Heightened Share Repurchase Disclosure Adopted by SEC | IPO, Then What?

Key Takeaways:

• The SEC adopted final rules that seek to modernize and improve disclosures related to stock buyback programs. The enhanced disclosure will require domestic issuers to:
  • Disclose aggregate daily quantitative repurchase data on a quarterly basis;
  • Indicate if certain directors or officers traded in the relevant securities within four business days of the public announcement of an issuer’s repurchase plan;
  • Provide narrative disclosure regarding (i) the issuer’s objectives or rationales for its share repurchases and (ii) any policies and procedures relating to purchases and sales of the issuer’s securities; and
  • Provide quarterly disclosure regarding trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

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The U.S. Securities and Exchange Commission (SEC) has adopted final rules that seek to modernize and improve disclosures related to stock buyback programs. The rules apply to all domestic issuers, Listed Closed-End Funds and Foreign Private Issuers (FPIs).

The enhanced disclosure will require domestic issuers to:

• Disclose aggregate daily quantitative repurchase data on a quarterly basis in an exhibit to their Form 10-Q and Form 10-K (for an issuer’s fourth fiscal quarter);
• Check a box indicating if 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 (or an increase to an existing program);
• Provide narrative disclosure regarding (i) the issuer’s objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases and (ii) 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; and
• Provide quarterly disclosure regarding an issuer’s adoption or termination of trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Quantitative Repurchase Disclosure

Item 601 of Regulation S-K was amended to add a new Exhibit 26 to Form 10-Q and Form 10-K that will require tabular disclosure of repurchase activity in the quarter on a daily basis and will include:

• 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 Rule 10b-18 safe harbor; and
• Total number of shares purchased that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Issuers will also be required to note whether any of its directors and Section 16 officers (for domestic corporate issuers and Listed Closed-End Funds), or directors or senior management that would be identified pursuant to Item 1of Form 20-F (for FPIs, whether filing on the forms exclusively available to FPIs or on the domestic forms) purchased or sold shares or other units of the class of the issuer’s equity securities that are registered pursuant to Section 12 of the Exchange Act and the subject of a publicly announced repurchase plan or program within four business days before or after the issuer’s announcement of such repurchase plan or  program or the announcement of an increase of an existing share repurchase plan or program by checking a box before the tabular disclosure of issuer purchases of equity securities.

Listed Closed-End Funds will include the repurchase data in their annual and semi-annual reports on Form N-CSR. FPIs reporting on the FPI forms 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 daily quantitative repurchase data required by the final amendments will be treated as filed in Form 10-Q, Form 10-K, Form N-CSR, and Form F-SR (not furnished as originally proposed.)

Narrative Disclosure

The amendments will eliminate the current requirements in Item 703 of Regulation S-K, Form 20-F, and Form N-CSR to disclose monthly repurchase data in periodic reports. Instead, the final amendments require an issuer to include narrative disclosure of:

• The objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases; and
• 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.

Additionally, the final amendments require disclosure of the number of shares purchased other than through a publicly announced plan, and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the issuer’s obligations upon exercise of outstanding put options issued by the issuer, or other transactions), and certain disclosures for publicly announced repurchase plans, including:

• The date each plan or program was announced;
• The dollar amount (or share amount) approved;
• The expiration date (if any) of each plan;
• Each plan that has expired during the period covered by 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.

Issuer 10b5-1 Plan Disclosure

New Item 408(d) will require quarterly disclosure in periodic reports on Forms 10-Q and 10-K (for the issuer’s fourth fiscal quarter) about an issuer’s adoption and termination of Rule 10b5-1 plans.

Issuers are also required to provide a description of the material terms of the 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 purchased or sold pursuant to the Rule 10b5-1 trading arrangement.

If the disclosure provided pursuant to Item 703 contains disclosure that would satisfy the requirements of Item 408(d)(1), a cross-reference to that disclosure will satisfy the Item 408(d)(1) requirements.

Issuers will be required to tag the information disclosed pursuant to Items 601 and 703 of Regulation S-K, Item 16E of Form 20-F, Item 14 of Form N-CSR, and Form F-SR in a structured, machine-readable data language, with detail tagging required for the quantitative amounts disclosed within the required tabular disclosures and block text tagging and detail tagging of required narrative and quantitative information.

Compliance Dates

Domestic issuers will be required to comply with the new disclosure and tagging requirements in their periodic reports on Forms 10-Q and 10-K (for their fourth fiscal quarter) beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023.

FPIs that file on the FPI forms will be required to comply with the new disclosure and tagging requirements 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. The Form 20-F narrative disclosure that relates to the Form F-SR filings, which is required by Item 16E of that form, and the related tagging requirements will be required starting in the first Form 20-F filed after their first Form F-SR has been filed. Listed Closed-End Funds will be required to comply with the new disclosure and tagging requirements in their Exchange Act periodic reports beginning with the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024.