New SEC share repurchase rule: What issuers should know

Mark Shannon, Steven King
| 7/24/2023
New SEC share repurchase rule: What issuers should know

January 2024 update: Court vacates SEC issuer share repurchase rule

On Dec. 19, 2023, the U.S. Court of Appeals for the 5th Circuit ruled to vacate the Securities and Exchange Commission (SEC) rule on share repurchase disclosures, which was due to affect disclosures in issuer filings for fiscal quarters beginning on or after Oct. 1, 2023. Previously – on Oct. 31, 2023 – the court had issued an opinion stating that the SEC had not followed agency protocol, failing to adequately address public comments, perform a proper economic cost-benefit analysis, and substantiate the need for the rule. The court gave the SEC 30 days to remediate the identified issues. The SEC’s request for an indefinite extension to remediate the rule was denied on Nov. 26, 2023.

A new Securities and Exchange Commission’s (SEC) rule enhances disclosures and requires daily share repurchase activity data in periodic filings.

In under a minute

The Crowe article “New Insider Trading Rule: What Registrants Should Know,” on the SEC’s revisions to its executive insider trading rules, noted the SEC was continuing to consider rules for issuer share repurchases. On May 3, 2023, the SEC finalized its “Share Repurchase Disclosure Modernization” rule, which updates issuer repurchase disclosures and requires additional information to allow investors to assess the impact and rationale of the issuer’s repurchase activity.

The final rule is effective on July 31, 2023. Form 10-K and Form 10-Q filers must comply with the final rule in the filing that includes the first quarter beginning on or after Oct. 1, 2023 (that is, the Dec. 31, 2023, Form 10-K for calendar year-end filers).

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Scope

The final rule applies to all domestic issuers, foreign private issuers (FPIs), and listed closed-end funds.

Disclosure requirements

Daily share repurchase activity

The final rule requires issuers to disclose aggregate daily share repurchase activity. The disclosure cadence varies according to the issuer type:

Issuer type

Daily repurchase activity disclosure

Domestic filers (and FPIs filing on domestic forms)

Quarterly as an exhibit in Form 10-Q or Form 10-K

Listed closed-end funds

Semiannually in Form N-CSR

FPIs using FPI forms

Quarterly in new Form F-SR due 45 days after the FPI's quarter-end


For each day with share repurchase activity, the issuer must provide tabular disclosure of:

  • Class of shares
  • Number of shares purchased
  • Average price paid per share
  • Number of shares purchased as part of a publicly announced plan
  • Aggregate maximum number of shares (or approximate dollar value) that may still be purchased under any publicly announced plan
  • Number of shares purchased on the open market
  • Total shares purchased intended to qualify for the Rule 10b-18 safe harbor
  • Total shares purchased under a plan that is intended to satisfy the conditions of Rule 10b5-1(c)

Issuers also must disclose, via check box preceding the tabular disclosure, whether certain officers or directors transacted in the issuer’s shares during the four days before or after the announcement of a plan. Finally, a footnote to the tabular disclosure must provide the adoption date of any 10b5-1(c) plan.

Crowe observation: The requirement to disclose daily aggregated share repurchase information is a significant change from the previous monthly aggregation requirement. Issuers might need to design new procedures and controls to capture more data to report the required information.

Additional disclosures

Issuers must disclose the objective or rationale for each repurchase plan, including how the amount of repurchases was determined, and the issuer’s policies and procedures for officer and director trading of its securities during a repurchase program.

Crowe observation: The final rule provides examples of information issuers might disclose as the repurchase plan’s objective or rationale. An issuer might discuss the factors driving the repurchase (for example, the issuer’s stock is undervalued) or sources of repurchase funding (for example, tax-advantaged sources not otherwise available).

Rule 10b5-1 plan disclosure

Issuers that use Form 10-K or Form 10-Q must provide disclosure of the material terms (for example, date, duration, and number of securities covered) of any 10b5-1 plan adopted or terminated during the most recent quarter.

Crowe observation: The authorized trading price under the 10b5-1 plan is not a required disclosure.

XBRL

Issuers must use inline extensible business reporting language (XBRL) to tag required disclosures.

Compliance dates (postponed)

On Nov. 22, 2023, the SEC postponed the effective date of the final rule, pending further commission action, due to an Oct. 31, 2023, ruling from the 5th U.S. Circuit Court of Appeals.

Near-term considerations for management and those charged with governance

Preparers should monitor whether the commission takes further action to reinstate a compliance date. Additional considerations include:

  • Governance. Has the board considered whether the issuer has policies and procedures or needs to change policies and procedures for officer and director trading while a repurchase plan is in effect?
  • Controls and procedures. What disclosure controls and procedures are needed to comply with the more frequent data collection requirements and new disclosures?
  • Transition. Does management have a plan to provide the required disclosures in its periodic SEC filings? Will management provide draft disclosures in advance to the board?

Contact us

Mark Shannon
Mark Shannon
Partner, National Office
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Steven King
National Office