SEC adopts rules to expand, modernize share repurchase disclosure

• Daily share repurchase data presented in a table attached as an exhibit to the issuer’s periodic reports;²
• Checkbox disclosure if certain officers and directors purchased or sold shares that are the subject of an issuer’s repurchase plan or program before or after the issuer announces the commencement of repurchases under the plan or program or an increase to that program; 
• Enhanced narrative disclosure about the issuer’s objectives and rationales for its repurchase plan and the process and criteria used to determine the amount of any repurchases; and
• Quarterly disclosure of the adoption or termination of any Rule 10b5-1 trading plans.³ 

The table containing this daily repurchase data must present the information in the following columnar format:

• Column (a): Date the purchase was executed;
• Column (b): The class of shares/units purchased;
• Column (c): The total number of shares/units purchased on that date, including those purchased by or on behalf of the issuer or any affiliated purchaser, and regardless of whether the repurchase was conducted pursuant to a publicly announced repurchase plan or program;
• Column (d): The average price paid per share/unit, in US dollars, and exclusive of brokerage commissions or other costs of execution;
• Column (e): The total number of shares/units purchased pursuant to a publicly announced repurchase plan or program;
• Column (f): The aggregate maximum number (or approximate dollar value) of shares/units that may yet be purchased under the publicly announced repurchase plan or program;
• Column (g): The total number of shares/units purchased on that day on the open market, and not pursuant to a tender offer, in satisfaction of the issuer’s obligations upon exercise of outstanding put options, or in another type of transaction;
• Column (h): The total number of shares/units purchased on that day that the issuer intended to qualify for the safe harbor contained in Rule 10b-18; and
• Column (i): The total number of shares/units purchased on that day pursuant to a plan that the issuer intended to satisfy the affirmative defense conditions in Rule 10b5-1(c).¹⁴ 

Additionally, the Repurchase Rules require issuers to disclose – in a footnote to column (i) – “the date any plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) for the shares was adopted or terminated."¹⁵

Notably, the SEC will consider daily repurchase data “filed” instead of “furnished,” and issuers are thus subject to Section 18 liability under the Securities Exchange Act of 1934, as amended (and Section 11 liability under the Securities Act of 1933, as amended, to the extent the information is incorporated by reference into filings under that Act) related to the disclosure.¹⁶

Finally, while the Repurchase Rules eliminated the requirement that issuers disclose their repurchases on an aggregated monthly basis, the current requirements governing issuers’ disclosure of repurchases conducted in transactions other than pursuant to a publicly announced plan or program (e.g., in open-market transactions or tender offers) remain in effect to the extent the issuer conducts a repurchase in such a transaction.¹⁷

Qualitative Share Repurchase Plan/Program Disclosure

In addition to the quantitative data detailed above, the Repurchase Rules also amend the current disclosure requirements set forth in Item 703 of Regulation S-K, Item 14 of Form N-CSR, and Item 16E of Form 20-F to mandate issuers provide broadened qualitative detail regarding their share repurchases. Specifically, under these amended reporting requirements, the Repurchase Rules provide that issuers must now detail (1) the objectives or rationales for their share repurchase plan or program and the process and criteria used to determine the amount of repurchases; (2) the policies and procedures relating to purchases and sales of the issuer’s securities during a repurchase program by its officers and directors, including any restrictions on such transactions; and (3) whether any of the issuer’s directors or officers¹⁸ purchased or sold shares or other units of issuer’s equity securities that are the subject of the issuer’s share repurchase plan or program within four business days before or after the issuer announced a repurchase or the commencement of a repurchase plan or program.¹⁹ Each of these requirements is discussed in greater detail below.

Notably, the current requirement that issuers disclose certain information about their publicly announced repurchase plans and programs – including the date the plan was announced, the amount of repurchases (either by dollar or share/unit increment) approved, the plan’s expiration date, and whether any plan has expired or has been terminated prior to expiration – remains in effect, though this detail must now appear in the body text accompanying the issuer’s narrative disclosure regarding repurchases, rather than as a footnote to the monthly repurchase data table.²⁰

Objectives and Rationales, Process and Criteria

In lieu of the monthly repurchase data table currently included in issuers’ periodic reports, the Repurchase Rules impose new requirements mandating issuers disclose their “objectives and rationales” for conducting repurchases in a given reporting period, as well as their “process or criteria” for determining the amount of repurchases.²¹ In encouraging against the use of boilerplate language to fulfill this requirement, the SEC noted issuers could discuss or provide any of the following in their narrative description of these objectives and rationales:

• Other possible ways the issuer could use the funds allocated for the repurchase;
• A comparison of the repurchase and its effect against other investment opportunities the issuer would ordinarily consider, such as capital expenditures or distributions;
• The expected impact of the repurchases on the value of the issuer’s remaining outstanding shares;
• The factors driving the issuer to conduct a repurchase; and
• Sources of funding for the repurchase, if such information is material to the issuer’s rationale.²²   

Policies and Procedures Relating to Insiders’ Purchases or Sales of Issuer Securities

If an issuer’s insider’s purchase or sell securities during the issuer’s repurchase program, the Repurchase Rules further require issuers to disclose details related to their policies and procedures governing those insiders’ transactions, including any restrictions related to the transactions.

Insider Purchases or Sales Within Four Business Days of a Repurchase Announcement

Under the Repurchase Rules, issuers must now include a checkbox alongside their daily share repurchase data table to indicate if certain directors or executive officers – namely, Section 16 reporting persons for domestic corporate issuers and listed closed-end funds, and directors and members of senior management who would be identified on Item 1 of Form 20-F, for FPIs – engaged in equity transactions involving the securities that are the subject of any issuer share repurchase plan or program within four business days of an issuer’s announcement of commencement of a repurchase plan or program.²³ In making this determination, the Repurchase Rules note an issuer may rely on their review of applicable Section 16 reports (if the issuer is a domestic corporate issuer or listed closed-end fund) filed with the Commission or written representations from the reporting person (all issuer types), provided that the issuer retains a copy of that representation for two years after it is made.²⁴

Rule 10b5-1 Trading Arrangements

In addition to the new requirements surrounding issuers’ share repurchases, the Repurchase Rules also address Rule 10b5-1 Plans in a manner that intends to supplement the Commission’s December 2022 rulemaking on the same topic.²⁵ While the December 2022 rulemaking sought to limit insiders’ ability to rely on the affirmative defense provisions of Rule 10b5-1 when conducting transactions under their Rule 10b5-1 Plans, the insider transaction provisions of the Repurchase Rules intend to mirror those requirements for issuers themselves.²⁶

Specifically, in addition to the checkbox requirement discussed above, domestic corporate issuers and BDCs must now provide the information set forth in new Item 408(d) to Regulation S-K, under which an issuer must disclose if, during the most recently completed fiscal quarter, it adopted or terminated a contract, instruction, or written plan to purchase or sell its securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).²⁷If such an arrangement was adopted or terminated during the quarter, the issuer must then provide a description of its material terms, including:

• The date the arrangement was adopted or terminated, as applicable;
• The duration of the arrangement; and
• The aggregate number of securities to be purchase or sold pursuant to the arrangement.²⁸

Notably, the issuer need not detail the terms of the arrangement providing the price at which the party executing the arrangement is authorized to trade.²⁹

Potential Next Steps

Issuers preparing for the Repurchase Rules to come into effect may find a review of their existing policies and procedures governing repurchases and insider transactions fruitful as they prepare their disclosure language, and consider whether to adopt separate repurchase policies to govern transactions by directors and officers in light of the mandatory disclosures related to the timing of purchases or sales of issuer securities. Additionally, issuers may want to consider draft language describing the objectives and rationales for their repurchase programs in advance of the effective date, as the SEC has strongly encouraged against issuers’ use of “boilerplate” rationales for their use and implementation of share repurchase programs. Finally, issuers should carefully document their processes for implementing share repurchases, as the new share repurchase rules require companies to disclose the “process or criteria used to determine the amount of repurchases” starting with the 2023 Form 10-K for companies with a fiscal year end of December 31.

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1 Share Repurchase Disclosure Modernization, Release Nos. 34-97424; IC-34906 (May 3, 2023) (Adopting Release).

2 The inclusion of the daily reporting data in the issuer’s periodic reports is a deviation from the proposed rule, which would have mandated issuers provide repurchase data in filings made within one business day after a repurchase transaction. See id. at 144, n.71.

3 Since its enactment in 2000, Rule 10b5-1 has provided an affirmative defense to an insider trading charge if a company insider can show they entered into a binding contract, adopted a written plan, or instructed another person to purchase or sell a security (also known as a “10b5-1 Plan”). The 10b5-1 Plan must provide instructions for execution of the trade, such as directions for determining when, how many, and at what price the securities should be purchased or sold, and must not permit the company insider to make subsequent decisions over how, when, or if purchases or sales should be effected. In December 2022, the SEC unanimously adopted amendments to Rule 10b5-1 to restrict the circumstances under which insiders can invoke the affirmative defense. For more information on the SEC’s recent amendments to Rule 10b5-1, see Olga Greenberg, Cynthia Krus, Andrea L. Gordon, and Amanda Oliveira, SEC amends Rule 10b5-1 and revamps affirmative defense to insider trading charges (Jan. 4, 2023). 

4 Share Repurchase Disclosure Modernization, Release Nos. 34-97424; IC-34906 (May 3, 2023) (Adopting Release) at 96. Notably, the Repurchase Rules do not include exemptions, including for smaller reporting companies or emerging growth companies. Id. at 58.

5 Id. at 13.

6 Id. at 14–15.

7 Id. at 19.

8 See 17 C.F.R. § 229.703 (setting forth reporting requirements for domestic corporate issuers and BDCs in Item 703 of Regulation S-K); Item 9 of Form N-CSR (providing the same for listed closed-end funds); Item 16E of Form 20-F (providing the same for FPIs in their annual reports).

9 Adopting Release at 47 n.180 (confirming the monthly reporting regime has been eliminated due to the redundancy created by the new daily repurchase reporting requirement).

10 See 17 C.F.R. § 229.703.

11 See Item 9 of Form N-CSR.

12 See Item 16E of Form 20-F.

13 The SEC noted that if an FPI’s home country disclosures furnished on a Form 6-K satisfy the Form F-SR requirements, the FPI may incorporate its Form 6-K disclosures by reference into the Form F-SR. Adopting Release at 60.

14 17 C.F.R. § 229.601(b)(26)(iv).

15 17 C.F.R. § 229.601(b)(26)(v).

16 Adopting Release at 57.

17 Adopting Release at 76.

18 For domestic corporate issuers, listed closed-end funds, and BDCs, this requirement applies to any officer or director currently subject to Section 16 reporting requirements. For FPIs, the “officers and directors” to whom this rule applies includes “any director [or] member of senior management who would be identified pursuant to Item 1 of Form 20-F, regardless of whether the FPI is reporting in the forms available exclusively to FPIs or on the domestic forms.” Adopting Release at 11–12.

19 Adopting Release at 75.

20 Adopting Release at 76.

21 17 C.F.R. § 229.703(a)(1).

22 Adopting Release at 79.

23 See Adopting Release at 84 (clarifying that if an issuer “has multiple classes of stock, each with its own repurchase plan, the issuer is required to check the box in its periodic report if, during that period,” the covered insider engaged in a transaction involving the securities that are the subject of the repurchase plan or program that was announced within four business days of the transaction).

24 17 C.F.R. § 229.601(b)(26)(vi).

25 See Adopting Release at 87 (noting the Commission took additional time to consider comments it received on the Rule 10b5-1 amendment proposal with respect to the use of Rule 10b5-1 Plans by the issuer of the security); see also supra note 3 and accompanying text. Notably, the SEC recently released new Compliance and Disclosure Interpretations (“CDIs”) related to the recent amendments to Rule 10b5-1; in these CDIs, the Commission specified the time by which registrants must comply with the disclosure requirements in their periodic reports (“in the first filing that covers the first full fiscal period that begins on or after April 1, 2023,” with delay options for smaller reporting companies) and proxy statements (in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after April 1, 2023; with delay options for smaller reporting companies) and clarified the rule with respect to multiple overlapping 10b5-1 Plans. See Question 120.28, Exchange Act Rules, U.S. Securities and Exchange Commission, available at https://www.sec.gov/divisions/corpfin/guidance/exchangeactrules-interps#120.28.

26 Adopting Release at 90 (“New Item 408(d) substantially mirrors the proposed Item 408(a) of Regulation S-K disclosure requirement with respect to the issuer’s adoption or termination of a contract, instruction, or written plan to purchase or sell its own securities that is intended to satisfy the affirmative defenses conditions of Rule 10b5-1(c).”).

27 Id. at 91. Issuers are not required to disclose information about the adoption or termination of a trading arrangement for the purchase or sale of its securities that meets the requirements for a non-Rule 10b5-1 Plan, as defined in Item 408(c) to Regulation S-K. Id.

28 Id. at 92.

29 Adopting Release at 92.