SEC Requires Enhanced Repurchase Disclosures

The SEC adopted a new rule that requires issuers to provide additional information on the purpose of their repurchase programs and report more detailed repurchase data on a quarterly or semi-annual basis.

As previously covered, the proposal would establish a new Exchange Act Rule 13a-21 ("Purchases of equity securities by the issuer and affiliated purchasers") and corresponding Form SR that will apply to registered issuers. The final rule covers foreign private issuers and certain types of registered closed-end funds, and requires reporting of share repurchases made by or on behalf of an issuer or any affiliated purchaser on each day the the entity enters into share repurchases. The final rule also requires an issuer to provide the rationale for its share repurchases, and whether officers or directors of the issuer sold shares during a period where the issuer was engaged in repurchasing shares.

As to the timing of the repurchase date, the final rule will require:

• corporate issuers that file on domestic forms to disclose the total repurchases for the quarter for Form 10-Q and Form 10-K;
• listed closed-end funds to disclose daily quantitative repurchase data on Form N-CSR semi-annual and annual reports; and
• foreign private issuers ("FPIs") to disclose repurchase data at the end of every quarter in new Form F-SR which must be submitted within 45 days of the end of each issuer’s fiscal quarters.

In addition, the SEC is adopting amendments to issuer requirements (upon filing under Item 703, Form 20-F, and Form N-CSR) by requiring disclosure of (i) the intent for issuer share repurchases as well as the process used to determine the amount of repurchases and (ii) procedures for purchasing and selling an issuer’s securities used by officers and directors during a repurchase program.

Further, the SEC is including new Item 408(d) which requires quarterly disclosures in periodic reports on Form 10-Q and Form 10-K regarding an issuer’s adoption and termination of trading arrangements that are intended to satisfy the affirmative defense against insider trading under Exchange Act Rule 10b5-1(c) ("Employment of manipulative and deceptive devices").

The final rule is effective 60 days after publication in the Federal Register.

Commissioner Statements

SEC Chair Gary Gensler applauded the final amendments for "enhanc[ing] transparency and integrity" of the buyback process by (i) allowing investors to better assess issuers’ buyback programs and (ii) reducing information "asymmetries" between issuers and investors.

SEC Commissioner Jaime Lizárraga said that the final amendments help investors to distinguish between repurchases meant to increase shareholder value and repurchases motivated by other reasons, such as "short-term attempts to boost share price." Mr. Lizárraga added that by requiring issuers to provide a rationale for their repurchases, "investors will benefit from disclosures that aren’t just boilerplate."

SEC Commissioner Caroline A. Crenshaw said that the final amendments establish a disclosure regime that continues to evolve according to investor and market needs by offering "more comparable, structured, and comprehensive" information on corporate share buybacks.

SEC Commissioner Mark T. Uyeda warned that the final amendments may be remembered as "the beginning of the end" for the SEC’s "long-standing and bipartisan approach of largely deferring to the disclosures made by FPIs" in accordance with their home jurisdiction’s reporting requirements. Mr. Uyeda said that the SEC should have pursued a separate rulemaking regarding FPIs but instead chose to "sacrifice principles of mutual recognition and international comity."

SEC Commissioner Hester M. Peirce said that despite the "much needed change" to issuer share disclosure requirements, she "cannot support a rule that mandates immaterial disclosures." She argued that the final amendments will "bury investors in an avalanche of trivial information" which is "not conducive to informed decision making." She also highlighted (i) increased costs associated with the final rule, (ii) increased risk of the release of confidential information, such as on pending merger or acquisition activity, and (ii) concerns over the structured format on which issuers will have to produce the data.