On December 15, 2021, the U.S. Securities and Exchange Commission (the “Commission”) proposed amendments, available here, to its rules regarding disclosure about repurchases of equity securities by issuers, commonly known as “buybacks” or “share repurchases.” If adopted as proposed, these amendments would require issuers to provide disclosure by the next business day each time a repurchase occurs and expand the periodic disclosure requirements for repurchases. The goal of the proposed amendments is to alleviate concerns of an information imbalance between issuers and investors.
Background and Existing Framework
As share repurchases have become an increasingly popular tool for issuers, with the Commission indicating in the proposing release that companies repurchased roughly $700 billion of their own shares in 2020, there has been growing pressure to enhance the quality, relevance and timeliness of information regarding share repurchases. The proposed amendments are intended to address this pressure.
Under the current rules, issuers are required to disclose in tabular format in quarterly reports on Form 10-Q and annual reports on Form 10-K (or Form 20-F for foreign private issuers):
- The total number of shares purchased by the issuer or any affiliated purchaser during the relevant period, reported on a monthly basis and by class;
- The average price paid per share;
- The total number of shares purchased as part of a publicly announced repurchase plan or program; and
- The maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs.
Additionally, issuers are required to disclose by footnote the principal terms of all publicly announced repurchase plans or programs, including:
- The date each plan or program was announced;
- The dollar amount (or share amount) approved;
- The expiration date (if any) of each plan or program;
- Each plan or program that has expired during the period covered; and
- Each plan or program the issuer has determined to terminate prior to expiration, or under which the issuer does not intend to make further purchases.
Proposed Next Day Reporting on New Form SR
Under the proposed amendments, issuers, including foreign private issuers, would be required to furnish a new Form SR before the end of the first business day following the day each share repurchase occurs. The Form SR would require the disclosure of the following information for each class or series of securities:
- The date of the repurchase;
- Identification of the class of securities purchased;
- The total number of all shares purchased, whether or not made pursuant to publicly announced plans or programs;
- 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 conditions of Exchange Act Rule 10b5-1(c).
As proposed, Form SR would be required to be furnished, rather than filed, such that issuers would not be subject to liability under Section 18 of the Exchange Act for disclosure in the form, and a late submission of the form would not affect eligibility to use Form S-3.
Proposed Enhanced Periodic Disclosure
The proposed amendments would also expand the existing periodic disclosure requirements for share repurchases. Under the proposed amendments, issuers would be required to disclose in quarterly reports on Form 10-Q and annual reports on Form 10-K (or Form 20-F for foreign private issuers) the following information:
- The objective or rationale for its share repurchases and process or criteria used to determine the amount of repurchases;
- Any policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during a repurchase program, including any restriction on such transactions;
- Whether repurchases were made pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), and if so, the date that the plan was adopted or terminated; and
- Whether repurchases were made in reliance on the Rule 10b-18 nonexclusive safe harbor.
The proposed amendments would also require issuers to check a box indicating whether any of their Section 16 officers or directors purchased or sold shares that are the subject of the repurchase plan within 10 business days before or after the announcement of the repurchase plan.
Public Comment Period
The proposed amendments are a part of the Commission’s ongoing comprehensive evaluation and modernization of disclosure requirements. In the proposing release the Commission emphasized the information asymmetry that exists between issuers and investors under the existing framework, which provides for disclosure about share repurchases weeks or months after they occur, and the Commission’s belief that daily reports could help investors in evaluating an issuer’s securities and analyzing the circumstances around a particular share repurchase. The Commission will accept comments on the issues raised in the proposing release for 45 days after the release is published in the Federal Register.
If you have questions regarding the matters contained in this publication, please contact one of the lawyers listed below or consult your regular Baker Botts contact.
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