SEC Proposes to Modernize Share Repurchase Disclosure Rules | Practical Law

SEC Proposes to Modernize Share Repurchase Disclosure Rules | Practical Law

The SEC issued proposed rules that would modernize and improve disclosure regarding issuer repurchases of their equity securities.

SEC Proposes to Modernize Share Repurchase Disclosure Rules

Practical Law Legal Update w-033-8120 (Approx. 4 pages)

SEC Proposes to Modernize Share Repurchase Disclosure Rules

by Practical Law Corporate & Securities
Published on 16 Dec 2021 • USA (National/Federal)
The SEC issued proposed rules that would modernize and improve disclosure regarding issuer repurchases of their equity securities.
Update: On December 7, 2022, the SEC reopened the comment period again after an excise tax on share repurchases was signed into law as part of the Inflation Reduction Act of 2022. For more information, see Legal Update, SEC Reopens Comment Period for Its Share Repurchase Disclosure Proposal.
Update: On October 7, 2022, the SEC reopened the comment periods for several rulemaking releases due to a technical error that resulted in the SEC not receiving comments submitted through its online form between June 2021 and August 2022. The SEC's below proposed rule was one of the affected releases. The reopened comment period will remain open for 14 days after the reopening release is published in the Federal Register. For more information, see Legal Update, SEC Reopens Comment Periods for Several Proposed Rules.
Update: On February 15, 2022, the SEC's proposal was published in the Federal Register. Comments should be submitted on or before April 1, 2022.
On December 15, 2021, the SEC proposed amendments to its rules regarding disclosure relating to repurchases (also called buybacks) of an issuer's equity securities registered under Section 12 of the Exchange Act. In an effort to modernize and improve disclosure rules for issuer share repurchases, the SEC's proposal would require more detailed and more frequent disclosure, including:
  • Requiring disclosure on a new Form SR to be furnished to the SEC one business day after execution of an issuer's share repurchase.
  • Amending periodic disclosures, including Item 703 of Regulation S-K, Form 20-F, and Form N-CSR, to require additional detail regarding the structure of an issuer's repurchase plan or program and its share repurchases.
  • Requiring such disclosures to be reported using a structured data language, specifically Inline eXtensible Business Reporting Language (Inline XBRL).
The SEC's proposed rules will have a 45-day public comment period following its publication in the Federal Register.

Form SR

The SEC proposed new Exchange Act Rule 13a-21 and Form SR that would require domestic issuers, foreign private issuers, and certain registered closed-end funds to report any share or unit repurchase made by or on behalf of the issuer or any affiliated purchaser of any class of the issuer's equity securities that is registered under Exchange Act Section 12. Issuers would be required to furnish a new Form SR before the end of the first business day following the day the issuer executes a share repurchase.
Disclosures required by Form SR would include the:
  • Date of repurchase.
  • Class of securities purchased.
  • Total number of shares or units purchased, regardless of whether repurchased under publicly announced plans or programs.
  • Average price paid per share or unit.
  • Aggregate total number of shares or units purchased on the open market.
  • Aggregate total number of shares or units purchased in reliance on the safe harbor in Exchange Act Rule 10b-18 (see Practice Note, Issuer Stock Repurchases Under Rule 10b-18).
  • Aggregate total number of shares or units purchased under a 10b5-1 plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c).

Periodic Disclosures

In an effort to enhance periodic disclosures, the SEC proposed to revise and expand the disclosure requirements in Item 703, Form 20-F, and Form N-CSR to provide investors more detailed and timely information about issuer share repurchases. These amendments would require issuers to disclose:
  • The objective or rationale for its share repurchases and the process or criteria used to determine the amount of repurchases.
  • Policies and procedures relating to purchases and sales of the issuer's securities by its officers and directors during a repurchase program, including any restrictions on those transactions.
  • Whether the repurchases were made under a 10b5-1 plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and the date the plan was adopted or terminated.
  • Whether the repurchases were made in reliance on the Rule 10b-18 non-exclusive safe harbor.
  • Whether any of the issuer's Exchange Act Section 16(a) officers or directors purchased or sold shares or units of the class of the issuer's equity securities that is the subject of an issuer share repurchase plan or program within 10 business days before or after the announcement of the plan or program by checking a box before the tabular disclosure of issuer purchases of equity securities.

Inline XBRL Reporting

The SEC proposal would require issuers to tag information disclosed under Item 703, Item 16E of Form 20-F, Item 9 of Form N-CSR, and Form SR in a structured, machine-readable data language, specifically Inline XBRL, as required under Rule 405 of Regulation S-T and the EDGAR Filer Manual. The proposal would require detail tagging of quantitative amounts disclosed within the tabular disclosures, and block text and detail tagging of narrative and quantitative information disclosed in the footnotes to the tables.
For more information about share repurchases, see Practice Note, Issuer Stock Repurchases: What are the Options? and Issuer Stock Repurchases Checklist.