SEC Issues Proposal on Share Repurchase Disclosure
On December 15, 2021, the Securities and Exchange Commission (the “SEC”) issued a proposal to enhance disclosure of share repurchases by public companies (the “Share Repurchase Proposal”). Under the Share Repurchase Proposal, repurchases by an issuer, or an “affiliated purchaser” of an issuer, of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), would need to be disclosed by the next business day on a new Form SR (Issuer Share Repurchase Report). In addition, the SEC proposed to enhance the quarterly disclosure of equity purchases by issuers under Item 703 of Regulation S-K, which was adopted by the SEC in 2003. Comments on the Share Repurchase Proposal are due 45 days after publication in the Federal Register.
Pursuant to the SEC’s proposed Rule 13a-21 under the Exchange Act, every issuer of equity securities registered under Section 12 of the Exchange Act (including foreign private issuers, registered closed-end funds, smaller reporting companies and emerging growth companies) must furnish a Form SR via the SEC’s EDGAR system by the end of the next business day to report any purchases of such equity securities made by the issuer or any affiliated purchaser of the issuer. As the Form SR would be “furnished” and not “filed” with the SEC, the issuer would 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. As the Form SR would be furnished, a late submission would not affect an issuer’s eligibility to use a Registration Statement on Form S-3.
The Form SR consists of a cover page, a signature page, and a table entitled “Issuer Purchases of Equity Securities.” The table requires disclosure of the following:
- the date of repurchase (the filing obligation is triggered off the trade date, not the settlement date);
- the class of shares;
- the total number of shares purchased, regardless of whether the repurchases were under an announced stock repurchase plan;
- the average price paid per share;
- the total number of shares purchased on the open market (excludes shares purchased in tender offers, in satisfaction of an issuer’s obligations upon exercise of outstanding put options, or other transactions);
- the total number of shares purchased in reliance on 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 pursuant to a Rule 10b5-1 plan, which 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 definition of “affiliated purchaser” 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.”
The Share Repurchase Proposal requires that the issuer “tag” the information in the Form SR in Inline XBRL (eXtensible Business Reporting Language) to enable investors to compare and analyze share repurchase data among issuers.
Quarterly Disclosure (Item 703 of Regulation S-K)
Currently, public companies provide quarterly share repurchase information in their Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K (for the fourth fiscal quarter). The share repurchase disclosure, which is set forth in Item 703 of Regulation S-K, includes tabular disclosure of total shares purchased by the issuer (or any affiliated purchaser) each month, the average price per share, the total number of shares purchased as part of a publicly announced repurchase plan, and the maximum number of shares (or dollar value) available to be purchased under the repurchase plan. Issuers must also disclose via footnote the date each repurchase plan was announced, the dollar amount (or share amount) approved, the expiration date (if any) of each plan, each plan that expired during the period covered by the table, and each plan the issuer has determined to terminate, or under which the issuer does not intend to make further purchases.
The Share Repurchase Proposal adds additional disclosure requirements, including:
- the objective or rationale for share repurchases and the process or criteria used to determine the amount of repurchases;
- any policies and procedures relating to trading of the issuer’s securities by officers and directors during a repurchase program, including any restrictions on such transactions;
- if repurchases were made pursuant to a Rule 10b5-1 plan and, if so, the date the plan was adopted or terminated; and
- whether the repurchases were made in reliance on the Rule 10b-18 safe harbor.
The Share Repurchase Proposal also adds a checkbox to the top of the “Issuer Purchases of Equity Securities” table in which the issuer would need to check the box if any Section 16 officer or director purchased or sold shares within ten business days before or after the issuer’s announcement of the share repurchase plan. Under the Share Repurchase Proposal, the issuer would also have to tag the Item 703 information in Inline XBRL.