On May 3, 2023, the SEC adopted final rules relating to corporate stock buybacks. The new rules have some significant differences from those the SEC proposed in December 2021. While the new rules do require significantly greater detail about daily stock repurchases in Inline XBRL format, they will only require filing of that information quarterly, in a new exhibit to the company’s Form 10-K and Form 10-Q filings. Non‑US companies that report on Form 20-F will now have a quarterly report requirement on new Form F-SR for buyback disclosures in the quarter. Closed-end funds will report semi-annually on Form N-CSR.
Calendar year domestic companies will have to comply with the new rules beginning with their Form 10-K for 2023 for any stock buybacks in the fourth quarter of 2023, non‑US companies on Form F-SR for the second quarter of 2024, and closed-end funds on Form N-CSR for the first half of 2024.
Disclosure of stock buyback details has been required of SEC reporting companies for years. The new rules change the level of detail that must be provided. They also add a new checkbox indicating whether any of the directors and officers traded in the stock within four business days before or after the public announcement of an issuer’s stock buyback program.
In addition, the new rules will require more granular disclosure about the reasons for the buyback and the methods used to set the size of the buyback. They will also require disclosure of any policies and procedures relating to directors and officers trading in the stock during the buyback, including any restriction on directors and officers selling during a company buyback. This requirement appears to respond to a concern that somehow companies repurchase stock to facilitate sales by insiders, although the SEC did not provide any evidence of improper transactions related to sales during buybacks. Because company buybacks tend to happen in open market windows when insider sales are permitted, some overlap seems ordinary.
A new Item 408(d) in Regulation S-K will require companies to disclose, also in Inline XBRL format, the adoption or termination of issuer trading arrangements utilizing Rule 10b5-1. This largely mirrors the recently adopted rules requiring quarterly disclosure of the adoption or termination of Rule 10b5-1 arrangements by officers and directors.
- Companies should update their controls around stock buybacks to reflect the new rules, including preparing for reporting the daily stock buyback data in Inline XBRL.
- Companies should consider whether to revise their blackout periods for insiders to ensure there are no trades that would cause the Company to have to check the box confirming insider trades during the 4 business days before or after public announcement of a stock buyback.
- Companies may want to consider other prophylactic measures to avoid potential criticism, such as avoiding stock buybacks and announcements coincident with incentive award measurement dates or stock option expiration dates.
If you have any questions about the new listing standards, please contact your regular Locke Lord contact or any of the authors to discuss these matters.