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:
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:
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:
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:
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:
Companies must also provide such information using Inline XBRL.
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.
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.