SEC to require more detailed disclosure, more often, of corporate share repurchases
Under new SEC rule amendments, SEC-reporting corporate issuers — including non-U.S. issuers — will soon be required to make the following disclosures:
- Tabular disclosure — On a quarterly basis, issuers must provide aggregate daily quantitative information in tabular form about purchases made on behalf of the issuer or any affiliated purchaser of shares of any class of the issuer’s equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”);
- Narrative disclosure — Issuers must disclose the objective or rationale for the repurchases and the process or criteria used to determine the amount of repurchases;
- Checkbox disclosure — Checkbox disclosure is required if certain officers or directors purchased or sold shares subject to the repurchase plan within four business days before or after the plan announcement; and
- XBRL — The tabular and narrative disclosures must be tagged using Inline XBRL.
A foreign private issuer (“FPI”) reporting on the FPI forms will need to disclose the data in new Form F-SR, which must be filed within 45 days after the end of each fiscal quarter, beginning with the first full fiscal quarter that begins on or after April 1, 2024. Related Form 20-F narrative disclosure must be included in the first Form 20-F filed after an FPI files its first Form F-SR.
Corporate issuers that file on U.S. domestic forms will need to file on a quarterly basis the daily repurchase data in an exhibit to their Form 10-Q and Form 10-K (for the fourth fiscal quarter), beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023.
This briefing focuses only on corporates, but the amendments also affect listed closed-end funds, which will be required to include share repurchase data in their annual and semi-annual reports on Form N-CSR.
Implications for FPIs
These amendments, requiring FPIs to file quarterly reports on new Form F-SR, mark a significant change from the SEC’s historical practice of deferring to the home country disclosure requirements of U.S.-listed FPIs.
To the extent an FPI’s home country disclosures of share repurchase information furnished on a Form 6-K satisfy the Form F-SR requirements, the FPI can incorporate by reference its Form 6-K disclosures into its Form F-SR. However, the ability to incorporate by reference from existing announcements will only significantly reduce the disclosure burden if such announcements satisfy the Form F-SR requirements, including the requirement that the data is tagged using Inline XBRL.
UK- and EU-listed companies undertaking share repurchases will already be capturing similar data and announcing it to the market to comply with the share buybacks safe harbor under the Market Abuse Regulation. These disclosures generally do not, however, cover all the information required by Form F-SR. For example, the UK and EU disclosure generally would not require disclosure of (as required by Form F-SR):
- The aggregate maximum number of shares (or approximate dollar value) that may yet be purchased under a publicly announced plan; and
- The total number of shares purchased that are intended to qualify for the safe harbor in Rule 10b-18, and separately, the total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
The UK and EU generally also do not mandate a particular format, such as Inline XBRL, for share repurchase disclosures. Consequently, the new requirements are expected to result in a greater administrative burden on issuers and their brokers.
Quarterly and more detailed disclosures
Under the amendments, companies will have to disclose, in tabular format, their repurchase activity aggregated on a daily basis. The disclosure must be provided in a table that sets out, for each day:
- The class of shares1;
- The average price paid per share;
- The total number of shares purchased, including the total number of shares purchased as part of a publicly announced plan;
- The aggregate maximum number of shares (or approximate dollar value) that may yet be purchased under a publicly announced plan;
- The total number of shares purchased on the open market; and
- The total number of shares purchased that are intended to qualify for the safe harbor in Rule 10b-18 and separately the total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
The daily quantitative repurchase data will be treated as “filed” on Form 10-Q, Form 10-K and Form F-SR, increasing the liability risk as compared to information in Form 6-K, which is “furnished.” The amendments eliminate the requirement in Form 20-F to provide quantitative share repurchase disclosures on a monthly basis.
The amendments also expand the requirements for narrative disclosure of repurchases, requiring an issuer to disclose:
- 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 programs2:
- The date each plan or program was announced;
- The dollar amount (or share or unit amount) approved;
- The expiration date (if any) of each plan or program;
- Each plan or program that has expired during the period covered by the table; 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 its securities by its officers and directors during a repurchase program, including any restriction thereon.
Under the amendments, companies must also include a checkbox above their tabular disclosures indicating whether certain officers and directors purchased or sold shares or other units of the class of the issuer’s equity securities subject to a share repurchase plan or program within four business days before or after the announcement of the plan.
For FPIs, this requirement applies to any director or member of senior management (as identified in the annual report on Form 20-F). For FPIs reporting on U.S. domestic forms, members of senior management are those who would be identified under Item 1 of Form 20-F. In determining whether to check the box, FPIs may rely on any written representations from the directors or members of senior management, provided that reliance is reasonable. Records of the representations must be retained for two years.
For domestic corporate issuers, the checkbox requirement applies to directors and officers subject to Section 16 reporting obligations. These issuers may rely on Forms 3, 4 or 5 filed during the most recent financial year or a written representation that no Form 5 is required.
Inline XBRL requirement
The amendments also require issuers to tag, using Inline XBRL, information disclosed pursuant to Items 601 and 703 of Regulation S-K, Item 16E of Form 20-F and Form F-SR (i.e., the tabular and narrative disclosures). This entails detail tagging of the quantitative amounts in the required table and block text tagging and detail tagging of required narrative and quantitative information.
Company 10b5-1 plan disclosure
The SEC also adopted a new item that it had originally proposed in its separate rulemaking on Rule 10b5-1, which will require issuers filing Forms 10-Q and 10-K to disclose whether, during their most recently completed fiscal quarter, they have adopted or terminated a Rule 10b5-1plan.
1 Form F-SR requires the information reported to relate to the securities in ordinary share form, whether the issuer has repurchased the shares itself or depositary receipts representing the shares.
2 This disclosure is already required under the current rules.