SEC Adopts Final Disclosure Rules for Company Share Repurchases

The US Securities and Exchange Commission (SEC) adopted amendments that will expand quarterly disclosure of share repurchases in Form 10-Q quarterly reports and Form 10-K annual reports filed by domestic operating companies. The amendments will require, among other new disclosures, quarterly disclosure of total daily repurchase activity and check-box disclosure if any director or Section 16 officer traded in securities of the class covered by a repurchase plan or program within four business days before or after public announcement of the plan or program. The amendments do not provide any disclosure exemptions or accommodations, or any deferred compliance dates, for emerging growth companies, smaller reporting companies, or non-accelerated filers. Companies must provide the new disclosure, with Inline XBRL tagging, beginning with the first quarterly or annual report that covers the first full fiscal quarter that begins on, or after, October 1, 2023. For companies that have fiscal years that end on December 31, the first report that must include the new disclosure will be the Form 10-K report for the year ended December 31, 2023, which will include information for the fourth quarter of 2023. These disclosures must be provided in interactive data files using Inline XBRL.

The amendments will require the following disclosures for a company’s most recent fiscal quarter in its Form 10-Q reports (or Form 10-K report, for the fourth quarter):

• Total daily purchases of any class of the company’s publicly-traded equity securities made by or on behalf of the company and any affiliated purchaser during the fiscal quarter covered by the report, shown in a table filed as an exhibit to the report
• A check box to indicate whether any of the company’s directors or Section 16 officers purchased or sold any publicly-traded equity securities of the class that is the subject of a company repurchase plan or program during the four business days before or after the company publicly announced the repurchase plan or program
• Whether the company adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the quarter, and a description of the material terms of any such company Rule 10b5-1 trading arrangement, other than price
• The objectives and rationales for each repurchase plan or program, the process or criteria used to determine repurchase amounts, any company policies and procedures that apply to purchases and sales of the company’s securities by its directors and officers during a repurchase program, and certain other information about the company’s repurchase plans or programs

Foreign private issuers (FPIs) that file reports on FPI forms will be subject to similar disclosure requirements, including disclosing daily repurchase information at the end of each fiscal quarter by filing a new Form F-SR, which will be due 45 days after the end of the fiscal quarter. Registered closed-end funds will also be subject to similar disclosure requirements, which are not discussed here. 

The amendments were proposed by the SEC on December 15, 2021, and described in a Goodwin alert.

What Companies Should Be Doing Now

The amendments will significantly expand disclosure related to company repurchase programs and will require this disclosure starting with a company’s first full fiscal quarter that begins on or after October 1, 2023, less than five months from the publication date of this alert. Domestic operating companies and FPIs should review the amendments and consider how the amendments will affect operation of existing and future company share repurchase programs, insider trading policies and procedures, and the company’s disclosure controls and procedures.

For example, companies may want to consider how the detailed disclosure about company repurchases will interact with the timing of executive compensation decisions and other matters that could affect or be affected by the new repurchase disclosures. Companies may also wish to review their insider trading policies, especially whether additional restrictions should apply to trading by directors and Section 16 officers during the four business days before and after the announcement of a share repurchase program.

Companies may want to review the decision-making process, and how this process is documented, in light of the new disclosure about the objectives or rationales for each repurchase plan or program and the process or criteria used to determine the amount of repurchases.

Companies should also evaluate their stock buyback programs and, if applicable, consider how accelerated share repurchase transactions and other structured share repurchases should be disclosed under the new rules, since calculating the average price paid per share for each day or the aggregate total number of shares purchased in reliance on the Rule 10b-18 non-exclusive safe harbor may be more nuanced than under open-market cash repurchase programs.

Because there is little time to prepare for the new disclosure requirements, companies may wish to begin this process soon. Preparation may include some or all of the actions listed below, depending on a company’s specific circumstances, as well as other actions relevant to a specific company. Companies should be aware that the disclosures required by the amendments will be filed, rather than furnished, under the federal securities laws, and will therefore be incorporated by reference into the company’s registration statements and subject to potential liability under Section 11 and Section 12 of the Securities Act of 1933.

• Identify the information and information sources for the disclosure required by Item 408(d) of Regulation S-K about any “Rule 10b5-1 trading arrangements,” as defined in Regulation S-K Item 408(c), that were adopted, modified, or terminated during the fiscal quarter covered by the relevant Form 10-Q or Form 10-K report. Note that although Item 408 refers to adoptions and terminations of Rule 10b5-1 trading arrangements, modifications that fall outside narrow exceptions are treated as the adoption of a new arrangement.
• Identify the information and information sources for the disclosure required by Item 703(a) of Regulation S-K about any repurchases of the company’s publicly-traded equity securities during the relevant fiscal quarter. As part of this review, consider whether it may be advisable to modify any policies and procedures that relate to purchases and sales of the company’s securities, including the timing and any restrictions on these transactions, by the company’s directors and officers during a repurchase program. If the company currently has no policies or procedures of this type, consider whether it may be advisable to consider adoption of these policies or procedures.
• Identify the information and information sources for the disclosure about daily purchases of each class of the company’s publicly-traded equity securities required by Item 601(b)(26), the new “Issuer Purchases of Equity Securities” table. This should include the following:
  • Identify the persons or corporate functions responsible for maintaining and updating this table during each quarter
  • Determine how to capture information about repurchases by “affiliated purchasers,” as defined in Rule 10b-18(a)(3)

• Identify the information and information sources that indicates whether any director or “officer,” as defined in Rule 16a-1(f) and referred to here as a “Section 16officer,” purchased or sold any shares of a class of the company’s publicly traded equity securities that was the subject of a publicly announced repurchase plan or program within four business days before or after the company’s public announcement of the repurchase plan or program or announcement of an increase of an existing share repurchase plan or program.  As part of this process, determine whether the company will:
  • Query directors and Section 16 officers directly each quarter;
  • Obtain written representations from directors and/or Section 16 officers that no Form 5 is required (or, if the company is an FPI, obtain written representations from directors and the company’s senior management identified in Item 1 of Form 20-F; and/or
  • Review Form 3, 4, and 5 filings filed by directors and Section 16 officers.

• Determine who will obtain the information about these purchases and sales and who will be responsible for maintaining its availability for review by SEC staff during the required two-year period.
• For each of the disclosures required by the amendments, in addition to the matters listed above, review the company’s disclosure controls and procedures to ensure that this information – including any changes since the company’s most recent disclosure of this information – will be collected and disclosed, after appropriate review, in the relevant Form 10-Q or Form 10-K report.
• Determine the persons or corporate functions who will be responsible for ensuring that the disclosure required by the amendments is properly tagged using Inline XBRL as required by SEC rules and filed as an exhibit to the relevant report as an Interactive Data File that complies with the requirements of Item 405 of Regulation S-T.

Effective Date and Compliance Dates; Companies Subject to the Amendments

The amendments will be effective 60 days after publication in the Federal Register, which is expected to occur during May or June 2023. The amendments do not provide any exemptions, nor do they provide any deferred compliance dates, for emerging growth companies, smaller reporting companies, or non-accelerated filers. 

Domestic operating companies will be required to comply with the new disclosure and tagging requirements in their Form 10-Q reports and Form 10-K reports (for the fourth fiscal quarter) beginning with the first periodic report that covers the first full fiscal quarter that begins on or after October 1, 2023. Domestic operating companies that have a December 31 fiscal year end and file periodic reports on Forms 10-Q and 10-K must begin complying with the new disclosure and tagging requirements in the Form 10-K report for the fiscal year ending December 31, 2023, as it relates to repurchases made during the fiscal quarter ending December 31, 2023.

FPIs that file on the foreign private issuer forms must comply with the new disclosure and tagging requirements in new Form F-SR, which is described below, beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024. The Form 20-F narrative disclosure that relates to the Form F-SR filings, which is required by Item 16E of that form, and the related tagging requirements, will be required starting in the first Form 20-F filed after their first Form F- SR has been filed. FPIs that report using Form 20-F will be required to begin filing new Form F-SR for the quarter ending June 30, 2024.

The amendments also apply to registered closed-end management investment companies that are exchange-traded, which are not discussed here.

Disclosures Required by the Amendments

The principal amendments that apply to domestic operating companies include the following, which are described in greater detail immediately below:

• Tabular disclosure of total daily purchases of any class of the company’s publicly-traded equity securities made by or on behalf of the company and any affiliated purchaser during the fiscal quarter covered by the report, accompanied by a check box to indicate whether any directors or Section 16 officers traded in securities of the same class that is that the subject of a repurchase plan or program within four business days before or after the company publicly announces the plan or program, which will be filed as an exhibit to the relevant Form 10-Q or Form 10-K report;
• Narrative disclosure that states whether the company adopted, modified or terminated any Rule 10b5-1 trading arrangement during the relevant quarter and describes the material terms of any such Rule 10b5-1 trading arrangement, other than price; and
• Narrative disclosure that describes (1) the objectives and rationales for each of the company’s repurchase plans or programs, (2) the process or criteria used to determine repurchase amounts, and (3) any policies and procedures relating to purchases and sales of the company’s securities by its directors and officers during a repurchase program.

In a change from the amendments proposed by the SEC in 2021, the disclosures required by the amendments will be filed, rather than furnished. One consequence of this change is that these disclosures will be incorporated into a company’s registration statements, with potential liability under Section 11 and Section 12 of the Securities Act of 1933.

Daily Repurchase Table and Checkbox for Director/Section 16 Officer Trading (Regulation S-K, Item 601(b)(26))

The amendments as proposed in December 2021 would have required companies to furnish, before the end of the first business day following any day on which a share repurchase was executed, a report on Form SR stating the date of sale, the class and number of shares repurchased, and the average price per share, among other things,. In response to comments on the proposed amendments, the SEC modified the final amendment to require quarterly, rather than next business day, disclosure of daily information about repurchases.

The amendments require companies to file, as an exhibit to the Form 10-Q report for the relevant fiscal quarter (or Form 10-K, in the case of the fourth fiscal quarter), a table in the format specified by Item 601(b)(26) that reports the total purchase of any class of the company’s publicly-traded equity securities by or on behalf of the company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3). The information in the table must be tagged using Inline XBRL and filed with the relevant Form 10-Q or Form 10-K report as an Interactive Data File.

The table and accompanying text, must appear in the following format:

ISSUER PURCHASES OF EQUITY SECURITIES Use the checkbox to indicate if any officer or director reporting pursuant to Section 16(a) of the Exchange Act, or for foreign private issuers as defined by Rule 3b-4(c), any director or member of senior management who would be identified pursuant to Item 1 of Form 20-F, purchased or sold shares or other units of the class of the issuer’s equity securities that are registered pursuant to section 12 of the Exchange Act and subject of a publicly announced plan or program within four (4) business days before or after the issuer’s announcement of such repurchase plan or program or the announcement of an increase of an existing share repurchase plan or program.  (a) Execution Date (b) Class of Shares (or Units) (c) Total Number of Shares (or Units) Purchased (d) Average Price Paid per Share (or Unit) (e) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (f) Aggregate Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Publicly Announced Plans or Programs (g) Total Number of Shares (or Units) Purchased on the Open Market (h) Total Number of Shares (or Units) Purchased that are Intended to Qualify for the Safe Harbor in Rule 10b- 18 (i) Total Number of Shares (or Units) Purchased Pursuant to a Plan that is Intended to Satisfy the Affirmative Defense Conditions of Rule 10b5- 1(c) Total:

The amendments require companies to disclose all of the following information in the table:

• The date, which is the date on which the purchase of shares or units is executed (column (a))
• The class of shares or units, which should clearly identify the class, even if the company has only one class of securities outstanding (column (b))
• The total number of shares or units purchased on the relevant date, which includes all shares or units purchased by or on behalf of the company or any affiliated purchaser, regardless of whether made pursuant to publicly announced repurchase plans or programs (column (c))
• The average price paid per share or unit, in US dollars, excluding brokerage commissions and other costs of execution (column (d))
• The total number of shares or units purchased on the relevant date as part of publicly announced repurchase plans or programs (column (e))
• The aggregate maximum number (or approximate dollar value) of shares or units that may yet be purchased under the publicly announced repurchase plans or programs (column (f))
• The total number of shares or units purchased on this date on the open market, which includes all shares or units repurchased by the issuer in open-market transactions, and does not include shares or units purchased in tender offers, in satisfaction of the company’s obligations upon exercise of outstanding put options issued by the company, or other transactions (column (g))
• The total number of shares or units purchased on the relevant date that the company intends to qualify for the safe harbor in Rule 10b-18 (column (h))
• The total number of shares or units purchased on the relevant date pursuant to a plan that is intended by the issuer to satisfy the affirmative defense conditions of Rule 10b5-1(c) (column (i))

Footnote Disclosure of Adoption, Modification, or Termination of Rule 10b5-1(c) Plans

If the company has adopted, modified, or terminated any plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) for the shares or units in column (i), the company must disclose the date on which the plan was adopted, modified or terminated in a footnote to the table.

Checkbox For Director and Section 16 Officer Trading

Companies will need to determine whether they must check the box under “Issuer Purchases of Equity Securities” that indicates whether any director or Section 16 officer purchased or sold any of the company’s publicly-traded equity securities that are the subject of a repurchase plan or arrangement within four business days before or after the company publicly announced the repurchase plan or arrangement.

Companies may wish to obtain written confirmation from directors and Section 16 officers that they did not purchase or sell any of the securities covered by a repurchase plan during any relevant period. As an alternative, or to supplement direct confirmation, the amendments provide that a company may rely on the following information, unless the company knows or has reason to believe that a form was filed inappropriately or that a form should have been filed but was not:

• A review of Forms 3 and 4 and amendments thereto filed electronically with the SEC during the issuer’s most recent fiscal year;
• A review of Form 5 and amendments thereto filed electronically with the SEC with respect to the issuer’s most recent fiscal year; or
• A written representation from the reporting person that no Form 5 is required, which the company must maintain in its records for two years, making a copy available to the SEC or its staff upon request

Definition of “Officer”

The term “officer,” as used in the amendments, is defined in Rule 16a-1(f) and referred to here as a “Section 16 officer.” This includes a company’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the company. Officers of a company’s parent(s) or subsidiaries shall be deemed officers of the company if they perform these policy-making functions for the company. If the company is a limited partnership, officers or employees of the general partner(s) who perform policy-making functions for the limited partnership are deemed officers of the limited partnership. If the company is a trust, officers or employees of the trustee(s) who perform policy-making functions for the trust are deemed officers of the trust.

Narrative Disclosure Regarding Insider Trading and Company Repurchases

The amendments require two sections of narrative disclosure, which could be combined if the company prefers to do so. The first section is new disclosure about repurchase programs intended to satisfy the conditions for the affirmative defense provided by Rule 10b5-1(c). The second section is revised disclosure about the company’s repurchase activity of all types, some of which is correlated to the information shown in the “Issuer Purchases of Equity Securities” table, but also includes information about the company’s policies and procedures, including any restrictions, that apply to purchases and sales of the company’s securities by its directors and Section 16 officers during a repurchase program.

Insider trading arrangements and policies (Item 408(d))

The amendments require companies to disclose whether the company adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the company’s most recently completed fiscal quarter (fourth fiscal quarter in the case of a Form 10-K report).

The amendments also require companies to describe the material terms of any such Rule 10b5-1 trading arrangement, other than terms with respect to the price at which trading is authorized. This could include the following terms, in addition to any other material terms:

• The date on which the company adopted or terminated the Rule 10b5-1 trading arrangement;
• The duration of the Rule 10b5-1 trading arrangement; and
• The aggregate number of securities to be purchased or sold pursuant to the Rule 10b5-1 trading arrangement.

“Rule 10b5-1 trading arrangement” is defined in Item 408(a) as any contract, instruction or written plan for the purchase or sale of securities of the company that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

If the disclosure provided pursuant to Item 703 satisfies these requirements, the amendments permit companies to satisfy these requirements by providing a cross-reference to that disclosure.

This disclosure must be tagged using Inline XBRL and provided in an Interactive Data File.

Purchases of Equity Securities by the Company and Affiliated Purchasers (Item 703(a))

The amendments eliminated the previous disclosure requirements of Item 703. Item 703 as amended will require companies to provide specified narrative disclosure about the company’s purchases of its publicly-traded equity securities shown in the repurchase table exhibit required by Item 601(b)(26) and the plans or programs under which the purchases were made. The amendments will require companies to refer to particular repurchases in the table that correspond to the different parts of the narrative, if applicable. Item 703, as amended, will require the following disclosure:

• The objectives or rationales for each repurchase plan or program; 
• The process or criteria used to determine the amount of repurchases;
• The number of shares or units purchased other than through a publicly announced plan or program, and the nature of the transaction (for example, whether the purchases were made in open-market transactions, tender offers, in satisfaction of the company’s obligations upon exercise of outstanding put options issued by the company, or other transactions);
• For publicly announced repurchase plans or programs:
  • The date each plan or program was announced;
  • The dollar amount, or share or unit amount, approved;
  • The expiration date (if any) of each plan or program;
  • Each plan or program that has expired during the period covered by the table in Item 601(b)(26) of Regulation S-K; and
  • Each plan or program the company has determined to terminate prior to expiration, or under which the company does not intend to make further purchases.

• Any policies and procedures relating to purchases and sales of the company’s securities by its directors and Section 16 officers during a repurchase program, including any restrictions on such transactions.

Foreign Private Issuers

The amended share repurchase disclosure requirements that will apply to FPIs are generally the same as the requirements that will apply to domestic operating companies. The amended disclosure requirements for FPIs are located principally in Rule 13a-21 and Form 20-F, rather than Regulation S-K. Note that the amendments discussed in this section apply only to FPIs that file reports on FPI forms (principally, Form 20-F and Form 6-K). FPIs that file Form 10-Q and Form 10-K reports are subject to the disclosure requirements that apply to domestic operating companies.

FPI Compliance Dates

As described above, the compliance dates for FPIs differ from the compliance dates for domestic operating companies. FPIs that file on the foreign private issuer forms must comply with the new quarterly disclosure and tagging requirements by filing a new Form F-SR, beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024. The Form 20-F narrative disclosure that relates to share repurchases and share repurchase plans and programs, which is required by Item 16E of Form 20-F, and the related tagging requirements, will be required starting in the first Form 20-F annual report filed after their first Form F- SR has been filed. FPIs that report using Form 20-F will be required to begin filing new Form F-SR for the quarter ending June 30, 2024.

Form F-SR

Rule 13a-21 will require FPIs that do not file Form 10-Q and Form 10-K reports to file a Form F-SR within 45 days after the end of each fiscal quarter to disclose information about the aggregate daily purchases of the company’s securities by or on behalf of the company and any affiliated purchasers. Form F-SR includes a table for aggregate daily purchases that has column headings that are the same as the table in Item 601(b)(26). 

Form F-SR also includes a checkbox to disclose purchases or sales of the company’s publicly-traded equity securities that are the subject of a publicly-announced repurchase plan or program within four business days before or after public announcement of the plan or program, like the checkbox included with the Item 601(b)(26) repurchase table. Because directors and officers of FPIs are not subject to the reporting and short-swing profits recapture provisions of Section 16 of the Securities Exchange Act of 1934, Rule 13a-21 and Form F-SR refer to the directors and senior management of the company identified in Item 1 of the company’s Form 20-F annual report, rather than the company’s Section 16 officers.

Form 20-F

The amendments added a new Item 16E to Form 20-F. Item 16E requires disclosure that is the same as the disclosure required by Item 703, as amended. Unlike the Item 703 disclosure, which is required in Form 10-Q reports and, for the company’s fourth fiscal quarter, Form 10-K reports, FPIs will file the Item 16E disclosure on an annual rather than quarterly basis. Like the other disclosures required by the amendments, the repurchase disclosure in Form F-SR and Form 20-F reports must be tagged using Inline XBRL and filed in an Interactive Data File.