SEC Adopts New Share Repurchase Disclosure Requirements

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Public Company Advisory Client Alert:

On May 3, 2023, the Securities and Exchange Commission (the “SEC”) adopted rule amendments[1] to expand the disclosure requirements relating to repurchases of an issuer’s equity securities that are registered under the Securities Exchange Act of 1934 (the “Exchange Act”).

Reporting Daily Repurchase Activity 

The rule amendments will require reporting of daily repurchase activity on a quarterly basis, in a table that will be filed as an exhibit to each of the issuer’s Forms 10-Q and Form 10-K (for fourth quarter activity). The table will be required to include, for each day in the applicable quarter:

• Class of shares subject to repurchase;
• Average price paid per share;
• Total number of shares purchased, including the total number of shares purchased as part of a publicly announced plan;
• Aggregate maximum number of shares (or approximate dollar value) that may yet be purchased under a publicly announced plan;
• Total number of shares purchased on the open market; and
• Total number of shares purchased that are intended to qualify for the safe harbor in Rule 10b-18 and separately the total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

The SEC’s proposed rules[2] would have required the issuer to file a report (proposed Form SR) one business day after each repurchase. Many commenters objected to the burden that this daily reporting requirement would place on issuers. In response to those comments, the SEC modified the provision in the final rule amendments to require the quarterly reporting of daily repurchase data as described above.

Foreign private issuers (FPIs) will disclose the data in a new Form F-SR, which must be filed within 45 days after the end of an FPI’s fiscal quarter.

The rule amendments require that the share repurchase disclosures be tagged using Inline XBRL.

In light of the new, more detailed disclosures, the rule amendments will eliminate the current requirement to disclose monthly repurchase data in periodic reports.

Additional Disclosures

The rule amendments will also require an issuer to provide the following disclosures in each Form 10-Q and Form 10-K (per amended Item 703 of Regulation S-K) if any repurchases were made during the quarter covered by the report: 

• The objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases;
• The number of shares purchased other than through a publicly announced plan or program, and the nature of such transaction(s);
• Certain prescribed details with respect to publicly announced repurchase plans or programs;
• Any policies and procedures relating to purchases and sales of the issuer’s securities during a repurchase program by its officers and directors, including any restriction on such transactions;
• Information regarding the issuer’s adoption or termination of a Rule 10b5-1 trading plan during the quarter covered by the report, including the number of securities subject to the plan and other material terms (new Item 408(d) of Regulation S-K); and
• A check-box preceding the tabular disclosure appearing in the exhibit (described above) indicating if certain officers and directors traded in the relevant securities within four business days before or after the public announcement of the issuer’s repurchase plan or program.

In adopting the rule amendments, the SEC stated that the additional information would enable investors to assess the efficiency, purposes, and impacts of share repurchases.

Challenge to the SEC Rulemaking

On May 12, 2023, the U.S. Chamber of Commerce (the “Chamber”) announced in a press release that it, together with the Texas Association of Business and the Longview Chamber of Commerce, had filed a lawsuit in the U.S. Court of Appeals for the Fifth Circuit in order to prevent the SEC from implementing its new share repurchase disclosure rules.  According to the press release, the lawsuit challenges the SEC’s rules under the Administrative Procedure Act, as well as under the U.S. Constitution.  The Chamber stated in its press release that the SEC’s mandatory disclosures risk the public airing of important managerial decisions and compel speech in violation of the First Amendment.  The Chamber further claims that the rulemaking will discourage stock buybacks and thereby harm investors that benefit from them.  The commencement of proceedings by the Chamber in the U.S. Court of Appeals does not operate as a stay of the SEC’s rules unless the court specifically so orders.  Accordingly, companies should continue preparing to comply with the new rules.

Conclusion

The new disclosures will become mandatory for all issuers (including smaller reporting companies and emerging growth companies) for periodic reports filed beginning with the first fiscal quarter that begins on or after October 1, 2023 (or April 1, 2024 for FPIs). The rule amendments represent a substantial expansion of the amount of information required to be disclosed about share repurchases, so issuers should ensure that their disclosure controls and procedures will enable them to collect and report the expanded information. 

Maynard’s Public Company Advisory Group can assist with preparing the required table and related disclosures regarding an issuer’s share repurchase activity. For additional information about any of the above developments, or to discuss any questions that you may have, please contact a member of Maynard Nexsen’s Public Company Advisory Group. 

_{[1] The final amendments are contained in the release, SEC Rel. 34-97424, found on the SEC’s website here https://www.sec.gov/rules/final/2023/34-97424.pdf.
[2] The proposing release, SEC Rel. 34-93783, is found on the SEC’s website here https://www.sec.gov/rules/proposed/2021/34-93783.pdf.} 

^{This Client Alert is for information purposes only and should not be construed as legal advice. The information in this Client Alert is not intended to create and does not create an attorney-client relationship.}