May 10, 2023

SEC Finalizes Share Repurchase Disclosure Rules: What Public Companies Need to Know

Andrew Allen, Bobby Bee, Brett Cooper, Carolyn Frantz, J.T. Ho, Bill Hughes, Soo Hwang

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Orrick, Herrington & Sutcliffe LLP

The SEC has adopted final share repurchase disclosure rules requiring public companies to provide more detailed disclosures about their share repurchases and to tag those disclosures in Inline XBRL. Below are the key takeaways and action items for public companies to consider, followed by detailed information about the new rule requirements.

Key Provisions for Domestic Public Companies

Enhanced share repurchase reporting: Provide, on a quarterly basis in a new exhibit filing, daily share repurchase information for each day on which a repurchase was conducted, including share class, average price, number of shares repurchased, number of shares that may yet be repurchased under publicly announced programs, and shares intended to be covered by Rule 10b-18^[1] and/or Rule 10b5-1 safe harbors.
New disclosure of director and officer trades and related policies and procedures. Indicate, on a quarterly basis, the occurrence of any transaction in company securities by company directors or Section 16 officers within four (4) business days before or after the announcement of a repurchase program, and disclose related policies and procedures governing transactions by company directors or officers during a repurchase program.
New use of 10b5-1 plan disclosures: Provide, on a quarterly basis, disclosure related to the adoption and termination of 10b5-1 trading arrangements by the public company itself, similar to the SEC’s recent rule requiring the same for directors and officers
New qualitative disclosures: Disclose, on a quarterly basis, the objectives or rationales for share repurchases and the process or criteria used to determine the amount of repurchases.

Domestic public companies must comply with the new rules in the first periodic filing that covers the first full fiscal quarter that begins on or after October 1, 2023.

The appendix “Roadmap Of The New Disclosures” below presents a more detailed summary of the new disclosure obligations, including for foreign private issuers (FPIs), and registered closed-end management investment companies that are exchange traded (listed closed-end funds).

Four Things Public Companies Should Consider Doing

In light of these new rules, public companies should consider taking the following actions:

Revisit and document the rationale for repurchasing shares.
- Because companies will need to disclose the rationale for repurchases and process for determining the amount of repurchases, boards should consider multiple factors in advance of approving a repurchase program, such as:
  - the sources of funding for the repurchases;
  - alternative uses for the funds allocated for the repurchases;
  - the expected impact of the repurchases on the value of remaining shares;
  - whether repurchases are consistent with the company’s liquidity and capital allocation plans; and
  - if applicable, the reasons the board believes the stock is undervalued.
- Board materials and minutes should reflect these discussions and the board’s conclusion that the repurchase program is in the company’s and its stockholders’ best interests when authorizing a repurchase program.
Establish policies and procedures regarding transactions by directors and officers during repurchase programs.
- Because companies will need to disclose director and Section 16 officer trades that occur four (4) business days before or after the announcement of a repurchase program and provide disclosure about policies and procedures governing trades by directors or officers during a repurchase program,^[2] companies should consider:
  - prohibiting directors and Section 16 officers from trading in company stock (excluding transactions pursuant to a Rule 10b5-1 plan) within four (4) business days before or after the announcement of a repurchase plan or program;
  - regular training for directors and officers (and other affiliates) about the risks of buying or selling while the company is repurchasing shares;
  - establishing procedures to ensure that directors and officers, and those who trade on their behalf, are aware of the announcement of a repurchase program and its duration;
  - enhancing procedures to track the dates of director and Section 16 officer trades for reporting purposes; and
  - enhancing or establishing procedures to ensure trades by directors and officers (or other affiliate purchasers) do not impair repurchase programs intended to be covered by Rule 10b-18.
- Determine whether to adopt new policies or amend existing policies, such as insider trading policies, to reflect the above or any other restrictions on trading.
Reevaluate process with broker and related controls.
- Public companies may need to increase their interactions with their brokers to ensure they have all necessary information to make required filings due to the new requirement to disclose daily repurchase activity on a quarterly basis.
- Public companies designating a point person to work with brokers for repurchases should also consider developing policies or preclearance procedures to prevent the point person, and any other personnel aware of the repurchase program, from transacting in company securities during the repurchase program (except pursuant to a Rule 10b5-1 plan).
Consider the interplay between repurchase programs and the use of stock price-based metrics in executive compensation programs or earnings guidance.
- While the SEC’s new rules do not have any specific provisions relating to executive compensation programs or earnings guidance, its requirement to disclose the purpose of repurchase programs signals increased skepticism. To avoid concerns that repurchase programs may be used to manipulate stock price-based metrics, public companies should consider excluding the impact of repurchases when setting stock price-based targets for performance-based compensation or providing stock price-based guidance.

Where Can I Find Additional Information?

Refer to the appendix hereto for a more detailed summary of the new disclosure obligations, disclosure locations, and compliance dates.

The SEC announcement, fact sheet, and final rule text are available here, here and here.

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We will continue to monitor developments under these new requirements.

Appendix

Roadmap Of The New Disclosures

We have prepared the below checklist to help ensure these new SEC disclosure requirements are considered and addressed as part of an already thorough quarterly review and form check process.

New Disclosure for Domestic Public Companies	Disclosure Location(s)	Compliance Date(s)
☐ Provide Enhanced Quarterly Share Repurchase Disclosure in Form 10-K and Form 10-Q Source: Amended Item 703 of Regulation S-K. Note: Revised Item 703 eliminates the previous requirement to provide monthly repurchase data. Public companies must now provide daily repurchase data, on a quarterly basis, under new Exhibit 26, described in greater detail below. Requirements: Provide expanded narrative disclosure in Form 10-K and Form 10-Q to address: The objectives or rationales for each repurchase plan or program and process or criteria used to determine the amount of repurchases; Any policies and procedures relating to purchases and sales by a public company’s directors and officers during a repurchase program, including any restrictions on such transactions. Continue to provide in Form 10-K and Form 10-Qs: The number of shares purchased other than through a publicly announced plan or program, and the nature of the transaction; For publicly announced repurchase plans or programs: The date each plan or program was announced; The dollar amount (or share amount) approved; The expiration date of each plan or program; Each plan or program that has expired during the period covered by the Exhibit 26 disclosure; and Each plan or program that the issuer has determined to terminate prior to expiration, or under which the public company does not intend to make further purchases. Item 703 disclosure must be tagged in Inline XBRL.	Form 10-K, Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. And Form 10-Q, Part II, Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.	Include in the 10-Q or 10-K covering the first full fiscal quarter beginning on or after October 1, 2023.^[3]
☐ File New “Issuer Purchases of Equity Securities” Exhibit to Form 10-K and 10-Q. Source: New Item 601(b)(26) of Regulation S-K. Requirements: File new Exhibit 26 to Form 10-K and Form 10-Q. The exhibit must set forth in tabular format, with respect to purchases by the issuer or any affiliated purchaser for each day of the covered quarter (Form 10-K will only cover the fourth fiscal quarter): The date on which the repurchase of shares is executed; The class of shares repurchased; The total number of shares repurchased, whether or not made pursuant to publicly announced plans or programs; The average price paid per share; The total number of shares repurchased as part of publicly announced repurchase plans or programs; The aggregate maximum number of shares that may yet be repurchased under the publicly announced repurchase plans or programs; The total number of shares repurchased in open-market transactions; The total number of repurchased shares that are intended to qualify for the safe harbor in Rule 10b-18; and The total number of repurchased shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Must include a check box in Exhibit 26 indicating whether directors and Section 16 officers have purchased or sold shares of the company within four business days before or after the announcement of a repurchase plan or program. Page 183 of the adopting release (linked below) includes the checkbox text and table format for new Exhibit 26. Exhibit 26 disclosure must be tagged in Inline XBRL.	Form 10-K, Part IV, Item 15. Exhibits and Financial Statement Schedules. And Form 10-Q, Part II, Item 6. Exhibits.	Same as immediately above.
☐ Disclose Company Use of 10b5-1 Trading Plans. Source: New Item 408(d) of Regulation S-K. Requirements: Public companies must provide disclosure about whether they have adopted or terminated any Rule 10b5-1 trading plan during the covered quarter. For each Rule 10b5-1 trading plan identified, provide a description of the material terms such as the date, duration, and number of securities to be purchased pursuant to the plan. Could alternatively include this as part of the Item 703 disclosure, provided cross-reference to that disclosure is provided. Item 408(d) disclosure must be tagged in Inline XBRL.	Form 10-K, Part II, Item 9B. Other Information. And Form 10-Q, Part II, Item 5. Other Information.	Same as immediately above.
New Disclosure for FPIs	Disclosure Location(s)	Compliance Date(s)
☐ File New Form F-SR. Source: New Form F-SR. Requirements: FPIs must submit analogous information to that required by new Exhibit 26 (as described above) on a newly created Form F-SR, which is due 45 days after the end of each fiscal quarter. New Form F-SR begins on page 198 of the adopting release (linked below). Form F-SR disclosure must be tagged in Inline XBRL.	New Form F-SR.	The first full fiscal quarter that begins on or after April1, 2024.^[4]
☐ Provide Enhanced Annual Share Repurchase Disclosure in Form 20-F. Source: Form 20-F, Part II, Item 16E. Requirements: On an annual basis, FPIs must provide on Form 20-F, the same enhanced share repurchase disclosure required by Item 703 of Regulation S-K for domestic public companies (as described above). This disclosure must be tagged in Inline XBRL. Note: FPIs are not required to make the “company use of 10b5-1 trading plans” disclosure required by new Item 408(d) of Regulation S-K.	Form 20-F, Part II, Item 16E “Purchases of Equity Securities by the Issuer and Affiliated Purchasers”;	The first Form 20-F filed after the first Form F-SR has been filed.
New Disclosure for Listed Closed-End Funds	Disclosure Location(s)	Compliance Date(s)
☐ Provide Enhanced Semi-Annual Share Repurchase Disclosure. Source: Form N-CSR, Item 14(a). Requirements: Listed Closed-End Funds must submit analogous information to that required by new Exhibit 26 (as described above) on a semi-annual basis on Form N-CSR. Page 205 of the adopting release (linked below) includes the checkbox text and table format for tabular share repurchase disclosure on Form N-CSR. This disclosure must be tagged in Inline XBRL.	Form N-CSR, “Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers”	The first six-month period that begins on or after January 1, 2024.^[5]
☐ Provide Enhanced Annual Share Repurchase Disclosure in N-CSR. Source: Form N-CSR, Item 14(b). Requirements: On a semi-annual basis, Listed Closed-End Funds must provide on Form N-CSR, the same enhanced share repurchase disclosure required by Item 703 of Regulation S-K for domestic public companies (as described above). This disclosure must be tagged in Inline XBRL. Note: Listed Closed-End Funds are not required to make the “company use of 10b5-1 trading plans” disclosure required by new Item 408(d) of Regulation S-K.	Form N-CSR, “Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers”	Same as immediately above.

^[1] Rule 10b-18 provides a voluntary, nonexclusive “safe harbor” from liability for manipulation under certain sections of the Exchange Act, and Rule 10b-5, when an issuer or its affiliated transacts in shares of a public company’s common stock in accordance with Rule 10b-18’s manner, timing, price, and volume conditions.

^[2] Note that policies and procedures governing trades by any officer of the company must be disclosed, while the disclosure about the occurrence of transactions close in time to the announcement of a buyback program captures Section 16 officer activity only.

^[3] For company with a December 31 fiscal year end, this will first be required in the 10-K covering the fiscal quarter ending December 31, 2023.

^[4] For company with a December 31 fiscal year end, the first Form F-SR will be required 45 days after the end of the fiscal quarter ending June 30, 2024.

^[5] For a listed closed-end fund with a December 31 fiscal year end, this will first be required in the N-CSR filed for the fiscal quarter ending June 30, 2024.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.