On May 3, 2023, the US Securities and Exchange Commission (SEC) adopted amendments to the share repurchase disclosure rules that require the disclosure of daily share repurchase activity on a quarterly basis by domestic issuers and foreign private issuers and on a semi-annual basis by registered closed-end management investment companies (Listed Closed-End Funds). Domestic issuers are required to comply with these amendments beginning with their first periodic report that covers the first full fiscal quarter commencing on or after October 1, 2023. Foreign private issuers are required to file a new Form F-SR on a quarterly basis to comply with the amendments beginning with their first full fiscal quarter that commences on or after April 1, 2024, and must provide additional disclosures in their first Form 20-F following their first Form F-SR filing. Listed Closed-End Funds must comply beginning with their Form N-CSRs that cover the first six-month period that starts on or after January 1, 2024.
Prior to the adoption of these amendments, Item 703 of Regulation S-K required disclosure of share repurchase transactions consummated by a domestic issuer in its quarterly reports on Form 10-Q and annual report on Form 10-K, repurchases by a foreign private issuer to be disclosed annually in its Form 20-F and semi-annual disclosure of repurchases for Listed Closed-End Funds. The previously required disclosures included (1) the total number of shares repurchased as measured on a monthly basis and the nature of the purchases (e.g., whether the repurchases 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), (2) the average price paid per share, (3) the total number of shares purchased as part of publicly announced plans or programs, and (4) the maximum number of shares that may be purchased under the plans or programs following the reported purchases. In December 2021, the SEC proposed amendments to Item 703 to address the gaps in disclosure rules on share repurchases and insider trades that allow corporate insiders “to unfairly exploit information asymmetries between issuers and investors.” These proposed amendments would have required issuers to report share repurchases and related information on Form SR one business day after execution of the repurchase. Following comments regarding the burdens of these proposed amendments, the SEC adopted a modified version of enhanced disclosure requirements for share repurchases (as described below).
NEW DISCLOSURE RULES
The new disclosure rules will require domestic issuers to make these disclosures on an exhibit to their quarterly reports on Form 10-Q and annual report on Form 10-K for the period covered by the report (or the fourth fiscal quarter in the case of a Form 10-K). Foreign private issuers are required to make the new disclosures within 45 days following the end of their fiscal quarter on a new Form F-SR. Issuers will no longer need to disclose monthly repurchase data in periodic reports. Listed Closed-End Funds are required to make the new disclosures in their annual and semi-annual reports on Form N-CSR. All of these disclosures must be data tagged.
The amendments set forth the following changes and additional disclosure requirements for an issuer:
Daily Repurchase Data. Issuers will be required to include disclosure of their repurchase activity aggregated on a daily basis in a tabular format that specifies (1) the class of shares repurchased, (2) the average price paid per share, (3) the total number of shares repurchased and the total number of shares repurchased through a plan that was publicly announced by the issuer, (4) the aggregate maximum number of shares that may yet be purchased under a publicly announced plan, (5) the total number of shares repurchased on the open market, and (6) the total number of shares repurchased that are intended to qualify for the Rule 10b-18 safe harbor for issuer repurchases and the number of shares repurchased by way of a plan intended to satisfy certain conditions of Rule 10b5-1(c). Domestic issuers are required to disclose this information for the period covered by their reports (or the fourth fiscal quarter in the case of a Form 10-K). Foreign private issuers are required to disclose this information on new Form F-SR on a quarterly basis. Listed-Closed End Funds must make these disclosures on a semi-annual basis for the period covered by their Form N-CSR.
Enhanced Narrative Disclosures. Narrative disclosures regarding share repurchases will be required to address (1) the objectives and rationales for the issuer’s repurchases and the processes and criteria used to determine the amount of such repurchases, and (2) the issuer’s policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during the period a repurchase program is active.
New Item 408(d) of Regulation S-K. A domestic issuer will be required to disclose the adoption and termination of any Rule 10b5-1 trading agreement that it entered into during the period covered by a periodic report (or the fourth fiscal quarter in the case of a Form 10-K).
Sales by Insiders Close to the Announcement of a Repurchase Plan. Issuers must also disclose through a checkbox whether any Section 16 officers and directors (or directors and members of senior management required to be identified pursuant to Item 1 of Form 20-F in the case of foreign private issuers) purchased or sold shares that are the subject of an issuer share repurchase plan or program within four business days before or after the announcement of that particular plan or program.
Quarterly Reporting for Foreign Private Issuers. These amendments create a new quarterly reporting obligation for foreign private issuers. A foreign private issuer who does not file periodic reports on Form 10-Q and Form 10-K must file the new Form F-SR to disclose the required share repurchase information within 45 days after the end of a fiscal quarter. Foreign private issuers must also include narrative disclosures in their Form 20-F based on their Form F-SR filings during the period covered by Form 20-F regarding (1) the objectives or rationales for each repurchase plan or program and the criteria used to determine the amount of repurchases, (2) the number of shares purchased through a publicly announced plan or program and the nature of the transaction, (3) the date announced, dollar amount approved, expiration date and expiration or termination of any publicly announced repurchase plan or program within the period covered by Form 20-F and (4) the policies and procedures relating to the purchase and sale of the issuer’s securities by directors and members of senior management.
These new disclosure requirements reflect the SEC’s increased scrutiny of potential manipulative practices of issuers and insiders in connection with share repurchase programs. In preparation for compliance with the new disclosure rules, issuers should (1) evaluate their policies regarding trades made by directors and officers while a repurchase program is in effect and (2) document the rationale for their repurchases and the criteria and process employed to determine the amount of repurchases.