Memorandum to our Capital Markets Clients

On May 3, 2023, the U.S. Securities and Exchange Commission (the “SEC”) adopted final amendments to Rules and Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) to add disclosure requirements relating to repurchases of an issuer’s common equity securities. Importantly, these amendments apply to both domestic filers and to foreign private issuers that file on Forms 6-Ks and 20-Fs.

Tabular Disclosure

The amendments require a tabular disclosure of an issuer’s daily quantitative share repurchase activity, either quarterly or, solely in the case of listed closed-end funds, semi-annually. The table will include, for each day, the applicable: (i) execution date, (ii) class of shares, (iii) total number of shares purchased on this date (including but not limited to the total number of shares purchased as part of a publicly announced plan), (iv) average price paid per share, (v) total number of shares purchased on this date as part of publicly announced plan, (vi) aggregate maximum number of shares (or approximate dollar value) that may yet be purchased under a publicly announced plan, (vii) total number of shares purchased on the open market, and (viii) total number of shares purchased that are intended to qualify for the safe harbor provided by Rule 10b-18, and separately (ix) the total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

These disclosures will replace existing requirements regarding monthly repurchase data required by Regulation S-K and Form 20-F. Foreign private issuers will be required to disclose the data in a new Form F-SR. The Form F-SR must be filed on EDGAR within 45 days after the end of a foreign private issuer’s fiscal quarter. Domestic issuers will be required to file the tabular disclosure as an exhibit to an issuer’s Form 10-Q or 10-K in XBRL-tagged format.

Checkbox Requirement

Issuers will also be required to indicate whether certain officers and /or directors purchased or sold shares that are the subject of an issuer share repurchase plan or program within four business days before or after the announcement of that plan or program. For foreign private issuers this requirement applies to any director or member of senior management who would be identified pursuant to Item 1 of Form 20-F, regardless of whether that foreign private issuer is reporting on the forms exclusively available to foreign private issuers or on domestic forms. The amendments permit issuers to rely on Section 16 forms filed by domestic issuers with the SEC, or, for foreign private issuers, written representations from insiders, provided that reliance is reasonable.

Narrative Repurchase Disclosure Requirements

The amendments also expand narrative disclosures of repurchases in periodic reports, requiring an issuer to disclose (i) the objectives or rationales for its share repurchases and the criteria used to determine the amount of repurchases, (ii) any policies and procedures relating to repurchases and sales of the issuer’s securities during a repurchase program by its officers and/or directors, including any restriction on such transactions, (iii) whether any of its directors and/or officers purchased or sold shares (or other units) of the class of the issuer’s equity securities that are registered pursuant to Section 12 of the Exchange Act and subject of a publicly announced repurchase plan or program within four business days before or after the issuer’s announcement of the implementation of a repurchase plan or program or increase of an existing plan or program by checking a box before the tabular disclosure of issuer purchases of equity securities, and (iv) the number of shares repurchased other than through a publicly announced plan or program, and the nature of the transaction (e.g., whether the repurchases were made in open-market transactions, tender offers, in satisfaction of the issuer’s obligations upon exercise of outstanding options issued by the issuer or other transactions), and certain disclosures for publicly announced repurchase plans or programs.

As currently required, if an issuer’s repurchase plan or program was publicly announced, the issuer must disclose (i) the date each plan or program was announced, (ii) the dollar or share amount approved, (iii) the expiration date (if any) of each plan or program, (iv) each plan or program that has expired during the period covered by the table, and (v) each plan or program the issuer has determined to terminate prior to its expiration, or under which the issuer does not intend to make further repurchases.

New Item 408(d) to Regulation S-K

In December 2021, the SEC adopted amendments to Rule 10b5-1, requiring issuers to disclose in their periodic reports whether any executives or directors entered into or terminated Rule 10b5-1 trading plans and to provide a description of the material terms of such plans during its most recently completed fiscal quarter. Item 408(d) will require quarterly disclosure in periodic reports on Forms 10-Q and 10-K about an issuer’s adoption and termination of Rule 10b5-1 trading arrangements. Consistent with Rule 10b5-1, issuers will be required to disclose the date on which it adopted or terminated a Rule 10b5-1 trading plan, the duration of the plan, and the aggregate number of shares to be purchased or sold pursuant to the arrangement. Item 408(d) does not require the disclosure of the price at which the party executing the trading arrangement is authorized to trade. Issuers will not be required to disclose information about the adoption or termination of any trading arrangements for the purchase or sale of securities that meet the requirements of a non-rule 10b5-1 trading arrangement.

Issuers will be required to disclose this information in their quarterly reports on Form 10-Q and Form 10-K in XBRL-tagged format.

Compliance Dates

Foreign private issuers will be required to comply with the amendments on Form F-SR within 45 days after the end of its fiscal quarter (including the final quarter of each year) that begins on or after April 1, 2024. The Form 20-F narrative repurchase disclosure requirements will be required starting in the first Form 20-F filed after the foreign private issuer’s first Form F-SR has been filed. Domestic issuers will be required to comply with the amendments on 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. While the new disclosure requirements will require additional filings by issuers utilizing a repurchase plan, the final rules adopted by the SEC are less onerous than originally proposed, most notably in that as adopted, reporting will remain on a quarterly basis and not on the next business day following the repurchase, as was initially proposed.

Issuers should begin now to evaluate the enhanced disclosure requirements relating to share repurchases and the impact such requirements will have on the company’s record keeping procedures related to share repurchases and relevant insider transactions.  In addition, in advance of the compliance deadline, thought should be given to the board’s rationale and objectives related to share repurchase programs to be disclosed in the narrative discussion required by the new rules.