SEC Amends Rules for Disclosure of Share Buybacks – But Rule Vacated in December 2023

By: David A. Bell , Ran Ben-Tzur , Michael Pilo , Ron C. Llewellyn

This Article has been updated in response to the Fifth Circuit’s opinion vacating the final SEC share repurchase rules. Fenwick will continue to monitor for future announcements or actions by the SEC and other developments in this matter and will provide further updates as they become available.

On May 3, 2023, the U.S. Securities and Exchange Commission adopted amendments (the share repurchase amendments) to its rules regarding disclosure of securities repurchase programs (also known as share buybacks) by companies and their affiliates. The amendments were initially proposed in December 2021 (see our previous alert) and were subject to two comment periods. According to the SEC release (the Adopting Release), the amendments are intended to provide investors with enhanced information to use in assessing the purpose and effects of share buyback programs. This alert summarizes the key provisions of the share repurchase amendments.

Current Disclosure Requirements

The share repurchase amendments revise the existing disclosure requirements regarding corporate share repurchases. Currently, under Item 703 of Regulation S-K, public companies must disclose in a tabular format in their periodic reports:

  • The total number of shares purchased by the company or any “affiliated purchaser” (as defined in Rule 10b-18) during the quarter on a monthly basis by class;
  • The average price paid per share;
  • The total number of shares purchased via a publicly announced repurchase program; and
  • The maximum number (or approximate dollar value) of shares remaining for purchase under the program.

Current Item 703 also requires footnote disclosure regarding the number of shares purchased other than through a publicly announced program, the date each repurchase program was announced and its expiration, and any terminated or discontinued program.

New Disclosure Requirements under the Share Repurchase Amendments

The share repurchase amendments will continue to require quarterly reporting of share repurchase activity, but such disclosure will require companies to provide daily repurchase activity detail rather than aggregated monthly activity reporting. This required tabular disclosure of daily repurchase activity must be included in a new exhibit that is required to be filed with Forms 10-K and 10-Q. The repurchase activity exhibit must provide the following information for each day during the relevant period on which share repurchases took place:

  • The class of shares;
  • The average price paid per share;
  • The total number of shares purchased as part of a publicly announced program;
  • The aggregate maximum number of shares (or approximate dollar value) remaining for purchase under a publicly announced program;
  • The total number of shares purchased on the open market; and
  • The total number of purchased shares that are intended to qualify for the Rule 10b-18 safe harbor and the total number of shares purchased pursuant to a plan intending to satisfy the affirmative defense conditions of Rule 10b5-1(c) (a 10b5-1 plan).

A company must also disclose in a footnote to the table the date that any Rule 10b5-1 plan for a share repurchase program was adopted or terminated.

Preceding the tabular disclosure, companies will also be required to indicate via a checkbox whether executive officers (as defined by Section 16(a) of the Securities Exchange Act) or directors purchased or sold company shares within four business days before or after the announcement of a share repurchase program (or any increase in such a program).

Revisions to Item 703 of Regulation S-K

Under revised Item 703 of Regulation S-K, a company must continue to provide information in its Form 10-Q or Form 10-K, as applicable, regarding:

  • The date of announcement of each share repurchase program;
  • The dollar amount (or share amount) approved;
  • The expiration date of each program;
  • Each program that has expired during the period covered by the table described above; and
  • Each program that it has terminated prior to expiration or under which it does not intend to make further repurchases.

This information, currently provided as a footnote to the monthly repurchase table under Item 703, will continue to be provided as narrative disclosure in the body of the periodic report. In addition, a company will have to provide narrative disclosure regarding:

  • The objectives or rationales for its repurchases and the process or criteria used to determine the amount of repurchases;
  • Any repurchases made other than through a publicly announced program and the nature of such transactions; and
  • Any policies and procedures relating to the purchases and sales of company securities during a repurchase program by the company’s executive officers and directors, including any restrictions on such transactions.

Companies must provide such information using structured data language (i.e., Inline eXtensible Business Reporting Language [Inline XBRL]).

Disclosure Regarding Trading Arrangements

The share repurchase amendments will also add a new Item 408(d) to Regulation S-K, which will require companies to disclose whether during the relevant quarter they have adopted or terminated a Rule 10b5-1 plan and the material terms of the plan, other than pricing terms, including:

  • The date on which the trading plan was adopted or terminated;
  • The duration of the plan; and
  • The aggregate number of shares to be bought or sold under the plan.

Companies must also provide such information using Inline XBRL.

Compliance Dates

The share repurchase amendments will become effective 60 days after publication in the Federal Register. Companies must comply with the amendments to Form 10-K and 10-Q beginning with the first filing related to the first full fiscal quarter that begins on or after October 1, 2023 (i.e., the fourth fiscal quarter of 2023 for calendar-year-end companies). Corresponding reporting requirements will similarly apply to foreign private issuers and listed closed funds, commencing in early 2024.

On October 31, 2023, the U.S. Court of Appeals for the Fifth Circuit granted a petition for review of the share repurchase amendments that was brought by the Chamber of Commerce in Chamber of Com. of the USA v. SEC, No. 23-60255 (5th Cir.), finding defects in the adoption under the Administrative Procedures Act. Accordingly, the share repurchase amendments had been remanded to the SEC to correct certain defects regarding their justification and cost benefit analysis by November 30, 2023. On November 22, 2023, the SEC announced that the effective date for the share repurchase amendments will be postponed indefinitely. The SEC was not able to correct the defects by November 30, and was unable to get an extension. As a result, on December 8, the Chamber filed a motion to vacate the final rules.

On December 19, 2023, the U.S. Court of Appeals for the Fifth Circuit vacated the final share repurchase rules. Subject to any new developments, companies should continue to comply with the pre-existing Item 703 share repurchase disclosure rules in their upcoming periodic reports. Item 408(d) regarding companies’ Rule 10b5-1 plans – which was part of the share repurchase adopting release - has also been vacated pursuant to the Fifth Circuit order.

Key Takeaways

We note that one of the most controversial provisions of the amendments as originally proposed—which would have required companies to report repurchases on a separate form within one business day of each such transaction—was not included in the final amendments. Nevertheless, in response to the adoption of the share repurchase amendments, companies should assess the disclosure implications, including the stated rationale, for share repurchase programs. Companies should also consider any potential ramifications in disclosing the adoption or termination of Rule 10b5-1 plans under Item 408(d). Additionally, while the SEC decided against mandating more frequent disclosure of share repurchase transactions, they did decide to require that the detailed daily reporting of repurchase activity be included in 10-Qs and 10-Ks as “filed” rather than “furnished.” As a result, companies must still establish robust disclosure control processes and procedures for the timely and accurate tracking and reporting of share repurchases, as well as transactions by officers and directors in company securities.