Key Takeaways

• The Securities and Exchange Commission (SEC) has adopted amendments to the rules governing the repurchase by issuers of their equity securities to modernize and improve disclosures related to, as well as to provide investors with enhanced information to enable them to evaluate the purposes and effects of, these share repurchase programs.
• Amendments to Item 703 of Regulation S-K will require issuers to provide daily quantitative repurchase activity and other detailed information related to their share repurchase programs on a quarterly or semiannual basis, depending on the type of issuer.
• Amendments to Item 703 will also require issuers to disclose the objectives or rationales for their share repurchases and the process or criteria used to determine the amount of repurchases, along with any policies and procedures related to purchases and sales of securities during a repurchase program by their officers and directors, including any restrictions on such transactions.
• New Item 408(d) of Regulation S-K will require quarterly disclosures on Forms 10-Q and 10-K about an issuer’s adoption and termination of Rule 10b5-1 trading arrangements.

Rulemaking Background

On Dec. 15, 2021, the SEC proposed amendments to the disclosure requirements regarding purchases of equity securities made by or on behalf of an issuer or any affiliated purchaser. You can see our previously published Client Alert regarding the proposed amendments here.

Overview of the Adopted Amendments

On May 3, 2023, the SEC adopted the proposed amendments with several modifications. As adopted, the amendments provide that:

• Corporate issuers that file on domestic forms must disclose daily quantitative repurchase data at the end of every quarter in an exhibit to their Form 10-Q and Form 10-K (for an issuer’s fourth fiscal quarter) as set forth in new Item 601(b)(26) of Regulation S-K.
• Listed closed-end funds must disclose daily quantitative repurchase data in their annual and semiannual reports on Form N-CSR.
• Foreign private issuers (FPI)[1] reporting on the FPI forms must disclose daily quantitative repurchase data at the end of every quarter on the new Form F-SR, which will be due 45 days after the end of an FPI’s fiscal quarter.
  • This requirement applies to every director and member of senior management who would be identified pursuant to Item 1 of Form 20-F, regardless of whether the FPI is reporting on the forms exclusively available to FPIs or on the domestic forms.
• The required exhibit to the applicable Form 10-Q or Form 10-K must disclose all the following quantitative repurchase data in tabular form:
  • Class of shares purchased.
  • Average price paid per share.
  • Total number of shares purchased on that day, including the total number of purchases as part of a publicly announced repurchase plan.
  • Aggregate maximum number of shares that may yet be purchased under a publicly announced repurchase plan.
  • Total number of shares purchased on the open market on that day.
  • Total number of shares purchased pursuant to a Rule 10b5-1 plan or in reliance on the Rule 10b-18 nonexclusive safe harbor.
• Amendments to Item 703 will also require issuers to disclose the objectives or rationales for their share repurchases and the process or criteria used to determine the amount of repurchases, along with any policies and procedures related to purchases and sales of securities during a repurchase program by their officers and directors, including any restrictions on such transactions.
• The current requirements in Item 703 of Regulation S-K, Item 16E of Form 20-F and Item 14 of Form N-CSR to provide the table of monthly repurchase data in periodic reports have been eliminated; however, the current requirements to disclose the number of shares purchased other than through a publicly announced plan or program and the nature of such transactions and certain disclosures for publicly announced repurchase plans or programs, which were previously to be made in footnotes to that table, will now be in the general response to these requirements.
• The daily quantitative repurchase data required by the final amendments will be treated as filed on Form 10-Q, Form 10-K, Form N-CSR and Form F-SR instead of furnished.
• Issuers will be required to check a box indicating if certain directors or officers traded in the relevant securities within four business days before or after the public announcement of the repurchase plan or program.
• New Item 408(d) of Regulation S-K will require quarterly disclosures on Forms 10-Q and 10-K about an issuer’s adoption and termination of Rule 10b5-1 trading arrangements, including a description of the material terms of the arrangement, such as the date of adoption, duration and aggregate number of securities to be purchased or sold. Disclosure is not required regarding the price at which the party executing the trading arrangement is authorized to trade. This addition of Item 408(d) follows the adoption of rules in December 2022 providing for disclosure of Rule 10b5-1 trading arrangements by directors and officers.[2]

The primary modifications made by the adopted amendments to the proposed amendments were:

• The adopted amendments do not include a requirement to provide daily repurchase disclosure one business day after execution of their share repurchase order as was proposed to be required on a new Form SR.
• The daily repurchase data will be required to be filed rather than furnished. This means that issuers will be subject to liability under Section 18 of the Securities Exchange Act of 1934 for the new repurchase disclosures, as they are currently for filings under Item 703 of Regulation S-K, and the information will be deemed incorporated by reference into filings under the Securities Act of 1933, which will subject issuers to liability under Section 11 of the Securities Act.
• The checkbox requirement for trading by directors and officers was reduced from 10 business days to four business days before or after announcement of the repurchase plan or program.

Tagging with Inline XBRL

The adopted amendments also require issuers to tag all disclosure information required in both the daily and periodic disclosures by using Inline eXtensible Business Reporting Language (XBRL).

Compliance Requirements of the Adopted Amendments

• Most issuers will be required to disclose the quantitative data as an exhibit to, and provide the narrative disclosures on, their Forms 10-Q and 10-K beginning with the first filing that covers the first full fiscal quarter that begins on or after Oct. 1, 2023.
• FPIs will need to disclose the quantitative data on the 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 with the first Form 20-F filed after their first Form F-SR has been filed.
• Listed closed-end funds will need 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 Jan. 1, 2024.

The full release containing the SEC’s adopted amendments can be found here.

[1] “Foreign private issuer” is defined in 17 CFR 230.405 (Securities Act Rule 405) and 17 CFR 240.3b-4 as any foreign issuer other than a foreign government except for an issuer meeting the following conditions as of the last business day of its most recently completed second fiscal quarter: (1) More than 50 percent of the issuer’s outstanding voting securities are directly or indirectly held of record by residents of the United States; and (2) any of the following: (i) the majority of the executive officers or directors are United States citizens or residents, (ii) more than 50 percent of the assets of the issuer are located in the United States, or (iii) the business of the issuer is administered principally in the United States.

[2] See our previously published Client Alert regarding these rules at https://www.bakerlaw.com/SEC-Adopts-Amendments-to-Rule-10b5-1.

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