In December 2021, the Securities and Exchange Commission (“SEC”) proposed amendments to increase the detail and frequency of disclosures regarding share repurchases by or on behalf of an issuer or affiliated purchaser. Nearly $700 billion of shares were repurchased in 2020 and the SEC is proposing its amendments amid heightened public interest in information asymmetries and corporate payouts associated with share repurchases.
Issuers often repurchase their shares on the open market pursuant to share repurchase plans. Issuers typically disclose these plans at the time that the share repurchases are authorized by their board of directors. Item 703 of Regulation S-K requires quarterly and annual disclosure of details regarding purchases of securities made by or on behalf of the issuer or affiliated purchaser.
However, the SEC has concluded that the current requirements do not include all of the significant information, such as the specific dates on which issuers will execute trades pursuant to an announced repurchase plan. In the SEC’s view, this produces information asymmetries, for example by preventing market participants from knowing an issuer’s actual share repurchases until the issuer’s trades are reported in periodic reports. The SEC’s proposed amendments would require daily repurchase disclosure on a new Form SR and amend Item 703 to require additional detail regarding an issuer’s repurchases and plans.
Proposed Exchange Act Rule 13a-21 and Form SR
Proposed Rule 13a-21 would require an issuer (including foreign private issuers and certain registered closed-end funds) to report any purchase made by or on behalf of the issuer or affiliated purchaser of registered shares. The issuer would need to furnish a new Form SR before the end of the business day following the issuer’s execution of a share repurchase. Form SR would require issuers to disclose the following disclosure in tabular format for each class or series of securities:
- Class of securities purchased;
- Total number of shares purchased, including all issuer repurchases whether or not made pursuant to publicly announced plans or programs;
- Average price paid per share;
- Aggregate total number of shares purchased on the open market;
- Aggregate total number of shares purchased in reliance on the Rule 10b-18 safe harbor; and
- Aggregate total number of shares purchased pursuant to a Rule 10b5-1(c) plan.
Proposed Revisions to Item 703, Form 20-F, and Form N-CSR
The proposed amendments would also revise Item 703 of Regulation S-K to require an issuer to disclose:
- The objective or rationale for its share repurchases and process/criteria used to determine the amount of repurchases;
- Its policies and procedures relating to purchases and sales of its securities by officers and directors during a repurchase program, including any restriction on transactions;
- Whether purchases were made in reliance on the Rule 10b-18 non-exclusive safe harbor; and
- Whether it made its repurchases pursuant to a Rule 10b5-1(c) plan, and the date the plan was adopted or terminated.
In addition, the amended Item 703 would require issuers to disclose whether any officers or directors subject to the reporting requirements of Exchange Act Section 16(a) purchased or sold shares of the class of securities subject to a share repurchase plan within 10 business days before or after the announcement of a purchase plan.
The proposed rule and amendments would require more detailed, and far more frequent, disclosures relating to share repurchase plans. Issuers should stay updated on the progress of the proposed amendments and ensure they are compliant with existing laws governing share repurchases and related disclosures. The Securities & Capital Markets team at Michael Best can guide issuers through the existing and proposed share repurchase rules.