On May 3, 2023, the Securities and Exchange Commission (“SEC”) adopted new share repurchase, or stock buyback, disclosure rules for issuers of public equity securities.
In Annual Reports on Form 10-K (“10-K”) and Quarterly Reports on Form 10-Q (“10-Q”), issuers must report daily repurchase activity in each fiscal quarter, instead of the monthly repurchase activity issuers are accustomed to reporting. In addition to the information issuers have been providing, like average price paid per share, the total number of shares purchased and remaining to be purchased, the new rules require issuers also report the number of shares purchased on the open market, the number of shares intended to qualify under the safe harbor in Exchange Act Rule 10b-18 and the number of shares intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c). This disclosure will include a checkbox where the issuer must indicate whether officers and directors purchased or sold shares within four business days before or after the issuer adopted the repurchase plan. This new repurchase disclosure will appear in an exhibit to the Form 10-K or Form 10-Q, instead of the filing itself. The data must be tagged using Inline XBRL.
Narrative disclosure of share repurchases must also be expanded to explain the rationale for the repurchases and the process used to determine the amount of repurchases. Issuers must also describe their policy on officers and directors trading in the issuer’s securities while the issuer is conducting a repurchase program.
The new rules also require issuers to disclose whether they adopted or terminated any Rule 10b5-1 trading plan during the quarter. If the issuer adopted a Rule 10b5-1 trading plan during the quarter, it must describe the material terms, including when the plan was adopted, the duration of the plan, and how many shares can be purchased under the plan. This data must also be tagged using Inline XBRL.
In what should be a relief to issuers, the SEC did not adopt some of the more controversial parts of the proposed rules. Issuers will not have to file a new form within one business day of repurchasing their shares. In addition, the SEC did not impose a cooling-off period for issuers using Rule 10b5-1 trading plans.
For domestic issuers, the new disclosure requirements will apply for the first full fiscal quarter beginning on or after October 1, 2023. For issuers with fiscal years that end on December 31, this means that the first report with this new disclosure will be the 10-K for the year ending December 31, 2023, reporting data for the fourth quarter. The new rules are published here, along with the SEC’s release about the new rules and a fact sheet.
If you have any questions about preparing for these rule changes, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group