(Article from Registered Funds Regulatory Update, January 2022)
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The SEC proposed amendments to the rules governing issuers’ equity share repurchases, often called “stock buybacks,” that would require more frequent and detailed disclosure regarding such repurchases. In addition to operating companies, the proposed disclosures would apply to listed closed-end funds and both listed and unlisted BDCs.
Specifically, proposed Exchange Act Rule 13a-21 would introduce new Form SR on which issuers must disclose details regarding an equity share repurchase made by the issuer or any of its “affiliated purchasers” (as defined in Exchange Act Rule 10b-18) within one business day of the repurchase. The SEC’s rationale for the proposed amendments is to both improve the “quality, relevance, and timeliness of information related to issuer share repurchases” and address information asymmetries between issuers and shareholders due to the time gap between the repurchase date and the time at which investors are supplied with relevant information about the issuer’s repurchase. Currently, an issuer must disclose repurchases of its equity securities registered under Section 12 of the Exchange Act, by either the issuer or affiliated purchasers, in its quarterly reports on Form 10-Q and annual reports on Form 10-K or, if the issuer is a registered closed-end fund, on a semi-annual basis on Form N-CSR.
The proposed amendments require an issuer repurchasing securities registered under Section 12 of the Exchange Act to furnish Form SR to the SEC by the end of the next business day after the share repurchase date. Form SR would require the following disclosures:
- the class of securities purchased;
- the total number of shares (or units) purchased, including all issuer repurchases whether or not made pursuant to publicly announced plans or programs;
- the average price paid per share (or unit);
- the total number of shares (or units) purchased on the open market;
- the total number of shares (or units) purchased in reliance on the safe harbor in Exchange Act Rule 10b-18; and
- the total number of shares (or units) purchased under an Exchange Act Rule 10b5-1 plan.
In addition to Form SR, the proposed amendments would enhance the existing quarterly reporting regarding share repurchases by requiring the issuer to disclose:
- the objective or rationale for the repurchase;
- the process or criteria used to determine the repurchase amount;
- any restrictions relating to the issuer’s Section 16 officers and directors trading its securities during a repurchase program, including any restrictions on such transactions;
- any policies and procedures relating to an insider participating in the repurchase;
- whether the issuer is making the repurchases pursuant to a plan that intends to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1 or the conditions of the Exchange Act Rule 10b-18 non-exclusive safe harbor; and
- whether any of the issuer’s officers and directors bought or sold the issuer’s shares (or units) within 10 business days before or after the announcement of the issuer’s repurchase plan.
The proposed amendments are subject to comment for 45 days after publication in the Federal Register.
Share Repurchase Disclosure Modernization, SEC Release Nos. 34-93783 and IC-34440 (Dec. 15, 2021), available at https://www.sec.gov/rules/proposed/2021/34-93783.pdf.