On May 3, 2023, the Securities and Exchange Commission (the “SEC”) adopted rules to enhance disclosure of share repurchases by public companies (the “Share Repurchase Rule”). Under the Share Repurchase Rule, aggregate daily repurchases by an issuer, or an “affiliated purchaser” of an issuer, of equity securities (“Equity Securities”) registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), would need to be disclosed in tabular form, either quarterly or semi-annually, by the issuer. In addition, the Share Repurchase Rule requires enhanced narrative disclosure of Equity Security purchases by issuers and disclosure of an issuer’s adoption or termination of trading arrangements under Rule 10b5-1 of the Exchange Act. A copy of the adopting release (the “Adopting Release”) can be found here.

Tabular Disclosure of Issuer Purchases of Equity Securities

In its proposing release on December 15, 2021 (the “Proposing Release”), the SEC proposed that every issuer of Equity Securities (including foreign private issuers, registered closed-end funds, smaller reporting companies and emerging growth companies) furnish a new Form SR (Issuer Share Repurchase Report) via the SEC’s EDGAR system by the end of the next business day to report purchases of Equity Securities made by the issuer or any affiliated purchaser of the issuer. In response to comments, the SEC eliminated the Form SR and the next-business-day filing requirement and moved the disclosure of daily share repurchases into periodic filings, as described below.

Issuers Using Domestic Forms – Exhibit 26 Filing to Form 10-Q and Form 10-K

For issuers using domestic forms (Form 10-Q and Form 10-K), including smaller reporting companies and emerging growth companies, the SEC is requiring quarterly disclosure of aggregate daily share repurchases via an Exhibit 26 filing to the Form 10-Q (with respect to the first three fiscal quarters) or Form 10-K (with respect to the fourth fiscal quarter). Exhibit 26, which is a table entitled “Issuer Purchases of Equity Securities,” replaces the tabular disclosure of aggregate monthly share purchases that domestic issuers currently provide in Part II, Item 2 of Form 10-Q and Part II, Item 5 of Form 10-K.

The Exhibit 26 table requires disclosing, for the period covered by the report (the fourth fiscal quarter for the 10-K), the total purchases of Equity Securities made each day by or on behalf of the issuer or any affiliated purchaser of the issuer. The tabular disclosure includes the following:

• the date the purchase is executed (the trade date, not the settlement date);
• the class of shares;
• the total number of shares purchased on the date, regardless of whether the purchases were under an announced stock repurchase plan;
• the average price paid per share (excluding brokerage commissions and other costs of execution);
• the total number of shares purchased on the date as part of publicly announced repurchase plans or programs;
• the aggregate maximum number of shares (or approximate dollar value) that may yet be purchased under the publicly announced repurchase plans or programs;
• the total number of shares purchased on the date on the open market, which includes all shares repurchased by the issuer in open-market transactions, and does not include shares purchased in tender offers, in satisfaction of the issuer’s obligations upon exercise of outstanding put options issued by the issuer, or other transactions;
• the total number of shares purchased on the date that are intended to qualify for the “safe harbor” protections of Rule 10b-18 of the Exchange Act, which provides the issuer and affiliated purchasers with a safe harbor from liability under certain market manipulation rules; and
• the total number of shares purchased on the date pursuant to a plan (a “Rule 10b5-1 Plan”) that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act (a Rule 10b5-1 Plan is a contract, instruction or plan designed to provide an affirmative defense against charges under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder that trading was “on the basis of” material nonpublic information). The issuer must disclose by footnote to the table the date any Rule 10b5-1 Plan was adopted or terminated.

The Share Repurchase Rule provides for a “check box” at the beginning of the Exhibit 26 table that the issuer must check if any Section 16 director or officer purchased or sold Equity Securities subject to a publicly announced repurchase plan or program within four business days before or after the issuer’s announcement of such plan or program or the announcement of an increase of an existing share repurchase plan or program. In the Proposing Release, the SEC had proposed disclosure of purchases or sales by directors and officers within ten business days before or after the announcement of a share repurchase plan or program. In determining whether to check the box, an issuer can rely on a review of Section 16 filings unless it knows or has reason to believe that a form was filed inappropriately or that a form should have been filed but was not.

The definition of “affiliated purchaser” for purposes of the Share Repurchase Rule is the same definition set forth under Rule 10b-18: “[a] person acting, directly or indirectly, in concert with the issuer for the purpose of acquiring the issuer’s securities.” It also includes “[a]n affiliate who, directly or indirectly, controls the issuer’s purchases of such securities, whose purchases are controlled by the issuer, or whose purchases are under common control with those of the issuer.” According to Rule 10b-18, an affiliated purchaser does not include “an officer or director of the issuer solely by reason of that officer or director’s participation in the decision to authorize Rule 10b-18 purchases by or on behalf of the issuer.”

In the Proposing Release, the SEC proposed that the new Form SR would be “furnished” and not “filed” with the SEC, which would allow the issuer to avoid disclosure liability under Section 18 of the Exchange Act and, because the Form SR would not be incorporated by reference into registration statements unless the issuer expressly incorporated such information, Section 11 of the Securities Act of 1933, as amended (the “Securities Act”). As the SEC is no longer requiring disclosure on a Form SR by the next business day, but is giving issuers more time to collect and assess the disclosure, the SEC is deeming the disclosure under the Share Repurchase Rule to be “filed” and thus subject to liability under Section 18 of the Exchange Act and, through incorporation by reference into registration statements, Section 11 of the Securities Act.

Foreign Private Issuers and Listed Closed-End Funds

In the Adopting Release, the SEC adopted a new Form F-SR (Foreign Private Issuer Share Repurchase Report) for foreign private issuers that elect to file foreign private issuer reports (Forms 20-F and 6-K) with the SEC. Unlike the Form SR under the Proposing Release, the Form F-SR for foreign private issuers would be a quarterly report due within 45 days after the end of each fiscal quarter and would contain daily share repurchase information comparable to the information contained in Exhibit 26.

The SEC also added tabular disclosure comparable to the Exhibit 26/Form F-SR share repurchase disclosure to Item 14 of Form N-CSR, which is filed annually and semi-annually by registered closed-end management investment companies that are exchange-traded (“Listed Closed-End Funds”).

Narrative Disclosure of Issuer Purchases of Equity Securities

In the Adopting Release, the SEC not only replaced the monthly share repurchase table with the daily share repurchase table, but enhanced the narrative disclosure of issuer share repurchases. For issuers using domestic forms, the narrative disclosure requirements (revised Item 703 of Regulation S-K) will be found in Part II, Item 2 of Form 10-Q and Part II, Item 5 of Form 10-K, which are the current locations of share repurchase disclosure. The narrative disclosure for foreign private issuers using foreign private issuer forms will be in Part II, Item 16E of Form 20-F, and the narrative disclosure for Listed Closed-End Funds will be in Item 14 of Form N-CSR.

Issuers must disclose the following in the narrative disclosure:

• the objectives or rationales for each share repurchase plan or program and the process or criteria used to determine the amount of repurchases;
• the number of shares purchased other than through a publicly announced plan or program, and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the issuer’s obligations upon exercise of outstanding put options issued by the issuer, or other transactions);
• with respect to publicly announced repurchase plans or programs:
  • the date the plan or program was announced,
  • the dollar amount (or share amount) approved,
  • the expiration date (if any) of the plan or program,
  • each plan or program that expired during the period covered by the tabular disclosure, and
  • each plan or program the issuer has determined to terminate prior to expiration, or under which the issuer does not intend to make further purchases; and
• any policies and procedures relating to purchases and sales of the issuer’s securities by officers and directors during a repurchase program, including any restrictions on such transactions.

In the Adopting Release, the SEC noted that certain commenters wondered if the rationale for programs would become boilerplate or, alternatively, divulge competitive or sensitive information. The SEC notes that “[a]lthough the disclosures required by the final amendments should convey a thorough understanding of the issuer’s objectives or rationales for the repurchases, and the process or criteria it used in determining the amount of the repurchase, the final amendments do not require issuers to provide disclosure at a level of granularity that would reveal any competitive or sensitive information beyond what may already be gleaned from other disclosures regarding the business and financial condition of the issuer.” Time will tell, but the nature of the disclosure suggests boilerplate is inevitable.

Item 408(d) of Regulation S-K – Quarterly Disclosure of Adoption and Termination of Issuer 10b5-1 Plans

On December 14, 2022, the SEC adopted rules (the “Final 10b5-1 Rules”) relating to insider trading arrangements, including disclosure of the adoption and termination of Rule 10b5-1 Plans by officers and directors of an issuer (Item 408(a) of Regulation S-K). Although the Final 10b5-1 Rules did not require disclosure of the adoption or termination of a Rule 10b5-1 Plan by an issuer, the SEC left open the possibility for such a rule, which has now been adopted in the Adopting Release as Item 408(d) of Regulation S-K.

Item 408(d) of Regulation 8-K requires quarterly disclosure (first three quarters in the Form 10-Q and fourth quarter in the Form 10-K) of whether an issuer has adopted or terminated a Rule 10b5-1 Plan. In connection with such disclosure, the issuer must provide a description of the “material terms” of the Rule 10b5-1 Plan. The issuer does not have to describe pricing information in the Rule 10b5-1 Plan but is expected to describe the date on which the issuer adopted or terminated the Rule 10b5-1 Plan, the duration of such plan, and the aggregate number of shares to be purchased (or sold) pursuant to such plan. The disclosure will be located in Part II, Item 5 of Form 10-Q and Part II, Item 9B of Form 10-K.

For additional information on the Final 10b5-1 Rules, please see SEC Adopts Amendments to Rule 10b5-1 Plans and Expands Disclosure Requirements.

Structured Data Requirement

The Share Repurchase Rule requires that the issuer “tag” the share repurchase disclosure in Inline XBRL (eXtensible Business Reporting Language) to enable investors to compare and analyze share repurchase data among issuers.

Compliance Dates

The Share Repurchase Rule technically goes into effect 60 days after publication in the Federal Register.

Foreign private issuers using foreign private issuer forms must comply with the tabular disclosure requirements beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024. The narrative disclosure in Form 20-F that relates to the Form F-SR filings will be required with the first Form 20-F filed after the initial Form F-SR filing. Listed Closed-End Funds will be required to comply with the new tabular and narrative disclosure requirements beginning with the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024. All other issuers must comply with the new tabular and narrative disclosure requirements beginning with the first filing (Form 10-Q or Form 10-K with respect to a fourth fiscal quarter) that covers the first full fiscal quarter that begins on or after October 1, 2023. Thus, for calendar-year issuers, the disclosure would first appear in the Annual Report on Form 10-K for the fiscal year ending December 31, 2023.

For additional information related to anything contained in this Client Alert, please contact one of the authors or any member of our Securities Law Practice Group.