Legal Alert

SEC Proposes Changes to Disclosure Requirements Relating to Share Repurchases

by Gerald J. Guarcini, April Hamlin, Brian D. Short, and Aron Mozes
December 30, 2021

Summary

The Securities and Exchange Commission (SEC) recently issued a proposal that would require more detailed and frequent disclosure of issuer share repurchases, often referred to as stock buybacks.

The Upshot

  • The proposed rules would introduce a new disclosure form—Form SR—pursuant to which the issuer would be required to report any purchase made by or on behalf of the issuer or any affiliated purchasers of the issuer’s shares within one business day of the issuer executing the share repurchase.
  • The proposed amendments to Item 703 of Regulation S-K would seek to expand the share repurchase disclosure required in periodic reports filed with the SEC.
  • The proposed amendments would also impose structured data requirements for repurchase disclosures.

The Bottom Line

The proposed amendments would alter the current share repurchase disclosure obligations for companies and thereby create new obligations for companies engaged in share repurchases. We recommend that companies begin discussing with their boards and officers how the new disclosure obligations will impact share repurchases, in the event the proposed amendments are adopted.

On December 15, 2021, the Securities and Exchange Commission (SEC) proposed a new Rule 13a-21 under the Securities Exchange Act of 1934, as amended (Exchange Act), and corresponding Form SR that would require an issuer to report any repurchase made on or behalf of the issuer or any affiliated purchaser of the issuer’s registered equity securities by the end of the first business day following the day on which the issuer executes the share repurchase. The proposals also purport to expand the disclosure requirements of Item 703 of Regulation S-K by requiring additional disclosures about an issuer’s share repurchases. Finally, the amendments propose issuers to tag information pursuant to Item 703 of Regulation S-K, Item 16E of Form 20-F, Item 9 of Form N-CSR, and Form SR in a structured, machine-readable data language.

Under current rule Section 12 of the Exchange Act, which governs share repurchases, issuers are required to (1) disclose the total number of shares purchased by the issuer or an affiliated purchaser during the relevant period, reported on a monthly basis and by class; (2) the average price paid per share; (3) the total number of shares purchased as a part of a publicly announced share repurchase plan or program; and (4) the maximum number of shares that may yet be purchased under the plan. The rules also mandate footnote disclosure of the key terms of all publicly announced share repurchase plans, the number of shares purchased, other than publicly announced plans, and the nature of the transaction. The proposed rule would mandate a more detailed disclosure schedule for the repurchase of shares by the issuer or an affiliated purchaser.

The proposed rule would require an issuer to furnish a Form SR through the SEC’s EDGAR system within one business day of the execution of the share repurchase and would mandate the disclosure of the following: (1) the date of the repurchase; (2) identification of the class of securities repurchased; (3) the total number of shares repurchased, including all issuer repurchases whether or not made pursuant to publicly announced plans; (4) the average price per share paid; (5) the aggregate total number of shares repurchased on the open market; (6) the aggregate total number of shares repurchased in reliance on the safe harbor in Exchange Act Rule 10b-18; and (7) the aggregate total number of shares repurchased pursuant to a plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

The fact that the Form SR would be furnished, rather than filed, means that issuers would not be subject to liability under Section 18 of the Exchange Act for disclosure in the form, nor to liability under Section 11 of the Securities Act of 1933, as amended, unless the issuer expressly incorporates by reference the information in the Form SR into other filings on EDGAR. The SEC believes that the heightened disclosure requirements will enhance transparency and enable investors to more accurately evaluate an issuer’s share repurchases.

The proposed amendments to Item 703 of Regulation S-K would require an issuer to disclose (1) the objective for its share repurchases and the process used to determine the amount of shares repurchased; (2) any policies relating to the purchase or sale of the issuer’s shares by directors or officers, including any restrictions on such transactions; (3) whether the repurchases were made pursuant to a plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), and the adoption or termination date of the plan; and (4) whether the repurchases were made in reliance on the non-exclusive safe harbor existing in Rule 10b-18 under the Exchange Act. Additionally, the proposed amendments would require issuers to disclose if any of its directors or officers, who are subject to reporting requirements under Section 16(a) of the Exchange Act, purchased or sold shares of the issuer’s equity securities subject to an issuer share repurchase plan within 10 business days before or after the announcement of such a plan by checking a box before the tabular disclosure of issuer repurchases of equity securities.

The SEC also is proposing to require issuers to tag information disclosed pursuant to Item 703 of Regulation S-K, Item 16E of Form 20-F, Item 9 of Form N-CSR, and Form SR in a structured, machine-readable data language. Specifically, issuers would be required to “tag the disclosures in Inline XBRL in accordance with Rule 405 of Regulation S-T and the EDGAR Filer Manual.” The stated rationale for requiring disclosure in Inline XBRL is to make disclosures “more readily available and easily accessible” to investors and other market participants, so as to bridge the information gap between issuers and investors.

The proposed amendments to Item 703 of Regulation S-K and the proposed new rule of Exchange Act 13a-21 were announced on the same day as proposed amendments to Rule 10b5-1 regarding trading plans. We recommend companies to consider both of the proposed amendments in conjunction with one another.

The proposed rules are subject to a 45-day comment period.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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