer forms must disclose the quantitative data in new Form F-SR beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024, and provide the narrative disclosure starting in the first Form 20-F filed after their first Form F-SR has been filed. Listed Closed-End Funds will be required to disclose the quantitative data and provide the narrative disclosure on Form N-CSR beginning with the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024.

The final amendments reflect the Commission's belief that requiring issuers to provide disclosures of daily share repurchases as well as qualitative data around these transactions will better enable investors to assess the efficiency, purposes, and impacts of share repurchases. Issuers should begin preparing to compile the required information for tabular disclosure of daily share repurchase information in light of the final amendments, as well as consider the narrative disclosure that they will provide around any share repurchase plans.

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