Proposed SEC Rule Increases Share Repurchase Disclosure

In December 2021, the Securities and Exchange Commission (the “SEC”) issued proposed amendments that would require more frequent and detailed disclosure from issuers repurchasing their equity securities. Share repurchase, or stock buyback, plans are used by public companies to repurchase their own shares from the marketplace, which reduces the number of outstanding shares in the market and typically results in an increase of the per share price of their stock. The SEC is responding to an increase in the use of share repurchase plans in recent years and the public perception that funds are being used for these plans instead of other potential uses that could benefit public company stakeholders.

The amendments would create a new rule, Rule 13a-21, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and a new form, Form SR. Form SR would be required to be furnished by public companies, foreign private issuers, and certain closed-end funds before the end of the next business day following the repurchase of their registered equity securities — faster than the current requirement for Section 16 beneficial ownership reports. The Form SR disclosure would include the following information:

  • total number of shares purchased;
  • the class of such shares;
  • the average price paid per share;
  • the aggregate total number of shares purchased on the open market;
  • the aggregate total number of shares purchased in reliance on the safe harbor in Exchange Act Rule 10b-18; and
  • the aggregate total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense condition of Exchange Act Rule 10b5-1(c).

Additionally, the amendments would increase disclosure required by public companies on their Form 10-Q and Form 10-K under Item 703 of Regulation S-K and corresponding additions to Form 20-F and Form N-CSR. Specifically, public companies would be required to disclose:

  • the rationale for the company’s share repurchases and criteria used to determine the amount to repurchase;
  • policies and procedures relating to purchases and sales of the company’s securities by its officers and directors while the company has an ongoing repurchase program, including any restriction on such insider transactions;
  • whether the company made its repurchases pursuant to a plan that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c), and if so, the date that the plan was adopted or terminated;
  • whether purchases were made in reliance on the Exchange Act Rule 10b-18 non-exclusive safe harbor; and
  • whether any of the company’s officers or directors subject to the reporting requirements under Section 16(a) of the Exchange Act purchased or sold any equity securities of the same class as those subject to the repurchase plan within 10 business days before or after the company announced its repurchase plan.

The SEC believes the amendments will improve the quality, relevance, and timeliness of information related to share repurchases and provide investors with necessary information faster. On the other hand, some of the comments submitted to date question whether Form SRs being filed on a near-daily basis would create white noise for investors while increasing the cost and time burdens of public company reporting requirements.

The proposed amendments are summarized in the SEC’s Fact Sheet. The deadline for public comment on the amendments was April 1, 2022.

We will monitor this proposal and provide updates as appropriate. In the interim, if you have any questions about this proposal, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group at (585) 232-6500 or (716) 853-1616.

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