On December 15, 2021, the Securities and Exchange Commission (SEC) proposed amendments to modernize and improve disclosure about repurchases of an issuer’s equity securities that are registered under Section 12 of the Securities Exchange Act of 1934, as amended. Comments to the proposal are due within 45 days after publication in the Federal Register.
Issuer repurchases, which are often called company “buybacks”, are a common way that public companies return capital to their shareholders. Buybacks are most often done through open market purchases and private transactions. The SEC proposal would require issuers to give more detailed and frequent disclosures regarding these buybacks, including:
- Form SR: Creating a new Form SR, to be furnished by the Company before the end of the first business day following a buyback and contain daily details regarding any repurchases made on behalf of the company or an affiliate. Form SR would disclose the total number of shares repurchased; the average price paid per share; and the aggregate total number of shares purchased (i) on the open market, (ii) in reliance on Rule 10b-18 (a safe harbor for buybacks), and (iii) pursuant to a Rule 10b5-1 plan.
- Added Periodic Disclosures: Revising Item 703 of Regulation S-K to require issuers to disclose additional information in their Form 10-Ks and 10-Qs, including the rationale for the repurchases and the process or criteria used to determine the amounts repurchased; any policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during a repurchase program, including any restriction on such transactions; and whether the repurchases were made pursuant to a Rule 10b5-1 plan (and, if so, the date of the plan’s adoption or termination) and/or in reliance on Rule 10b-18.
- Additional Check Box: Requiring the addition of a new check box above the Item 703 share repurchase table, indicating whether any officers or directors purchased or sold securities that are the subject of a repurchase plan or program within 10 business days before or after the announcement of such plan or program.
Recently, there has been an increase of issuer buyback programs, which has led to increased public scrutiny of such buybacks. This scrutiny has led many to call on the SEC to revisit the share repurchase rules for the first time since 2003. The SEC approved the proposed rule with a 3-2 vote, along party lines. Democrats voted for the proposed rule stating that some issuers potentially use buybacks in order to influence metrics like earnings-per-share, which can affect executive compensation, and that the proposed rule would provide greater transparency on repurchases through more structured and timely disclosures. Republicans warned that the added disclosure could discourage issuers from commencing buybacks, which could ultimately hurt shareholders.