On May 3, 2023, the Securities and Exchange Commission (SEC) adopted amendments to modernize existing disclosure requirements relating to companies’ repurchases of their equity securities that are registered under Section 12 of the Securities Exchange Act of 1934, as amended. The amendments will require disclosure in periodic filings of: (i) daily share repurchases, with data filed in tabular format as an exhibit to companies’ Forms 10-Q and 10-K; (ii) check-box disclosure of officer and director trading around announcements regarding share repurchase plans; (iii) the objectives or rationale of share repurchase plans; and (iv) the adoption or termination date of company Rule 10b5-1 trading arrangements. The amendments, which are described in more detail below, are already subject to scrutiny, with several groups, including the U.S. Chamber of Commerce, filing suit in the 5th U.S. Circuit Court of Appeals alleging in part that the amendments are unconstitutional.
New Tabular Disclosures
In a significant change from the requirements of the SEC’s proposed rules on share repurchase disclosures, companies will not be required to furnish quantitative information regarding share repurchases within one business day of individual repurchases. Instead, companies must file a table showing their daily repurchase activity for the last quarter in an exhibit to their Forms 10-Q and 10-K. This disclosure will replace the monthly share repurchase disclosure currently required by Item 703 of Regulation S-K.
The new table must include the following items for each day on which repurchases were executed:
- the class of securities;
- the average price paid per share reported in U.S. dollars and excluding brokerage commissions and other costs of execution;
- the total number of shares repurchased, including shares repurchased under publicly announced share repurchase plans;
- the capacity remaining under publicly announced share repurchase plans;
- the total number of shares purchased on the open market;
- the total number of shares purchased that are intended to qualify for the Rule 10b-18 safe harbor; and
- the number of shares purchased under share repurchase plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
Companies also must include a footnote to the new table disclosing the date on which share repurchase plans were adopted or terminated.
New Disclosures – Insider Trades
Companies will be required to check a box above the new tabular disclosure if any officer or director purchased or sold shares of the relevant class within four business days of the announcement of a share repurchase plan or an increase in a share repurchase plan. Companies may wish to review their trading and clearance procedures for insiders in light of this new disclosure requirement.
Expanded Narrative Disclosures about Share Repurchase Plans
The amendments will require companies to provide expanded narrative disclosure regarding their share repurchase plans. Companies must disclose the objectives or rationales for their share repurchases, the process or criteria used to determine the amount of repurchases, the number of shares repurchased other than through publicly announced plans and the nature of the transactions, and any policies or procedures relating to purchases and sales of their securities by officers and directors during active share repurchase programs, including any restrictions on such transactions.
Companies will continue to be required to disclose information about publicly announced share repurchase plans such as the date the plans were announced, the amounts approved, the expiration dates and whether any plan expired during the relevant period. However, this disclosure will now be included in narrative disclosure rather than in footnotes to the new table on share repurchase plans.
Company Rule 10b5-1 Disclosures
The amendments will require disclosure of whether companies adopted or terminated any Rule 10b5-1 trading arrangements during the last fiscal quarter. Companies also must provide a description of the material terms of their 10b5-1 trading arrangements, including the date on which the arrangements were adopted or terminated, the duration of the arrangements, and the aggregate number of securities to be purchased or sold under the arrangements. Companies do not need to disclose the price at which the party executing the 10b5-1 trading arrangements is authorized to trade.
The amendments will become effective 60 days after publication in the Federal Register. For companies that file on domestic forms, the disclosure requirements will apply to Forms 10-Q or 10-K filed for the first full fiscal quarter beginning on or after October 1, 2023. For calendar year-end companies, this means that the new disclosures will first appear in their 2023 Form 10-K (filed in 2024). Later effective dates apply for foreign private issuers and listed closed-end funds, but there are no delays for other categories of companies such as smaller reporting companies and emerging growth companies.
Companies must report all of the disclosures required under the amendments using inline XBRL.
Companies should consider taking the following measures to prepare for compliance with the amended share repurchase disclosure rules:
- Establish processes and controls for tracking daily share repurchase activity as well as trades made by directors and officers close in time to announcements regarding share repurchase plans;
- Discuss with the companies’ banks and brokers their ability to track and provide the required repurchase data timely;
- Consider whether to establish policies or procedures relating to trading by officers and directors during times that share repurchase plans are active; and
- Discuss, and consider including in relevant resolutions, the objectives or rationales for share repurchases, and the processes or criteria used to determine the amount of repurchases approved.
S. Halle Vakani and Jonathan A. Greene are members of the Capital Markets practice group of Wyrick Robbins, which represents public company clients across a broad range of industries in connection with their SEC reporting and corporate matters, and significant financing transactions. The Capital Markets group publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.