SEC Adopts Rules to Modernize Share Repurchase Disclosure

On May 3, the SEC adopted new rules¹ for disclosure of company repurchases of equity securities. The amendments are intended to improve the information investors receive to better assess the efficiency of, and motives behind, a company share repurchase. The rules require companies to:

• disclose daily quantitative repurchase data at the end of every quarter in an exhibit filed with their Form 10-Q or Form 10-K; 
• check a box if Section 16 officers or directors purchased or sold shares within four (4) business days before or after the repurchase announcement; 
• disclose objectives or rationales for their share repurchases and the process or criteria used to determine the amount of repurchases; 
• disclose any policies and procedures relating to purchases and sales of the company’s securities during a repurchase program by its officers and directors, including any restriction on such transactions; and
• provide quarterly disclosure about adoption and termination of Rule 10b5-1 trading arrangements. 

The key differences from the December 2021 proposed rules² are the deadline (at the end of a quarter rather than one business day after execution of the repurchase) and manner (a filed exhibit to a Form 10-Q or Form 10-K rather than a standalone report on a new form) for repurchase disclosure.  Consistent with the proposed rules, the final rules require companies to tag the new disclosure using Inline XBRL. 

New Item 601(b)(26) of Regulation S-K 

A company must file a tabular exhibit to its Quarterly Report on Form 10-Q or Annual Report on Form 10-K disclosing, for the period covered by the report, the total purchases made each day by or on behalf of the company. The exhibit must disclose, for each purchase execution date (each row in the table): 

• the class of shares purchased; 
• the total number of shares purchased;
• the average price paid per share; 
• the total number of shares purchased as part of a publicly announced repurchase plan; 
• the aggregate maximum number (or approximate dollar value) of shares that may yet be purchased under such a plan; 
• the total number of shares purchased on the open market; 
• the total number of shares purchased that are intended to qualify for the Rule 10b-18 safe harbor; and 
• the total number of shares purchased pursuant to a plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)
  • in a footnote to the table, the company must also disclose the date any such Rule 10b5-1 plan was adopted or terminated. 

In a checkbox above the table, the company must also indicate if any Section 16 officer or director of the company purchased or sold shares within four (4) business days before or after the company’s announcement of such repurchase plan or program (or the announcement of an increase of an existing share repurchase plan or program). 

Revised Item 703 of Regulation S-K 

A company must also provide the following narrative disclosure with respect to its repurchases of shares disclosed in the table referenced above (referring to particular repurchases in the table that correspond to different parts of the narrative, if applicable): 

• the objectives or rationales for each 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;
• for publicly announced repurchase plans or programs:
  • the date each plan or program was announced; 
  • the dollar amount approved; 
  • the expiration date of each plan or program; 
  • each plan or program that has expired during the period covered by the table referenced above; and 
  • each plan or program that the company has determined to terminate prior to expiration, or under which the company does not intend to make further purchases; and 
• any policies or procedures relating to purchases and sales of the company’s securities by its officers and directors during a repurchase program, including any restrictions on such transactions. 

As a result of the modified disclosure above, a company will no longer be required to include monthly repurchase data (under current Item 703(a) of Regulation S-K) in its periodic reports. 

New Item 408(d) of Regulation S-K 

In its December 2022 Rule 10b5-1 rulemaking³, the SEC proposed disclosure requirements for the use of trading plans by a company’s directors and officers, but did not adopt similar disclosure requirements for the use of trading plans by companies. However, after considering further comments on the matter since that time, the SEC has now adopted a similar disclosure requirement to allow investors to observe how companies use Rule 10b5-1 plans.  Specifically, a company will be required to disclose whether, during its last fiscal quarter, the company adopted or terminated a Rule 10b5-1 trading plan. The company will also be required to provide a description of the material terms of the Rule 10b5-1 trading plan, such as: 

• the date on which the company adopted or terminated the plan; 
• the duration of the plan; and 
• the aggregate number of securities to be purchased or sold pursuant to the plan. 

Next Steps 

Companies must generally comply with the amendments on Forms 10-Q and 10-K beginning with the first filing covering the first fiscal quarter that begins on or after October 1, 2023. Calendar year companies will have to comply with the new requirements in their Annual Report on Form 10-K for the fiscal year ending December 31, 2023, covering repurchases during the fourth quarter. Given the increased scrutiny of share repurchases, companies should carefully consider their repurchase strategies and programs, revisit their disclosures regarding the objectives or rationales for their share repurchases and ensure that disclosure controls and procedures are updated to obtain the necessary information.  

¹ See Share Repurchase Disclosure Modernization, Final Rule, available at https://www.sec.gov/rules/final/2023/34-97424.pdf (May 3, 2023). 
² See Share Repurchase Disclosure Modernization, Proposed Rule, available at https://www.sec.gov/rules/proposed/2021/34-93783.pdf (December 15, 2021). 
³ See Insider Trading Arrangements and Related Disclosures, Final Rule, available at https://www.sec.gov/rules/final/2022/33-11138.pdf (December 14, 2022).