On May 3, 2023, the SEC announced that it had adopted final rules to “modernize” issuer share repurchase disclosure. It is debatable whether these rules modernize disclosure, but they certainly do increase it, and they also demonstrate skepticism on the part of some investors and the SEC itself as to the merit and purposes of stock repurchases.
The principal components of the new rules are as follows:
- Corporate issuers will be required to disclose daily repurchase activity on a quarterly basis in 10-Q and 10-K reports. Current rules require issuers to report repurchases on a quarterly basis, but repurchases during each month of the prior quarter can be aggregated. The new rules will require issuers to report the number of shares purchased each day during the prior quarter; 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 maximum number of shares (or dollar value) that remain to be purchased under a publicly announced plan; the 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 SEC Rule 10b-18 and, separately, the total number of shares purchased pursuant to a 10b5-1 plan. (If you think this is all bad news, you may derive some comfort from the fact that the final rules do not include the proposed requirement to file daily reports on repurchase activity.)
- Another new requirement calls for narrative disclosures about repurchase programs and practices in periodic reports. These disclosures include the objectives of or rationales for share repurchases and the process or criteria used to determine the amount of repurchases, and any policies or procedures relating to purchases and sales of the issuer’s securities by its directors or officers during a repurchase program, “including any restriction on such transactions.” Companies that have not imposed such restrictions may want to consider doing so.
- In a similar vein, issuers will be required to indicate by check mark whether certain directors or officers traded in the class of securities being repurchased within four business days before or after the announcement of the issuer’s repurchase program.
- Quarterly disclosure will have to be provided concerning the issuer’s adoption and termination of 10b5-1 trading arrangements, including the date of adoption and duration of and the number of shares to be purchased or sold under any such plan. (As a result of earlier amendments to SEC Rule 10b5-1, issuers are now required to disclose their directors’ and executive officers’ adoption of such arrangements.)
Not surprisingly, Commissioner Peirce voted against the adoption of the rules, criticizing the excessively detailed disclosure they call for and questioning the need for “companies to describe in painstaking detail every corporate action.” She did concede that the final rules represent an improvement over the proposed rules, but that “better-than-it-might-have been is not my standard for supporting a final rule.”
For U.S. corporate issuers, the new rules will take effect with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023. For most companies, that means the rules will be reflected in the 2023 10-Ks filed in early 2024.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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