Share Repurchase Disclosure Modernization: What You Need to Know

The Securities and Exchange Commission (SEC) has proposed modernizing the rules governing share repurchase disclosure, aiming to provide investors with more accurate and timely information about a company's repurchase activities.

This proposal is a significant step towards enhancing transparency and accountability in corporate governance.

The current rules, which date back to 1982, have been criticized for being too vague and allowing companies to hide their true intentions behind complex financial statements.

As a result, investors often struggle to understand the motivations behind a company's share repurchase decisions, making it harder to make informed investment decisions.

Under the proposed changes, companies would be required to disclose more detailed information about their share repurchase activities, including the total amount spent, the number of shares repurchased, and the reasons behind the repurchases.

Share Repurchase Disclosure is a crucial aspect of corporate governance, and the Securities and Exchange Commission (SEC) has taken steps to modernize the disclosure process. The SEC has published a rule, effective June 1, 2023, to improve the transparency of share repurchases.

The new rule applies to 17 CFR Parts 229, 232, 240, 249, and 274. It's a comprehensive overhaul, with 62 pages of changes. The rule is designed to provide more accurate and timely information about share repurchases.

The SEC has received comments on the proposed rule, including feedback on repurchases intended to satisfy Rule 10b5-1(c) and qualify for the Rule 10b-18 safe harbor. The agency has also considered comments on policies and procedures related to purchases and sales of securities by officers and directors during a repurchase program.

The rule includes clarifying amendments, such as the requirement for inline XBRL, which will make it easier to access and analyze the data. The SEC estimates that the new rule will reduce paperwork burdens, particularly for narrative share repurchase disclosures in Item 703 of Regulation S-K, Form 20-F, Form N-CSR, and Form F-SR.

Companies are now required to disclose information about their Rule 10b5-1 trading plans, which are agreements that outline when and how company insiders can buy or sell company stock.

These plans must be disclosed in periodic reports on Forms 10-Q and 10-K, specifically in Item 408(d) under Regulation S-K. The disclosure must include the date the plan was adopted or terminated, the duration of the plan, and the aggregate number of shares to be purchased or sold under the plan.

A company's Rule 10b5-1 trading arrangement must be disclosed if it was adopted or terminated during the last fiscal quarter. The disclosure must include the date of adoption or termination, the duration of the arrangement, and the aggregate number of securities to be purchased or sold.

Here are the specific details that must be disclosed about a Rule 10b5-1 trading arrangement:

If a company has already provided a narrative disclosure about share repurchases that meets these requirements, they can cross-reference that disclosure to also satisfy the requirements for Rule 10b5-1 trading arrangements.

The Securities and Exchange Commission (SEC) plays a crucial role in regulating the financial industry. The SEC is the agency responsible for implementing the final rule regarding share repurchase disclosure modernization.

The SEC has been actively working on updating the rules to improve transparency and accountability in the financial markets. This effort is aimed at providing investors with more accurate and timely information about share repurchases.

The SEC has considered various comments on the proposed rule, including those on the daily share repurchase disclosure requirement and exemptions for certain issuers. These comments have helped shape the final amendments to the rule.

The final rule includes new requirements for narrative revisions to Item 703 of Regulation S-K, Form 20-F, and Form N-CSR. This will provide additional disclosure for investors, including checkbox requirements and structured data requirements.

The SEC has also introduced new Item 408(d) to provide further clarity on share repurchase disclosures. This new item will require issuers to disclose additional quantitative and qualitative information about their share repurchases.

Issuers will need to consider the estimated paperwork burdens of the new rule, including alternative reporting frequencies and disclosure granularity.

Companies must report all of the disclosures required under the amendments using inline XBRL.

The new rules require a company to provide tabular disclosure on a quarterly basis of its daily repurchase activity, including the class of shares purchased, the average price paid per share, and the total number of shares purchased.

Here is a breakdown of the new tabular disclosures:

Companies must include a footnote to the new table disclosing the date on which share repurchase plans were adopted or terminated.

Structured data requirements are a crucial part of the new reporting rules. Companies must tag the information disclosed in a structured, machine-readable data language in accordance with Rule 405 of Regulation S-T and the EDGAR Filer Manual.

The final amendments require detail tagging using Inline XBRL of the quantitative amounts disclosed within the required tabular disclosures. This means that companies will need to report the quantitative information in a format that can be easily read by machines.

Companies must report all of the disclosures required under the amendments using inline XBRL. This includes tagging the information disclosed pursuant to Items 601 and 703 of Regulation S-K, Item 16E of Form 20-F, Item 14 of Form N-CSR, and Form F-SR.

Here is a summary of the tagging requirements:

Companies will need to ensure that they have the necessary systems and processes in place to meet these tagging requirements. This may require significant changes to their existing reporting processes.

Compliance dates vary depending on the type of issuer. For domestic issuers, the new rules apply to Forms 10-Q and 10-K, starting with the first filing that covers the first full fiscal quarter beginning on or after October 1, 2023.

Domestic issuers will be required to comply with the amendments on Forms 10-Q and 10-K beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023. This means that for calendar year-end companies, the new disclosures will first appear in their 2023 Form 10-K (filed in 2024).

Foreign private issuers that file on foreign private issuer forms will be required to comply with the new disclosure and tagging requirements in Form F-SR beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024.

For foreign private issuers, the expanded buyback narrative disclosure will be required starting in the first Form 20-F filed after their first Form F-SR has been filed. This means that for calendar year-end companies, the expanded buyback narrative disclosure will first appear in their 2025 Form 20-F.

Here's a summary of the compliance dates for different types of issuers:

Note that listed closed-end funds will be required to comply with the new disclosure and tagging requirements in their Exchange Act periodic reports beginning with the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024.

Companies will now be required to furnish a table showing their daily repurchase activity for the last quarter in an exhibit to their Forms 10-Q and 10-K. This table must include specific items for each day on which repurchases were executed.

The new table must include the class of securities, the average price paid per share, the total number of shares repurchased, and the capacity remaining under publicly announced share repurchase plans.

Companies must also include the total number of shares purchased on the open market, the total number of shares purchased that are intended to qualify for the Rule 10b-18 safe harbor, and the number of shares purchased under share repurchase plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Here are the required items for the new table:

Companies must also include a footnote to the new table disclosing the date on which share repurchase plans were adopted or terminated.

Companies will also be required to tag the information disclosed in a structured, machine-readable data language in accordance with Rule 405 of Regulation S-T and the EDGAR Filer Manual.