Key Takeaways

• Issuers must disclose daily quantitative share repurchase information on a quarterly or semi-annual basis depending on the type of issuer, but not after every repurchase as had been initially proposed
• Issuers must disclose the required quantitative data on an exhibit filed with Form 10-Q or 10-K (for domestic corporate issuers and business development companies) or on Form N-CSR (for registered closed-end management investment companies that are exchange traded) or new Form F-SR (for foreign private issuers)
• Issuers must check a box in their applicable reporting document indicating if certain officers or directors purchased or sold shares of the issuer’s securities within four business days of the public announcement of the issuer’s repurchase plan or program
• Issuers must provide narrative disclosures in their applicable reporting document regarding the issuer’s repurchase programs and practices

On May 3, 2023, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to modernize the disclosure requirements for repurchases by issuers¹ of their equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC initially proposed the amendments on December 15, 2021, and opened the comment period that same day; see our Dechert OnPoint for a description of the proposal. The SEC subsequently reopened the comment period two additional times. While parts of the adopted amendments mirror the initial proposal, others were modified in response to comments submitted to the SEC. The final, adopted amendments were approved by a 3-2 vote.²

Share Repurchase Quantitative Disclosures

The final amendments adopted by the SEC require the same detail regarding the structure of an issuer’s repurchase program and its daily share repurchases as was initially proposed. The issuer’s applicable reporting document must include a table that, for each day during the period, includes:

• Identification of the class of securities purchased;
• The total number of shares purchased by the issuer, including all such repurchases whether or not made pursuant to publicly announced plans or programs;
• The average price paid per share;
• The total number of shares purchased on the open market (new disclosure requirement);
• The aggregate total number of shares purchased with the intent to qualify for the Rule 10b-18 safe harbor³ (new disclosure requirement); and
• The aggregate total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative-defense conditions of Rule 10b5-1(c)⁴ (new disclosure requirement).

Also unchanged from the initial proposal, the adopted amendments require issuers to tag the disclosures using Inline XBRL.

Key Modification from the Proposal: Disclosure Timing

A major change to the proposed amendments made in response to comments submitted to the SEC concerns the frequency and manner in which issuers must make their share-repurchase disclosures. As initially proposed, issuers—including foreign private issuers (“FPIs”) and certain registered closed-end funds—would have had to disclose their repurchase activity one business day after execution. The amended rule as finally adopted allows more time for issuers to make the required disclosures and distinguishes among types of issuers. Under the adopted rule amendments:

• Corporate issuers that file on domestic forms (including business development companies⁵ and FPIs that file on domestic forms) must provide the repurchase data quarterly in an exhibit attached to their Form 10-Q or 10-K (for the issuer’s fourth fiscal quarter), rather than on a new Form SR as had been initially proposed.
• Registered closed-end management investment companies that are exchange traded (“Listed Closed-End Funds”)⁶ must provide the repurchase data every six months in their annual and semi-annual reports on Form N-CSR.⁷
• FPIs that report on the forms exclusively available to FPIs must disclose their daily repurchase data on a quarterly basis in new Form F-SR. The form must be filed within 45 days following the end of the FPI’s fiscal quarter.

Key Modification from the Proposal: Checkbox Requirement

In keeping with the initial proposal, issuers must include a checkbox above its tabular repurchase disclosure indicating whether certain officers and directors traded the issuer’s securities subject to an issuer share repurchase program within a given period before or after the announcement of the program. In a change from the initial proposal, the issuer must now check the box for trades made within four business days before or after the announcement of the repurchase plan, rather than ten business days as had been initially proposed.⁸ For domestic corporate issuers and Listed Closed-End Funds, this checkbox requirement applies to any officer or director subject to Exchange Act Section 16(a) reporting requirements. For FPIs, however, and in a change from the initial proposal, this requirement applies to any director and member of senior management who would be identified pursuant to Item 1 of Form 20-F (regardless of whether the FPI reports on the forms exclusively available to FPIs or on domestic forms).

A domestic corporate issuer may rely on Forms 3, 4, and 5 filed with the SEC in determining if it should check the box, provided that the reliance is reasonable.

Key Modification from the Proposal: Treatment of Disclosure

Under the initial proposal’s contemplation of a new Form SR for domestic issuers, the issuer would have had to furnish the form with the SEC. As adopted, the required disclosures will be treated as filed in Form 10-Q, Form 10-K, Form N-CSR and Form F-SR, instead of furnished.

Narrative Revisions to Item 703, Form 20-F and Form N-CSR

Under the adopted amendments, issuers are required to disclose:

• The objectives or rationales behind each repurchase plan or the criteria used to determine the amount of repurchases;
• Any policies or procedures relating to their directors and officers trading their securities during a repurchase program, as well as any restrictions thereof;
• Whether any of their directors or officers who are subject to the reporting requirements under Section 16(a) of the Exchange Act (for domestic corporate issuers and Listed Closed-End Funds) or whether any of their directors or senior management who would be identified pursuant to Item 1 of Form 20-F (for all FPIs) traded shares registered under Section 12 of the Exchange Act and subject of a publicly announced repurchase program within four business days before or after the issuer’s announcement of the repurchase program by checking a box before the table disclosing the daily repurchase activity;
• The number of shares (or units) purchased by the issuer, other than through a publicly announced plan, and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, through tender offers, or other transactions);
• For publicly announced repurchase plans:
  • The date each plan was announced;
  • The dollar amount (or share or unit amount) approved;
  • The expiration date of each plan (if any);
  • Each plan or program that has expired during the period described in the table; and
  • Each plan or program the issuer has determined to terminate prior to expiration, or under which the issuer does not intend to make further purchases.

While some of this information is already required to be disclosed in the current rules, the form of the requirement has changed: the disclosure will now be required in the main text of the narrative discussion, as opposed to in a footnote with the monthly table (as the requirement to file monthly repurchase data in an issuer’s periodic reports no longer exists).

The SEC commented in the adopting release that it expects issuers to provide the required disclosure without relying on boilerplate language. The SEC offered several suggestions for avoiding boilerplate disclosure based on comments it received on the proposal, including discussing:

• Other possible ways to use the funds allocated for the repurchase and comparing the repurchase with other investment opportunities that would ordinarily be considered by the issuer, such as capital expenditures and other uses of capital.
• The expected impact of the repurchases on the value of remaining shares.
• In connection with disclosure of the objectives or rationales for a repurchase, the factors driving the repurchase, including whether the issuer’s stock is undervalued, prospective internal growth opportunities are economically viable, or the valuation for potential targets is attractive.
• The sources of funding for the repurchase, where material, such as, for example, if the source of funding results in tax advantages that would not otherwise be available for a repurchase.

Key Modifications from the Proposal: Disclosures Concerning Purchases Qualifying for Safe Harbor or Affirmative Defense

As originally proposed, the issuer would have been required to disclose whether any purchases were “made in reliance on” the Rule 10b-18 non-exclusive safe harbor. In response to commenters’ concerns that issuers can only be expected to indicate their intent to comply with the safe harbor, the final rule now requires disclosure of purchases that were “intended to qualify for” the safe harbor.

The original proposal also required that the date of adoption or termination of a plan intended to satisfy the affirmative-defense conditions of Rule 10b5-1(c) be disclosed both in the narrative discussion and as a footnote to the quantitative-data table. The final rule as adopted requires this information only in a footnote to the table.

Item 408(d) and Rule 10b5-1 Plans

The final amendments adopt new Item 408(d) of Regulation S-K, requiring quarterly disclosure in Forms 10-Q and 10-K regarding a domestic corporate issuer’s adoption and termination of Rule 10b5-1 trading arrangements. This disclosure will also be reported using Inline XBRL. The goal of this amendment is to better allow the SEC, investors and other market participants to understand how domestic corporate issuers use 10b5-1 plans.

Item 408(d) will require a domestic corporate 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 contract, instruction, or written plan to purchase or sell its securities intended to satisfy the affirmative-defense conditions of Rule 10b5-1(c);
• A description of the material terms of the contract, instruction, or written plan (other than terms with respect to the price at which the party executing the respective trading arrangement is authorized to trade), such as:
  • The date on which the registrant adopted or terminated the Rule 10b5-1 trading arrangement;
  • The duration of the Rule 10b5-1 trading arrangement; and
  • The aggregate number of securities to be traded pursuant to the Rule 10b5-1 trading arrangement.

Key Modifications from the Proposal: Fewer Required Disclosures

Unlike the proposal, domestic corporate issuers will not be required to disclose information about the adoption or termination of any trading arrangement for trading securities that meets the requirements of a non-Rule 10b5-1 trading arrangement⁹ under the adopted amendment. The SEC has also revised the rule to provide that Item 408(d) does not require disclosure of the price at which the party executing the trading arrangement is authorized to trade.¹⁰

Effectiveness and Compliance Dates

The final amendments are effective 60 days after the date of publication in the Federal Register. However, compliance is not immediately mandated, but will proceed on the following schedule:

• FPIs that report on the forms exclusively available to FPIs must make the quantitative-data disclosures on 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 must 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.
• All other covered issuers must 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. This means for domestic corporate issuers with a calendar fiscal year that their first required disclosures will be for the fourth quarter of 2023, filed as an exhibit with their Form 10-K for the year ending December 31, 2023.

Footnotes

1. References to issuers throughout this OnPoint include affiliated purchasers as defined in Rule 10b-18(a)(3) and any person acting on behalf of an issuer or its affiliated purchaser.
2. Chair Gary Gensler, Commissioner Caroline A. Crenshaw and Commissioner Jaime Lizarraga released statements in support of the new amendments; their respective statements can be found here, here and here. Commissioner Mark T. Uyeda and Commissioner Hester M. Peirce released dissenting statements, which can be found here and here.
3. Rule 10b-18 provides a non-exclusive safe harbor from liability from the Exchange Act’s market-manipulation rules and Rule 10b-5 when the issuer repurchases its common stock or equivalent interests in the open market in accordance with the rule’s manner, timing, price, and volume conditions.
4. Rule 10b5-1(c) establishes an affirmative defense to Rule 10b-5 liability for insider trading in circumstances where it is clear that the trading was not based on material nonpublic information and the trade was made pursuant to a binding contract, an instruction to another person to execute the trade for the instructing person’s account, or a written plan.
5. References to domestic corporate issuers throughout this OnPoint include business development companies.
6. Registered investment companies other than Listed Closed-End Funds are not required to provide the repurchase disclosure.
7. The SEC explained in the final rule release that it is requiring Listed Closed-End Funds to make these disclosures, even though not all of the animating concerns for corporate issuers apply to them, because investors in Listed Closed-End Funds will also benefit from “the opportunity to evaluate the purposes, impacts, and efficiency of share repurchases and to understand the impact of such activity on the value of their investments.”
8. The SEC commented in the adopting release that it shortened the triggering period because a larger window of time may have potentially resulted in added attention for a number of transactions that are not as significant, reducing the value of the checkbox.
9. Defined in Item 408(c) as a trading arrangement adopted at a time when the covered person was not aware of any material nonpublic information about the security or issuer and which contains certain parameters around the amount of and timing for securities to be traded.
10. The SEC noted its agreement with commenters that disclosing pricing information could allow other persons to trade strategically in anticipation of planned trades.