SEC Amends Share Repurchase Disclosure Rules

On May 3, 2023, the Securities and Exchange Commission (SEC) adopted amendments to increase disclosures for issuer repurchases of shares or other equity securities that are registered under Section 12 of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b5-1 trading plans. The SEC press release announcing the amendments, the final rule adopting release and a summary fact sheet are available here. The amendments differ from those initially proposed in December 2021 (see our previous alert). In summary, the amendments will require issuers to:

• Disclose daily repurchase activity on a quarterly basis, or semiannually for listed closed-end funds (notably, this is a change from the proposed requirement for issuers to disclose share repurchases one business day after each repurchase)
• Check a box indicating whether certain directors or officers traded in the relevant securities within four business days before or after the public announcement of an issuer’s repurchase plan or program
• Provide additional narrative disclosure about repurchase programs and practices in periodic reports, including objectives for repurchases
• Provide quarterly disclosure regarding adoption, modification and termination of 10b5-1 trading arrangements

The new rules apply to issuers, including foreign private issuers (FPIs) and exchange-traded closed-end funds, with equity securities registered under Section 12 of the Exchange Act. Under the new rules, most U.S. listed domestic issuers will need to make the disclosures on a quarterly basis, starting with periodic reports covering the fourth quarter of 2023. For calendar-year registrants, this means that the new disclosures will be made for the first time in the Form 10-K for the year ended Dec. 31, 2023.

Issuer Share Repurchases

The final rules add new requirements for U.S. domestic issuers to file daily aggregated repurchase activity in an exhibit to their Form 10-Q and Form 10-K in a tabular format, including details of the total number of shares repurchased, average price paid and share class.

Listed closed-end funds will include the data in their annual and semiannual reports on Form N-CSR.

FPIs reporting on the FPI forms will be required to disclose the information in a new Form F-SR, to be filed within 45 days after the end of each fiscal quarter, including the final quarter of each year.

The new rules also require issuers to include a checkbox before the exhibit table indicating whether directors and certain officers traded in the relevant shares four business days before or after the announcement of a repurchase program. For domestic issuers, this checkbox requirement applies to directors and to officers who are subject to Section 16 of the Exchange Act. For FPIs, this requirement applies to any director and member of senior management who would be identified pursuant to Item 1 of Form 20-F. In the adopting release for the amendments, the SEC clarified that U.S. domestic issuers may rely on Exchange Act Forms 3, 4 and 5 filed with the SEC in determining whether they should check the box, provided that the reliance is reasonable.

Expanded Narrative Disclosure

In addition to the new tabular disclosure of share repurchases described above, the amendments revise Item 703 of Regulation S-K to require issuers to provide expanded narrative disclosure of their repurchase programs, including the objectives or rationale for repurchases, the process used to decide the volume of repurchases, and the policies related to transactions made by officers and directors.

Quarterly Disclosure of Issuer Rule 10b5-1 Plans

The amendments also add new Item 408(d) to Regulation S-K, which requires quarterly disclosure in periodic reports on Forms 10-Q and 10-K regarding the adoption, modification or termination of Rule 10b5-1 trading plans, including a description of the material terms of the plan (other than terms with respect to the authorized trade price), such as the date on which the registrant adopted or terminated the Rule 10b5-1 trading plan, its duration, and the aggregate number of securities purchased or sold pursuant to the plan. This is in addition to the recently adopted requirements for quarterly disclosure if an issuer’s directors or officers adopted, terminated or modified a 10b5-1 Plan or other “Non-Rule 10b5-1 Trading Arrangement,” as discussed in our previous alert.

Next Steps

U.S. domestic issuers will be required to comply with the amendments beginning with the first filing that covers the first full fiscal quarter that begins on or after Oct. 1. FPIs that file on FPI forms will be required to comply with the amendments in 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. Notably, the rules do not exempt FPIs that are not required to report information about share repurchases in their home country. Listed closed-end funds will be required to comply with the amendments beginning with the Form N-CSR that covers the first six-month period that begins on or after Jan. 1, 2024.

In order to prepare for these compliance dates and enhanced public disclosure requirements applicable to their Exchange Act reports, issuers should ensure that they implement procedures to track and collect the required daily repurchase information and review their insider trading policies and procedures for monitoring trades made by officers and directors close in time to the announcement of a share repurchase plan.