US SEC adopts additional disclosure requirements regarding share repurchase programs

On May 3, 2023, the United States Securities and Exchange Commission (SEC) adopted amendments requiring additional disclosure regarding issuers' share repurchase activity in their periodic filings for domestic public companies, foreign private issuers that file on Form 20-F (FPIs)¹ and Listed Closed End Funds.

The amendments, originally proposed on December 15, 2021, have been adopted with several modifications in light of the over 170 unique comment letters and over 3,200 form letters received during the comment period.

According to SEC Chair Gary Gensler in his statement accompanying the final adopting release, these new amendments are intended to improve the transparency and integrity of share repurchase and buyback programs by providing investors with enhanced visibility into the repurchases, which have become an important tool to return capital to investors and improve key enterprise valuation metrics.

Quantitative disclosures

The final amendments require issuers to provide quantitative disclosure of an issuer's repurchase activity aggregated on a daily basis in a tabular exhibit to their quarterly reports on Form 10-Q and Annual Report on Form 10-K for domestic issuers on a quarterly basis, or a new Form F-SR for FPIs, which must be filed within 45 days after the end of an FPI's fiscal quarter. Listed closed-end funds will provide the data in their annual and semi-annual reports on Form N-CSR. The additional disclosures are required to be structured using Inline XBRL. In a welcome change from its proposed amendments, the SEC decided against requiring issuers to report daily share repurchase activity within 24 hours of each individual repurchase transaction. The amendments will also eliminate the current requirements in Item 703 of Regulation S-K, Item 16E of Form 20-F, and Item 14 of Form N-CSR to disclose monthly repurchase data in periodic reports.

More specifically, public issuers will need to include tabular disclosure of an issuer's repurchase activity aggregated on a daily basis. For each day, this table will include:

• The class of shares;
• 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 safe harbor in Rule 10b-18 and separately the total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Disclosures regarding D&O trading

Additionally, domestic issuers and FPIs who use Form 20-F will be required to use a checkbox preceding the tabular disclosures in the exhibit to indicate whether directors or officers purchased or sold shares of the class of the issuer's equity securities that is the subject of the share repurchase plan within four business days before or after the issuer's public announcement of such repurchase plan, or the announcement of an increase in an existing repurchase plan. This information can be gathered from Section 16 filings for domestic issuers; however, it will create a new obligation on FPIs to track purchases and sales of issuer securities by its directors and members of senior management who would be identified pursuant to Item 1 of Form 20-F.² Although styled as a "disclosure" rule, it is intended to discourage directors and officers from trading issuer securities during such period and may result in reputational costs and additional scrutiny of such transactions.

Qualitative disclosures

The amendments also modify the disclosure requirements in Item 703 of Regulation S-K to require qualitative (or narrative) disclosure regarding:

• The issuer's objectives and rationales for the share repurchases;
• The issuer's process or criteria used to determine the amount and price and
• Any policies, procedures and restrictions relating to transactions by the issuer's directors and officers in the issuer's securities during the repurchase program.

These qualitative disclosures will apply to FPIs and listed closed end funds via expanded requirements in Form 20-F and Form N-CSR, respectively.

10b5-1 trading plans disclosures

Further, the amendments will add new Item 408(d) to Regulation S-K, which will require disclosures in periodic reports on Forms 10-Q and 10-K regarding an issuer's adoption or termination of Rule 10b5-1 trading plans, and the material terms of such plans. This information will also be reported using Inline XBRL.

Takeaways

Going forward, issuers should consider taking the following steps in preparation for the amendments' effectiveness at the end of 2023:

• Inform affected officers and directors that the issuer will have to disclose their purchase and sale activity during the four business days before and after the announcement of a repurchase program;
• When adopting a repurchase program, consider including in the minutes of the board the rationale for the program and the process and rationale for its amount;
• Review current insider trading policies to consider whether to adopt specific policies regarding trading by directors and officers during the term of a repurchase plan; and
• Create and implement a process to track and record:
  • daily issuer repurchase information that will enable the issuer to complete the new table disclosure item and
  • director and officer trades made in the four day window on either side of announcement of a repurchase program.

Compliance timeline

The first required reporting under the new amendments will be with respect to Q4 2023 due in the Form 10-K report for FY 2023 for domestic calendar-year issuers, or the Form 10-Q report for the first full fiscal quarter that begins on or after October 1, 2023 for domestic off-calendar year issuers.

FPIs must begin to comply with the amended requirements on Form F-SR beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024 and the narrative disclosures on Form F-20 relating to the Form F-SR filings will first be required starting with the first Form 20-F filed after the FPI's first Form F-SR has been filed. 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 January 1, 2024.