Share Repurchase Disclosure Modernization, 36002-36063 [2023-09965]
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[Federal Register Volume 88, Number 105 (Thursday, June 1, 2023)] [Rules and Regulations] [Pages 36002-36063] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2023-09965] [[Page 36001]] Vol. 88 Thursday, No. 105 June 1, 2023 Part II Securities and Exchange Commission ----------------------------------------------------------------------- 17 CFR Parts 229, 232, 240, et al. Share Repurchase Disclosure Modernization; Final Rule Federal Register / Vol. 88 , No. 105 / Thursday, June 1, 2023 / Rules and Regulations [[Page 36002]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 229, 232, 240, 249, and 274 [Release Nos. 34-97424; IC-34906; File No. S7-21-21] RIN 3235-AM94 Share Repurchase Disclosure Modernization AGENCY: Securities and Exchange Commission. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Securities and Exchange Commission (``Commission'') is adopting amendments to modernize and improve disclosure about repurchases of an issuer's equity securities that are registered under the Securities Exchange Act of 1934. The amendments require additional detail regarding the structure of an issuer's repurchase program and its share repurchases, require the filing of daily quantitative repurchase data either quarterly or semi-annually, and eliminate the requirement to file monthly repurchase data in an issuer's periodic reports. The amendments also revise and expand the existing periodic disclosure requirements about these repurchases. Finally, the amendments add new quarterly disclosure in certain periodic reports related to an issuer's adoption and termination of certain trading arrangements. DATES: This final rule is effective on July 31, 2023. FOR FURTHER INFORMATION CONTACT: John Fieldsend, Special Counsel, Office of Rulemaking, at (202) 551-3460, Division of Corporation Finance; and, with respect to the application to investment companies, Quinn Kane, Special Counsel, at (202) 551-6792, Investment Company Regulation Office, Division of Investment Management; U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are adopting amendments to the following rules and forms: --------------------------------------------------------------------------- \1\ 15 U.S.C. 78a et seq. ------------------------------------------------------------------------ Commission reference CFR citation (17 CFR) ------------------------------------------------------------------------ Regulation S-K: Items 10 through 1305.............. Sec. Sec. 229.10 through 229.1305. Item 408........................... Sec. 229.408. Item 601........................... Sec. 229.601. Item 703........................... Sec. 229.703. Regulation S-T: Rules 10 through 903............... Sec. Sec. 232.10 through 232.903. Rule 405........................... Sec. 232.405. Securities Exchange Act of 1934 (``Exchange Act''): \1\ Rule 13a-21........................ Sec. 240.13a-21. Form F-SR.......................... ............................... Form 20-F.......................... Sec. 249.220f. Form 10-Q.......................... Sec. 249.308a. Form 10-K.......................... Sec. 249.310. Form N-CSR......................... Sec. Sec. 249.331 and 274.128. ------------------------------------------------------------------------ Table of Contents I. Introduction A. Summary of the Proposed Amendments B. Consideration of Comments C. Summary of Final Amendments II. Background A. Share Repurchases B. Purpose of the Amendments III. Discussion of Final Amendments A. Disclosure of Share Repurchases 1. Proposed Amendments 2. Comments on the Proposed Amendments a. Comments on the Daily Share Repurchase Disclosure Requirement b. Comments on Exemptions for Certain Issuers c. Comments on Repurchases Intended To Satisfy Rule 10b5-1(c) and Intended To Qualify for the Rule 10b-18 Safe Harbor d. Comments Concerning Requests for Clarification e. Other Comments 3. Final Amendments B. Narrative Revisions to Item 703 of Regulation S-K, Form 20-F, and Form N-CSR Additional Disclosure 1. Proposed Amendments 2. Comments on the Proposed Amendments a. Comments on Objective or Rationale for Share Repurchases, and Process or Criteria Used To Determine the Amount of Repurchases b. Comments on Policies and Procedures Relating to Purchases and Sales of the Issuer's Securities by Its Officers and Directors During a Repurchase Program c. Comments on Checkbox Requirement 3. Final Amendments C. Clarifying Amendments 1. Proposed Amendments 2. Comments on the Proposed Amendments 3. Final Amendments D. New Item 408(d) 1. Proposed Amendments 2. Comments on the Proposed Amendments 3. Final Amendments E. Structured Data Requirement 1. Proposed Amendments 2. Comments on the Proposed Amendments 3. Final Amendments F. Compliance Dates IV. Other Matters V. Economic Analysis A. Baseline and Affected Parties 1. Affected Parties 2. Baseline B. Benefits 1. General Benefits of the Disclosures 2. Additional Quantitative Repurchase Disclosure 3. Additional Qualitative Repurchase Disclosures 4. Inline XBRL C. Costs 1. General Costs of the Disclosures 2. Additional Quantitative Repurchase Disclosure 3. Additional Qualitative Repurchase Disclosures 4. Inline XBRL D. Efficiency, Competition, and Capital Formation E. Reasonable Alternatives 1. Alternative Reporting Frequencies and Disclosure Granularity 2. Alternative Scope of the Disclosure 3. Exemptions for Certain Issuer Categories 4. Alternative Implementation Approaches 5. Structured Disclosure 6. Compliance Dates VI. Paperwork Reduction Act A. Summary of the Collections of Information B. Summary of Comment Letters C. Summary of Collections of Information Requirements [[Page 36003]] 1. Estimated Paperwork Burden for Daily Quantitative Share Repurchase Disclosures 2. Estimated Paperwork Burdens of the Narrative Share Repurchase Disclosures in Item 703 of Regulation S-K, Form 20-F, Form N-CSR, and Form F-SR 3. Estimated Paperwork Burdens of New Item 408(d) D. Incremental and Aggregate Burden and Cost Estimates VII. Final Regulatory Flexibility Analysis A. Need for, and Objectives of, the Final Amendments B. Significant Issues Raised by Public Comments C. Small Entities Subject to the Final Amendments D. Projected Reporting, Recordkeeping and Other Compliance Requirements E. Agency Action to Minimize Effect on Small Entities Statutory Authority I. Introduction A. Summary of the Proposed Amendments On December 15, 2021,\2\ the Commission proposed amendments to the disclosure requirements regarding purchases of classes of equity securities registered under 15 U.S.C. 781 (``Exchange Act section 12'') made by or on behalf of an issuer or any affiliated purchaser.\3\ The proposal was intended to modernize and improve the disclosure currently required by Item 703 of Regulation S-K, Item 16E of Form 20-F, and Item 14 of Form N-CSR about repurchases of an issuer's equity securities.\4\ Specifically the Commission proposed to: --------------------------------------------------------------------------- \2\ Share Repurchase Disclosure Modernization, Release No. 34- 93783 (Dec. 15, 2021) [87 FR 8443 (Feb. 15, 2022)] (``Proposing Release''). \3\ For purposes of this release, the term ``issuer'' includes affiliated purchasers and any person acting on behalf of the issuer or an affiliated purchaser. The term ``affiliated purchaser'' as used in Item 703 is defined in 17 CFR 240.10b-18(a)(3). References throughout this release to ``issuer repurchases'' include purchases by an affiliated purchaser and purchases by any person acting on behalf of the issuer or an affiliated purchaser. \4\ Subsequent to the proposal, the Commission adopted changes to Form N-CSR that, among other things, redesignated what had been Item 9 of Form N-CSR to be Item 14. Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements, Release No. IC-34731 (Oct. 26, 2022) [87 FR 72758 (Nov. 25, 2022)]. This change became effective January 24, 2023. Id. ---------------------------------------------------------------------------Require quantitative daily repurchase disclosure on a new Form SR, which would be furnished to the Commission one business day after execution of an issuer's share repurchase order; Amend Item 703 of Regulation S-K, Item 16E of Form 20-F, and Item 14 of Form N-CSR to require additional detail regarding the structure of an issuer's repurchase program and its share repurchases; and Require that information disclosed pursuant to Item 703 of Regulation S-K, Item 16E of Form 20-F, Item 14 of Form N-CSR, and Form SR be reported using a structured data language (specifically, Inline eXtensible Business Reporting Language or ``Inline XBRL''). The Commission adopted Item 703 in 2003 \5\ to require disclosure of any purchase, aggregated on a monthly basis, made by or on behalf of the issuer or any affiliated purchaser of shares or other units of any class of the issuer's equity securities registered under Exchange Act section 12. Currently, Item 703 share repurchase disclosure is required in Form 10-Q for the issuer's first three fiscal quarters and in Form 10-K for the issuer's fourth fiscal quarter.\6\ The same disclosure is required by Item 16E of Form 20-F on an annual basis for FPIs, and by Item 14 of Form N-CSR on a semi-annual basis for registered closed-end management investment companies that are exchange traded (``Listed Closed-End Funds'').\7\ The disclosure requirements apply to both open market and private transactions, and currently require an issuer to disclose in tabular format: --------------------------------------------------------------------------- \5\ See Purchases of Certain Equity Securities by the Issuer and Others, Release No. 33-8335 (Nov. 10, 2003) [68 FR 64952 (Nov. 17, 2003)] (``2003 Adopting Release''). The Commission concluded that disclosure of an issuer's actual purchases would inform investors whether, and to what extent, the issuer had followed through on its original plan. \6\ Certain information regarding share repurchases is also required to be disclosed in an issuer's financial statements, including in the statements of cash flows indicating the amount of cash paid for repurchased securities, see ASC 230-10-45-1 to -2 and ASC 230-10-45-15, and the statements of changes in shareholders' equity indicating any reduction in securities outstanding, see ASC 505-30-5 to -10, and additional paid-in capital for the securities repurchased. See ASC 505-10-50-2 and 17 CFR 210.3-04 (``Rule 3-04 of Regulation S-X''). ASC 505-30-50 also requires footnote disclosure of state law restrictions on the availability of retained earnings for dividend payments as a result of these repurchases, if applicable. If securities are repurchased for purposes other than retirement, or if ultimate disposition has not yet been decided, the amount and cost of the repurchased securities may be shown separately on the balance sheets and statements of changes in shareholders' equity as a deduction from the total of securities, additional paid-in capital, and retained earnings. See ASC 505-30- 45-1. \7\ Accordingly, unless the context otherwise requires, references in this release to ``Item 703'' should be read to include these parallel provisions of Form N-CSR and Form 20-F. In addition to the disclosures on Form N-CSR that provide detailed information about Listed Closed-End Fund repurchases, Form N-CEN also requires closed-end management investment companies to indicate whether they engaged in a repurchase during the reporting period and, if so, for what type of security. Item D.4 of Form N-CEN. --------------------------------------------------------------------------- The total number of shares (or units) purchased, regardless of amount and whether made pursuant to a publicly announced plan or program, by the issuer or any affiliated purchaser during the relevant period, reported on a monthly basis and by class, including footnote disclosure regarding the number of shares purchased other than through a publicly announced plan or program and the nature of the transaction; The average price paid per share (or unit); The total number of shares (or units) purchased as part of a publicly announced repurchase plan or program; and The maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs. Footnote disclosure is also required in the aggregate of 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 or unit amount) approved; The expiration date (if any) of each plan or program; Each plan or program that has expired during the period covered by the table; 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. B. Consideration of Comments The Commission voted to issue the proposal at an open meeting on December 15, 2021. The release was posted on the Commission website that day, and comment letters were received beginning that same date. The comment period for the Proposing Release was open for 45 days and ended on April 1, 2022.\8\ The Commission has reopened the comment period for the Proposing Release twice for different reasons. The first reopening occurred because certain comments on the Proposing Release were potentially affected by a [[Page 36004]] technological error in the Commission's internet comment form.\9\ The First Reopening Release was published in the Federal Register on October 18, 2022, and the comment period ended on November 1, 2022.\10\ --------------------------------------------------------------------------- \8\ The public comments we received are available at https://www.sec.gov/comments/s7-21-21/s72121.htm. Unless otherwise indicated, the comment letters cited herein are those received in response to the Proposing Release. Two comment letters urged that the comment period for this proposal, among others, be extended to at least 60 days. See letter from United States Senator Pat Toomey and United States Representative Patrick McHenry (Jan. 10, 2022). Other commenters also asserted that the Commission provided insufficient time for comment. See, e.g., letters from American Securities Association (Apr. 1, 2022) (``ASA''), Association of the Bar of the City of New York (Apr. 1, 2022) (``NYC Bar''), Brit Stephens (Jan. 28, 2022) (``Stephens''), and U.S. Chamber of Commerce (Feb. 23, 2022) (``Chamber I''). \9\ Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking Releases Due to a Technological Error in Receiving Certain Comments, Release No. 33-11117 (Oct. 7, 2022) [87 FR 63016 (Oct. 18, 2022)] (``First Reopening Release''). \10\ A few commenters asserted that the comment period for the reopened rulemakings was not sufficient and asked the Commission to extend the comment period for those rulemakings. See, e.g., letters from Attorneys General of the states of Montana et al. (Oct. 24, 2022) and U.S. Chamber of Commerce (Nov. 1, 2022) (``Chamber IV''). --------------------------------------------------------------------------- The second reopening occurred on December 7, 2022.\11\ The Commission voted to reopen the comment period in connection with the addition to the comment file of a staff memorandum analyzing the potential economic effects of the new excise tax contained in the Inflation Reduction Act of 2022 \12\ (``Inflation Reduction Act'') on the proposed amendments. The Inflation Reduction Act was signed into law after the Proposing Release was published. The Second Reopening Release was published in the Federal Register on December 12, 2022, and the comment period closed on January 11, 2023.\13\ We have considered the potential effects of the excise tax and the additional comments received \14\ and determined that no changes to the proposed amendments are necessary as a result of the Inflation Reduction Act because we believe any impact of the tax on repurchases will not meaningfully affect the rationale for the amendments, as we describe in more detail below.\15\ --------------------------------------------------------------------------- \11\ Reopening of Comment Period for Share Repurchase Disclosure Modernization, Release No. 34-96458 (Dec. 7, 2022) [87 FR 75975 (Dec. 12, 2022)] (``Second Reopening Release''). \12\ See Public Law 117-169, 136 Stat. 1818 (2022). \13\ The public comments we received in response to the First Reopening Release and the Second Reopening Release are available at the same location on the Commission's website as the other comment letters addressing the Proposing Release at https://www.sec.gov/comments/s7-21-21/s72121.htm. See supra note 8. Some commenters recommended that the Commission postpone adopting the final amendments for additional analysis of future economic conditions and the Inflation Reduction Act's impact on repurchases. See, e.g., letters from Professional Services Council (Jan. 11, 2023) (``PSC''), U.S. Chamber of Commerce (Sept. 20, 2022) (``Chamber III''), and U.S. Chamber of Commerce (Jan. 11, 2023) (``Chamber V''). One of these commenters also stated that the comment period for the Second Reopening Release was insufficient. See letter from Chamber V. \14\ See infra Section V.A.2. \15\ See id. For similar reasons, we do not think it is necessary to postpone adoption of the proposed amendments. --------------------------------------------------------------------------- We received over 170 unique comment letters on the Proposing Release and over 3,200 form letters, which we discuss in context below. We have considered all comments received since December 15, 2021, and do not believe an additional extension of the comment period is necessary.\16\ --------------------------------------------------------------------------- \16\ Another comment letter raised concerns about the rulemaking process at the agency more broadly. See letter from United States Senator Thom Tillis (Nov. 4, 2022). The process followed in adopting these amendments has complied with the Administrative Procedure Act, 5 U.S.C. 551 et seq., and other legal requirements. --------------------------------------------------------------------------- Additionally, in January 2022,\17\ the Commission proposed amendments to 17 CFR 240.10b5-1 (``Rule 10b5-1''), which provides affirmative defenses to allegations of trading on the basis of material nonpublic information in insider trading cases. The Commission also proposed new 17 CFR 229.408(a) (``Item 408(a) of Regulation S-K'') to require disclosure of, among other matters, whether the issuer adopted, modified, or terminated plans intended to meet Rule 10b5-1's conditions for establishing an affirmative defense. In December 2022,\18\ the Commission adopted many of the amendments that it proposed in the Rule 10b5-1 Proposing Release, but did not adopt the portion of proposed Item 408(a) of Regulation S-K that pertains to the issuer's use of Rule 10b5-1 in response to commenters' recommendation that it be considered in the context of this rulemaking.\19\ --------------------------------------------------------------------------- \17\ Rule 10b5-1 and Insider Trading, Release No. 33-11013 (Jan. 13, 2022) [87 FR 8686 (Feb. 15, 2022)] (``Rule 10b5-1 Proposing Release''). \18\ Insider Trading Arrangements and Related Disclosure, Release No. 33-11138 (Dec. 14, 2022) [87 FR 80362 (Dec. 29, 2022)] (``Rule 10b5-1 Adopting Release''). \19\ See, e.g., letters on the Rule 10b5-1 Proposing Release from Cravath, Swaine & Moore LLP (Mar. 31, 2022) and Simpson Thacher & Bartlett LLP (Mar. 31, 2022). We have considered the comment letters received on the Item 408(a) disclosure proposal and discuss them in the context of new Item 408(d) below. See infra Section III.D.2. --------------------------------------------------------------------------- Finally, prior to either proposing release, in September 2021, the Commission's Investor Advisory Committee (``IAC'') \20\ issued recommendations regarding disclosure of Rule 10b5-1 plans, including that the Commission ``establish meaningful guardrails around the adoption, modification, and cancellation of Rule 10b5-1 trading plans,'' by addressing certain gaps in the rule that allow corporate insiders to unfairly exploit informational asymmetries.\21\ --------------------------------------------------------------------------- \20\ The IAC was established in Apr. 2012 pursuant to section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] to advise and make recommendations to the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. \21\ See IAC, Recommendations of the Investor Advisory Committee Regarding Rule 10b5-1 Plans (Sept. 9, 2021) (``IAC Recommendations''), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/20210916-10b5-1-recommendation.pdf. The IAC also held a panel discussion regarding Rule 10b5-1 plans at its June 10, 2021 meeting. See IAC, Meeting Minutes (June 10, 2021), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac061021-minutes.pdf. The IAC did not consider issuer share repurchases in its deliberations on its recommendations. See IAC Recommendations, at n. 1. However, in response to the Commission's request for comment regarding Item 703 in the Commission's 2016 concept release regarding business and financial disclosures required by Regulation S-K, see Business and Financial Disclosure Required by Regulation S-K, Release No. 33- 10064 (Apr. 13, 2016) [81 FR 23915 (Apr. 22, 2016)], the IAC recommended expanding the disclosure required by Item 703. See letters in response to the Concept Release from SEC Investor Advisory Committee (Jun. 15, 2016), available at https://www.sec.gov/comments/s7-06-16/s70616.htm. --------------------------------------------------------------------------- C. Summary of Final Amendments Having considered all of the comments we received, we are adopting the final amendments described in this release with some modifications from the proposal in response to those comments. The final amendments require the same additional detail regarding the structure of an issuer's repurchase program and its daily share repurchases, as was proposed. Further, as proposed, the final amendments require issuers to tag the disclosure using Inline XBRL. Although the final amendments require quantitative disclosure of daily repurchase data, as proposed, the frequency and manner of the disclosure is different from the proposal. Additionally, while we are requiring issuers to disclose the total number of shares repurchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), and the date that the plan was adopted or terminated, and whether its repurchases were intended to qualify for the 17 CFR 240.10b-18 (``Rule 10b-18'') non-exclusive safe harbor, as proposed, the manner in which registrants provide this disclosure has changed from the proposal. Further, as discussed in greater detail below, the final amendments require: Corporate issuers that file on domestic forms to disclose daily quantitative repurchase data at the end of every quarter in an exhibit to their Form 10-Q and Form 10-K (for an issuer's fourth fiscal quarter); Listed Closed-End Funds to disclose daily quantitative repurchase data in their annual and semi-annual reports on Form N-CSR; and [[Page 36005]] Foreign private issuers (``FPIs'') \22\ reporting on the FPI forms \23\ to disclose daily quantitative repurchase data at the end of every quarter in the new Form F-SR,\24\ which will be due 45 days after the end of an FPI's fiscal quarter. --------------------------------------------------------------------------- \22\ ``Foreign private issuer'' is defined in 17 CFR 230.405 (``Securities Act Rule 405'') and 240.3b-4 as any foreign issuer other than a foreign government except for an issuer meeting the following conditions as of the last business day of its most recently completed second fiscal quarter: (1) More than 50 percent of the issuer's outstanding voting securities are directly or indirectly held of record by residents of the United States; and (2) Any of the following: (i) The majority of the executive officers or directors are United States citizens or residents; (ii) More than 50 percent of the assets of the issuer are located in the United States; or (iii) The business of the issuer is administered principally in the United States. \23\ The Commission has adopted a series of forms exclusively available to FPIs, including the ``F-'' series registration statements and Forms 20-F and 6-K disclosure forms for annual and current reports, respectively. These forms have been designed with reference to international disclosure standards, both in scope and timing requirements for filing. Although FPIs may voluntarily choose to register and report using domestic forms, most do not do so. Unless otherwise specified, all references to FPIs assume they are not filing on the domestic forms. \24\ Only FPIs may file their share repurchase disclosures on the new form, so we are designating the new form as ``Form F-SR'' instead of ``Form SR'' to make it clear that this form is filed only by FPIs. --------------------------------------------------------------------------- As proposed, the final amendments require an issuer to include a checkbox above its tabular disclosures indicating whether certain officers and directors purchased or sold shares or other units of the class of the issuer's equity securities that are the subject of an issuer share repurchase plan or program before or after the announcement of an issuer repurchase plan or program. In a change from the proposal, we have revised the checkbox requirement so that an issuer must check the box if the triggering trades occur within four business days before or after the repurchase announcement, rather than the ten business days we proposed. For domestic corporate issuers and Listed Closed-End Funds, this checkbox requirement applies to any officer or director subject to the 15 U.S.C. 78p(a) (``Exchange Act section 16(a)'') reporting requirements. In another change from the proposal, for FPIs, this requirement applies to any director and member of senior management who would be identified pursuant to Item 1 of Form 20-F, regardless of whether the FPI is reporting on the forms exclusively available to FPIs or on the domestic forms.\25\ In a further change from the proposal, the daily quantitative repurchase data required by the final amendments will be treated as filed in Form 10-Q, Form 10-K, Form N-CSR, and Form F-SR, instead of furnished. Further, the final amendments eliminate the current requirements in Item 703 of Regulation S-K, Item 16E of Form 20-F, and Item 14 of Form N-CSR to disclose monthly repurchase data in periodic reports. --------------------------------------------------------------------------- \25\ See infra note 322 and accompanying text. --------------------------------------------------------------------------- We are also adopting, with some modifications from the proposal, amendments relating to the revision and expansion of the disclosure requirements in Item 703, Form 20-F, and Form N-CSR. Specifically, the final amendments require an issuer to disclose: The objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases; and Any policies and procedures relating to purchases and sales of the issuer's securities during a repurchase program by its officers and directors, including any restriction on such transactions. We are also adopting new Item 408(d), which requires quarterly disclosure in periodic reports on Forms 10-Q and 10-K (for the issuer's fourth fiscal quarter) about an issuer's adoption and termination of Rule 10b5-1 trading arrangements. This information will also be reported using Inline XBRL. II. Background A. Share Repurchases As the Commission noted in the Proposing Release, issuers may repurchase their shares through, among other means, open market purchases, tender offers, privately negotiated transactions, and accelerated share repurchases (``ASRs''). Issuers typically disclose repurchase plans or programs at the time that the share repurchases are authorized by the board of directors. Most share repurchases are executed over time through open market purchases. Issuers are not required to, and typically do not, disclose the specific dates on which they will execute trades pursuant to an announced repurchase plan or program. There are a number of reasons why issuers conduct share repurchases, and share repurchases can have a positive or negative impact on the market for an issuer's securities. The high dollar volume, nearly $950 billion in 2021, of recent share repurchase activity has been accompanied by public interest in corporate payouts in the form of share repurchases.\26\ Existing studies, including a review by Commission staff in 2020,\27\ have considered the rationales and effects of repurchases. As our staff concluded, repurchases are often employed in a manner that may be aligned with shareholder value maximization. Together with dividends, repurchases provide an avenue for returning capital to investors, which may be efficient if the issuer has cash it cannot efficiently deploy. Such returns of capital may also send signals to investors that managers are operating the issuer efficiently rather than retaining excess cash for potentially suboptimal use. --------------------------------------------------------------------------- \26\ See Section V.A.2, infra. \27\ See Response to Congress: Negative Net Equity Issuance (Dec. 23, 2020) (``2020 Staff Study''), available at https://www.sec.gov/files/negative-net-equity-issuance-dec-2020.pdf. Staff reports, statistics, and other staff documents (including those cited herein) represent the views of Commission staff and are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved the content of these documents and, like all staff statements, they have no legal force or effect, do not alter or amend applicable law, and create no new or additional obligations for any person. The Commission has expressed no view regarding the analysis, findings, or conclusions contained therein. --------------------------------------------------------------------------- Repurchases also have some unique features that are not easily replicated through dividend payments, such as potential tax advantages for some investors, repurchases' greater perceived flexibility, their potential to provide liquidity or price support when an issuer faces downward price pressure, and their effect on the amount of the issuer's shares outstanding (which may in turn mitigate dilutive effects of other share issuances or favorably adjust an issuer's leverage ratio).\28\ Importantly, and as we discuss further below, because investors understand that repurchases reflect managers' judgment about whether current prices accurately reflect the issuer's fundamental value, and consume cash that could otherwise be used for other purposes, repurchases can provide a relatively credible signal of the issuer's view that its stock is undervalued.\29\ However, as noted in the Proposing Release,\30\ and by several commenters,\31\ share repurchases may be at least partially motivated by factors other than long-term value maximization. --------------------------------------------------------------------------- \28\ See Bonaim[eacute], A.A. & Kahle, K.M., Share Repurchases, in Handbook of Corporate Finance (B. Espen Eckbo ed., forthcoming 2023) (``Bonaim[eacute] and Kahle (2023)'') and Farre-Mensa, J., Michaely, R., & Schmalz, M. Payout Policy, 6 Ann. Rev. Fin. Econ. 75 (2014) (``Farre-Mensa et al. (2014)''). \29\ See Bonaim[eacute] and Kahle (2023), supra note 28. For more detailed discussion of this literature, see infra Section V.A.2. and infra notes 402-403 and accompanying text. \30\ See Proposing Release, supra note 2, at 8444-8446. \31\ See, e.g., letters from Professor Alex Edmans (May 9, 2022) (``Prof. Edmans'') and Professor Robert J. Jackson, Jr., Dr. Edwin Hu, and Dr. Jonathon Zytnick (Jun. 27, 2022) (``Prof. Jackson, Dr. Hu, and Dr. Zytnick''). --------------------------------------------------------------------------- [[Page 36006]] At present, because issuers are not required to report daily repurchase transactions or provide additional qualitative disclosures about those transactions, it can be difficult to determine whether repurchase timing may have been motivated, at least in part, by factors other than long-term value maximization. For example, issuer repurchases may be influenced, in part, by a desire to achieve certain accounting metrics or for other potentially suboptimal reasons.\32\ Some research has found that issuers that would have narrowly missed an earnings per share (``EPS'') target were more likely to have engaged in repurchases,\33\ which through their mechanical effect of decreasing the denominator of that measure help such issuers to meet their target. --------------------------------------------------------------------------- \32\ See Graham J.R., Harvey, C.R. & Rajgopal, S., The Economic Implications of Corporate Financial Reporting, 40 J. Acct. & Econ. 3 (2005) (reporting that about 12 percent of surveyed executives would use repurchases to meet an earnings forecast); see also Rulemaking Petition 4-746, Rulemaking Petition Requesting Repeal and Reform of Rule 10b-18 to Address Manipulative Repurchase Programs that Harm Workers, at 4 (June 25, 2019), available at https://www.sec.gov/rules/petitions/2019/petn4-746.pdf (citing research that repurchases can be used to inflate share price and EPS-linked executive compensation) (``Rulemaking Petition 4-746''). The 2020 Staff Study found that, while a majority of the issuers included in the study either did not have EPS-linked compensation targets or had EPS targets but their board considered the impact of repurchases when determining whether performance targets were met or in setting the targets, approximately 18 percent of repurchasing issuers made compensatory awards based in part on EPS. See 2020 Staff Study, supra note 27. Other studies have considered repurchasing issuers that employed EPS or similar measures for other internal evaluations, such as promotion or retention, see Bennett, B. et al., Compensation Goals and Firm Performance, 124 J. Fin. Econ. 307, 310, 325 (2017) (reporting that executives who just miss performance thresholds are less likely to be retained), and for the purposes of creditors or outside analysts, see Kurt, A. C., Managing EPS and Signaling Undervaluation as a Motivation for Repurchases: The Case of Accelerated Share Repurchases, 17 Rev. Acct. & Fin. 453 (2018) (noting that executives manage EPS in order to satisfy creditors and suppliers, among other reasons) (``Kurt''). For additional academic research on the use of repurchases as a method of real earnings management, see infra notes 416-420 and accompanying text. \33\ See Almeida, H., Fos, V., & Kronlund, M., The Real Effects of Share Repurchases, 119 J. Fin. Econ. 168 (2016) (``Almeida et al. (2016)'') and Hribar, P., Jenkins, N., & Johnson, W.B., Stock Repurchases as an Earnings Management Device, 41 J. Acct. & Econ. 3 (2006) (``Hribar et al. (2006)''). --------------------------------------------------------------------------- The fact that repurchases can significantly impact executive compensation for some issuers may also affect how managers choose to employ repurchases. Like all investors, executives who receive equity- linked compensation stand to benefit from repurchases that improve their employer's long-term stock price, but in some cases executives may realize additional gains unavailable to other investors because of trading by executives or the structure of compensation to those executives. Some studies have found personal trading by insiders close in time to predictable changes in share price caused by repurchases or repurchase-plan announcements, such as concentrated sales in the period immediately following the issuer's repurchase.\34\ Issuers may also adjust the timing of their repurchases or repurchase announcements to increase the returns on insider equity sales.\35\ In these cases, by timing their sales to closely follow issuer purchases, executives can benefit in ways that confer a personal benefit to executives without necessarily increasing the value of the firm.\36\ Thus, equity-based or EPS-tied compensation arrangements could potentially be one factor that may influence some executives' decisions to undertake repurchases.\37\ Shareholders may not have sufficient information about all of these possible purposes and impacts of issuer repurchases. --------------------------------------------------------------------------- \34\ See Jackson, Jr., R.J., Stock Buybacks and Corporate Cashouts, Speech by Commissioner Jackson Before the Center for American Progress (June 11, 2018), available at https://www.sec.gov/news/speech/speech-jackson-061118 (``Jackson Speech''); Ben-Raphael, A., Oded, J., & Wohl, A., Do Firms Buy Their Stock at Bargain Prices? Evidence from Actual Stock Repurchase Disclosures, 18 Rev. Fin. 1299 (2014); Edmans, A., Fang, V.W., & Huang, A. H., The Long- Term Consequences of Short-Term Incentives, 60 J. Acct. Res. 1007, 1024 (2022) (``Edmans et al. (2022)''); Moore, D., Strategic Repurchases and Equity Sales: Evidence from Vesting Schedules, 146 J. Banking & Fin. 106717 (2023) (``Moore''); Wang, Z., Yin, Q.E., & Yu, L., Real Effects of Share Repurchases Legalization on Corporate Behaviors, 140 J. Fin. Econ. 197 (2021); see also Cziraki P., Lyandres, E., & Michaely, R., What Do Insiders Know? Evidence from Insider Trading Around Share Repurchases and SEOs, 66 J. Corp. Fin. 101544 (2021) (``Cziraki et al. (2021)'') (finding that insider sales decline ahead of repurchases). One commenter provided us with economic analysis by Professors Lewis and White disputing the findings from Commissioner Jackson's Speech. See letter from U.S. Chamber of Commerce (Apr.1, 2022) (``Chamber II''). But see letter from Prof. Jackson, Dr. Hu, and Dr. Zytnick in response (asserting that Lewis and White's analysis of the Jackson data confirms, rather than undermines, the Jackson conclusion). \35\ See Edmans et al. (2022), supra note 34; see also Edmans, A., Goncalves-Pinto, L., Groen-Xu, M., & Wang, Y., Strategic News Releases in Equity Vesting Months, 31 Rev. Fin. Stud. 4099 (2018) (``Edmans et al. (2018)'') (reporting that firms disproportionately release positive news items, including buyback announcements, in months when CEO equity vests) and Moore, supra note 34. \36\ See Edmans et al. (2022), supra note 34; see also Moore, supra note 34, at 2 (reporting that author's findings are ``consistent with managers strategically using share repurchases to personally benefit from the positive effects of repurchasing on the stock price''). \37\ Edmans et al. (2022), supra note 34, at 1010, 1034 (noting their findings ``are consistent with the CEO announcing repurchases to falsely signal undervaluation to the market to improve the conditions for his equity sales''); see also Kurt, supra note 32 (finding evidence that ``managerial incentives--securing bonuses and maintaining reputations by avoiding EPS misses--potentially lie behind the opportunistic use'' of some share repurchases). For a further discussion of the use of repurchases to potentially influence compensation tied to per-share measures, see infra note 422. --------------------------------------------------------------------------- Some commenters who opposed the proposed amendments questioned the premise that stock repurchases are deliberately used to enhance executive compensation or otherwise benefit insiders looking to sell their shares.\38\ One of these commenters stated that ``[c]oncerns about companies' using share repurchases to impact earnings per share (`EPS') or executive compensation are unfounded and ignore existing protections,'' and pointed to recent academic work that, in the commenter's view, undermines the premise that executives undertake repurchases to boost their compensation.\39\ To the extent that opposing commenters interpret this research to mean that opportunism or self-interest cannot be a significant motivating factor for share repurchases, we disagree with their assessment of the underlying evidence.\40\ In this regard, [[Page 36007]] we share the assessment of other commenters who argued that the research cited by opposing commenters does not undermine the proposition that personal benefit may be a factor in determining whether to undertake a share repurchase.\41\ --------------------------------------------------------------------------- \38\ See letters from Chamber II and Craig M. Lewis, Professor of Law and Joseph T. White, Assistant Professor of Finance, Vanderbilt University (Oct. 7, 2022) (``Profs. Lewis and White''). \39\ See letter from Profs. Lewis and White. Among other research, Profs. Lewis and White cite Guest, N., Kothari, S.P., & Venkat, P., Share Repurchases on Trial: Large-Sample Evidence on Share Price Performance, Executive Compensation, and Corporate Investment, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4149796, at 16 (Jan. 2023) (``Guest et al.'') (asserting that the study's findings that repurchases do not distort prices ``helps rule out [the] possibility'' that insiders can ``sell a portion of their shares at prices that are inflated due to a buyback'') and PWC, Share Repurchases, Executive Pay and Investment, BEIS Research Paper Number 2019/11, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/817978/share-repurchases-executive-pay-investment.pdf (finding that in the U.K. there is no or only weak evidence that repurchases are used to achieve EPS targets). \40\ For example, with respect to Guest et al., supra note 39, as the authors of the study report, large repurchasers enjoy superior returns in the quarter after repurchase, id. at 15, but perform similarly to non-repurchasers in the following year, id. at 16. This may be consistent with short-term gains from EPS or other manipulation that are dissipated as more complete information becomes available to the market, as the researchers appear to acknowledge in a footnote, see id. at 16 n.19. Such changes in value would create opportunities for executives to profit from trades close in time to repurchases. In addition, the authors focus only on behavior of the largest or most frequent repurchasers, and market- wide correlations estimated based on those issuers are not necessarily probative of the behavior of the issuers who stand to benefit most from small changes in EPS. We are thus more persuaded by the studies that do find opportunities for executives to profit from repurchases. See supra note 34. Similarly, with respect to the PWC study, supra note 39, we note that the U.K. has required next- day reporting of repurchases since 1981, which may discourage issuers from attempting to manipulate accounting metrics with repurchases, because daily data would reveal instances where repurchases were undertaken at a time when it was obvious to management they would otherwise miss an EPS target. The opposing commenters also point to research suggesting that insider sales following a repurchase or repurchase announcement are due to coincidences of the corporate calendar (i.e., repurchases occurring near in time to the expiration of blackout periods), not deliberate efforts by insiders to benefit from repurchase activity. See letter from Chamber II (citing Dittmann, I., Lu, A. Y., Obernberger, S., & Zheng, J. The Corporate Calendar and the Timing of Share Repurchases and Equity Compensation, Working paper (2022) (``Dittmann et al. (2022)''). But as another commenter observed: ``it does not matter if the equity sales are `mechanical' due to occurring after the end of a blackout period, or `voluntary'. If the CEO knows that she will be able to sell equity, due to the blackout period ending, this may still influence her buyback decision.'' See letter from Prof. Edmans. \41\ See letters from Prof. Jackson, Dr. Hu, and Dr. Zytnick and Prof. Edmans. --------------------------------------------------------------------------- Moreover, we believe opposing commenters have misconstrued the nature of the concern the proposed amendments sought to address. As explained below, it is not necessary to find that opportunism drives the timing of most issuer share repurchases to conclude that it is appropriate for investors to have more useful information about such repurchases. Indeed, as the author of several of the studies cited by these commenters observed, personal benefit may not be ``the only, or even most important, factor (as the terms `manipulation' or `opportunism' would suggest) but it may be a consideration. Thus, one does not need to believe that share buybacks are used for manipulation--a high hurdle--to find merit in the SEC's proposal.'' \42\ While this commenter specifically referenced the proposal to require disclosure of any policies and procedures relating to purchases and sales of the issuer's securities by its officers and directors, we believe all of the quantitative and qualitative disclosure requirements that we are adopting in this release together will serve to alert investors to the possibility of repurchases being motivated, at least in part, by goals unconnected to increasing shareholders value or signaling the issuer's view that its stock is undervalued.\43\ --------------------------------------------------------------------------- \42\ See letter from Prof. Edmans. \43\ See id. --------------------------------------------------------------------------- Currently, investors cannot readily determine the purposes behind any given share repurchase, and this uncertainty may have adverse effects on investors and markets. When managers may personally benefit from repurchases or their timing, it is not as evident, for example, that a repurchase is intended to distribute excess cash or signal management's views about the issuer's fundamental value, rather than to benefit the manager personally. Similarly, if issuers may adjust the volume or timing of repurchases to reach certain accounting targets or for other reasons that are not intended to signal management's views about the firm's value or to return excess cash, such as protecting the issuer's reputation or managing relationships with customers or suppliers, some of which may even run counter to the interest of shareholders, the signal sent by all repurchases is muddied. This market failure may make it more difficult for investors to value a company or identify when an issuer's use of cash is well-managed, reducing investor confidence and market liquidity.\44\ --------------------------------------------------------------------------- \44\ We discuss in more detail the market failures addressed by the amendments in the Economic Analysis section, below. See infra Section V.B.1. --------------------------------------------------------------------------- The additional disclosures that we are adopting, including of daily quantitative repurchase data, will provide investors with enhanced information to assess the purposes and effects of repurchases, including whether those repurchases may have been taken for reasons that may not increase an issuer's value. At the same time, we are mindful that any enhanced disclosure requirements will come at a cost for issuers, and ultimately shareholders, and should be appropriately tailored to address their intended aims. For those reasons, as discussed more fully below, we have made certain changes to the final amendments to help limit the compliance burden on issuers while still providing investors with the information they need to better assess the efficiency of, and motives behind, issuer repurchases. B. Purpose of the Amendments As we have just described, issuers repurchase shares for multiple reasons. In many cases, share repurchases may represent an efficient use of the issuer's capital, such as when returning money to shareholders exceeds other possible internal investments of capital.\45\ However, some uses of share repurchases may not be efficient, such as repurchases conducted to increase management compensation or to affect various accounting metrics, in either case when those actions do not increase the value of the firm.\46\ --------------------------------------------------------------------------- \45\ See supra notes 27-29 and accompanying text. \46\ See supra notes 30-33 and accompanying text. --------------------------------------------------------------------------- Current repurchase disclosure requirements, which do not require the issuer to provide quantitative daily repurchase information or state the objectives or rationales for its repurchases and are reported in the aggregate at the monthly level, provide investors with insufficient insight into the efficiency, purposes, and impacts of an issuer's share repurchases. This frustrates the ability of investors to separate out and assess the different motivations and impacts of share repurchases. We have determined that additional disclosures are needed to remedy these market failures. Given common frictions on voluntary reporting of this information, including the strong possibility of significant divergences in the interests of managers and other investors, we believe mandatory disclosures are necessary to overcome these informational asymmetries between issuers and their managers on the one hand and investors on the other. The additional qualitative disclosures we are adopting will provide investors with additional information about the structure of an issuer's repurchase program and its share repurchases that will enable them to better understand how and why those repurchases are conducted. The qualitative disclosures, when combined with the daily repurchase activity disclosure, will allow investors to draw clearer and more informed conclusions about the purposes and effects of share repurchases. The current reporting regime, in which investors receive information only about the monthly aggregate repurchases of issuers, fails to provide enough detail for investors to draw informed conclusions about the purposes and effects of many repurchases. In contrast, the amendments we are adopting will provide investors with data about the daily repurchase activity of an issuer and additional qualitative disclosures that investors can combine with other disclosures, such as the timing of compensatory awards or executive equity transactions, to observe whether a given repurchase was apt to affect executive compensation. Data on daily transactions and the additional qualitative disclosures would also reveal patterns in which repurchases were undertaken at times or under conditions that were likely to affect imminent accounting metrics, or prior [[Page 36008]] to the release of material nonpublic information by the issuer. Investment advisers may use this data in assisting investors in assessing the purposes and effects of share repurchases. Requiring that issuers provide disclosures of daily share repurchases as well as qualitative data will better enable investors to assess the efficiency, purposes, and impacts of share repurchases. These disclosures will allow investors to better evaluate whether a share repurchase was intended to increase the value of the firm or represented an inefficient deployment of capital, such as by either providing additional compensation to management or impacting accounting metrics in ways that were not intended to increase overall firm value. Disclosures of daily repurchase data and qualitative disclosures may indicate that management may have timed share repurchases in order to meet certain earnings goals or targets, to support insiders' trading positions or to otherwise increase insider compensation. Enhancing the ability of investors to assess the efficiency, purposes, and impacts of issuer repurchases would benefit investors and could improve market efficiency and capital formation. Accordingly, the purpose of these amendments is to improve the information investors receive to better assess the efficiency of, and motives behind, an issuer repurchase. In proposing to amend Item 703, the Commission expressed the view that enhanced disclosure about share repurchases would allow investors to ``[b]etter understand an issuer's motivation for its share repurchase.'' \47\ In this way, the proposed amendments aimed to assist investors in distinguishing between share repurchases intended to increase shareholder value or signal the issuer's view that its stock is undervalued and those that instead were at least, in part, ``potentially motivated by short-term attempts to boost the share price'' or to achieve other inefficient objectives.\48\ In the case where repurchases may increase the value of managers' compensation, for instance, one commenter stated that ``[enhanced] disclosure is useful because it alerts the market to the possibility of buybacks being at least partially influenced by the CEO's equity sales.'' \49\ We agree and, with the benefit of the comments received on the proposed amendments, continue to believe that an investor's ability to assess the impact of a given repurchase depends in part on having the information necessary to evaluate the purposes for which the repurchase was undertaken. --------------------------------------------------------------------------- \47\ Proposing Release, supra note 2, at 8445. \48\ Proposing Release, supra note 2, at 8446 and 8457. \49\ See letter from Prof. Edmans. --------------------------------------------------------------------------- We understand that issuers may employ open-market stock repurchases to credibly signal to investors the issuer's view of the stock's fundamental value.\50\ The possibility that repurchases may be, in part, motivated by goals unconnected to the issuer's fundamental value, such as the manager's compensation or reputation or achieving accounting metrics required by creditors or expected by analysts, would reduce the credibility of such signals, even among issuers whose repurchases are solely intended to signal management's view of the issuer's value. Similarly, due to asymmetries in information between the issuer and investors, investors cannot typically observe directly whether a repurchase represented an efficient use of excess cash aimed at increasing the issuer's value. Thus, the possibility that some repurchases are motivated by reasons other than shareholder value maximization complicates investor efforts to make this determination absent additional information not currently required to be disclosed. --------------------------------------------------------------------------- \50\ See, e.g., Asquith, P. & Mullins, Jr. D.W., Signaling with Dividends, Stock Repurchases, and Equity Issues, 15 Fin. Mgmt. 27, 33-34 (1986). --------------------------------------------------------------------------- Further, as we noted in the Proposing Release,\51\ and as described above, there is evidence from which investors could reasonably conclude that some repurchases are at least in part motivated by goals such as executive compensation or achieving certain accounting targets. Thus, as the Commission stated, ``it can be difficult for investors to determine whether the undertaken repurchases were efficient and aligned with shareholder value maximization, or were at least in part driven by self-interested behavior of corporate insiders rather than shareholder interest.'' \52\ Accordingly, we believe that investors should have sufficient information about how issuers conduct repurchases to make informed judgments about the likely purposes and effects of the repurchases, including whether such repurchases provide credible information about the value of the issuer. --------------------------------------------------------------------------- \51\ See Proposing Release, supra note 2, at 8444-8445. \52\ Proposing Release, supra note 2, at 8455. --------------------------------------------------------------------------- We acknowledge that many, perhaps even most, share repurchases are not undertaken solely or primarily to benefit managers or to achieve targets, such as those based on EPS. Indeed, as commenters noted, Commission staff have previously assessed that it is ``unlikely'' that a ``majority'' of repurchases are so motivated, and instead that ``most'' repurchases are consistent with shareholder value maximization.\53\ --------------------------------------------------------------------------- \53\ See, e.g., letters from Cato Institute (Apr. 1, 2022) (``Cato''), Chamber II, Maryland State Bar Association (Apr. 5, 2022) (``Maryland Bar''), and National Association of Manufacturers (Mar. 31, 2022) (``NAM''). --------------------------------------------------------------------------- That fact, however, does not aid investors who are attempting to assess the efficiency of, and information conveyed by, any given repurchase by a particular issuer.\54\ Given the opportunity for repurchases to affect executive compensation or help an issuer to achieve certain accounting measures, as well as the evidence that some repurchases do so, investors cannot currently be certain that any given repurchase in fact conveys information about the issuer's fundamental value. Thus, as the Commission explained in the Proposing Release, additional disclosures would, for example, ``help investors gauge whether . . . repurchases may be motivated by price support for insiders' sales of their securities, rather than conveying a true signal of undervaluation.'' \55\ In this regard, we agree with the observations of a commenter who compared this rationale to disclosure requirements for potentially self-interested financial advisors where disclosure allows a client to ``take into account the possibility of a conflict.'' \56\ --------------------------------------------------------------------------- \54\ See, e.g., letters from Better Markets (Apr. 1, 2022) (``Better Markets I'') (noting that ``disclosures will help investors identify `opportunistic' share repurchases designed primarily to benefit management, not the company'') and Council of Institutional Investors (Mar. 31, 2022) (``CII'') (stating the amendments ``could strengthen the market's ability to assign premia to companies that make capital allocation decisions optimizing the company's long-term performance and assign discounts to companies that do not''). \55\ Proposing Release, supra note 2, at 8457. \56\ See letter from Prof. Edmans (stating that this is similar to how financial advisors must disclose the commission on products that they are offering to their clients, such that, although the product pays the highest commission to the advisor, it is also in the best interest of the client, so there is no conflict, but the disclosure is useful to allow the client to take into account ``the possibility of'' a conflict). --------------------------------------------------------------------------- Further, even efficient repurchases have the potential to negatively affect investor confidence. As we have described previously, we are concerned that, in some cases, issuers may repurchase their stock while the relevant decision makers are aware of material nonpublic information.\57\ Because issuers are repurchasing their [[Page 36009]] own securities, asymmetries may exist between issuers and investors with regard to information about the issuer and its future prospects. Investors may be more reluctant to trade in the presence of such informational asymmetries.\58\ --------------------------------------------------------------------------- \57\ See Rule 10b5-1 Adopting Release, supra note 18, at 80362- 80363 and 80372. \58\ One commenter suggests that issuers undertake voluntary arrangements that limit their ability to repurchase at a time the relevant decision maker is aware of material nonpublic information, and therefore that the threat of such trading should not serve as a basis for the amendments. See letter from Securities Industry and Financial Markets (Apr. 1, 2022) (``SIFMA II''). Other academic research suggests, however, that some issuers conduct repurchases at times they are likely to be aware of material nonpublic information and earn average returns on their trades that are not achieved by other traders. See Bonaim[eacute], A.A., Harford, J., & Moore, D., Payout Policy Tradeoffs and the Rise of 10b5-1 Preset Repurchase Plans, 66 Mgmt. Sci. 2291 (2020) (reporting that one-third of disclosed issuer 10b5-1 plans begin trading within one day of adoption) (``Bonaim[eacute] et al. (2020)''). --------------------------------------------------------------------------- In light of these concerns, the concerns expressed by commenters,\59\ and our expectation that the volume of share repurchases will continue to be significant, we are persuaded that investors would benefit from additional and more detailed quantitative and qualitative information related to issuer share repurchases. Such disclosures would help investors evaluate the purposes, impacts, and efficiency of share repurchases. Additional information regarding an issuer's repurchase activity may reveal, for instance, whether those repurchases likely affected managers' compensation. --------------------------------------------------------------------------- \59\ See, e.g., letters from Amy Lewis (Dec. 15, 2021) (``Lewis''); California Public Employees' Retirement System (Mar. 30, 2022) (``CalPERS''), CFA Institute (Apr. 6, 2022) (``CFA Institute''), CII, and Form Letter A. --------------------------------------------------------------------------- The daily quantitative repurchase data we are requiring will assist investors in understanding the purposes and effects of repurchases. For example, these data will help investors to identify repurchases undertaken close in time to the date on which an accounting measure, such as EPS, is likely to trigger other effects. In many cases, repurchase data aggregated at the monthly level would not be sufficiently detailed to shed light on these patterns. Similarly, daily data may allow investors to determine whether an executive may have sold equity during a month in which there was heavy repurchase activity, and data aggregated at the monthly level leave it unclear whether the sales preceded or followed the bulk of the repurchases. We recognize that these data will not by themselves establish that a repurchase was undertaken for any particular purpose. As a result, the final amendments also require issuers to provide investors with more detailed qualitative information that they could use to evaluate issuer share repurchases in conjunction with the daily quantitative repurchase data. We believe that the quantitative and qualitative information will work together to help investors to identify repurchases in which efforts to affect compensation or accounting measures may have played a larger role, and help to credibly identify repurchases where such goals were unlikely to have played a significant role. Detailed reporting could also reveal instances in which an issuer made large repurchases in advance of announcing material nonpublic information or allow investors to more readily observe instances in which share repurchases may have been timed to allow trading while the issuer was aware of material nonpublic information or to benefit from other asymmetries. Investors could consider this information in making future investment decisions with respect to a given issuer. In many instances, reporting of repurchase activity in aggregate monthly amounts, as required by our current requirements, may not be precise enough to reveal patterns in repurchases. Again, we also believe that qualitative information regarding an issuer's purposes for and policies regarding repurchases will further aid investors in understanding these daily quantitative data, and in using them to assess the efficiency of, and motivations for a repurchase. The amendments require more detailed quantitative and qualitative disclosure about issuer share repurchases, and require issuers to present the disclosure using a structured data language. We believe that the final amendments will promote investor protection by allowing investors to: Better understand the extent of an issuer's activity in the market, including potential impacts on the issuer's share price; Better understand an issuer's motivation for its share repurchases, and how it has structured and is executing its purchase plan; and Gain potential insight into any relationship between share repurchases and executive compensation and stock sales. III. Discussion of Final Amendments A. Disclosure of Share Repurchases 1. Proposed Amendments The Commission proposed new Exchange Act Rule 13a-21 and new Form SR, which would require issuers, including FPIs and certain Listed Closed-End Funds, to report any daily purchase made by or on behalf of the issuer or any affiliated purchaser of shares or other units of any class of the issuer's equity securities that are registered pursuant to Exchange Act section 12.\60\ The issuer would be required to furnish the daily detail in Form SR on the Commission's Electronic Data Gathering, Analysis, and Retrieval (``EDGAR'') system before the end of the first business day following the day on which the issuer executes a share repurchase. The Form SR would require the following disclosure in tabular format, by date, for each class or series of securities: --------------------------------------------------------------------------- \60\ Currently, registered investment companies other than Listed Closed-End Funds are not required to provide the repurchase disclosure under Item 703 of Regulation S-K as implemented in Form N-CSR. Accordingly, proposed Form SR also would not be filed by registered investment companies other than Listed Closed-End Funds. Business development companies, which are not registered investment companies, provide the repurchase disclosure of Item 703 on Forms 10-K and 10-Q rather than Form N-CSR. --------------------------------------------------------------------------- (1) Identification of the class of securities purchased; (2) The total number of shares (or units) purchased, including all issuer repurchases whether or not made pursuant to publicly announced plans or programs; (3) The average price paid per share (or unit); (4) The aggregate total number of shares (or units) purchased on the open market; (5) The aggregate total number of shares (or units) purchased in reliance on the Rule 10b-18 non-exclusive safe harbor; \61\ and --------------------------------------------------------------------------- \61\ Rule 10b-18 provides issuers with a safe harbor from liability for manipulation under 15 U.S.C. 78i(a)(2) (``Exchange Act section 9(a)(2)'') and 15 U.S.C. 78j(b) (``Exchange Act section 10(b)'') when they repurchase their common stock in the market in accordance with the rule's manner, timing, price, and volume conditions. The proposed disclosure would not provide a defense to manipulative conduct for purchases that are not in fact eligible to rely on the safe harbor. --------------------------------------------------------------------------- (6) The aggregate total number of shares (or units) purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).\62\ --------------------------------------------------------------------------- \62\ The Commission adopted Rule 10b5-1 in 2000 to clarify the meaning of ``manipulative or deceptive device[s] or contrivance[s]'' prohibited by Exchange Act section 10(b) and Rule 10b-5 with respect to trading on the basis of material nonpublic information. See Selective Disclosure and Insider Trading, Release No. 33-7881 (Aug. 15, 2000) [65 FR 51716 (Aug. 24, 2000)]. Rule 10b5-1(c) established an affirmative defense to Rule 10b-5 liability for insider trading in circumstances where it is clear that the trading was not based on material nonpublic information and the trade was pursuant to a binding contract, an instruction to another person to execute the trade for the instructing person's account, or a written plan. --------------------------------------------------------------------------- The proposed amendments would also require an issuer to disclose material errors or changes to [[Page 36010]] information previously reported on an amended Form SR, which the Commission indicated would allow for timely and accurate disclosure the day after execution of the share repurchase order, with the ability to make corrections, if needed, in amended filings. Additionally, the Commission proposed to require issuers to furnish, rather than file, Form SR. As a result, issuers would not be subject to liability under 15 U.S.C. 78r (``Exchange Act section 18'') for the disclosure in the form, and the information would not be deemed incorporated by reference into filings under the Securities Act and thus would not be subject to liability under 15 U.S.C. 77k (``Securities Act section 11''), unless the issuer expressly incorporated such information.\63\ --------------------------------------------------------------------------- \63\ In addition, by requiring the Form SR to be furnished, a late submission of the form would not affect eligibility to use Form S-3 or to file a short-form registration statement under General Instruction A.2 of Form N-2. General Instruction I.A.3(b) to Form S- 3 requires that all reports required to be filed with the Commission during the preceding 12 months have been filed; the same requirements apply under General Instruction A.2 of Form N-2. --------------------------------------------------------------------------- 2. Comments on the Proposed Amendments a. Comments on the Daily Share Repurchase Disclosure Requirement Although there was substantial opposition to the proposal,\64\ several commenters generally supported the proposed daily repurchase disclosure.\65\ Some of the commenters that supported the proposed amendments asserted that they would reduce information asymmetries between issuers and investors,\66\ which would result in ``greater confidence that they can find accurate, comprehensive information about a security and the broader investment field.'' \67\ Other commenters stated that daily disclosure of share repurchases would increase transparency.\68\ --------------------------------------------------------------------------- \64\ See, e.g., letters from American Bar Association, Federal Regulation of Securities Committee (Apr. 13, 2022) (``ABA Committee''); American Council of Life Insurers (Feb. 22, 2022) (``ACLI''); ASA; Bank Policy Institute & American Bankers Association (Apr. 1, 2022) (``BPI & Amer. Bankers Assoc.''); Cato; Chamber II; Chevron Corporation (Mar. 31, 2022) (``Chevron''); Coalition of Business Trades (Apr. 1, 2022) (``Coalition''); Cravath, Swaine & Moore LLP (Mar. 31, 2022) (``Cravath''); Davis Polk & Wardwell LLP (Mar. 28, 2022) (``Davis Polk''); DLA Piper LLP (Apr. 1, 2022) (``DLA Piper''); Dow Inc. (Apr. 1, 2022) (``Dow''); FedEx Corporation (Apr. 1, 2022) (``FedEx''); Fenwick & West LLP (Mar. 31, 2022) (``Fenwick''); Guzman & Company (Mar. 28, 2022) (``Guzman''); Home Depot, Inc. (Apr. 1, 2022) (``Home Depot''); HP Inc. (Apr. 1, 2022) (``HP''); Institute for Portfolio Alternatives (Mar. 28, 2022) (``IPA''); International Bancshares Corporation (Apr. 1, 2022) (``IBC''); Jones Day (Mar. 31, 2022) (``Jones Day''); Keith Paul Bishop, former California Commissioner of Corporations (Apr. 6, 2022) (``Bishop''); Maryland Bar; NAM; Norfolk Southern Corporation (Mar. 31, 2022) (``Norfolk Southern''); NYSE Group, Inc. (Apr. 1, 2022) (``NYSE''); Paul, Weiss, Rifkind, Wharton & Garrison LLP (Apr. 1, 2022) (``Paul Weiss''); Pennsylvania Chamber of Business and Industry (Apr. 1, 2022) (``PA Chamber''); PNC Financial Services Group (Mar. 30, 2022) (``PNC''); Profs. Lewis and White; PSC; Quest Diagnostics (Apr. 1, 2022) (``Quest''); Shearman & Sterling LLP (Apr. 1, 2022) (``Shearman''); SIFMA II; Simpson Thacher & Bartlett LLP (Mar. 31, 2022) (``Simpson Thacher''); Society for Corporate Governance (Apr. 1, 2022) (``SCG''); Sullivan & Cromwell (Apr. 1, 2022) (``Sullivan''); T. Rowe Price (Mar. 30, 2022) (``T. Rowe Price''); Virtu Financial (Mar. 29, 2022) (``Virtu''); Vistra Corp. (Apr. 1, 2022) (``Vistra''); and Wilson Sonsini Goodrich & Rosati (Apr. 18, 2022) (``Wilson Sonsini''). \65\ See, e.g., letters from Alex Hanson-Michelson (Oct. 18, 2022) (``Hanson-Michelson''); Americans for Financial Reform Education Fund et al. (Apr. 1, 2022) (``AFREF et al.''); Amy (Oct. 23, 2022) (``Amy''); Anonymous (Oct. 29, 2022) (``Anonymous V''); Anonymous (Oct. 30, 2022) (``Anonymous VI''); Anonymous, Retail Investor (Dec. 26, 2022) (``Anonymous VII''); Arun R. (Oct. 8, 2022) (``Arun''); Better Markets I; Better Markets (Jan. 11, 2023); BrilLiquid LLC (Apr. 1, 2022) (``BrilLiquid''); CalPERS; Calvin Satterfield (Jan. 13, 2023) (``Satterfield''); CFA Institute; CII; David B. (Oct. 9, 2022) (``David''); David Jaggard (Oct. 13, 2022) (``Jaggard''); Richard L. Hecht, Adubon Consulting Group (Jan. 27, 2022) (``Hecht''); International Corporate Governance Network (Mar. 31, 2022) (``ICGN''); James Lutes (Jan. 10, 2023) (``Lutes''); James Mahr (Oct. 8, 2022) (``Mahr''); Joe Hernandez (Oct. 30, 2022) (``Hernandez''); Joseph Krugel (Oct. 30, 2022) (``Krugel''); Kayden Fox (Oct. 8, 2022) (``Fox''); Lewis; Marc Pentacoff (Dec. 23, 2021) (``Pentacoff''); Mike Kerr (Aug. 16, 2022) (``Kerr''); North American Securities Administrators Association, Inc. (Apr. 1, 2022) (``NASAA''); National Employment Law Project (Apr. 1, 2022) (``NELP''); Oxfam America (Apr. 1, 2022) (``Oxfam''); Professor Lenore Palladino, UMass Amherst (Mar. 30, 2022) (``Prof. Palladino''); Prof. Jackson, Dr. Hu, and Dr. Zytnick; Public Citizen (Apr. 1, 2022) (``Public Citizen''); Roosevelt Institute (Mar. 31, 2022) (``Roosevelt''); Stephen, Consultant (Dec. 29, 2022) (``Stephen''); Stephane Mans (Jan. 12, 2023) (``Mans''); U.S. Senators Marco Rubio and Tammy Baldwin (Apr. 1, 2022) (``Senators Rubio & Baldwin''). Additionally, Form Letter A supported the proposal. \66\ See, e.g., letters from CFA Institute and Lewis. \67\ See letter from Lewis. \68\ See, e.g., letters from Amy, Anonymous V, Anonymous VI, Anonymous VII, Andrew (Dec. 26, 2022), Arun, CalPERS, David, D.L. (Jan. 11, 2023), Fox, Hanson-Michelson, Hernandez, Jaggard, Kerr, Krugel, Lutes, Mahr, Mans, Satterfield, and Stephen. --------------------------------------------------------------------------- Some commenters asserted that issuers would be able to comply with the proposed requirement to provide daily repurchase disclosure one business day after execution of an issuer's share repurchase order because issuers already comply with these types of strict deadlines in other markets, and section 16 insiders must report their purchases and sales within two business days.\69\ Other commenters suggested that the costs of the proposed amendments would be minimal,\70\ with one commenter noting that, at most, the proposed amendments would be ``a minor incremental administrative burden.'' \71\ Some commenters indicated that the proposed amendments would enable the Commission to determine issuers' compliance with the Rule 10b-18 safe harbor.\72\ One form comment letter asserted that such daily disclosure would reduce the amount of time that insiders know of a repurchase while other investors remain ignorant and ``give the Commission the tools to enforce existing laws.'' \73\ --------------------------------------------------------------------------- \69\ See, e.g., letters from CalPERS and ICGN. \70\ See e.g., letters from Better Markets I, CFA Institute, and Prof. Palladino (stating that the costs of daily reporting ``should be minimal given the well-established regular reporting of other financial metrics to the Commission, and the fact that companies are already reporting aggregate stock buybacks data, which must be determined from micro-level data''). \71\ See letter from CFA Institute. \72\ See, e.g., letters from NELP, Prof. Palladino, and Roosevelt. These commenters were generally concerned about issuers manipulating the market for their securities through buybacks executed not in accordance with the Rule 10b-18 safe harbor. \73\ See letter from Form Letter A. --------------------------------------------------------------------------- Many commenters opposed the proposal due to the proposed requirement that issuers provide daily repurchase disclosure one business day after execution of an issuer's share repurchase order.\74\ Some of these commenters indicated that existing disclosure rules require near real-time trading information only in situations involving changes in corporate control or trading by insiders,\75\ and share repurchase activity does not carry the same signaling value as those situations.\76\ Other commenters asserted that the justification for the one business day requirement is not [[Page 36011]] evident.\77\ A number of commenters asserted that the proposed amendments would increase costs without a corresponding benefit.\78\ Some commenters suggested that daily repurchase disclosures could cause investors to misinterpret an issuer's day-to-day changes in trading activity,\79\ which could result in unjustified stock price volatility \80\ or the disruption of confidential merger or acquisition discussions.\81\ Additionally, although some commenters suggested that investors might use daily disclosure data to identify the issuer's trading strategies,\82\ other commenters observed that a move to periodic reporting should substantially mitigate any such concern.\83\ --------------------------------------------------------------------------- \74\ See, e.g., letters from ACCO Brands Corporation (Mar. 30, 2022) (``ACCO''), ACLI, ASA, Bishop, BPI & Amer. Bankers Assoc., Business Roundtable (Apr. 1, 2022) (``Business Roundtable''), Cato, Chamber II, Chamber III, Chevron, Coalition, Cravath, Davis Polk, DLA Piper, Dow, Ed Armstrong (Dec. 28, 2021) (``Armstrong''), Empire State Reality Trust (Mar. 29, 2022) (``Empire''), FedEx, Guzman, Hecht, Home Depot, HP, IBC, Jones Day, Kirkland & Ellis LLP (Apr. 1, 2022) (``Kirkland Ellis''), Maryland Bar, NAM, Norfolk Southern, NYC Bar, NYSE, PA Chamber, Paul Weiss, Pay Governance (Jan. 24, 2022) (``Pay Governance''), PNC, Profs. Lewis and White, Quest, SCG, Shearman, SIFMA II, Simpson Thacher, Stephens, Stuart Kaswell, Esq. (Mar. 18, 2022) (``Kaswell''), Sullivan, T. Rowe Price, Virtu, Vistra, and Wilson Sonsini. One of these commenters stated that, because investors only see earnings quarterly, management's attempt to use repurchases to affect their pay would only been detected quarterly, and daily disclosures would not help. See letter from Profs. Lewis and White. \75\ See, e.g., letters from Davis Polk (stating that ``only in cases involving potential changes in corporate control--where the information called for by Schedule 13D is plainly necessary to allow investors to make informed investment decisions--and in cases involving trading by officers, directors and ten percent shareholders, whose trading may signal changes in insider sentiment and corporate prospects unknown to the public market'') and T. Rowe Price. \76\ See letter from Davis Polk. \77\ See letters from Chamber II, NAM, and T. Rowe Price. \78\ See, e.g., letters from Armstrong, BPI & Amer. Bankers Assoc., Business Roundtable, Cato, Chamber II, Coalition, Davis Polk, DLA Piper, Dow, Guzman, Maryland Bar, Profs. Lewis and White, Quest, SCG, T. Rowe Price, and Vistra. For example, commenters claimed that daily disclosure could boost share price, resulting in higher repurchase costs; push issuers to revise or abandon share repurchase plans; cause issuers to substitute ASRs for daily repurchases, which would increase costs and limit flexibility; discourage stock-based compensation; deter potential capital allocation decisions; burden personnel; and incentivize the use of larger financial firms over smaller ones. See, e.g., letters from Coalition, Davis Polk, DLA Piper, Guzman, Maryland Bar, Profs. Lewis and White, Quest, SCG, T. Rowe Price, and Vistra. \79\ See, e.g., letters from Business Roundtable, Davis Polk, Dow, FedEx, Home Depot, Kaswell, Profs. Lewis and White, NAM, PNC, Quest, Shearman, SIFMA II, Simpson Thacher, T. Rowe Price, Wilson Sonsini, and Vistra. For example, some of the commenters noted that a benign halt in purchases could be misinterpreted as a signal that the issuer has material nonpublic information or that the issuer has lost confidence in the value of its stock. See, e.g., letters from Business Roundtable, Davis Polk, Dow, Home Depot, NAM, Profs. Lewis and White, Quest, SCG, Simpson Thacher, T. Rowe Price, and Vistra. One commenter noted that misinterpretation risks are heightened for financial services companies because a halt in their share repurchases could be due to supervisory action by the Federal Reserve or other regulators, but the issuer may be barred from disclosing such action. See letter from PNC. \80\ See, e.g., letters from Cravath, Davis Polk, Profs. Lewis and White, and SCG. \81\ See, e.g., letters from Davis Polk, PNC, SIFMA II, and Sullivan. \82\ See letters from Home Depot and PNC. \83\ See letters from Cravath and Davis Polk. --------------------------------------------------------------------------- Several commenters claimed that daily disclosures would result in an overload of information \84\ that would be too disaggregated for retail investors to easily parse.\85\ Commenters also expressed the view that hedge funds and other professional traders would leverage daily repurchase information to exploit arbitrage opportunities \86\ and actually increase information asymmetry.\87\ Some commenters asserted that we have failed to identify a ``market failure'' that would justify additional disclosures and expressed the view that information asymmetry is advantageous to markets because it incentivizes some market actors to expend resources developing information that would be relevant to an issuer's share price.\88\ --------------------------------------------------------------------------- \84\ See, e.g., letters from Dow, Kirkland Ellis, NYSE, SCG, and Vistra. \85\ See, e.g., letters from ACLI, Armstrong, ASA, Chevron, Cravath, Dow, Guzman, Hecht, Home Depot, Jones Day, NYSE, PNC, Profs. Lewis and White, Quest, SCG, Shearman, SIFMA II, and Simpson Thacher. \86\ See, e.g., letters from ACCO, Armstrong, ASA, BPI & Amer. Bankers Assoc., Business Roundtable, Cato, Chevron, Coalition, Cravath, Davis Polk, DLA Piper, Dow, Empire, FedEx, Guzman, Home Depot, HP, IBC, Jones Day, NAM, NYC Bar, Norfolk Southern, PA Chamber, Paul Weiss, PNC, Profs. Lewis and White, Quest, Shearman, SIFMA II, SCG, Simpson Thacher, Stephens, Sullivan, T. Rowe Price, Vistra, and Wilson Sonsini. One commenter noted that sophisticated investors already use their superior technology and resources, which are not available to ordinary investors, to identify trading opportunities and earn positive returns by processing the high- frequency information available on Form 4. See letter from Profs. Lewis and White. \87\ See, e.g., letters from NYSE and Profs. Lewis and White. \88\ See, e.g., letters from Chamber II and Profs. Lewis and White. --------------------------------------------------------------------------- Several commenters asserted that the proposed daily repurchase disclosures on Form SR may encourage issuers to act inefficiently to mitigate the negative consequences of daily disclosure.\89\ Commenters suggested that issuers may shift from more conservative daily dollar cost averaging strategies to the more costly practice of effecting larger repurchases on fewer days to avoid triggering speculation, continue daily repurchases when it does not make financial sense to do so, or limit their average daily trading volume to try to ensure that sophisticated investors viewed the daily trades as immaterial, even if a larger volume would be more beneficial to shareholders.\90\ One commenter suggested that share repurchase disclosures are unnecessary because, even if managers benefit from repurchases through an increased share price, such an increase also benefits other existing shareholders.\91\ --------------------------------------------------------------------------- \89\ See, e.g., letters from Chevron, Davis Polk, DLA Piper, Profs. Lewis and White, SIFMA II, and Sullivan. \90\ See, e.g., letters from ACCO, Armstrong, ASA, BPI & Amer. Bankers Assoc., Business Roundtable, Cato, Chevron, Coalition, Cravath, Davis Polk, DLA Piper, Dow, Empire, FedEx, Guzman, Home Depot, HP, IBC, Jones Day, NAM, NYC Bar, Norfolk Southern, PA Chamber, Paul Weiss, PNC, Quest, Shearman, SIFMA II, SCG, Simpson Thacher, Stephens, Sullivan, T. Rowe Price, Vistra, and Wilson Sonsini. \91\ See letter from Maryland Bar. --------------------------------------------------------------------------- Some commenters asserted that share repurchase information is not meaningful to investors because investors have never asked for detailed share repurchase information.\92\ One commenter stated that the proposed amendments would interfere with a corporation's state law duties by discouraging and deterring companies from undertaking repurchases that they otherwise judge to be in shareholders' interest.\93\ Another commenter asserted that the proposed amendments would violate the First Amendment because the proposed amendments ``do[ ] not acknowledge the compelled-speech burdens that come with a next- day reporting regime.'' \94\ --------------------------------------------------------------------------- \92\ See, e.g., letters from ACCO and Norfolk Southern. See also letter from Profs. Lewis and White (stating that daily repurchase data is generally immaterial to investors and that many issuers already disclose completion or cancellation of open market repurchase programs if they believe it is material). \93\ See letter from Cato. \94\ See letter from Chamber III. --------------------------------------------------------------------------- A number of commenters disputed the proposal's assertion that the use of share repurchases may help some insiders achieve performance targets.\95\ Several of these commenters \96\ cited the 2020 Staff Study \97\ for support, particularly the study's statement that ``82% of the firms reviewed either did not have EPS-linked compensation targets or had EPS targets but their board considered the impact of repurchases when determining whether performance targets were met or in setting the targets.'' \98\ On the other hand, one commenter \99\ asserted that the proposal did not go far enough to address executive compensation concerns and urged that the Commission revise Instruction 7 to 17 CFR 229.402(d) (``Item 402(d) of Regulation S-K'') to require issuers to [[Page 36012]] disclose whether their repurchase plans triggered additional compensation. --------------------------------------------------------------------------- \95\ See, e.g., letters from Bishop, Cato, Chamber II, Coalition, Maryland Bar, PA Chamber, Pay Governance, Profs. Lewis and White, SCG, T. Rowe Price, Virtu, and Vistra. But see letter from Kaswell (stating that the proposal does not go far enough to address executive compensation concerns and urged that issuers be required to disclose whether their repurchase plans triggered additional compensation). Additionally, commenters stated that the proposal does not reflect the reality that many compensation plans adjust for repurchases management could not use share repurchases to inflate earnings because doing so would be thwarted by an issuer's compensation committee and/or its investors. See, e.g., letters from Chamber II and Profs. Lewis and White. \96\ See, e.g., letters from Bishop, Cato, Chamber II, Coalition, Profs. Lewis and White, T. Rowe Price, Virtu, and Vistra. \97\ See 2020 Staff Study, supra note 27. See also infra note 383 and accompanying text. \98\ Id. at 42. Another commenter cited its own study showing that total shareholder return and capital expenditure growth are higher for companies with larger buybacks than for companies with smaller buybacks and concluded that EPS-based incentive plans do not encourage short-term gains at the expense of long-term performance. See letter from Pay Governance. \99\ See letter from Kaswell. --------------------------------------------------------------------------- One commenter asserted that the amendments are contrary to the Commission's prior statement to ``minimize the market impact of the issuer's repurchases, thereby allowing the market to establish a security's price based on independent market forces without undue influence by the issuer.'' \100\ Several commenters asked the Commission to adopt alternative methods and deadlines for issuers to provide share repurchase disclosures. Some of these commenters suggested that issuers should make their share repurchase disclosures on Form 8-K if the repurchases exceed specified volume thresholds,\101\ such as one \102\ or two \103\ percent of the issuer's total outstanding shares, or some other threshold.\104\ Other commenters suggested extending the Form SR filing deadline to two days,\105\ ten days,\106\ or one month after the trade,\107\ or one day after settlement.\108\ A number of commenters recommended scaling back the proposal by changing the deadline for the share repurchase disclosure and the period that the disclosure would encompass.\109\ Commenters suggested the following deadlines and periods: --------------------------------------------------------------------------- \100\ See letter from Chamber II (quoting 2003 Adopting Release, supra note 5, at 64953). \101\ See, e.g., letters from ABA Committee, DLA Piper, Maryland Bar, NYC Bar, NYSE, and Sullivan. \102\ See, e.g., letters from ABA Committee, DLA Piper, NYSE, Maryland Bar, and Sullivan. \103\ See letter from Simpson Thacher. \104\ See letter from FedEx (suggesting that the amendments replace the share repurchase disclosure on proposed Form SR with disclosure on Form 8-K, but did not specify the trigger at which the Form 8-K would be required). \105\ See, e.g., letters from CII and Philip Forbini (Jan. 11, 2023). \106\ See letter from Jones Day. \107\ See id. \108\ See letter from NASAA. \109\ See, e.g., letters from Anthem Advisors LLC (Dec. 19, 2022) (``Anthem Advisors''); Armstrong; BrilLiquid; Chamber II; Cravath; DLA Piper; Guzman; Hecht; Home Depot; HP; Jones Day; Charles Morris, Greenhouse Funds LLP (Dec. 16, 2021) (``Morris''); NAM; Pentacoff; Quest; SCG; SIFMA II; Simpson Thacher; and Stephens. Additionally, one commenter stated that, if the final amendments include Listed Closed-End Funds, those funds should only be required to provide daily information semi-annually in their Form N-CSR. See letter from Investment Company Institute (Apr. 1, 2022) (``ICI I''). --------------------------------------------------------------------------- Quarterly reporting of daily data; \110\ --------------------------------------------------------------------------- \110\ See letter from Jones Day (stating that the amendments could achieve the same goals through quarterly disclosure of daily data). --------------------------------------------------------------------------- Quarterly or monthly reporting of daily data; \111\ --------------------------------------------------------------------------- \111\ See letter from Anthem Advisors (stating that requiring daily disclosures in a single monthly or quarterly report listing all transactions during the preceding period would be preferable because it would more easily accessed in EDGAR and more easily understood). --------------------------------------------------------------------------- Quarterly reporting of biweekly data or limited daily information; \112\ --------------------------------------------------------------------------- \112\ See letter from Home Depot (recommending, as an alternative, supplementing current Item 703 disclosure with a list of dates on which repurchases were made, without the daily volume). --------------------------------------------------------------------------- Monthly reporting of daily data; \113\ --------------------------------------------------------------------------- \113\ See letter from Cravath (stating that monthly disclosure of daily data would strike a better balance between the benefits of the information and the negatives of abuse, noise, and the need to correct failed trades). --------------------------------------------------------------------------- Monthly reporting of biweekly data; \114\ --------------------------------------------------------------------------- \114\ See letter from Home Depot (offering this frequency and period as an alternative to its prior recommendation of quarterly reporting of biweekly data). --------------------------------------------------------------------------- Monthly reporting of monthly data; \115\ and --------------------------------------------------------------------------- \115\ See, e.g., letters from Armstrong, Chamber II, DLA Piper, Guzman, HP, Morris, NAM, Quest, SCG, SIFMA II, Simpson Thacher, and Stephens. --------------------------------------------------------------------------- Weekly reporting of weekly data.\116\ --------------------------------------------------------------------------- \116\ See, e.g., letters from BrilLiquid, Guzman, Hecht, and Pentacoff. --------------------------------------------------------------------------- Moreover, one commenter supported the proposal to allow Form SR to be furnished to the Commission instead of filed, stating that ``inadvertently submitting incorrect data'' on the form should not ``automatically open the door'' to private litigation, particularly section 11 claims,\117\ and another commenter suggested that the final amendments include a safe harbor permitting issuers to correct Form SR errors without liability within four business days of the end of the calendar month in which corrections are identified.\118\ Some commenters asked the Commission to provide more specificity around the materiality standard governing amendments to Form SR, and recommended either a three or five percent misstatement threshold.\119\ One commenter disagreed with any materiality threshold, stating that such a threshold would be more confusing than beneficial.\120\ --------------------------------------------------------------------------- \117\ See letter from NASAA. \118\ See letter from Cravath. \119\ See, e.g., letters from Hecht and NASAA. \120\ See letter from ICGN. --------------------------------------------------------------------------- b. Comments on Exemptions for Certain Issuers Several commenters discussed whether the Commission should exempt certain categories of issuers from the amendments.\121\ Commenters were split between their support for,\122\ and opposition to,\123\ exempting FPIs from the proposed quantitative daily disclosure requirements. The commenters that supported an exemption were generally concerned that requiring FPIs to file Form SR would deviate from the Commission's historic practice of deferring to an FPI's home country disclosure requirements, and some claimed that applying the proposed amendments to FPIs would subject them to multiple, differing disclosure regimes.\124\ --------------------------------------------------------------------------- \121\ See, e.g., letters from ABA Committee, ACCO, Alternative & Direct Investment Securities Association (Mar. 31, 2022) (``ADISA''), Better Markets I, BPI & Amer. Bankers Assoc., BrilLiquid, Canadian Bankers Association (Mar. 31, 2022) (``CBA''), CFA Institute, CII, Cravath, Hecht, IBC, ICGN, ICI I, Nareit (Mar. 31, 2022) (``Nareit''), NYC Bar, NYSE, Profs. Lewis and White, Roosevelt, SIFMA II, Sullivan, Teachers Insurance and Annuity Association of America (Apr. 1, 2022) (``TIAA''), TotalEnergies SE (Apr. 1, 2022) (``TotalEnergies''), and Vereniging Effecten Uitgevende Ondernemingen (Mar. 30, 2022) (``VEUO''). Additionally, one commenter recommended exempting from the amendments repurchases of an issuer's preferred stock. See letter from Vicki Owen (Jan. 19, 2023). \122\ See, e.g., letters from ABA Committee, CBA, Cravath, NYC Bar, NYSE, SIFMA II, Sullivan, TotalEnergies, and VEUO. \123\ See, e.g., letters from Better Markets I, BrilLiquid, CFA Institute, CII, Hecht, ICGN, and Roosevelt. \124\ See, e.g., letters from SIFMA II, TotalEnergies, and VEUO. --------------------------------------------------------------------------- One commenter asserted that applying the amendments to FPIs would discourage foreign companies from listing on U.S. exchanges.\125\ Other commenters requested that the Commission clarify that the final amendments would not apply to Multijurisdictional Disclosure System (``MJDS'') filers.\126\ Some commenters recommended that, at a minimum, FPIs that are required to provide share repurchase information in their home country disclosures, and include that information in their filings on Form 6-K, should be exempt from the proposed quantitative daily disclosure amendments.\127\ Some of these commenters indicated that FPIs should not be required to disclose the total number of shares repurchased in their home countries in reliance on the safe harbor in Rule 10b-18 nor the total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) because that information is not likely to provide any meaningful information to U.S. investors.\128\ --------------------------------------------------------------------------- \125\ See letter from NYC Bar. \126\ See, e.g., letters from ABA Committee, BCE Inc. (Mar. 30, 2022), CBA, Jones Day, and Sullivan. \127\ See, e.g., letters from SIFMA II, Sullivan, and VEUO. \128\ See, e.g., letters from SIFMA II and VEUO. --------------------------------------------------------------------------- Most commenters that discussed the issue asserted that the final amendments should not provide an exemption to smaller issuers.\129\ Nonetheless, one of these commenters recommended that, if the Commission adopts a next-day reporting requirement, it should provide smaller reporting companies [[Page 36013]] (``SRCs'') \130\ with additional time to furnish their Form SR.\131\ Another commenter suggested that smaller companies should have simplified reporting requirements, such that they not be required to provide their Form SR as frequently as other issuers.\132\ One commenter recommended that SRCs' repurchase reporting threshold be based on a five percent volume trigger.\133\ Other commenters, however, asserted that applying the amendments to smaller issuers would be onerous and unnecessary \134\ and would place an increased burden \135\ on those issuers. --------------------------------------------------------------------------- \129\ See, e.g., letters from ABA Committee, Better Markets I, BrilLiquid, CFA Institute, Cravath, ICGN, and Hecht. \130\ ``Smaller reporting company'' is defined in Securities Act Rule 405 and 17 CFR 240.12b-2 as an issuer that is not an investment company, an asset-backed issuer (as defined in 17 CFR 229.1101), or a majority-owned subsidiary of a parent that is not an SRC and that: (1) Had a public float of less than $250 million; or (2) had annual revenues of less than $100 million and either: (a) no public float; or (b) a public float of less than $700 million. \131\ See letter from Cravath. \132\ See letter from Hecht. \133\ See letter from ABA Committee (explaining that ``[s]etting the Form 8-K threshold at 5% of the total shares outstanding would be consistent with how SRCs are treated with respect to disclosures under current Item 3.02 for dilutive issuances in private transactions,'' and that ``this accommodation would not result in a meaningful loss of information to investors''). \134\ See letter from ACCO. \135\ See letter from Profs. Lewis and White. --------------------------------------------------------------------------- Additionally, one commenter recommended exempting issuers without an established market for their securities because, in its view, investors receive little informational value from this disclosure and there is minimal risk of opportunistic repurchases in such cases.\136\ Another commenter recommended exempting publicly traded government contractor companies.\137\ A few commenters suggested exempting regulated banking institutions from the proposed amendments because those issuers are already required to disclose their regulatory capital requirements and capital planning process, so the repurchase information in the proposed amendments would not be necessary for investors.\138\ One of these commenters acknowledged that the information required by banking regulators ``does not directly align with the share-repurchase-specific disclosure the SEC is proposing to require,'' though the commenter also asserted that such information ``nevertheless provides investors with insights into firms' capital planning processes and actions.'' \139\ --------------------------------------------------------------------------- \136\ See letter from Publix Super Markets, Inc. (Jan. 10, 2023) (``Publix''). The commenter also notes that the Inflation Reduction Act exempts such companies from the excise tax and, therefore, asserts that a similar exemption should apply here. \137\ See letter from PSC. The commenter stated that that the proposed daily reporting requirements would increase costs and offer no identifiable benefit to publicly traded government contractor companies because those firms are able to do business only with the government, so their costs must be covered by their government customers. As a result, adding the daily disclosure requirements to these firms would make them less competitive and force them out of the public markets. \138\ See, e.g., letters from BPI & Amer. Bankers Assoc. and IBC. \139\ See letter from BPI & Amer. Bankers Assoc. --------------------------------------------------------------------------- Some commenters asserted that Listed Closed-End Funds \140\ should be exempt from the proposed quantitative daily disclosure amendments because, given the way the funds are structured, they believe that the concerns motivating the proposal are absent. Other commenters disagreed and asserted that Listed Closed-End Funds should be subject to the final rule.\141\ In response to a request for comment about whether to exempt, among other issuers, Listed Closed-End Funds from the structured data requirement, one commenter suggested that there is a link between having a lower public float and the likelihood of market manipulation.\142\ Another commenter stated that many Listed Closed-End Funds repurchase shares when the market price is below net asset value (``NAV'') and/or to increase NAV for remaining shareholders, and that given the close relationship between share purchases and NAV, it is arguably more important for Listed Closed-End Funds to disclose information regarding their planned and actual repurchase activity.\143\ Other commenters indicated that the proposed amendments should exempt trades associated with Rule 10b5-1 plans \144\ and purchases made in reliance on the Rule 10b-18 safe harbor.\145\ --------------------------------------------------------------------------- \140\ See, e.g., letters from ICI I and TIAA (suggesting that, because executive compensation is generally not tied to share price among closed-end funds, these issuers generally have little or no incentive to misuse share repurchases). See also letter from Investment Company Institute (Jan. 11, 2023) (asserting that, because the Inflation Reduction Act exempted Listed Closed-End Funds, the final amendments should do so too). Some commenters suggested that the Commission should also exempt ``non-listed funds'' from the proposed amendments. See letters from ADISA and IPA. Both the proposed and final amendments, however, would only apply to Listed Closed-End Funds. \141\ See letters from CFA Institute, XBRL US (Mar. 31, 2022) (``XBRL US''), BrilLiquid, Hecht, and ICGN. \142\ See letter from XBRL US. \143\ See letter from CFA Institute. \144\ See letter from PNC. \145\ See, e.g., letters from HP and SCG. --------------------------------------------------------------------------- c. Comments on Repurchases Intended To Satisfy Rule 10b5-1(c) and Intended To Qualify for the Rule 10b-18 Safe Harbor Some commenters generally supported the requirements to disclose whether repurchases were made pursuant to a Rule 10b5-1(c) plan, as proposed.\146\ One commenter recommended requiring additional disclosure regarding an issuer's Rule 10b5-1(c) plan, including information on adoption, modification, suspension, or termination of the plan; the maximum number of shares planned for sale under the plan; and any suspensions or terminations of a planned repurchase pursuant to such a plan.\147\ Some commenters supported the proposed disclosures related to the Rule 10b-18 safe harbor, but recommended that the Commission go farther by repealing Rule 10b-18 and replacing it with bright-line limits.\148\ Another commenter generally supported the proposed Rules 10b5-1(c) and 10b-18 disclosures, but indicated that they should not be applied to FPIs.\149\ --------------------------------------------------------------------------- \146\ See, e.g., letters from CFA Institute, CII, and SIFMA II. \147\ See letter from CFA Institute. \148\ See, e.g., letters from AFREF et al.; CFA Institute; CII; Oxfam; Prof. Palladino; and William Lazonick & Ken Jacobson, Academic-Industry Research Network (Apr. 1, 2022) (``Lazonick & Jacobson''). \149\ See letter from SIFMA II. --------------------------------------------------------------------------- Other commenters opposed generally the requirements to disclose repurchases intended to satisfy Rule 10b5-1(c) and intended to qualify for the Rule 10b-18 safe harbor.\150\ One commenter disagreed specifically with proposed Item 703(c)(2)(iii) and (c)(3)(v), which would require disclosure of the terminations of Rule 10b5-1 trading plans, or determinations not to make further purchases under a plan, because that could lead to unfounded speculation about mergers and acquisitions or other activities.\151\ Another commenter asserted that requiring disclosure as to whether share repurchases were made in reliance on the Rule 10b-18 safe harbor could cause a negative inference against any issuer not relying on the safe harbor.\152\ --------------------------------------------------------------------------- \150\ See, e.g., letters from Cravath, Dow, Maryland Bar, and Sullivan. \151\ See letter from Sullivan. \152\ See letter from Maryland Bar. --------------------------------------------------------------------------- d. Comments Concerning Requests for Clarification Some commenters asked the Commission to clarify certain aspects of the proposed quantitative daily disclosures on Form SR.\153\ One of these commenters asked the Commission to provide a more precise definition of ``share repurchase program'' because the term is not currently ``a legal term of [[Page 36014]] art,'' so different issuers may use the term differently.\154\ Other commenters claimed that the proposed amendments were ambiguous as to when a transaction would be considered ``executed,'' particularly in the context of ASRs.\155\ One commenter recommended that the Commission define the terms, ``business day'' and ``before the end,'' used in the proposed amendments establishing the Form SR deadline.\156\ Another commenter requested that the final amendments clarify whether withhold- to-cover shares would be encompassed by the rule and recommended that they not be included under any final rule.\157\ Some commenters claimed that an end of next business day deadline would prejudice issuers on the west coast,\158\ with one of the commenters pointing out that ``those making filings on Form 4 \159\ are provided not only with two business days to report insider transactions that are significantly less frequent than those which would be reported under Form SR, but such filers are given until 10 p.m. Eastern Time to file.'' \160\ --------------------------------------------------------------------------- \153\ See, e.g., letters from Chamber II, Bishop, Cravath, DLA Piper, FedEx, HudsonWest LLC (Mar. 31, 2022) (``HudsonWest''), Simpson Thacher, Thomas Nash (Oct. 12, 2022) (``Nash''), and Wilson Sonsini. \154\ See letter from Cravath. The commenter suggested that share repurchase program be defined as ``cash purchases by issuers in the market for their own account and not for the purpose of immediately delivering those shares to a third party in satisfaction of a pre-existing obligation.'' Further, the commenter provided certain items that should fall outside the definition, including: (1) arrangements to acquire shares in the market to deliver to shareholders participating in dividend reinvestment plans, to employees participating in employee share purchase programs, or to 401(k) or other retirement accounts in satisfaction of ``stock match'' commitments; (2) arrangements to facilitate the operation of employee equity incentive plans; (3) self-tender offers; (4) net share settlement and other transactions where a holder forfeits an entitlement to an issuer's shares (e.g., in connection with an option, or upon separation); and (5) cash settlement of transactions that reference an issuer's shares, such as derivative transactions. \155\ See, e.g., letters from Chamber II, Cravath, DLA Piper, FedEx, HudsonWest, Simpson Thacher, and Wilson Sonsini. \156\ See letter from Bishop. \157\ See letter from Nash. \158\ See, e.g., letters from Chevron and HP. \159\ 17 CFR 249.104. \160\ See letter from HP. --------------------------------------------------------------------------- e. Other Comments A number of commenters asked the Commission to adopt additional Form SR disclosure requirements that the Commission did not propose, including the number of shares outstanding following the reported transaction,\161\ the number of shares remaining to be purchased pursuant to the current repurchase plan,\162\ and the highest and lowest price paid per share.\163\ A form letter submitted by many commenters recommended replacing the Rule 10b-18 safe harbor with a bright-line rule and making stock repurchases beyond the bright-line rule unlawful.\164\ The commenters also suggested a prohibition on trading by insiders during repurchase announcements and executions of repurchase trades within at least ten days of these events. --------------------------------------------------------------------------- \161\ See, e.g., letters from AFREF et al. and Pentacoff. \162\ See letter from CFA Institute. \163\ See letter from AFREF et al. \164\ See letter from Form Letter A. --------------------------------------------------------------------------- A few commenters suggested alternatives for the proposed Form SR disclosures, such as requiring the information to be disclosed as part of Item 703 of Regulation S-K,\165\ or providing interpretive guidance to elicit the disclosure instead of revising the Commission's rules.\166\ Some commenters recommended that, instead of the proposed quantitative daily share repurchase disclosures, the Commission should require disclosure about the effect of share repurchases on executive compensation reported under 17 CFR 229.402 (Item 402 of Regulation S- K).\167\ One commenter asserted that the effect of share repurchases on executive compensation pertains to an issuer's corporate governance and should be resolved by shareholders instead of the Commission.\168\ --------------------------------------------------------------------------- \165\ See letter from SIFMA II. \166\ See letter from Profs. Lewis and White. \167\ See, e.g., letters from Maryland Bar and Profs. Lewis and White. \168\ See letter from PA Chamber. --------------------------------------------------------------------------- With respect to the proposed requirement that Form SR disclose the total number of shares purchased in reliance on Rule 10b-18, some commenters suggested that issuers should only be required to disclose whether a purchase ``was intended to comply'' with that safe harbor due to interpretive legal questions and the speed at which market quotations of stock prices can change.\169\ Some commenters asked the Commission to include a phase-in period of nine to 12 months for any final amendments that the Commission may adopt.\170\ --------------------------------------------------------------------------- \169\ See, e.g., letters from SIFMA II and Sullivan. \170\ See, e.g., SIFMA II, Sullivan, and Wilson Sonsini. --------------------------------------------------------------------------- 3. Final Amendments We continue to believe that disclosure of issuers' total repurchases made each day would benefit investors and markets. The final amendments require the same additional detail regarding an issuer's daily repurchase activity, as proposed. Moreover, to make this information readily available for analysis, the final amendments require that the share repurchase information that is disclosed be reported using Inline XBRL, also as proposed. However, although the final amendments require daily repurchase disclosure, as proposed, the final amendments require a different deadline and manner of disclosure. In response to commenters' objections, the final amendments do not require issuers to provide their daily repurchase disclosure one business day after execution of their share repurchase order.\171\ Rather, in a change from the proposal, the final amendments require: --------------------------------------------------------------------------- \171\ As discussed above, see supra Section III.A.2.d., a number of commenters requested that we clarify certain aspects of the proposed amendments. See, e.g., letters from Chamber II, Bishop, Cravath, DLA Piper, FedEx, HudsonWest, Nash, Simpson Thacher, and Wilson Sonsini. As a result of the changes from the proposed amendments to the final amendments, most of these requests are no longer applicable. Those clarification requests still applicable for the final amendments are addressed in the appropriate places in this release. --------------------------------------------------------------------------- Corporate issuers that file on domestic forms to disclose the total repurchases made each day for the quarter in an exhibit to their Form 10-Q and Form 10-K (for their fourth fiscal quarter); Listed Closed-End Funds to disclose daily quantitative repurchase data in their semi-annual and annual reports on Form N-CSR; and FPIs reporting on the FPI forms to disclose daily quantitative repurchase data at the end of every quarter in new Form F- SR,\172\ which will be due 45 days after the end of each of the issuer's fiscal quarters.\173\ --------------------------------------------------------------------------- \172\ See supra note 24. \173\ The final amendments adopt new Rule 13a-21, as proposed, which requires applicable FPIs to file a Form F-SR. --------------------------------------------------------------------------- After considering the comments, we believe that providing the same detail as was proposed but on a less frequent basis would avoid many of the costs that commenters noted while still providing important disclosures that address the informational deficiencies in current reporting that we have identified. Accordingly, the final amendments require issuers to disclose their daily quantitative share repurchase information periodically in quarterly or semi-annual reports (``periodic reporting'') instead of requiring issuers to disclose it on a daily basis, as proposed. Although periodic reporting of daily quantitative data will provide less frequent repurchase disclosures to investors than would daily reporting of that data, periodic reporting will still provide investors with most of the benefits that daily reporting would offer, but at a lower cost to issuers. In fact, the costs to issuers may be only incremental because issuers are already reporting share repurchases by month in their [[Page 36015]] periodic reports. Investors will be able to use the granular daily quantitative data to evaluate an issuer's repurchases in more detail, including in the context of other point-in-time disclosures, such as executive compensation and financial statement disclosures. While this periodic reporting will, in most cases, result in daily quantitative repurchase data that are available to investors later than was proposed, investors may well find the disclosure more meaningful when considered as part of the overall pattern of the issuer's repurchases, because they will be able to evaluate the efficiency of the share repurchases based on when the issuer repurchased its shares and the issuer's stated reasons for doing so. Moreover, this periodic, rather than daily, reporting should mitigate any concerns raised by commenters about the potential misinterpretation of an issuer's day-to- day changes in trading activity \174\ that could cause unjustified stock price volatility \175\ or disrupt confidential merger or acquisition discussions.\176\ Additionally, while some commenters expressed concern that investors might use daily quantitative disclosure data to gain insight into or identify the issuer's trading strategies,\177\ as other commenters observed, the move to periodic reporting should substantially mitigate any such concern.\178\ --------------------------------------------------------------------------- \174\ See, e.g., letters from Business Roundtable, Davis Polk, Dow, FedEx, Home Depot, Kaswell, Profs. Lewis and White, NAM, PNC, Quest, Shearman, SIFMA II, Simpson Thacher, T. Rowe Price, Wilson Sonsini, and Vistra. \175\ See, e.g., letters from Cravath, Davis Polk, Profs. Lewis and White, and SCG. \176\ See, e.g., letters from Davis Polk, PNC, SIFMA II, and Sullivan. \177\ See, e.g., letters from Home Depot and PNC. \178\ See, e.g., letters from Cravath and Davis Polk. --------------------------------------------------------------------------- We acknowledge, as a commenter observed, that periodic reporting will provide information to the market more slowly than the two- business day maximum delay associated with insider reporting of changes in beneficial ownership on Form 4.\179\ While both issuer and insider trades may reflect managers' views of an issuer's value, we recognize that the much greater frequency of issuer trades pursuant to repurchase plans relative to trades by individual insiders likely would result in considerably more frequent reporting by issuers, and thus in greater costs than those incurred by insiders reporting their transactions on Form 4. In addition, because of this greater frequency of trading, there would be a greater risk (as compared to insider transactions) that daily reporting would allow other market participants to trade strategically in response to issuer disclosures and greater potential harm to investors as a result. Further, we believe that even with periodic reporting investors will still be able to use periodic reporting of daily repurchases to identify potentially opportunistic behavior, and that issuers will take into account that likelihood when determining their trading behavior. --------------------------------------------------------------------------- \179\ See letter from Roosevelt (asserting that the Commission should adopt daily reporting ``for similar reasons that Form 4 requires daily disclosure''). --------------------------------------------------------------------------- The final amendments require daily share repurchase disclosure on a quarterly basis in Forms 10-Q and 10-K (for the issuer's fourth fiscal quarter) for corporate issuers reporting on domestic forms and on a semi-annual basis in Form N-CSR for Listed Closed-End Funds. Quantitative share repurchase disclosures, aggregated on a monthly basis, are already required in those forms.\180\ The final amendments require the disclosure of additional detail with respect to the already-reported share repurchases. Therefore, investors should be familiar with looking to these filings for repurchase information. Moreover, this change should lessen the burden for issuers compared with the proposal because they are accustomed to providing repurchase information in these periodic filings. As one commenter noted, it would be useful for the issuer's transactions to be disclosed in periodic reports for ``the ease of use and access to information for those who access EDGAR using the SEC website.'' \181\ --------------------------------------------------------------------------- \180\ Due to the new daily quantitative repurchase disclosure requirements, we are eliminating the current requirement to provide quantitative share repurchase disclosures on a monthly basis because it would be redundant. See infra note 218 and accompanying text. \181\ See letter from Anthem Advisors. --------------------------------------------------------------------------- Listed Closed-End Funds will be required to provide their daily share repurchase disclosures on Form N-CSR on a semi-annual basis. Like Forms 10-Q and 10-K, Form N-CSR currently requires the disclosure of quantitative share repurchase disclosures on a semi-annual basis so investors should likewise be familiar with looking in this filing for repurchase information. We are subjecting Listed Closed-End Funds to the final amendments because, although not all of the motivations for corporate issuer share repurchases apply to them due to differences in the business model and organizational structure of a fund as compared to a corporate issuer, investors in Listed Closed-End Funds also will benefit from the opportunity to evaluate the purposes, impacts, and efficiency of share repurchases and to understand the impact of such activity on the value of their investments. As one commenter observed in opposing an exemption for Listed Closed-End Funds, this interest may be particularly strong given the close relationship between share repurchases and NAV, which the commenter believed made it arguably more important for Listed Closed-End Funds to disclose quantitative and qualitative information regarding planned and actual repurchases.\182\ Relatedly, absent the additional information required by the final amendments--including daily quantitative repurchase data--it would be difficult for investors in Listed Closed-End Funds to distinguish between price movements that are attributable to repurchase activity as opposed to other market activity impacting share price.\183\ Further, as noted by another commenter, disclosure may be of particular importance for issuers with lower floats, such as Listed Closed-End Funds, because such issuers may face a greater likelihood that repurchases will have a significant effect on share price.\184\ --------------------------------------------------------------------------- \182\ See Letter from CFA Institute. \183\ See Proposing Release, supra note 2, at 8460-8461. \184\ See letter from XBRL US. --------------------------------------------------------------------------- The final amendments will require FPIs that report using the FPI forms to provide disclosure of daily repurchase data on new Form F-SR, which is to be filed with the Commission quarterly. The Form F-SR will be due 45 days after the end of the FPI's fiscal quarter to be consistent with the latest deadline for a quarterly report on Form 10- Q.\185\ FPIs that report on the FPI forms do not have a quarterly reporting obligation under the Exchange Act and generally provide repurchase disclosure only in their annual report on Form 20-F. Our reasons for adopting quarterly reporting of daily repurchases for FPIs reporting on the FPI forms are the same as for corporate issuers reporting on domestic forms.\186\ In addition, similar to the [[Page 36016]] amendments we are adopting to our domestic forms, we are eliminating the requirement in Form 20-F to provide quantitative share repurchase disclosures on a monthly basis.\187\ --------------------------------------------------------------------------- \185\ We are requiring a deadline for the Form F-SR of 45 days after the end of the fiscal quarter for all four quarters, including the final quarter of the fiscal year. While domestic corporate filers receive additional time to file a Form 10-K following the final quarter of their fiscal year, relative to the time for other quarterly filings, this extended period is due to the additional materials that must be included in the Form 10-K. Since no such difference would exist for the fourth-quarter Form F-SR, we are requiring a uniform filing deadline after each quarter. \186\ See letter from CII (stating that issuers that file on domestic forms and FPIs that file on the FPI forms should be subject to the same filing obligations). In addition, because FPIs are more similar to corporate issuers filing on domestic forms than Listed Closed-End Funds, we are keeping the disclosure frequency consistent with such corporate issuers. Similarly, we do not believe that semi- annual reporting of daily repurchase information would be appropriate for FPIs that do not file on domestic forms for the same reasons. Therefore, we believe that corporate issuers that file on domestic forms and FPIs that file on the FPI forms should be subject to the same filing obligations. \187\ Form F-SR contains an instruction stating that the information reported on the form relates to the issuer's securities in ordinary share form, whether the issuer has repurchased the shares itself or depositary receipts that represent the shares. --------------------------------------------------------------------------- When it adopted the Item 703 disclosure requirements in 2003, the Commission stated that it expected the Item 703 disclosures to provide investors and the marketplace with important information regarding an issuer's repurchase activity that would allow them to assess the impact of an issuer's share repurchases on the issuer's stock price, similar to periodic disclosure of issuer earnings and dividend payouts.\188\ Disclosure of a monthly aggregation of repurchases, however, does not always allow investors to assess whether, for example, the bulk of an issuer's repurchases were made in advance of a specific date, such as the date on which incentive targets for compensatory awards are measured or the day material nonpublic information is released to the public. --------------------------------------------------------------------------- \188\ See 2003 Adopting Release, supra note 5, at 64962. We disagree with the commenter who asserted that ``the Commission's analysis . . . does not sufficiently explain its apparent reversal of the prior position that the appropriate way to promote efficiency, competition, and capital formation is to `minimize the market impact of the issuer's repurchases, thereby allowing the market to establish a security's price based on independent market forces without undue influence by the issuer' '' and that this is not accomplished by ``highlighting them in daily disclosures.'' See letter from Chamber II. In 2003, the Commission stated that ``Rule 10b-18's safe harbor conditions are designed to minimize the market impact of the issuer's repurchases.'' See 2003 Adopting Release, supra note 5. This statement was not in reference to the monthly repurchase disclosures the Commission adopted at the same time in Item 703, which the Commission stated were ``intended to enhance the transparency of issuer repurchases.'' Id. As noted throughout this release, the amendments we are adopting are similarly intended to enhance the transparency of issuer repurchases. --------------------------------------------------------------------------- The Commission proposed additional share repurchase disclosures to provide investors with further insight into the details of an issuer's share repurchases, which when combined with other information available about the issuer, could diminish informational asymmetry, enhance transparency, and enable investors to undertake a more thorough assessment of issuer share repurchases.\189\ Investors could use this more detailed disclosure to monitor and evaluate issuer share repurchases and their effects on the market for the issuer's securities. --------------------------------------------------------------------------- \189\ See Proposing Release, supra note 2, at 8446. --------------------------------------------------------------------------- In some circumstances, such as when repurchases may affect the value of compensatory awards to executives or the amount for which executives can sell such awards, issuers may have incentives to engage in share repurchases for reasons other than to increase or signal the issuer's fundamental value. In addition, issuers are repurchasing their own securities, so they will typically have significantly more, as well as more detailed, information about the issuer and its future prospects. Thus, as we have described above, investors will benefit from having additional disclosures that will enable them to evaluate the efficiency of share repurchases or determine a pattern of when repurchases could be timed to affect compensation or to benefit from material nonpublic information, among other possible uses of daily repurchase data, thereby increasing investor confidence. We disagree with commenters who asserted that we have not identified a ``market failure'' that would justify the additional disclosures.\190\ In particular, these commenters asserted that there is no market failure because information asymmetry is advantageous to markets in that it incentivizes some market actors to expend resources developing information that would be relevant to an issuer's share price.\191\ We disagree with these arguments. As the sources cited by the commenters themselves point out, informational asymmetries are not necessary to incentivize the production of information.\192\ In the case of repurchases, relevant information about stock repurchases is often nonpublic, and thus not typically discoverable by third parties, including investors, who would benefit from the additional information conveyed by daily repurchase disclosures. We discuss in more detail the market failures addressed by the amendments in the Economic Analysis section, below.\193\ --------------------------------------------------------------------------- \190\ See, e.g., letters from Chamber II and Profs. Lewis and White. \191\ Id. \192\ See Grossman, S.J. & Stiglitz, J.E., On the Impossibility of Informationally Efficient Markets, 70 Am. Econ. Rev. 393, 404 (1980) (noting that there is also an incentive to acquire information if ``no one is informed''). \193\ See infra Section V.B.1. --------------------------------------------------------------------------- One commenter also asserted that no amendments were necessary because investors can already glean all necessary information from existing filings, such as through quarterly filings, mandatory disclosures of material new repurchase plans, or potential voluntary disclosures of data issuers deem material to investors.\194\ For example, the commenter noted that investors can likely infer instances when repurchases have helped an issuer hit an EPS target because quarterly filings will reveal aggregate repurchases over the quarter as well as earnings.\195\ --------------------------------------------------------------------------- \194\ See letter from Profs. Lewis and White. \195\ Id. --------------------------------------------------------------------------- While we agree these kinds of informed conclusions based on existing quarterly data are possible, existing disclosures are inadequate to provide investors with the information needed to fully understand the actual impact of a repurchase. Data on daily purchases are more informative, and so will enable more accurate assessments of the motives for repurchases. For example, repurchases conducted in the days immediately before the end of a fiscal quarter, at a time when the issuer's managers are very likely to know that the issuer will miss an EPS target, would suggest that the repurchase likely does not fully signal the issuer's fundamental value, in a way that would not be the case if such repurchases were conducted in an equal amount each day of the quarter. Monthly aggregates also are unlikely to consistently reveal whether repurchases occurred before or after award grants or trades by executives, which could similarly signal that the repurchase was, in part, motivated by purposes other than shareholder value.\196\ --------------------------------------------------------------------------- \196\ For this reason, we also disagree with the commenter suggestion that we could have replaced disclosure of daily repurchase data with a requirement that the issuer discuss the impact repurchases may have had on managers' ability to reach earnings per share targets in its Compensation Discussion and Analysis (``CD&A'') required pursuant to 17 CFR 229.402(b) (Item 402(b) of Regulation S-K). See id. Such a discussion would not allow investors to identify which repurchases may have been affected by managers' incentives, and would not account for other avenues through which repurchases may affect compensation, such as by increasing stock prices shortly before a manager sells equity. Finally, this approach would also fail to identify instances in which issuers or their managers are driven by other concerns, such as internal EPS targets that do not affect compensation but instead affect reputation, retention, or relationships with creditors. --------------------------------------------------------------------------- One commenter suggested that the amendments are not needed when the issuer's trades would qualify for a safe harbor provision of Rule 10b5- 1.\197\ Instead, we think that the concerns that justify disclosure apply fully in that setting. An issuer's use of a Rule 10b5-1 trading plan would not, for example, affect executives' ability to time trades [[Page 36017]] to profit from repurchases. In addition, because there is no required cooling-off period for issuers, there is an increased risk that an issuer could adopt and then begin trading under a Rule 10b5-1 trading plan at a time when it may be aware of material nonpublic information.\198\ Thus, additional disclosure (including whether the repurchase was intended to qualify for the affirmative defense under Rule 10b5-1) is necessary for investors to evaluate the efficiency and impacts of a repurchase.\199\ --------------------------------------------------------------------------- \197\ See letter from Cravath. \198\ See Rule 10b5-1 Adopting Release, supra note 18, at 80369. In the Rule 10b5-1 Adopting Release, the Commission did not adopt a cooling-off period for issuers, stating that ``further consideration of potential application of a cooling-off period to the issuer is warranted.'' Id. at 80371-80372. Please see the discussion of new Item 408(d), infra Section III.D. \199\ For similar reasons, we disagree with the commenters who stated that compliance with Rule 10b-18 would make the proposed daily repurchase disclosures unnecessary. See letters from HP and SCG. As we discuss below in this section, whether a trade is intended to qualify for the non-exclusive safe harbor of Rule 10b-18 may help investors to understand the efficiency of a given repurchase. In addition, the fact that a repurchase is intended to qualify for the safe harbor does not significantly affect an executive's ability to time a personal trade to profit from a repurchase. --------------------------------------------------------------------------- We also disagree with the commenter who asserted that to the extent managers benefit from repurchases through an increased share price, this increase also benefits other existing shareholders, and so no disclosure is needed.\200\ Because managers can benefit from controlling the timing or volume of repurchases, it is more difficult for investors to interpret the extent to which repurchases increase or signal the issuer's fundamental value. Similarly, issuers may take actions to improve the returns on repurchases, such as real earnings management or repurchases while aware of material nonpublic information, that may benefit some existing shareholders, but at the potential expense of long-term liquidity and investor confidence.\201\ Thus, notwithstanding that there may be some investors who benefit in these scenarios, daily repurchase disclosure is necessary to protect all investors and the efficient operation of securities markets because daily data, in combination with other data, would allow investors to infer when repurchases may have been timed to benefit managers or otherwise at the expense of some investors. --------------------------------------------------------------------------- \200\ See letter from Maryland Bar. \201\ See, e.g., Cooper, L.A., Downes, J.F., and Rao R.P., Short term real earnings management prior to stock repurchases, 50 Rev. Quant. Fin. & Acct. 95 (2018) (reporting that managers use inventory and discretionary expenses, among other items, to manipulate reported earnings in advance of repurchases). --------------------------------------------------------------------------- For similar reasons, we disagree with that commenter's request that we limit new disclosures to discussion about the effects of repurchases on an executive's compensation.\202\ While such discussion might be generally informative about whether an issuer's repurchases may have been affected by managerial incentives, it would not reveal which particular repurchases were so affected, and would not address issuer efforts to achieve particular accounting targets for reasons unrelated to executive compensation, such as promotion, retention, or creditor preferences. --------------------------------------------------------------------------- \202\ See letter from Maryland Bar. --------------------------------------------------------------------------- Further, we disagree with the suggestion by some commenters that we abandon or delay the amendments because of the recently-enacted tax on certain share repurchases,\203\ because we expect that the tax will not meaningfully affect the rationales for the final amendments. As we describe in more detail below,\204\ we acknowledge that it is possible that the new one percent tax on some repurchases will reduce annual repurchases from their current volume of roughly $950 billion,\205\ although some indications are to the contrary.\206\ While any reduction in repurchase activity would potentially diminish the costs and benefits of the final amendments, given the vast volume of current repurchases, we believe that that there will continue to be a compelling need for enhanced disclosure related to these transactions. Notwithstanding a commenter's suggestion that the tax would deter ``opportunistic'' buybacks,\207\ to the extent that there are repurchases for which managerial self-interest plays some role, we do not expect the tax to have a significant effect on the intended benefits of the final amendments.\208\ --------------------------------------------------------------------------- \203\ See, e.g., letters from Chamber III, Chamber V, and PSC. \204\ See infra Section V.A.2. \205\ See Section V.A.2 infra and note 384 and accompanying text. \206\ See Williams-Alvarez, J., The 1% Stock-Buyback Tax Hasn't Slowed Repurchases. A Proposed 4% Tax Might, Wall St. Journal, Mar. 2, 2023 and Avi-Yonah, R.S., A Different Tax on Stock Buybacks, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4301215 (Dec. 13, 2022) (``[A] 1% tax on buybacks is unlikely to reduce buybacks.''). \207\ See letter from Chamber III. \208\ See Moore, supra note 34 (reporting that managerial benefit from repurchases is not sensitive to the cost of repurchasing). --------------------------------------------------------------------------- Although a number of commenters asserted that daily reporting of daily data would generally result in an overload of information for investors,\209\ our adoption of periodic reporting should significantly reduce these concerns, as some commenters noted.\210\ In any event, we disagree that information about issuers' daily trading will overload investors.\211\ Rather than overloading investors with superfluous data, the information required by the final amendments will provide them with additional insight into the precise timing of repurchases that they can use to evaluate the efficiency of and motives for the issuer's share repurchases in a way that is not possible to do with the current requirement to disclose monthly data. --------------------------------------------------------------------------- \209\ See, e.g., letters from Dow, Kirkland Ellis, NYSE, SCG, and Vistra. \210\ See, e.g., letters from Anthem Advisors, Cravath, and Jones Day. \211\ See letter from Roosevelt (stating that the daily repurchase disclosures would not create an overabundance of information for investors). --------------------------------------------------------------------------- We also disagree with commenters who asserted that more detailed information would harm smaller retail investors by making the information too disaggregated to easily parse.\212\ The daily data will be required to be tagged using Inline XBRL, so these investors and other market participants will be able to collate that daily data to another level of detail to suit their level of sophistication. In some instances, monthly data fail to reveal key details about repurchase activity, such as whether repurchases occur before or after release of material nonpublic information. --------------------------------------------------------------------------- \212\ See, e.g., letters from ACLI, Armstrong, ASA, Chevron, Cravath, Dow, Guzman, Hecht, Home Depot, Jones Day, NYSE, PNC, Profs. Lewis and White, Quest, SCG, Shearman, SIFMA II, and Simpson Thacher. --------------------------------------------------------------------------- Furthermore, greater transparency ultimately benefits all investors. For example, newly available data may incentivize intermediaries, such as investment advisers, to develop the capacity to analyze the data and provide their analysis to retail or other clients.\213\ Additionally, to the extent that some traders may have greater capacity to quickly analyze information about daily repurchases,\214\ our adoption of periodic reporting should mitigate any such advantage by allowing for fewer arbitrage opportunities. --------------------------------------------------------------------------- \213\ Cf. letter from Profs. Lewis and White (arguing that information asymmetry incentivizes market actors to acquire information for use by others). \214\ See, e.g., letters from ACCO, Armstrong, ASA, BPI & Amer. Bankers Assoc., Business Roundtable, Cato, Chevron, Coalition, Cravath, Davis Polk, DLA Piper, Dow, Empire, FedEx, Guzman, Home Depot, HP, IBC, Jones Day, NAM, NYC Bar, Norfolk Southern, PA Chamber, Paul Weiss, PNC, Profs. Lewis and White, Quest, Shearman, SIFMA II, SCG, Simpson Thacher, Stephens, Sullivan, T. Rowe Price, Vistra, and Wilson Sonsini. --------------------------------------------------------------------------- Relatedly, some commenters raised concerns that daily disclosures would result in disclosure of information that is not material to investors,\215\ or asked [[Page 36018]] the Commission to include a materiality standard in the final amendments.\216\ We considered, but rejected, suggestions by these commenters to require disclosure only of material daily repurchases, such as repurchases that in the daily aggregate represent one percent or more of the issuer's outstanding shares. As we have explained, we believe that in many cases it is not only the amount, but also the timing of, repurchases that makes them informative to investors. Assessments of materiality for every repurchase conducted by the issuer would add significant costs. Further, limiting disclosures to a volume threshold, such as relatively large aggregate daily purchases, whether a set one percent figure or otherwise, could encourage issuers that prefer to avoid disclosure to inefficiently divide their planned transactions over multiple days or weeks, as pointed out by one commenter.\217\ --------------------------------------------------------------------------- \215\ See letter from Profs. Lewis and White. \216\ See, e.g., letters from Hecht and NASAA. \217\ See letter from SIFMA II (stating that issuers may limit their average daily trading volume to try to ensure that sophisticated investors view the daily trades as immaterial, even if a larger volume would be more beneficial to shareholders). --------------------------------------------------------------------------- We recognize that certain issuers could conduct a number of daily repurchases every quarter, which may result in lengthy additional disclosures in a filing. To address this concern, the final amendments require corporate issuers that report on Forms 10-Q and 10-K to file daily reporting data as an exhibit to their periodic reports instead of in the body of those reports. Listed Closed-End Funds will be required to provide their daily repurchase data in the body of Form N-CSR and FPIs that report on the FPI forms will be required to provide their daily repurchase data in the body of Form F-SR. Form N-CSR contains information on a range of specific topics (such as a fund's code of ethics or, in this case, repurchases) such that providing share repurchase disclosures in the body of the form presents fewer readability concerns. On the other hand, Form F-SR will be used exclusively to report daily repurchase data, so there is no concern that the daily repurchase data will obscure other disclosures in that form. In another change from the proposal, the final amendments will require the daily repurchase data to be filed instead of furnished. Because daily repurchase data will be provided on a quarterly or semi- annual basis, depending on the status of the issuer, the liability concerns that may have been raised by a requirement to file daily repurchase data within the proposed one business day timeframe are alleviated. The issuer will have more time to obtain, verify, and compile the disclosure compared to the proposal. As a result, we find it appropriate for issuers to be subject to Exchange Act section 18 liability for the new repurchase disclosure, as they are currently for filings under Item 703 of Regulation S-K, and the information will be deemed incorporated by reference into filings under the Securities Act, which will be subject to Securities Act section 11 liability. Additionally, the final amendments eliminate the requirement in current Item 703(a) of Regulation S-K that issuers disclose their monthly quantitative repurchase data in their periodic reports.\218\ Presently, Item 703 requires corporate issuers reporting on domestic forms to provide monthly quantitative repurchase data on a quarterly basis in their Form 10-Qs and Form 10-Ks (for the issuer's fourth fiscal quarter), Item 16E of Form 20-F requires FPIs to provide monthly repurchase data in their annual reports on Form 20-F, and Item 14 of Form N-CSR requires Listed Closed-End Funds to provide monthly repurchase data in their semi-annual reports on Form N-CSR. In light of the new requirements to disclose daily repurchase data, we no longer believe this information is necessary. To the extent that investors, market participants, and others are interested in monthly repurchase data, they will be able to collate that data themselves, including by using Inline XBRL. --------------------------------------------------------------------------- \218\ Additionally, the final amendments move much of disclosure in current Item 703(b) to new Item 703(a) and new Item 601(b)(26). --------------------------------------------------------------------------- Consistent with the proposal, the final amendments do not include any exemptions.\219\ We have not exempted any category of issuer because disclosure of daily repurchase data benefits all investors in issuers that conduct repurchases.\220\ Additionally, to the extent that certain issuers, such as SRCs, have relatively high information asymmetries, disclosure about their repurchases may be more informative to investors. Moreover, although some issuers may provide similar information to other regulators, requiring all issuers to comply with the final amendments facilitates investor access because the information will be disclosed in a common location. In the case of financial institutions, while one commenter asserted that capital regulations by other regulators would prevent the institutions from engaging in opportunistic repurchases,\221\ we are not aware of any specific regulations that would prevent executives at those institutions from profiting from repurchases, or that would limit repurchases at times the institution's managers are aware of material nonpublic information. We do not believe that any general insights into an issuer's capital planning that financial-institution regulations might offer will provide the level of detail investors would receive from disclosure of daily trade data and specific qualitative discussion of repurchase policies. --------------------------------------------------------------------------- \219\ MJDS filers currently do not provide repurchase disclosure analogous to Item 703 (for filers on the domestic forms) or Item 16E for foreign private issuers that report using Form 20-F. Consistent with that approach, we are not imposing the amended repurchase disclosure requirements on Canadian issuers that file using the MJDS because those issuers are subject to a separate reporting regime. Under the MJDS, eligible Canadian issuers may satisfy certain securities registration and reporting requirements of the Commission by providing disclosure documents prepared in accordance with the requirements of Canadian securities regulatory authorities. See Multijurisdictional Disclosure and Modifications to the Current Registration and Reporting System for Canadian Issuers, Release No. 33-6902 (Jun. 21, 1991) [56 FR 30036 (July 1, 1991] (``MJDS Release''). \220\ As noted above, several commenters recommended that we exempt issuers conducting repurchases with respect to securities that are not traded on an exchange from the daily repurchase disclosures. See letters from Nareit and Publix. However, as discussed in Section V.D.3, such an exemption would deprive investors in these issuers of the informational benefits of the final amendments, which might be relatively more consequential for investors in issuers with a thin trading market or without a trading market that lack the price discovery from active trading. In addition, we note that these issuers are already required to provide share repurchase disclosures under existing Item 703. \221\ See letter from BPI & Amer. Bankers Assoc. --------------------------------------------------------------------------- Moreover, the commenter suggested that the final amendments would encourage dividend distributions instead of share repurchases as the preferred mechanism for returning capital to shareholders, which would tend to undermine banks' fiscal soundness and, the commenter suggests, be inconsistent with Federal Reserve policies, because dividends represent a more binding commitment of future resources.\222\ As with other issuers, we do not believe the amendments significantly affect the relative appeal of repurchases for financial institutions, and even if so, are also aware that financial institutions may have other alternatives to traditional dividends, such as special dividends, that may not raise the same concerns with respect to the commitment of future resources. --------------------------------------------------------------------------- \222\ See id. --------------------------------------------------------------------------- In addition, our adoption of quarterly disclosures mitigates some of the concerns of commenters seeking an exemption for various issuer categories,\223\ which discussed the [[Page 36019]] burden of the proposed requirement to provide daily repurchase data one business day after execution of the issuer's share repurchase order. The final amendments do not require issuers to provide daily repurchase data the day after execution. As a result, we expect the change from the proposal to require quarterly reporting (or semi-annual reporting for Listed Closed-End Funds) to substantially alleviate commenters' cost concerns for all issuer categories.\224\ --------------------------------------------------------------------------- \223\ See letters from ABA Committee, ACCO, ADISA, Better Markets I, BPI & Amer. Bankers Assoc., BrilLiquid, CBA, CFA Institute, CII, Cravath, Hecht, IBC, ICGN, ICI I, Nareit, NYC Bar, NYSE, Profs. Lewis and White, Roosevelt, SIFMA II, Sullivan, TIAA, TotalEnergies, and VEUO. \224\ See, e.g., letters from ICI I (stating that, in the event the Commission determines to apply the proposal to Listed Closed-End Funds, it should ``exclude them from the Form SR reporting requirements and, instead, require funds to provide the daily information less frequently in their Form N-CSR'' because of ``the unique characteristics of funds, including their status as pass- through investment vehicles with disclosed NAVs that promptly reflect the effects of share repurchases, and the diminished concerns that fund insiders will misuse share repurchases for their own self-interest'') and Roosevelt (stating generally that ``it is likely that these foreign issuers are already disclosing this information in other jurisdictions, so would not incur compliance costs''). --------------------------------------------------------------------------- Additionally, we note that some commenters asked the Commission specifically to exempt FPIs that are required to provide share repurchase information in their home country disclosures and furnish that information on Form 6-K.\225\ Consistent with our requirements generally,\226\ if an FPI's home country disclosures furnished on a Form 6-K satisfy the Form F-SR requirements, it can incorporate by reference its Form 6-K disclosures into its Form F-SR. Therefore, we do not believe such an exemption is necessary. FPIs that already disclose daily data in another jurisdiction will experience only incremental burdens in reporting those transactions. While these data may already be available to some investors, making them accessible to all investors, at the same frequency as for corporate issuers that file on domestic forms, will allow investors to receive the same information for FPIs as they receive for corporate issuers that file on domestic forms, regardless of the form FPIs choose to use.\227\ To the extent that these disclosures may benefit an issuer's competitors, placing FPI filing obligations on the same tempo as corporate issuers that file on domestic forms will also help to level competition between FPIs and those issuers. --------------------------------------------------------------------------- \225\ See, e.g., letters from SIFMA II, Sullivan, and VEUO. \226\ See 17 CFR 240.12b-23. \227\ One commenter asserted that EU regulations with respect to insider trading and market manipulation reduce the need for additional disclosure with respect to repurchases. See letter from VEUO. We disagree with this suggestion for essentially the same reasons we disagree with commenters who made similar arguments regarding Rules 10b5-1 and 10b-18. --------------------------------------------------------------------------- Other commenters requested that FPIs not be required to disclose the total number of shares repurchased in their home countries in reliance on the safe harbor in Rule 10b-18 nor the total number of shares purchased pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).\228\ We believe, however, that these disclosures help investors to understand the purposes for a repurchase. The final amendments, therefore, include those disclosure requirements. To the extent that issuers do not rely on the safe harbor or affirmative defense for trades conducted outside the United States, any disclosure obligation on FPIs will be minimal. If such issuers are concerned about any negative inferences, they may include additional disclosure explaining why they chose not to rely on such safe harbor or affirmative defense. --------------------------------------------------------------------------- \228\ See, e.g., letters from SIFMA II and VEUO. --------------------------------------------------------------------------- We are revising the proposed requirement to disclose whether purchases were ``made in reliance on'' the Rule 10b-18 non-exclusive safe in response to commenters' concerns that issuers are only able to indicate their intent to comply with the safe harbor. The final rule will therefore require disclosure of purchases that were ``intended to qualify for'' the safe harbor.\229\ --------------------------------------------------------------------------- \229\ See, e.g., letters from SIFMA II and Sullivan. We note the commenters suggested that we adopt the phrase ``intended to comply with'' the safe harbor, but we believe it is more clear to require that issuers disclose whether trades were ``intended to qualify for'' the safe harbor. --------------------------------------------------------------------------- We have also modified the manner in which issuers will report certain information relating to Rules 10b-18 and 10b5-1. Proposed Form SR would have required issuers to disclose, in a table, the total number of shares purchased daily in reliance on Rule 10b-18 or intended to qualify for the affirmative defense provisions of Rule 10b5-1(c). The proposed amendments to Item 703, Form 20-F, and Form N-CSR would have similarly required issuers to disclose, by footnote to their monthly repurchase table or the narrative accompanying the table, the number of shares purchased in reliance on Rule 10b-18 and the number intended to qualify for the affirmative defense provisions of Rule 10b5-1(c) (and if so, the date(s) the plan was adopted or terminated). The final amendments require issuers to disclose, in tabular form, the number of shares purchased daily in reliance on Rule 10b-18 or intended to qualify for the affirmative defense provisions of Rule 10b5-1(c), as proposed. In a change from the proposal, the final amendments also require issuers to disclose, by footnote to the daily repurchase table, the date any plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) for the shares was adopted or terminated. The proposed amendments would have required this information in the narrative disclosures accompanying the monthly repurchase table required by Item 703, Form 20-F, and Form N-CSR. After changing the frequency that issuers must provide their daily quantitative share repurchase disclosure from one business day after execution, as proposed, to quarterly or semi-annually in the final amendments, and deleting the monthly repurchase table from Item 703, Form 20-F, and Form N-CSR, we believe that requiring this Rule 10b-18 and Rule 10b5-1(c) information in both the table and the narrative discussion would be duplicative. Requiring this information with the table would be more efficient for issuers and easier to understand for investors. Contrary to some commenters, we believe that whether an issuer intended to make use of Rule 10b-18 or Rule 10b5-1 in conducting its repurchases provides useful information to investors. The disclosure as to whether purchases were intended to qualify for the Rule 10b-18 non- exclusive safe harbor or the affirmative defense under Rule 10b5-1 provides investors with deeper insight into how an issuer has structured and designed its repurchase program. The disclosure with respect to Rule 10b-18 allows investors to gauge whether the given repurchase program is designed to ``minimize the market impact of the issuer's repurchases, thereby allowing the market to establish a security's price based on independent forces.'' \230\ Further, this disclosure could provide a more informed understanding of how many shares may yet be purchased under the timing and volume parameters of Rule 10b-18, reducing information asymmetries for current and prospective shareholders. In these ways, the disclosure will allow investors to better evaluate the efficiency and impacts of a repurchase. While some commenters indicated that as a matter of practice repurchase programs are designed to meet both the Rule 10b-18 and Rule 10b5-1 safe harbors,\231\ issuers are not required to do so. Additionally, with disclosure of whether an issuer intended to satisfy the affirmative defense under Rule 10b5-1, [[Page 36020]] investors can more readily determine whether the issuer's managers took steps to mitigate the possibility of conducting a repurchase while in possession of material nonpublic information. --------------------------------------------------------------------------- \230\ 2003 Adopting Release, supra note 5, at 64953. \231\ See, e.g., letters from HP and Simpson Thacher. --------------------------------------------------------------------------- Moreover, we are cognizant of the concern shared by some commenters that the required Rule 10b5-1(c) and Rule 10b-18 disclosures could lead to unfounded speculation or cause negative inferences.\232\ Rule 10b-18 specifically disclaims any negative inference from an issuer's choice not to make use of the safe harbor, and Rule 10b5-1 is similarly described as an ``affirmative defense.'' Therefore, we believe that any unwarranted inferences from disclosure that an issuer did or did not use such safe harbor or defense would be limited. We believe the required disclosures achieve a proper balance between that concern and the need of investors for additional information concerning an issuer's share repurchases. --------------------------------------------------------------------------- \232\ See, e.g., letters from Maryland Bar and Sullivan. --------------------------------------------------------------------------- We note that one commenter suggested that the final amendments should include additional disclosures regarding an issuer's Rule 10b5- 1(c) plan, such as information on adoption, modification, suspension, or termination of the plan; the maximum number of shares planned for sale under the plan; and any suspensions or terminations of a planned repurchase pursuant to such a plan.\233\ We have not included these additional required disclosures relating to Rule 10b5-1(c) because we believe the required information, together with existing obligations of issuers to disclose material changes to their share repurchase plans whether under Rule 10b5-1 or otherwise, is sufficient to inform investors about an issuer's repurchases. The required disclosures achieve an appropriate balance between the concerns expressed by commenters and the need of investors for additional information concerning an issuer's share repurchases. As discussed above in this section, if any of the additional disclosures suggested by the commenter or other additional disclosures are material and necessary to make other repurchase disclosures not misleading under the circumstances, the issuer must provide those disclosures.\234\ --------------------------------------------------------------------------- \233\ See letter from CFA Institute. \234\ See 17 CFR 240.12b-20 (``Rule 12b-20''). --------------------------------------------------------------------------- Further, we note that some commenters recommended that we repeal Rule 10b-18 and replace it with bright-line limits,\235\ and that we not apply the proposed Rule 10b5-1(c) and Rule 10b-18 disclosures to FPIs.\236\ Repealing and replacing Rule 10b-18 is beyond the scope of this rulemaking. Consistent with our reasoning for not allowing an exemption for certain issuers relating to the daily quantitative repurchase disclosures, we do not believe the final amendments should exempt FPIs from the Rule 10b5-1(c) and Rule 10b-18 disclosures. These disclosures benefit all investors in issuers that conduct repurchases. --------------------------------------------------------------------------- \235\ See, e.g., letters from AFREF et al., CFA Institute, CII, Lazonick & Jacobson, Oxfam, and Prof. Palladino. \236\ See letter from SIFMA II. --------------------------------------------------------------------------- One commenter expressed the view that the proposed amendments would interfere with state law.\237\ The commenter asserted that the Commission's purpose in proposing the amendments was to deter share repurchases generally, which would ``regulate boardroom decisions over which the Commission has no authority.'' The final amendments do not regulate repurchases or board consideration of them, nor are they intended to deter share repurchases. While it is possible that the amendments could result in some reduction in issuer repurchases,\238\ we do not expect these additional disclosure requirements to have a significant deterrent effect on these transactions overall. In any case, the purpose of the final amendments is to provide shareholders with additional data about the timing and other details of the issuer's repurchases to allow them to make more informed investment and voting decisions, consistent with our authority under the Exchange Act. --------------------------------------------------------------------------- \237\ See letter from Cato. \238\ See infra Section V.A.2. --------------------------------------------------------------------------- Another commenter asserted that the proposed amendments' daily disclosure requirements would violate the First Amendment.\239\ The commenter claimed that the Commission failed to explain why monthly disclosures would not be adequate and did not acknowledge the compelled-speech burdens that come with a next-day reporting regime. The commenter also noted that the proposed amendments' ``unjustified insistence on next-day reporting'' were not ``adequately tailored'' to the governmental interests at stake and to reduce instances of compelled speech. --------------------------------------------------------------------------- \239\ See letter from Chamber III. --------------------------------------------------------------------------- We disagree with the commenter's assertion that the proposed amendments would violate the First Amendment. As we have explained earlier in this section, periodic disclosure of daily repurchases provide a level of detail that will allow investors to assess the efficiency of, and motives for, those transactions. Additionally, daily repurchase disclosure allows investors to monitor and evaluate the issuer's share repurchases and their effects on the market for the issuer's securities. This disclosure is thus factual in nature and advances important interests as discussed throughout this release. Further, after considering comments, the final amendments require periodic reporting of an issuer's daily repurchases, as opposed to daily reporting of an issuer's daily repurchases, which greatly mitigates the associated burdens. Finally, we note that a number of commenters asked the Commission to clarify certain terms, times, and transactions, including more precisely defining ``share repurchase program,'' \240\ ``executed,'' \241\ ``business day,'' \242\ ``before the end;'' \243\ addressing whether issuers operating in time zones other than Eastern Time would be given additional time to file their Form SR; \244\ and clarifying whether the proposal would encompass withhold-to-cover shares.\245\ Because the final amendments do not require issuers to provide their daily quantitative repurchase disclosures one business day after execution of their share repurchase order, there is no longer a need for many of these requested clarifications. --------------------------------------------------------------------------- \240\ See letter from Cravath. \241\ See letters from Chamber II, Cravath, DLA Piper, FedEx, HudsonWest, Simpson Thacher, and Wilson Sonsini. \242\ See letter from Bishop. \243\ See id. \244\ See letters from Chevron and HP. \245\ See letter from Nash. --------------------------------------------------------------------------- We do not believe it is necessary to make any further clarifications based on the other comments received. The main difference between the current Item 703 quantitative repurchase disclosures and the quantitative repurchase disclosures in the final amendments is that issuers are required to aggregate their share repurchases on a daily basis instead of on a monthly basis. Therefore, the terms, times, and transactions used for, and applicable to, the current Item 703 disclosure requirements should be applied to the final amendments.\246\ --------------------------------------------------------------------------- \246\ For example, as we discussed in the Proposing Release, the Commission uses a commonly understood meaning of the term ``execution,'' which will not change based on the final amendments. See Proposing Release, supra note 2, at n. 23. We are not adopting the suggestion of one commenter to instead require reporting based on the settlement date rather than the execution date, see letter from NASAA, because the commenter's concerns about the execution date were tied closely to potential errors that might arise under an execution-date regime with daily filing. Because we are adopting quarterly reporting, we think the commenter's concerns about the execution date will be greatly lessened, consistent with our experience with Item 703. --------------------------------------------------------------------------- [[Page 36021]] B. Narrative Revisions to Item 703 of Regulation S-K, Form 20-F, and Form N-CSR Additional Disclosure 1. Proposed Amendments The Commission proposed to revise and expand the disclosure requirements in Item 703 of Regulation S-K, Form 20-F, and Form N-CSR to work in conjunction with proposed Form SR to provide investors with more detailed and qualitative information that they could use to evaluate issuer share repurchases. Specifically, the proposal would require an issuer to disclose: 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 it made its repurchases pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5- 1(c) and the date that the plan was adopted or terminated; and Whether purchases were made in reliance on the Rule 10b-18 non-exclusive safe harbor. Additionally, the Commission proposed to require that issuers disclose if any of their officers or directors subject to the reporting requirements under Exchange Act section 16(a) purchased or sold shares or other units of the class of the issuer's equity securities that is the subject of an issuer share repurchase plan or program within ten business days before or after the announcement of an issuer purchase plan or program by checking a box before the tabular disclosure of issuer purchases of equity securities. 2. Comments on the Proposed Amendments a. Comments on Objective or Rationale for Share Repurchases, and Process or Criteria Used To Determine the Amount of Repurchases A number of commenters supported the proposal to require an issuer to disclose its objective or rationale for its share repurchases, and the process or criteria used to determine the amount of repurchases.\247\ However, most commenters who discussed this proposal opposed it.\248\ These commenters expressed concern that the required disclosure could divulge competitive or sensitive information that would be harmful to the issuer,\249\ or result in boilerplate disclosure that would not prove meaningful to investors.\250\ --------------------------------------------------------------------------- \247\ See, e.g., letters from CalPERS, CFA Institute, CII, ICGN, Prof. Palladino, NASAA, Public Citizen, Roosevelt, and Senators Rubio & Baldwin. \248\ See, e.g., letters from BPI & Amer. Bankers Assoc., Chamber II, Coalition, Cravath, Dow, Jones Day, Kirkland Ellis, Morris, NAM, PNC, Profs. Lewis and White, SCG, Shearman, SIFMA II, Sullivan, and Vistra. \249\ See, e.g., letters from BPI & Amer. Bankers Assoc., PNC, Profs. Lewis and White, Shearman, SIFMA II, and SCG. \250\ See, e.g., letters from Chamber II, Coalition, Cravath, Jones Day, Morris, NAM, and Sullivan. --------------------------------------------------------------------------- Other commenters objected to the proposal on the basis that the disclosures could be misleading because they would show only a small part of a company's overall liquidity and capital allocation policies.\251\ These commenters suggested that any required objective or rationale disclosures concerning an issuer's share repurchase plans should be included within a filing's Management's Discussion and Analysis of Financial Condition and Results of Operations (``MD&A'') section, so that the disclosures can be evaluated within the larger context of liquidity and capital allocation. Other commenters suggested that the final amendments should not require the disclosure of all share repurchase plans, but only those that are material to the issuer.\252\ Another commenter asserted that the disclosures would violate the First Amendment because they would require issuers to provide disclosure other than ``purely factual, uncontroversial information'' \253\ and would force the issuer to speak when doing so would be unduly burdensome.\254\ --------------------------------------------------------------------------- \251\ See, e.g., letters from ABA Committee, Dow, Profs. Lewis and White, Quest, and Shearman. One of these commenters noted that issuers often include a discussion of repurchase activity in their MD&A section. See letter from Quest. \252\ See, e.g., letters from Cravath and Profs. Lewis and White. \253\ See letter from Chamber III (citing NIFLA v. Becerra, 138 S. Ct. 2361, 2372 (2018)). \254\ See letter from Chamber III (citing Am. Meat Inst. v. USDA, 760 F.3d 18, 34 (D.C. Cir. 2014)). --------------------------------------------------------------------------- In contrast, other commenters suggested that the Commission require more disclosure than was proposed.\255\ A few of these commenters recommended that issuers be required to announce all of their share repurchase plans \256\ in a standardized format \257\ or on Form 8- K.\258\ A number of commenters stated that the final amendments should require issuers to disclose the manner in which they are funding their share repurchases \259\ out of the concern that some issuers may borrow funds to finance those transactions.\260\ One commenter asserted that the final amendments should require a five-year lookback to compare the average price per repurchased share against the price per share received pursuant to new issuances and stock compensation plans.\261\ Some commenters recommended disclosure about the impact of share repurchases on performance targets,\262\ and other commenters suggested that we adopt amendments requiring issuers to disclose whether they considered other uses for the funds being used for the share repurchases.\263\ --------------------------------------------------------------------------- \255\ See, e.g., letters from AFREF et al., Better Markets I, BrilLiquid, CalPERS, CFA Institute, Form Letter A, ICGN, Prof. Palladino, Roosevelt, and Senators Rubio & Baldwin. \256\ See, e.g., letters from BrilLiquid, CalPERS, CFA Institute, ICGN, and Prof. Palladino. \257\ See letter from CalPERS. \258\ See, e.g., letters from BrilLiquid and ICGN. \259\ See, e.g., letters from AFREF et al., Better Markets I, CalPERS, CFA Institute, Form Letter A, Prof. Palladino, Roosevelt, and Senators Rubio & Baldwin. \260\ See, e.g., letters from AFREF et al., CalPERS, CFA Institute, Form Letter A, Prof. Palladino, and Senators Rubio & Baldwin. \261\ See letter from CFA Institute. \262\ See, e.g., letters from CFA Institute and CII. \263\ See, e.g., letters from CFA Institute and Form Letter A. --------------------------------------------------------------------------- b. Comments on Policies and Procedures Relating to Purchases and Sales of the Issuer's Securities by Its Officers and Directors During a Repurchase Program A number of commenters supported the proposal to require issuers to disclose 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.\264\ Some commenters recommended that the Commission adopt a more comprehensive requirement than was proposed.\265\ A few of these commenters asked the Commission to prohibit corporate insider trading before, during, and after buyback announcements and execution.\266\ One commenter recommended requiring disclosure of any directors, officers, and ten percent [[Page 36022]] shareholders who purchased or sold shares within ten days of an issuer's buyback program announcement.\267\ --------------------------------------------------------------------------- \264\ See, e.g., letters from CII and CFA Institute. \265\ See, e.g., letters from AFREF et al., Better Markets I, CII, Oxfam, Prof. Palladino, and Public Citizen. \266\ See, e.g., letters from AFREF et al., Better Markets I, Oxfam, Prof. Palladino, and Public Citizen. \267\ See letter from CII. --------------------------------------------------------------------------- A few commenters, however, opposed this proposal.\268\ One of these commenters \269\ suggested that this information would be more appropriate in 17 CFR 229.407 (``Item 407 of Regulation S-K''), which contains disclosure requirements regarding corporate governance. Another commenter asserted that the proposed disclosure could create the erroneous expectation that an issuer must have such policies and procedures when it may not have them.\270\ One commenter suggested that this requirement would effectively ban such insider sales.\271\ --------------------------------------------------------------------------- \268\ See, e.g., letters from ABA Committee and PNC. \269\ See letter from ABA Committee. \270\ See letter from PNC. \271\ See letter from Maryland Bar. --------------------------------------------------------------------------- c. Comments on Checkbox Requirement Several commenters supported the proposed requirement for issuers to disclose if any of their officers or directors subject to the reporting requirements under section 16(a) of the Exchange Act purchased or sold shares or other units of the class of the issuer's equity securities that is the subject of an issuer share repurchase plan or program within ten business days before or after the announcement of an issuer purchase plan or program by checking a box before the tabular disclosure of issuer purchases of equity securities.\272\ Several of these commenters specifically supported including the ten business-day period.\273\ One commenter noted that the proposal ``would allow investors to more fully understand how officer and director stock purchase and sale activities interrelate with an issuer's share repurchase program.'' \274\ Another commenter stated that the checkbox ``would allow investors to determine whether corporate insiders are potentially benefiting unfairly from knowledge asymmetry by, for example, purchasing shares ahead of an issuer's repurchase plan announcement, knowing that share prices usually rise with such an announcement.'' \275\ --------------------------------------------------------------------------- \272\ See, e.g., letters from Better Markets I, CFA Institute, Hecht, and ICGN. One of these commenters suggested expanding the checkbox period to 30 days before and after adoption of a repurchase plan because ``[i]nsiders will know well before the announcement that the company is considering a stock repurchase program.'' See letter from Hecht. \273\ See, e.g., letters from Better Markets I, CFA Institute, and ICGN. See also letter from Hecht (supporting a 30-day period). \274\ See letter from CFA Institute. \275\ See letter from Better Markets I. --------------------------------------------------------------------------- Other commenters, however, opposed the proposal.\276\ Most of the commenters opposed to the proposal indicated that the proposed checkbox requirement would be unnecessary \277\ because it would be duplicative of the required disclosures in Exchange Act section 16,\278\ and because trading on material nonpublic information is already prohibited.\279\ Similarly, one commenter stated that insider transactions occurring after a repurchase plan announcement should be excluded from the checkbox requirement because the information is already public.\280\ Another commenter stated that, if Form SR is adopted, the data from that form should suffice.\281\ One commenter asserted it opposed the proposal because insiders do not have access to any particular repurchase information that would give them a trading advantage.\282\ Some commenters noted that FPIs would be effectively excluded from the checkbox requirement because they are exempt from Exchange Act section 16 reporting.\283\ --------------------------------------------------------------------------- \276\ See, e.g., letters from ABA Committee, BrilLiquid, Chamber II, Cravath, DLA Piper, HP, Quest, and Simpson Thacher. \277\ See, e.g., letters from ABA Committee, BrilLiquid, Chamber II, Cravath, DLA Piper, Quest, and Simpson Thacher. \278\ See, e.g., letters from ABA Committee, DLA Piper, and Simpson Thacher. \279\ See letter from Quest. \280\ See letter from DLA Piper. \281\ See letter from Cravath. \282\ See letter from HP. \283\ See, e.g., letters from CBA and Cravath. --------------------------------------------------------------------------- Several commenters expressed concern about the potential for misinterpretations as a result of the checkbox.\284\ One commenter claimed that the checkbox requirement could incorrectly imply that trading outside the checkbox window is always permissible.\285\ Another commenter stated that the checkbox could cause investors to assume incorrectly that the issuer engaged in inappropriate behavior.\286\ Some commenters indicated that the checkbox requirement could give the incorrect impression that insiders were trading securities as a result of the issuer's repurchase announcement instead of for other reasons, such as long-established Rule 10b5-1(c) plans \287\ or automatic sales to fund tax withholding on share vesting.\288\ --------------------------------------------------------------------------- \284\ See, e.g., letters from ABA Committee, Chamber II, Cravath, Quest, and Vistra. \285\ See letter from Cravath. \286\ See letter from Chamber II (stating that ``any positive correlation between share repurchases and insider selling is likely driven by blackout periods and not opportunistic insider trading around repurchases.'' But see letter from Prof. Jackson, Dr. Hu, and Dr. Zytnick (refuting that commenter's analysis by providing their own analysis showing that, even after controlling for blackout periods, insider sales are significantly higher during repurchases.). \287\ See, e.g., letters from Cravath, DLA Piper, and PNC. \288\ See letter from PNC. --------------------------------------------------------------------------- Some commenters asserted that Rule 10b5-1(c) plan transactions or automatic sales to fund tax withholding on share vesting should be excluded from the checkbox requirement.\289\ One commenter asked that the Commission state that ``officers and directors trading in a company's securities at the same time that the company is buying back its own securities is not in violation [of] any rule or otherwise harmful.'' \290\ Another commenter stated that insider purchases or sales should be included in the checkbox requirement only if an issuer's repurchase plan is publicly announced and implemented.\291\ A different commenter recommended that the Commission permit issuers to include context for the checkbox so that trading activities are not misconstrued.\292\ --------------------------------------------------------------------------- \289\ See, e.g., letters from Cravath, DLA Piper, and PNC. \290\ See letter from Quest. \291\ See letter from Cravath (``We also do not believe that a checkbox requirement is appropriate in the context of repurchase plans that are not publicly announced.''). \292\ See letter from ABA Committee. --------------------------------------------------------------------------- Finally, one commenter asked the Commission to clarify how the checkbox would apply to issuers with multiple classes of stock, each with its own repurchase plan; whether announcing the increase of an existing share repurchase plan would constitute the announcement of a new repurchase plan for purposes of the requirement; and whether an issuer may rely on Forms 3,\293\ 4,\294\ and 5 \295\ filed with the Commission to determine whether it should check the box.\296\ --------------------------------------------------------------------------- \293\ 17 CFR 249.103. \294\ 17 CFR 249.104. \295\ 17 CFR 249.105. \296\ See letter from ABA Committee. --------------------------------------------------------------------------- 3. Final Amendments We are adopting final amendments relating to the revision and expansion of the disclosure requirements in Item 703 of Regulation S-K, Form 20-F, and Form N-CSR, with some modifications from the proposal in response to comments received. Consistent with the proposed amendments, these final amendments work in conjunction with the new periodic quantitative repurchase disclosures to provide investors with more detailed information to evaluate an issuer's share repurchases. We continue to believe that these disclosures will help investors evaluate whether the issuer is engaged [[Page 36023]] in efficient repurchases. Specifically, the final amendments require an issuer to disclose: The objectives or rationales for each repurchase plan or program and process or criteria used to determine the amount of repurchases; \297\ --------------------------------------------------------------------------- \297\ In a clarifying change from the proposal, the final amendments will require disclosure of the ``objectives or rationales'' rather than the ``objective or rationale'' for each repurchase plan or program to make clear that the disclosure is not limited to one objective or rationale if an issuer has more than one. --------------------------------------------------------------------------- Any policies and procedures relating to purchases and sales of its securities by its officers and directors during a repurchase program, including any restriction on such transactions; and Whether any of its directors and officers subject to the reporting requirements under Exchange Act section 16(a) (for domestic corporate issuers and Listed Closed-End Funds), or directors or senior management that would be identified pursuant to Item 1 of Form 20-F (for FPIs, whether filing on the forms exclusively available to FPIs or on the domestic forms) purchased or sold shares or other units of the class of the issuer's equity securities that are registered pursuant to section 12 of the Exchange Act and subject of a publicly announced repurchase plan or program within four business days before or after the issuer's announcement of such repurchase plan or program or the announcement of an increase of an existing share repurchase plan or program by checking a box before the tabular disclosure of issuer purchases of equity securities.\298\ --------------------------------------------------------------------------- \298\ As noted above, while we are not adopting the proposed requirement to provide narrative disclosure under Item 703 regarding trades intended to qualify for the non-exclusive safe harbor of Rules 10b-18 or the affirmative defense under Rule 10b5-1(c), we are requiring substantially the same information be disclosed in tabular fashion in other registrant filings. See supra notes 229-230 and accompanying text. --------------------------------------------------------------------------- Additionally, the final amendments require disclosure of the number of shares (or units) purchased other than through a publicly announced plan or program, and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the issuer's obligations upon exercise of outstanding put options issued by the issuer, or other transactions), and certain disclosures for publicly announced repurchase plans or programs, including: The date each plan or program was announced; The dollar amount (or share or unit amount) approved; The expiration date (if any) of each plan or program; Each plan or program that has expired during the period covered by the table; 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. This same information is already required to be disclosed in our current rules. In current Item 703, this information is required in a footnote to the monthly quantitative share repurchase disclosure table. The final amendments do not change the substance of these requirements. The only change is that the final amendments change the form of the requirements from an instruction to the main text of Item 703 and no longer require the disclosure to be part of a footnote to the monthly table, as the monthly table will no longer exist. Instead this disclosure will be required in the main text of the narrative discussion. We note that some commenters suggested that the final amendments should include a number of additional, more prescriptive disclosure requirements relating to the new narrative requirements that are being added to Item 703, Form 20-F, and Form N-CSR.\299\ The disclosure we are adopting will provide the information necessary for investors to evaluate the efficiency of issuer repurchases and their impact on the market, and we do not believe that the particular individual disclosures suggested by commenters are needed. To the extent further material information is necessary to make such disclosures not misleading, the issuer will be required to provide that information under existing Rule 12b-20.\300\ --------------------------------------------------------------------------- \299\ Some commenters suggested particular additional disclosures such as a five-year lookback, see letter from CFA Institute, the impact of share repurchases on performance targets, see letters from CFA Institute and CII, or alternative uses for the share repurchase funds, see letter from CFA Institute and Form Letter A. \300\ See Rule 12b-20 (``In addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading.''). --------------------------------------------------------------------------- Other commenters suggested that certain aspects of the disclosure requirements in new Item 703(a) \301\ should not be adopted because they could result in misleading information. We disagree. We believe that the required narrative disclosures in the final amendments provide the information necessary for investors to understand and evaluate an issuer's share repurchases in a clear and concise manner. For example, the checkbox requirement will assist investors in identifying issuers where there is a possibility that repurchases affected the value of executive compensation, permitting investors to further investigate whether this possibility should affect their assessment of the repurchase.\302\ If an issuer believes any of the required disclosures would result in misleading or confusing information, the issuer may provide additional disclosure to put the required information in context. Additionally, as with all of our required disclosures, under our rules issuers are required to provide any additional information necessary to make the required disclosure not misleading.\303\ Moreover, issuers are not foreclosed from discussing their repurchases in other sections of the document, such as in the MD&A section or in the corporate governance section required by Item 407 of Regulation S- K. --------------------------------------------------------------------------- \301\ The information required in new Item 703(a) would have been required in proposed Item 703(c). We made this change in the final amendments because we are requiring the tabular disclosure of the daily quantitative repurchase data in new Item 601(b)(26) instead of proposed Item 703(a) and (b). See infra Section III.A.3. \302\ In response to the commenter who suggested we should exclude from this disclosure automatic sales to fund certain tax withholding ``to avoid the risk that the checked box would be provocative despite the fact that the underlying transaction would only reflect a decision made, in most cases, a year or more prior to the sale and a decision not typically made by the officer or director personally,'' we note that in such a circumstance, the issuer could provide additional disclosure as context for the required disclosure, which may avoid the concern raised by the commenter. See letter from PNC. \303\ See Rule 12b-20. --------------------------------------------------------------------------- Some commenters stated that they opposed the requirement in proposed Item 703(a)(1) to disclose the objective or rationale for an issuer's share repurchases and process or criteria used to determine the amount of repurchases because this requirement would result in the exposure of competitive or sensitive information.\304\ One commenter asked the Commission to clarify that the final amendments are not intended to require an issuer to disclose such information.\305\ Although the disclosures required by the final amendments should convey a thorough understanding of the issuer's objectives or rationales for the repurchases, and the process or criteria it used in determining the amount of the repurchase, the final amendments do not require issuers to provide disclosure at a level of granularity that would [[Page 36024]] reveal any competitive or sensitive information beyond what may already be gleaned from other disclosures regarding the business and financial condition of the issuer. --------------------------------------------------------------------------- \304\ See, e.g., letters from BPI & Amer. Bankers Assoc., PNC, Profs. Lewis and White, Shearman, SIFMA II, and SCG. \305\ See letter from PNC. --------------------------------------------------------------------------- Other commenters opposed this requirement because, they asserted, it would result in boilerplate disclosure.\306\ We disagree and note that the narrative disclosure, in conjunction with the new periodic quantitative repurchase disclosures, must provide investors with sufficiently detailed information to evaluate an issuer's share repurchases. The narrative disclosure also should be appropriately tailored to an issuer's particular facts and circumstances. --------------------------------------------------------------------------- \306\ See, e.g., letters from Chamber II, Coalition, Cravath, Jones Day, Morris, NAM, and Sullivan. We note, however, that one commenter asserted that, even if the final amendments lead to boilerplate disclosures, the disclosure would still benefit investors because it would provide investors with more information than they have currently, it could become a point of engagement, and shareholders would be able to inquire about allocation decisions or provide support for the repurchase. See letter from ICGN. --------------------------------------------------------------------------- We expect issuers to provide the required disclosure without relying on boilerplate language, and we received several helpful suggestions from commenters in that regard.\307\ Although not an exclusive or exhaustive list, commenters suggested that issuers could avoid boilerplate language by discussing other possible ways to use the funds allocated for the repurchase \308\ and comparing the repurchase with other investment opportunities that would ordinarily be considered by the issuer, such as capital expenditures and other uses of capital.\309\ Issuers could also discuss the expected impact of the repurchases on the value of remaining shares.\310\ Moreover, in connection with their disclosure of the objectives or rationales for a repurchase, issuers could discuss the factors driving the repurchase, including whether their stock is undervalued, prospective internal growth opportunities are economically viable, or the valuation for potential targets is attractive.\311\ Issuers might additionally discuss the sources of funding for the repurchase, where material, such as, for example, in the case where the source of funding results in tax advantages that would not otherwise be available for a repurchase. --------------------------------------------------------------------------- \307\ See, e.g., letters from AFREF et al., CFA Institute, CII, Hecht, Prof. Palladino, Roosevelt, and Senators Rubio & Baldwin. \308\ See, e.g., letters from AFREF et al. and Senators Rubio & Baldwin. \309\ See letter from Senators Rubio & Baldwin. \310\ See, e.g., letters from Prof. Palladino and Roosevelt. \311\ See letter from CII. --------------------------------------------------------------------------- We disagree with the commenter who asserted that the amendments would violate the First Amendment on the grounds that the required disclosures call for controversial opinions, not ``purely factual'' information.\312\ As we have explained, there are a number of reasons why issuers undertake share repurchases, and an issuer's purpose in undertaking a particular repurchase is significant information that can aid investors in assessing the repurchase, including its purposes and impacts on the firm and the issuer's value. The requirement that an issuer disclose the objectives or rationales behind a repurchase can be directly informative for investors and provide investors with the proper context to understand the daily quantitative repurchase disclosures (such as by allowing investors to confirm that the daily pattern of trades is consistent with the issuer's stated purpose for those repurchases) and to monitor and evaluate the issuer's share repurchase and its effects on the issuer's securities. This requirement thus involves disclosure that is factual in nature, advances important interests as discussed throughout this release, and complies with the First Amendment. --------------------------------------------------------------------------- \312\ See letter from Chamber III. --------------------------------------------------------------------------- We also disagree with the commenter who suggested that the requirement to disclose the issuer's policies and procedures relating to purchases and sales of its securities by its officers and directors during a repurchase program would effectively ban such insider sales.\313\ Disclosure of any such policies may aid investors in determining the extent to which executive's interests may have, at least in part, helped motivate repurchases. This is a disclosure obligation that will provide investors with additional relevant disclosures about issuer repurchases and not a requirement for an issuer to have, adopt, or change any such policies and procedures. --------------------------------------------------------------------------- \313\ See letter from Maryland Bar. --------------------------------------------------------------------------- In a modification from the Proposed Rule, we are requiring that issuers indicate by checkbox that covered executives have engaged in equity transactions within four business days of a repurchase announcement, rather than the ten business days proposed. While the checkbox is intended to assist investors in identifying transactions that warrant closer scrutiny, a larger window of time may potentially result in added attention for a number of transactions that are not as significant, reducing the value of the checkbox.\314\ --------------------------------------------------------------------------- \314\ Cf. Rule 10b5-1 Adopting Release, supra note 18, at 80390 (reducing the disclosure window for tabular reporting of option awards pursuant to Item 402(x) of Regulation S-K (17 CFR 229.402(x)) to address concerns about the potential disclosure of many routine option awards that are less likely to have been affected by material nonpublic information). --------------------------------------------------------------------------- We disagree with the commenter who stated that we should not impose a checkbox requirement for transactions close in time to a repurchase announcement because, the commenter asserted, such sales are only coincidences of the corporate calendar and thus cannot represent efforts by managers to profit from repurchases.\315\ As discussed above, and as noted by other commenters, the predictability of the corporate calendar may instead facilitate executive efforts to benefit personally from repurchases, and thus we continue to believe the checkbox is appropriate.\316\ For similar reasons, we disagree with the commenter who stated that the checkbox is not needed in the case of an executive whose trades would qualify for the affirmative defense under Rule 10b5-1, because such trades could not reflect nonpublic information,\317\ and the commenter that stated that the checkbox requirement should apply only to repurchase plans that are publicly announced and implemented.\318\ Because repurchases often occur at relatively predictable times in the corporate calendar, executives can schedule trades in advance to potentially benefit from those repurchases that do occur at such times.\319\ --------------------------------------------------------------------------- \315\ See letter from Chamber II. \316\ See letters from Prof. Edmans and Prof. Jackson, Dr. Hu, and Dr. Zytnick. \317\ See letter from DLA Piper. \318\ See letter from Cravath (``We also do not believe that a checkbox requirement is appropriate in the context of repurchase plans that are not publicly announced.''). \319\ See letters from Prof. Edmans and Prof. Jackson, Dr. Hu, and Dr. Zytnick. --------------------------------------------------------------------------- Several commenters who opposed the proposed checkbox requirement asserted that the requirement is unnecessary,\320\ as it duplicates the existing Exchange Act section 16 disclosures for issuers that file on domestic forms.\321\ While the checkbox does provide information available in other disclosures, we believe that it would still be helpful to investors. The checkbox eliminates the need for investors to review Exchange Act section 16(a) filings to determine if any [[Page 36025]] officer or director has purchased or sold equity securities that are the subject of an issuer's share repurchase plan or program around the time of the announcement. Thus, while the relevant data about domestic issuers are available from other sources, the checkbox allows investors to focus their efforts on transactions that are the most likely to benefit from further analysis. Absent the checkbox, identifying the subset of filings presenting executive equity transactions close in time to a repurchase announcement would require an investor to manually cross-check numerous filings. Moreover, this information is necessary for investors in FPIs because Exchange Act section 16(a) does not apply to them. --------------------------------------------------------------------------- \320\ See, e.g., letters from ABA Committee, BrilLiquid, Chamber II, Cravath, DLA Piper, Quest, and Simpson Thacher. \321\ See, e.g., letters from ABA Committee, DLA Piper, and Simpson Thacher. --------------------------------------------------------------------------- In this regard, in the Proposing Release, the Commission drew no distinction between domestic issuers and FPIs with respect to the importance of disclosure regarding insider purchases and sales within ten business days before or after the announcement of an issuer repurchase plan or program. However, in applying the same proposed regulatory text to Form 20-F as to Item 703 of Regulation S-K and Form N-CSR, which referenced Exchange Act section 16 reporting, the proposed checkbox amendments to Form 20-F, as drafted, would not have resulted in any additional disclosures about insiders at FPIs because FPI securities are exempt from Exchange Act section 16 reporting.\322\ We appreciate the comments that noted this issue.\323\ --------------------------------------------------------------------------- \322\ See 17 CFR 240.3a12-3. \323\ See, e.g., letters from CBA and Cravath. --------------------------------------------------------------------------- We continue to believe this information is as important for investors in FPIs as it is for investors in other issuers. Consistent with the way in which executive officers and directors are referenced in Form 20-F, the checkbox disclosure requirement will now refer to purchases and sales by any ``director [and] member of senior management who would be identified pursuant to Item 1 of Form 20-F'' instead of referencing officers and directors subject to the reporting requirements under section 16(a) of the Exchange Act. In addition, we are moving the checkbox from Form 20-F to Form F-SR because we believe the checkbox is most useful in conjunction with the daily quantitative repurchase disclosures, which we moved to Form F-SR for FPIs that file on the FPI forms. Therefore, FPIs will be required to check the box if an director or member of senior management who would be identified in Form 20-F pursuant to Item 1 purchased or sold shares or other units of the class of the issuer's equity securities that is the subject of an issuer share repurchase plan or program within four business days before or after the issuer's announcement of such repurchase plan or program. Because FPIs may elect to report using Forms 10-Q and 10-K, for those issuers the checkbox on those forms will include the Form 20- F reference to directors or senior management. Other commenters opposed the proposed checkbox requirement because of the potential for misinterpretations or mischaracterizations,\324\ including that it could give the incorrect impression that insiders were trading securities because of the announcement instead of for other reasons, such as long-established Rule 10b5-1(c) plans \325\ or automatic sales to fund tax withholding on share vesting.\326\ To remedy any misunderstandings, some commenters suggested that the Commission should make certain acknowledgments \327\ or that the final amendments should allow issuers to include context for the checkbox to avoid any miscomprehension.\328\ We did not revise the final amendments in response to these comments because, in addition to the required disclosure of factual information, an issuer may include additional disclosure to provide context to investors, and would be required to do so if such additional disclosures are material and necessary to prevent the required disclosures from being misleading.\329\ In response to a commenter's suggestions,\330\ we are adopting amendments to clarify certain aspects of the checkbox requirement. If an issuer has multiple classes of stock, each with its own repurchase plan, the issuer is required to check the box in its periodic report if, during that period, a covered officer or director purchases or sells shares or other units of the class of the issuer's equity securities that is the subject of any issuer share repurchase plan or program within four business days before or after the issuer's announcement of such repurchase plan or program. Additionally, the issuer is required to check the box in its periodic report if, during that period, it announced an increase of an existing share repurchase plan because the announcement constitutes a new repurchase plan for purposes of the requirement. --------------------------------------------------------------------------- \324\ See, e.g., letters from ABA Committee, Chamber II, Cravath, Quest, and Vistra. \325\ See, e.g., letters from Cravath, DLA Piper, and PNC. \326\ See letter from PNC. \327\ See, e.g., letters from Cravath, DLA Piper, PNC, and Quest. \328\ See letter from ABA Committee. \329\ See Rule 12b-20. \330\ See letter from ABA Committee. --------------------------------------------------------------------------- Finally, in response to a commenter's request for clarification,\331\ we note that a domestic corporate issuer may rely on Forms 3, 4, and 5 filed with the Commission in determining if it should check the box provided that the reliance is reasonable. For example, an issuer would not be able to rely on those forms if the issuer knows or has reason to believe that a form was filed inappropriately or that a form should have been filed but was not. The amendments include a provision in new Item 601(b)(26) and new Item 14(a)(iii) in Form N-CSR that permits an issuer to rely on Forms 3, 4, and 5 in determining whether to check the box. Form F-SR contains an analogous provision for FPIs. Because the securities of FPIs are exempt from section 16,\332\ however, Item 601(b)(26) and Form F-SR permit an FPI to rely on written representations from its directors and senior management provided that the reliance is reasonable. --------------------------------------------------------------------------- \331\ See id. \332\ See 17 CFR 240.3a12-3. --------------------------------------------------------------------------- C. Clarifying Amendments 1. Proposed Amendments In the Proposing Release, the Commission proposed clarifying amendments to Item 703 of Regulation S-K, Form 20-F, and Form N-CSR to simplify application of the rules and remove unnecessary instructions. Specifically, the Commission proposed: To relocate guidance in the Instruction 1 to paragraph (b)(1) about information to appear in the table and disclosure to appear in a footnote to the table to paragraph (b)(1) to a new paragraph (c); To consistently refer to ``issuer'' instead of ``company''; \333\ --------------------------------------------------------------------------- \333\ In Form N-CSR only we would continue to refer to ``registrants'' rather than ``issuer'' or ``company'' for consistency with other provisions in Form N-CSR. --------------------------------------------------------------------------- To remove Instructions 1 and 2 in the Instructions to paragraphs (b)(3) and (b)(4) and effectuate those instructions by adding ``aggregate'' to the total number of shares for all plans or programs publicly announced in paragraph (b)(3) in lieu of Instruction 1 and adding proposed paragraph (c) to replace Instruction 2; and To delete the Instruction to the affected requirements as they are clear that all purchases, including those that do not satisfy the conditions of Rule 10b-18, are included. [[Page 36026]] 2. Comments on the Proposed Amendments We did not receive any comments on these proposed clarifying amendments. 3. Final Amendments We are adopting the clarifying amendments as proposed except that the reference to new proposed Item 703(c) is now new final Item 703(a). D. New Item 408(d) 1. Proposed Amendments In January 2022, the Commission proposed amendments concerning Rule 10b5-1 and insider trading.\334\ Among other matters, the Commission proposed new disclosure requirements regarding the adoption, modification, and termination of Rule 10b5-1 plans and certain other similar trading arrangements by issuers, directors, and officers. Specifically, the Commission proposed new Item 408(a) of Regulation S-K to require certain issuers \335\ to disclose: --------------------------------------------------------------------------- \334\ See Rule 10b5-1 Proposing Release, supra note 17. \335\ The proposed Item 408(a) of Regulation S-K disclosure would not apply to registered investment companies or asset-backed issuers (as defined in 17 CFR 229.1101). See 10b5-1 Adopting Release, supra note 18, at 80409 note 481. --------------------------------------------------------------------------- Whether, during its most recently completed fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report), the issuer adopted or terminated any contract, instruction, or written plan to purchase or sell its securities, whether or not intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), and a description of the material terms of the contract, instruction or written plan, including: [cir] The date of adoption or termination; [cir] The duration of the contract, instruction, or written plan; and [cir] The aggregate amount of securities to be sold or purchased pursuant to the contract, instruction, or written plan. The Commission also proposed to require issuers to disclose similar information regarding the use of such trading arrangements by its directors and officers (as defined in 17 CFR 240.16a-1(f) (Rule 16a- 1(f))). Under the proposed rule, the disclosures would be required in Forms 10-Q and 10-K, as applicable, and tagged using Inline XBRL. Issuers would be required to provide this information if, during the quarterly period covered by the report, the issuer, or any director or officer who is required to file reports under Exchange Act section 16,\336\ adopted or terminated a Rule 10b5-1 plan. --------------------------------------------------------------------------- \336\ 15 U.S.C. 78p. --------------------------------------------------------------------------- In December 2022,\337\ the Commission adopted certain aspects of the Rule 10b5-1 Proposing Release, including the proposed disclosure requirements with respect to the use of pre-planned trading arrangements by an issuer's directors and officers. In response to commenters, the Commission revised the final rule to exclude disclosure of pricing information. At that time, the Commission did not adopt the proposal to require corresponding disclosure regarding the use of such trading arrangements by the issuer of the security. The Commission noted that, in light of the various comments received on this aspect of the proposal, further consideration of the potential application of the disclosure requirement for purchases of equity securities by the issuer was warranted. --------------------------------------------------------------------------- \337\ See Rule 10b5-1 Adopting Release, supra note 18. --------------------------------------------------------------------------- 2. Comments on the Proposed Amendments Several commenters on the Rule 10b5-1 Proposing Release \338\ supported, as a general matter, the proposed requirement for quarterly reporting of Rule 10b5-1(c) and non-Rule 10b5-1(c) trading arrangements because such disclosure could provide useful information to investors and the markets.\339\ One commenter \340\ asserted that the proposed disclosures would provide long-term shareholders with information that completes the partial picture about trading by insiders provided by 17 CFR 239.144 (``Form 144'') and Exchange Act section 16 reports.\341\ Commenters were generally divided in their recommendations of what trading arrangement information should be disclosed.\342\ --------------------------------------------------------------------------- \338\ Comments on the Rule 10b5-1 Proposing Release can be found at https://www.sec.gov/comments/s7-20-21/s72021.htm. \339\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Anthony O'Reilly (Mar. 30, 2022); Better Markets (Apr. 1, 2022); Colorado Public Employees' Retirement Association (Mar. 29, 2022); Council of Institutional Investors (Mar. 24, 2022); DLA Piper (Apr. 1, 2022); International Corporate Governance Network (Mar. 31, 2022); North American Securities Administrators Association, Inc. (Apr. 1, 2022); and Simpson Thacher & Bartlett LLP (Mar. 31, 2022). \340\ See letter in response to the Rule 10b5-1 Proposing Release from Council of Institutional Investors (Mar. 24, 2022). \341\ Currently, with the exception of the Rule 10b5-1 representation included in Form 144, there are no disclosure obligations regarding the use of Rule 10b5-1 trading arrangements. See letter in response to the Rule 10b5-1 Proposing Release from American Federation of Labor and Congress of Industrial Organizations (Apr. 1, 2022). \342\ One commenter in response to the Rule 10b5-1 Proposing Release stated that the final rule should not require disclosure of the number of shares covered by a trading arrangement and the duration of the arrangement. See letter in response to the Rule 10b5-1 Proposing Release from Quest Diagnostics Inc. (Apr. 1, 2022). Some commenters recommended the required disclosures should be limited to the person adopting the plan, the date of adoption or termination, and duration. See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Fenwick & West (Mar. 31, 2022) and Shearman & Sterling LLP (Apr. 1, 2022). Other commenters in response to the Rule 10b5-1 Proposing Release recommended that the Commission not require disclosure of the termination of a trading arrangement because issuers may terminate a trading arrangement in advance of announcement of a significant corporate transaction, such as a merger, and that such plan terminations, if disclosed, could signal the market. See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Sullivan & Cromwell LLP (Apr. 1, 2022) and Securities Industry and Financial Markets Association, Kevin Carroll (Apr. 1, 2022). --------------------------------------------------------------------------- Other commenters did not support the proposed reporting requirements as a general matter.\343\ A number of commenters expressed concern regarding the requirement for issuers to provide a description of the ``material terms'' of any Rule 10b5-1 trading arrangement \344\ because issuers might interpret this to include specific details of a trading arrangement, such as pricing information.\345\ Several commenters stated that the disclosure of pricing information and other details of a Rule 10b5-1 trading arrangement could expose issuers and their insiders to strategic trades.\346\ A number of [[Page 36027]] commenters also recommended that the Commission not require disclosure regarding non-Rule-10b5-1 trading arrangements \347\ because it would not provide valuable information to investors, the Commission, or other market participants.\348\ Moreover, one commenter suggested the Commission exempt SRCs from the proposed disclosure requirement.\349\ --------------------------------------------------------------------------- \343\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from ACCO Brands Corp. (Mar. 31, 2022); Committee on Securities Law of the of the Business Law Section of the Maryland State Bar (Apr., 2022); International Bancshares Corporation (Apr. 1, 2022); National Association of Manufacturers (Apr. 1, 2022); National Venture Capital Association (Apr. 1, 2022); Society for Corporate Governance (Apr. 1, 2022); Sullivan & Cromwell LLP (Apr. 1, 2022); and Wilson, Sonsini, Goodrich & Rosati (Apr. 11, 2022). \344\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Cleary, Gottlieb, Steen & Hamilton LLP (Mar. 23, 2022); Davis Polk & Wardwell LLP (Mar. 28, 2022); DLA Piper (Apr. 1, 2022); Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association (Apr. 29, 2022); FedEx Corporation (Apr. 1, 2022); Fenwick & West (Mar. 31, 2022); Kirkland & Ellis (Apr. 1, 2022); National Association of Manufacturers (Apr. 1, 2022); National Venture Capital Association (Apr. 1, 2022); Quest Diagnostics Inc. (Apr. 1, 2022); Securities Industry and Financial Markets Association, Joseph P. Corcoran (Apr. 1, 2022); Society for Corporate Governance (Apr. 1, 2022); Sullivan & Cromwell LLP (Apr. 1, 2022); and Wilson, Sonsini, Goodrich & Rosati (Apr. 11, 2022). \345\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Cleary, Gottlieb, Steen & Hamilton LLP (Mar. 23, 2022); Davis Polk & Wardwell LLP (Mar. 28, 2022); DLA Piper (Apr. 1, 2022); Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association (Apr. 29, 2022); Fenwick & West (Mar. 31, 2022); Quest Diagnostics Inc. (Apr. 1, 2022); Securities Industry and Financial Markets Association, Joseph P. Corcoran (Apr. 1, 2022); Society for Corporate Governance (Apr. 1, 2022); and Wilson, Sonsini, Goodrich & Rosati (Apr. 11, 2022). \346\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Davis Polk & Wardwell LLP (Mar. 28, 2022); DLA Piper (Apr. 1, 2022); Fenwick & West (Mar. 31, 2022); National Venture Capital Association (Apr. 1, 2022); Securities Industry and Financial Markets Association, Joseph P. Corcoran (Apr. 1, 2022); Society for Corporate Governance (Apr. 1, 2022); and Wilson, Sonsini, Goodrich & Rosati (Apr. 11, 2022). \347\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Cleary, Gottlieb, Steen & Hamilton LLP (Mar. 23, 2022); Shearman & Sterling LLP (Apr. 1, 2022); Simpson Thacher & Bartlett LLP (Mar. 31, 2022); and Sullivan & Cromwell LLP (Apr. 1, 2022). \348\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Cleary, Gottlieb, Steen & Hamilton LLP (Mar. 23, 2022); Cravath, Swaine & Moore LLP (Mar. 28, 2022); and Simpson Thacher & Bartlett LLP (Mar. 31, 2022). \349\ See letter in response to the Rule 10b5-1 Proposing Release from Maryland Bar (claiming that SRCs and their insiders are less likely to engage in the kinds of trading in the securities of their companies that would cause concern, but these issuers could be disproportionately impacted by the reporting burden). --------------------------------------------------------------------------- A few commenters to the Rule 10b5-1 Proposing Release recommended that the disclosure requirements regarding issuer trading arrangements be considered in the context of this rulemaking.\350\ One of these commenters suggested specifically that information relating to issuer use of Rule 10b5-1 plans could be moved to Item 703 to consolidate issuer reporting of share repurchases.\351\ --------------------------------------------------------------------------- \350\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Cravath, Swaine & Moore LLP (Mar. 31, 2022) and Simpson Thacher & Bartlett LLP (Mar. 31, 2022). \351\ See letter in response to the Rule 10b5-1 Proposing Release from Simpson Thacher & Bartlett LLP (Mar. 31, 2022. --------------------------------------------------------------------------- 3. Final Amendments Consistent with the Rule 10b5-1 Adopting Release,\352\ we are adopting new Item 408(d) of Regulation S-K, to better allow investors, the Commission, and other market participants to observe how issuers use Rule 10b5-1 plans. The information also will add important context for interpreting other disclosures, including the other disclosures we are adopting in this release, which should help investors value the issuer's shares and make more informed investment decisions. As noted above, in the Rule 10b5-1 Adopting Release, the Commission stated that further consideration of potential application of the disclosure requirements for purchases of equity securities by the issuer was warranted. Upon further consideration, and in response to issues raised by commenters, we believe that the Item 408(a) disclosure that was proposed for issuers in the Rule 10b5-1 Proposing Release will complement the disclosures concerning issuer repurchases that we are adopting in this release and allow investors to better evaluate issuer repurchases. Therefore, we are adopting new Item 408(d) in this release. New Item 408(d) substantially mirrors the proposed Item 408(a) of Regulation S-K disclosure requirement with respect to the issuer's adoption or termination of a contract, instruction, or written plan to purchase or sell its own securities that is intended to satisfy the affirmative defenses conditions of Rule 10b5-1(c). --------------------------------------------------------------------------- \352\ See Rule 10b5-1 Adopting Release, supra note 18. --------------------------------------------------------------------------- In a change from the proposal, however, issuers will not be required to disclose information about the adoption or termination of any trading arrangement for the purchase or sale of securities of the issuer that meets the requirements of a non-Rule 10b5-1 trading arrangement as defined in Item 408(c). Because plans that would qualify for the affirmative defense under Rule 10b5-1 offer issuers enhanced protection from potential liability, in addition to other potential benefits, and are considerably more flexible for issuers than for insiders, we believe that issuers are incentivized to use trading arrangements that satisfy the conditions of Rule 10b5-1(c).\353\ We also agree with commenters who said that information about the issuer's trading arrangements, other than those intended to qualify for the affirmative defense, has more limited value to investors or other market participants than information about such trading arrangements for insiders.\354\ While issuers may not have reason to specifically disclose their use of a 10b5-1 plan, we understand that issuers generally have significant incentives to announce their repurchase plans, so that mandating disclosure of non-10b5-1 plans would not typically provide investors with significant new information. --------------------------------------------------------------------------- \353\ The issuer of a security that relies on the recently amended Rule 10b5-1(c)(1) affirmative defense will not be subject to a cooling-off period, any limitation on the use of multiple overlapping plans, or any limitation on the use of single-trade plans. See Rule 10b5-1(c)(1)(ii)(B), (D), and (E). \354\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Cleary, Gottlieb, Steen & Hamilton LLP (Mar. 23, 2022); Cravath, Swaine & Moore LLP (Mar. 28, 2022); and Simpson Thacher & Bartlett LLP (Mar. 31, 2022). --------------------------------------------------------------------------- New Item 408(d) will require an issuer to disclose whether, during its most recently completed fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report), the issuer adopted or terminated a contract, instruction, or written plan to purchase or sell its securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Issuers are also required to provide a description of the material terms of the contract, instruction, or written plan (other than terms with respect to the price at which the party executing the respective trading arrangement is authorized to trade), such as: The date on which the registrant adopted or terminated the Rule 10b5-1 trading arrangement; The duration of the Rule 10b5-1 trading arrangement; and The aggregate number of securities to be purchased or sold pursuant to the Rule 10b5-1 trading arrangement. In response to comments and consistent with our approach to the recently adopted Item 408(a) of Regulation S-K,\355\ we have revised the final rule to clarify that new Item 408(d) does not require disclosure of the price at which the party executing the trading arrangement is authorized to trade. We agree with commenters that disclosing pricing information could allow other persons to trade strategically in anticipation of planned trades.\356\ As proposed, issuers will be required to disclose this information in their quarterly reports on Form 10-Q and Form 10-K (for the issuer's fourth fiscal quarter), and tag the information using Inline XBRL.\357\ Moreover, while we are aware of the potential for a disproportionate impact on SRCs, we believe that exempting them from this disclosure requirement would deprive investors in those issuers of material information about the use of Rule 10b5-1 plans.\358\ --------------------------------------------------------------------------- \355\ See Rule 10b5-1 Adopting Release, supra note 18. \356\ See, e.g., letters in response to the Rule 10b5-1 Proposing Release from Davis Polk & Wardwell LLP (Mar. 28, 2022); DLA Piper (Apr. 1, 2022); Fenwick & West (Mar. 31, 2022); National Venture Capital Association (Apr. 1, 2022); Securities Industry and Financial Markets Association, Joseph P. Corcoran (Apr. 1, 2022); Society for Corporate Governance (Apr. 1, 2022); and Wilson, Sonsini, Goodrich & Rosati (Apr. 11, 2022). \357\ The Commission did not propose to require FPIs to provide the Item 408(a) of Regulation S-K disclosure because they do not file quarterly reports, but it requested comment on whether such a requirement should apply to them. See Rule 10b5-1 Proposing Release, supra note 17, at Question # 26. No comments were received on this point. \358\ As proposed, see supra note 335, the final amendments do not apply to asset-backed securities issuers. Therefore, for clarity we are making a technical amendment to Instruction J of Form 10-K to allow asset-backed securities issuers to omit Item 408 disclosures. Instruction J of Form 10-K includes a list of Item requirements that may be omitted for asset-backed securities issuers. --------------------------------------------------------------------------- [[Page 36028]] Although there may be some overlap in the disclosure provided pursuant to new Item 408(d) and the disclosure provided pursuant to the amendment to Item 703 of Regulation S-K about an issuer's Rule 10b5- 1(c) trading arrangements adopted during the prior fiscal quarter, new Item 408(d) would complement the new Item 703 disclosure. The disclosure requirement in Item 703 will be triggered only if an issuer had conducted a share repurchase in the prior fiscal quarter. In contrast, Item 408(d) will require disclosure if a Rule 10b5-1 plan was adopted or terminated, regardless of whether a share repurchase transaction pursuant to that plan actually occurred during the prior fiscal quarter that is covered in the Form 10-Q or Form 10-K (for the issuer's fourth fiscal quarter). To prevent potential duplicative disclosures, we are adding a note to Item 408(d)(1), which states that, if the disclosure provided pursuant to Item 703 contains disclosure that would satisfy the requirements of Item 408(d)(1), a cross- reference to that disclosure will satisfy the Item 408(d)(1) requirements. E. Structured Data Requirement 1. Proposed Amendments The Commission proposed to require issuers to tag the information disclosed pursuant to Item 703 of Regulation S-K, Item 16E of Form 20- F, Item 14 of Form N-CSR, and Form SR in a structured, machine-readable data language. Specifically, under the proposed rules issuers would be required to tag the disclosures in Inline XBRL in accordance with 17 CFR 232.405 (``Rule 405 of Regulation S-T'') and the EDGAR Filer Manual.\359\ The proposed requirements would include detail tagging of quantitative amounts disclosed within the tabular disclosures in each of the aforementioned forms, as well as block text tagging and detail tagging of narrative and quantitative information disclosed in the footnotes to the tables required by Item 703 of Regulation S-K, Item 16E of Form 20-F, and Item 14 of Form N-CSR. --------------------------------------------------------------------------- \359\ This tagging requirement would be implemented by including cross-references to Rule 405 of Regulation S-T in each of the repurchase disclosure provisions, and by revising Rule 405(b) of Regulation S-T to include the proposed repurchase disclosures. Pursuant to 17 CFR 232.301 (``Rule 301 of Regulation S-T''), the EDGAR Filer Manual is incorporated by reference into the Commission's rules. In conjunction with the EDGAR Filer Manual, Regulation S-T governs the electronic submission of documents filed with the Commission. Rule 405 of Regulation S-T specifically governs the scope and manner of disclosure tagging requirements for corporate issuers and investment companies, including the requirement in Rule 405(a)(3) to use Inline XBRL as the specific structured data language to use for tagging the disclosures. --------------------------------------------------------------------------- 2. Comments on the Proposed Amendments Most of the commenters who discussed requiring issuers to tag the information that would be disclosed in the proposed amendments supported the requirement because they asserted that it would improve the usability of the data.\360\ One commenter noted its concern that the tagging requirement would be unnecessary and costly.\361\ Another commenter objected to tagging the narrative disclosure and suggested limiting the tagging requirement to quantitative repurchase disclosures.\362\ One commenter asked the Commission to exempt FPIs from this tagging requirement because their home country may not have a similar requirement, so tagging would constitute an additional burden on those issuers.\363\ --------------------------------------------------------------------------- \360\ See, e.g., letters from Better Markets I, CalPERS, CFA Institute, CII, ICGN, NASAA, and XBRL US. \361\ See letter from NYC Bar. \362\ See letter from Cravath. \363\ See letter from VEUO (``FPIs may already be subject to home country requirements with respect to disclosure of share repurchases. Such home country requirements will almost certainly not require preparation of structured data with the same content and format as the Form SR Requirement. As a result, the structured data requirement would represent an additional and unnecessary administrative burden on FPIs''). --------------------------------------------------------------------------- 3. Final Amendments We are adopting, as proposed, final amendments to require issuers to tag 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 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 of the quantitative amounts disclosed within the required tabular disclosures and block text tagging and detail tagging of required narrative and quantitative information. As certain commenters noted, requiring XBRL tagging in this manner would ``make the information provided most useful by making the data easier to review and compare electronically'' \364\ and doing so ``would both enhance the utility of the information for investors and lower their costs to gather'' that information.\365\ --------------------------------------------------------------------------- \364\ See letter from CalPERS. \365\ See letter from CII. --------------------------------------------------------------------------- We continue to believe that requiring Inline XBRL tagging of the repurchase disclosures is beneficial because it makes them more readily available and easily accessible to investors, market participants, and others for aggregation, comparison, filtering, and other analysis, as compared to requiring a non-machine readable data language such as ASCII or HTML. This requirement also enables automated extraction and analysis of granular data on actual repurchases, allowing investors and other market participants to more efficiently perform large-scale analysis and comparison of repurchases across issuers and time periods, including comparing repurchases to information on executive's compensation.\366\ At the same time, contrary to one commenter's assertion that the Inline XBRL requirements would impose significant unnecessary and significant compliance costs on issuers,\367\ we do not expect the incremental compliance burden associated with tagging the additional information to be unduly burdensome, because issuers subject to the tagging requirements, including FPIs, are subject to similar Inline XBRL requirements in other Commission filings.\368\ Moreover, as a result of the tagging requirements, investors can aggregate or manipulate the data to display monthly data that they are used to reviewing. --------------------------------------------------------------------------- \366\ These considerations are generally consistent with objectives of the recently enacted Financial Data Transparency Act of 2022, which directs the establishment by the Commission and other financial regulators of data standards for collections of information, including with respect to periodic and current reports required to be filed or furnished under Exchange Act sections 13 and 15(d). Such data standards would need to meet specified criteria relating to openness and machine-readability and promote interoperability of financial regulatory data across members of the Financial Stability Oversight Council. See James M. Inhofe National Defense Authorization Act for Fiscal Year 2023, Public Law 117-263, tit. LVIII, 136 Stat. 2395, 3421-39 (2022). \367\ See letter from NYC Bar. \368\ Inline XBRL requirements for Listed Closed-End Funds and business development companies took effect beginning August 1, 2022 (for seasoned issuers) and February 1, 2023 (for all other issuers). --------------------------------------------------------------------------- F. Compliance Dates FPIs that file on the FPI forms will be required to comply with the new disclosure and tagging requirements in new Form F-SR beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024. The Form 20-F narrative disclosure that relates to the Form F-SR filings, which is required by Item 16E of that form, and the related tagging requirements will be required starting in the first Form 20-F filed after their first Form F-SR has been filed. Listed Closed-End Funds will be required to [[Page 36029]] 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. All other issuers will be required to comply with the new disclosure and tagging requirements in their Exchange Act periodic reports on Forms 10-Q and 10-K (for their fourth fiscal quarter) beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023.\369\ --------------------------------------------------------------------------- \369\ For example, the compliance dates for a registrant with a December 31, 2023 fiscal year end is as follows: (1) Issuers that file periodic reports on Forms 10-Q and 10-K will be required to begin complying with the new disclosure and tagging requirements in their Form 10-K for the fiscal year ending on December 31, 2023 as it relates to repurchases made during the quarter ending December 31, 2023; (2) FPIs that report using Form 20-F will be required to begin filing new Form F-SR for the quarter ending June 30, 2024; and (3) Listed Closed-End Funds will be required to begin complying with the new disclosure and tagging requirements in Form N-CSR for the six-month period ending on June 30, 2024. --------------------------------------------------------------------------- IV. Other Matters If any of the provisions of these rules, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application. Pursuant to the Congressional Review Act,\370\ the Office of Information and Regulatory Affairs has designated these amendments a ``major rule,'' as defined by 5 U.S.C. 804(2). --------------------------------------------------------------------------- \370\ 5 U.S.C. 801 et seq. --------------------------------------------------------------------------- V. Economic Analysis We are mindful of the costs imposed by, and the benefits derived from, our rules. Section 3(f) of the Exchange Act \371\ and section 2(c) of the Investment Company Act of 1940 (``Investment Company Act'') \372\ require us, when engaging in rulemaking, to consider or determine whether an action is necessary or appropriate in (or, with respect to the Investment Company Act, consistent with) the public interest, and to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. In addition, 15 U.S.C. 78w(a)(2) (section 23(a)(2) of the Exchange Act) requires the Commission to consider the effects on competition of any rules the Commission adopts under the Exchange Act and prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.\373\ --------------------------------------------------------------------------- \371\ 15 U.S.C. 78c(f). \372\ 15 U.S.C. 80a-2(c). \373\ 15 U.S.C. 78w(a)(2). --------------------------------------------------------------------------- We have considered the economic effects of the amendments, including their effects on competition, efficiency, and capital formation. Many of the effects discussed below cannot be quantified. Consequently, while we have, wherever possible, attempted to quantify the economic effects expected from these amendments, much of the discussion remains qualitative in nature. Where we are unable to quantify the economic effects of the final amendments, we provide a qualitative assessment of the potential effects. As discussed in greater detail in Sections I and III above, the final amendments include a requirement to disclose historical daily repurchase activity in an exhibit to Forms 10-K and 10-Q (for corporate issuers that report on domestic forms), on Form N-CSR (for Listed Closed-End Funds), and on new quarterly Form F-SR for FPIs reporting on the FPI forms (due to be filed within 45 days after the end of the respective quarter). This disclosure, which is required to be structured using Inline XBRL, includes the number of shares repurchased by an issuer, the average price per share paid, total number of shares purchased as part of publicly announced plans or programs, the maximum number (or approximate dollar value) of shares that may yet be repurchased under the publicly announced plans or programs, number of shares repurchased on the open market, the number of shares intended to qualify for the Rule 10b-18 non-exclusive safe harbor, and the number of shares repurchased pursuant to a Rule 10b5-1 plan. This disclosure will be required to be filed, rather than furnished. The final amendments also require additional disclosure on Forms 10-Q, 10-K, 20-F, and N-CSR about the issuer's repurchase program and practices, including the objectives or rationales for the share repurchases, the process or criteria used to determine the amount of repurchases, and whether purchases were made pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5- 1(c), or intended to qualify for the Rule 10b-18 non-exclusive safe harbor. In addition, the final amendments eliminate the requirement in Item 703 of Regulation S-K that issuers disclose their monthly repurchase data in their periodic reports. Further, the final amendments require disclosure of 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 restrictions on such transactions. Further, the amendments also require an issuer to indicate whether certain officers or directors purchased or sold shares or other units of the class of the issuer's equity securities that is the subject of an issuer share repurchase plan or program within four business days before or after the issuer's public announcement of such repurchase plan or program. Finally, the amendments add new quarterly disclosure in periodic reports on Forms 10-K and 10-Q related to an issuer's adoption and termination of certain trading arrangements. The final amendments require the additional disclosures to be structured using Inline XBRL. A. Baseline and Affected Parties 1. Affected Parties Repurchase disclosures are currently required by Item 703 of Regulation S-K (on Forms 10-Q and 10-K), Item 16E of Form 20-F, and Item 14 of Form N-CSR (for Listed Closed-End Funds). The disclosure is required with respect to any purchase made by or on behalf of the issuer or any ``affiliated purchaser'' of shares or other units of any class of the issuer's equity securities that is registered pursuant to section 12 of the Exchange Act. Based on staff analysis of EDGAR filings for calendar year 2021, the amendments will affect the same categories of issuers, including approximately 6,700 issuers with a class of securities registered under section 12 that file on Forms 10-Q and 10-K and approximately 800 issuers with a class of securities registered under section 12 that file on Form 20-F.\374\ In addition, based on staff analysis of Morningstar Direct data for 2021, approximately 500 Listed Closed-End Funds are expected to be affected by the amendments to Form N-CSR. We lack the data to estimate the number of affected ``affiliated purchasers.'' --------------------------------------------------------------------------- \374\ Registered investment companies (but not business development companies) and asset-backed securities issuers are excluded from the count of operating companies cited above. We refer to FPIs that file on Form 20-F as FPIs in this section for brevity, unless specified otherwise. Only FPIs that file on Form 20-F are subject to the amendments. MJDS filers that file on Form 40-F are not subject to the amendments. See MJDS Release, supra note 219. --------------------------------------------------------------------------- Among the issuers described above, issuers that recently engaged in repurchases are most likely to be affected by the final amendments.\375\ [[Page 36030]] Based on data from Compustat and EDGAR filings for fiscal years ending between January 1, 2021, and December 31, 2021, we estimate that approximately 3,600 corporate issuers that conducted repurchases would be more directly affected by the amendments (among them, approximately 300 Form 20-F filers).\376\ In addition, based on staff analysis of Form N-CEN filings for 2021, approximately 100 Listed Closed-End Funds conducted repurchases.\377\ Based on these estimates, most of the affected issuers are corporate issuers that file periodic reports on domestic forms. --------------------------------------------------------------------------- \375\ Issuers with no repurchases today could be affected by the amendments to the extent they were planning future repurchases and such plans were affected by the costs of the additional disclosure requirements. \376\ As a caveat, a complete estimate of the number of affected issuers is limited by data coverage. A source of data commonly used in existing studies, Standard & Poor's Compustat, has limited coverage of small and unlisted issuers and FPIs. Therefore, we supplement Compustat Fundamentals Annual data (version retrieved June 27, 2022) with structured data from financial statement disclosures in EDGAR filings (retrieved June 27, 2022), with the caveat that variation in filer use of tags to characterize their repurchases may result in some data noise. \377\ Based upon a staff review, we expect approximately 20 percent of Listed Closed-End Funds to be affected by the amendments to engage in share repurchases, as compared to approximately half of corporate issuers. --------------------------------------------------------------------------- New Item 408(d) will affect issuers that undertake share repurchases through Rule 10b5-1 plans. Data on issuers' use of such plans are very limited. Some issuers voluntarily disclose their use of Rule 10b5-1 plans to carry out stock repurchases on Form 8-K or in periodic reports. Such voluntary reporting is likely to underestimate the number of affected issuers. Nevertheless, in the current disclosure regime, it is the most direct source of information on the prevalence of Rule 10b5-1 plan repurchases. One study examining different repurchase methods identified ``at least 200 announcements of repurchases using Rule 10b5-1 [plans] per year from 2011 to 2014'' and found that ``[In 2014] 29% [of repurchase announcements] included a 10b5-1 plan.'' \378\ Based on a textual search of calendar year 2021 filings, we estimate that approximately 210 issuers (excluding asset- backed issuers) disclosed share repurchase programs executed under a Rule 10b5-1 plan.\379\ --------------------------------------------------------------------------- \378\ See Bonaim[eacute] et al. (2020), supra note 58. \379\ The estimate is based on a textual search of calendar year 2021 filings of Forms 10-K, 10-Q, 8-K, as well as amendments and exhibits thereto in Intelligize. The estimate is based on a textual search using keywords ``10b5-1 repurchases'' or a combination of keywords ``repurchase plan'' and ``10b5-1'' (the approach used in the Proposing Release estimate). Due to a lack of standardized presentation and the unstructured (i.e., non-machine-readable) nature of the disclosure, these estimates are approximate and may be over- or under-inclusive. Asset-backed issuers are not subject to new Item 408(d). See supra note 358. --------------------------------------------------------------------------- Another, indirect approach to estimating the number of affected issuers involves extrapolating the number of companies conducting repurchases under Rule 10b5-1 plans in a given year from a combination of the incidence of Rule 10b5-1 plan use among voluntarily announced repurchases (estimated at 29 percent as previously noted \380\) and the overall number of companies conducting repurchases based on their financial statements.\381\ Based on data from Compustat and EDGAR filings for fiscal years ending between January 1, 2021, and December 31, 2021, we estimate that approximately 3,600 operating companies (excluding asset-backed issuers) conducted repurchases, yielding an estimate of approximately 1,000 companies affected by the Item 408(d) amendments.\382\ Item 408(d) does not apply to Listed Closed-End Funds. --------------------------------------------------------------------------- \380\ See Bonaim[eacute] et al. (2020), supra note 58. \381\ Using the number of issuers that announce repurchases in a given year would underestimate the number significantly because issuers may continue to implement a previously announced repurchase program over multiple years. \382\ As a caveat, a complete estimate of the number of affected issuers is limited by data coverage. A source of data commonly used in existing studies, Standard & Poor's Compustat, has limited coverage of small and unlisted registrants and foreign private issuers. Therefore, we supplemented Standard & Poor's Compustat Fundamentals Annual data (version retrieved June 27, 2022) with structured data from financial statement disclosures in EDGAR filings (retrieved June 27, 2022), with the caveat that variation in filer use of tags to characterize their repurchases may result in some data noise. 29 percent x 3600 = 1,044 ~ 1,000. --------------------------------------------------------------------------- Investors will also be affected by the final amendments to the extent that they benefit from the additional insight into an issuer's repurchase activity (and bear any costs of analyzing the additional disclosure). Financial intermediaries that execute repurchases at the issuer's instruction will also be affected by these amendments to the extent that they prepare the information necessary for an issuer's responsive disclosure, and indirectly, to the extent that the amendments affect the incidence of repurchases and thus demand for financial intermediaries' services in connection with executing repurchases. The amendments will also impact officers and directors to the extent that issuers establish policies or procedures imposing restrictions on transactions during a repurchase program. Officers and directors (particularly, in the case of FPIs whose senior management and directors are not subject to section 16 reporting obligations) may also be affected by having to provide issuers with information about their trades. We lack data to assess how many of these parties will be affected. 2. Baseline Many studies, spanning decades, examine the motivation for corporate payout decisions, repurchases among them.\383\ Based on data for 2021, share repurchases of U.S.-listed companies --------------------------------------------------------------------------- \383\ For a more detailed discussion of the data and research on repurchases and other payouts, see 2020 Staff Study; and Farre-Mensa et al. (2014), supra note 28. The focus of the 2020 Staff Study was determined by the directive of Congress in its Joint Explanatory Statement accompanying the Financial Services and General Government Appropriations Act, which directed the staff to study the recent growth of negative net equity issuances with respect to non- financial issuers, including the history and effects of those issuers repurchasing their own securities, and the effects of those repurchases on investment, corporate leverage, and economic growth. The study provided data and statistics on share repurchases across different types of companies and time periods, as well as an extensive discussion of related evidence in existing research, which offers insight into the existing market baseline. For example, the study discusses the evidence on the favorable market reaction to repurchase announcements. Among its findings, the study notes that ``[r]epurchases are an increasingly common way firms distribute cash to shareholders. There are several possible reasons firms conduct repurchases; some support efficient investment and for some the connection is less clear. The analysis below suggests that firms are more likely to conduct repurchases when they have excess cash and when they would benefit from increased reliance on debt financing.'' The study further notes that ``the data is consistent with firms using repurchases to maintain optimal levels of cash holdings and to minimize their cost of capital'' and that ``reasons for repurchases where the connection to efficient investment is less clear are unlikely to motivate the majority of repurchases since stock prices typically increase in response to repurchase announcements, suggesting that, at least on average, repurchases are viewed as having a positive effect on firm value . . . [and] that the theories inconsistent with firm value maximization cannot account for the majority of repurchase activity.'' In discussing one of the criticisms of share repurchases, the study notes ``that insider sales may be timed to coincide with repurchase announcements. If insiders time sales to coincide with repurchase announcements and any resulting increase in stock price, executives may be incentivized to recommend repurchase programs to further their own gain.'' However, the study notes, it is ``difficult to ascertain the motivations underlying insider sales.'' See also infra note 390 and accompanying text. --------------------------------------------------------------------------- [[Page 36031]] amounted to approximately $950 billion.\384\ Aggregate repurchases have grown significantly over the past four decades, but the increase relative to aggregate market capitalization has been significantly more modest due to the accompanying growth in aggregate market capitalization; in addition, aggregate repurchases, both in absolute terms and relative to aggregate market capitalization, have exhibited considerable cyclical fluctuations (increasing during economic booms and declining during recessions).\385\ As noted by a commenter, the growth in repurchases was considerably smaller when adjusted for equity issuance than when considered in gross terms.\386\ Dividends fluctuate less than repurchases, consistent with dividends being viewed by the market as a commitment to regularly return cash to shareholders.\387\ As a result, managers may endeavor to keep dividend payments stable, mainly avoiding dividend cuts, justifying the market's interpretation.\388\ Firms that exclusively pay dividends are increasingly rare whereas the proportion of firms that regularly conduct repurchases has increased over time, consistent with repurchases being a partial substitute for dividends.\389\ As a caveat, existing studies referenced in this release, including the 2020 Staff Study, are necessarily constrained by existing disclosure limitations.\390\ --------------------------------------------------------------------------- \384\ Based on staff analysis of Standard & Poor's Compustat Fundamentals Annual data (version retrieved June 27, 2022) related to share repurchases conducted during fiscal years ending between January 1, 2021 and December 31, 2021 by issuers listed on U.S. exchanges (including financial industry issuers and U.S.-listed issuers incorporated outside the U.S.). This estimate includes financial industry issuers as well as U.S.-listed foreign- incorporated issuers with Compustat data. As of this writing, we lack complete data for fiscal years ending during January 1-December 31, 2022. \385\ See, e.g., Campello, M., Graham, J., & Harvey, C., The Real Effects of Financial Constraints: Evidence from a Financial Crisis, 97 J. Fin. Econ. 470 (2010); Dittmar, A. & Dittmar, R., The Timing of Financing Decisions: An Examination of the Correlation in Financing Waves, 90 J. Fin. Econ. 59 (2008) (``Dittmar and Dittmar (2008)''); Floyd, E., Li, N., & Skinner, D., Payout Policy through the Financial Crisis: The Growth of Repurchases and the Resilience of Dividends, 118 J. Fin. Econ. 299 (2015). See also 2020 Staff Study (observing that growth in aggregate repurchases has fluctuated over the past several decades, as demonstrated by a large decline and rebound following the financial crisis, and also observing that share repurchases net of equity issuances as a percentage of aggregate market capitalization of public companies have remained relatively stable over the past decade, within the longer trend of modest percentage growth over the last forty years). See also letter from Chamber V (discussing cyclicality and seasonality of repurchases). \386\ See letters from Chamber II and Profs. Lewis and White. The commenter cites findings by Fried: Fried, J.M., & Wang, C.C. Are Buybacks Really Shortchanging Investment? Harv. Bus. Rev., 88-95, https://hbr.org/2018/03/are-buybacks-really-shortchanging-investment (2018, March-April); Fried, J. https://hbr.org/2018/03/are-buybacks-really-shortchanging-investment; Fried, J.M., & Wang, C.C. Short- Termism and Capital Flows, 8 Rev. Corp. Fin. Stud. 207 (2019); and Fried, J.M., & Wang, C.C. Short-Termism, Shareholder Payouts and Investment in the EU, 27 Eur. Fin. Mgmt. 389 (2021). As the commenter also notes, Asness, Hazelkorn, and Richardson (2018) ``present empirical evidence that repurchases do not mechanically grow earnings or reduce investment.'' See Asness, C., Hazelkorn, T., & Richardson, S. Buyback Derangement Syndrome, 44 J. Portfolio Mgmt. 50 (2018). As the commenter further notes, ``Edmans (2017, 2020) also argues that issuers do not systematically misuse cash for repurchases.'' See Edmans, A. (2017, September 15). The Case for Stock Buybacks, Harv. Bus. Rev.; and Edmans, A. (2020). Grow the Pie: How Great Companies Deliver Both Purpose and Profit. Cambridge University Press. \387\ See, e.g., Brealey, R., Myers, S., & Allen, F., Principles of Corporate Finance (12th ed. 2017). Issuers generally announce dividend policies, and markets react strongly to increases and reductions in dividends. See, e.g., Healy, P. & Palepu, K., Earnings Information Conveyed by Dividend Initiations and Omissions, 21 J. Fin. Econ. 149 (1988). Market reactions to initiations and omissions are even more pronounced. See Michaely, R., Thaler, R., & Womack, K., Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift? 50 J. Fin. 573 (1995); Lee, B.S. & Mauck, N., Dividend Initiations, Increases and Idiosyncratic Volatility, 40 J. Corp. Fin. 47 (2016). These studies indicate that decreases in buybacks do not elicit the same negative market reaction as dividend decreases. \388\ For example, one survey of 384 chief financial officers (``CFOs'') and executives suggests that the ability to avoid reducing dividends was the top consideration of managers when determining dividend policy. See Brav, A., Graham, J., Harvey, C., & Michaely, R., Payout Policy in the 21st Century, 77 J. Fin. Econ. 483 (2005) (``Brav et al. (2005)''). \389\ See 2020 Staff Study. The partial substitution between dividends and repurchases has also been documented in academic studies. See, e.g., Skinner, D., The Evolving Relation between Earnings, Dividends and Stock Repurchases, 87 J. Fin. Econ. 582 (2008); Grullon, G. & Michaely, R., Dividends, Share Repurchases, and the Substitution Hypothesis, 57 J. Fin. 1649 (2002). \390\ The low frequency and the unstructured nature of existing Item 703 data on repurchase activity limit the ability of existing studies to gauge the extent of information asymmetry between issuers and investors associated with the execution of repurchase programs and its economic effects. Existing disclosure has also limited the ability of existing studies to draw a causal connection between managerial incentives and day-to-day execution of repurchase programs as well as quantify its economic effects. Further, while public attention has focused on the aggregate trends in repurchases, the attribution of aggregate trends to specific drivers of repurchases is complicated due to the presence of confounding factors that cannot be readily isolated in existing data. The discussed data limitations should be considered in evaluating existing studies of the motivations of repurchases. Additional caveats, where applicable, are referenced in the discussion of individual strands of research and evidence on repurchases below. --------------------------------------------------------------------------- A recent change that followed the issuance of the Proposing Release and that is likely to affect share repurchases is the enactment of the one percent excise tax on share repurchases of covered corporations under the Inflation Reduction Act, which took effect January 1, 2023.\391\ To the extent that the new excise tax causes some issuers to reduce the frequency and/or size of their repurchases or choose to declare a dividend instead, the number of issuers subject to the amendments will decrease. Among issuers that continue to engage in share repurchases after the effectiveness of the new excise tax, and that therefore remain subject to the amendments, some may decrease the level of share repurchases.\392\ Compared to the use of gross share repurchases, the application of the excise tax to repurchases net of equity issuance, which is clarified in recently issued Treasury guidance,\393\ is likely to narrow the scope of the potential excise tax effect.\394\ However, it is difficult to forecast how many filers that engaged in repurchases in the past will cease or reduce repurchases after the effectiveness of the excise tax due to several limitations, including confounding macroeconomic and regulatory factors, a lack of a directly comparable prior regulatory intervention, uncertainty about how companies will weigh investors' personal tax preferences against the corporate excise tax on repurchases, and the fact that other company-specific factors, besides the excise tax on buybacks, affect payout decisions.\395\ --------------------------------------------------------------------------- \391\ See Public Law 117-169, 136 Stat. 1818 (2022). See also Notice 2023-2 Initial Guidance Regarding the Application of the Excise Tax on Repurchases of Corporate Stock under Section 4501 of the Internal Revenue Code, available at https://www.irs.gov/pub/irs-drop/n-23-02.pdf (``Excise Tax Guidance''). \392\ See Staff Excise Tax Memorandum, at 5. \393\ See Excise Tax Guidance. \394\ See Staff Excise Tax Memorandum, at p. 3 and note 11. See also 2020 Staff Study. \395\ See Staff Excise Tax Memorandum, at 4, 8. See also letter from Chamber V (stating that the effects of the excise tax will likely be unknown for at least a year after it becomes effective due to the seasonality in stock repurchases and issuances, and also noting the possibility of a global recession in 2023 that may affect the quantification of the impact of the excise tax on repurchases due to the cyclicality of share repurchases and issuances, concluding that ``a period of at least two years is necessary to properly gather data and quantify the impact of the excise tax on share repurchase activity.''). --------------------------------------------------------------------------- As stated in Section I above, we have considered the potential effects of the excise tax and the additional comments received. While postponing the analysis of the amendments for one or two years following the effectiveness of the Inflation Reduction Act would provide additional repurchase data for the post-excise tax period, we do not believe that such data is likely to yield meaningful changes to the analysis of the economic effects of the amendments for two reasons. First, to the extent that the [[Page 36032]] excise tax results in a decline in repurchase activity, both in terms of the number of repurchasing issuers and the level of repurchases by the issuers that continue to repurchase, those effects of a potential change in the market baseline on the economic analysis of the proposed amendments have been considered above and in the Staff Memorandum. We do not believe that a decline in repurchase activity due to the excise tax, should one occur, will have an effect on this economic analysis that is meaningfully different from a decline in repurchase activity for other reasons, such as a change in market conditions. Generally, any significant trends of issuers discontinuing their repurchase programs as a result of the excise tax will result in a decrease in the aggregate costs of the rule. We document the evolution of share repurchases, including the cyclicality in share repurchases, in the 2020 Staff Study. Furthermore, whether the aggregate level of share repurchases decreases or remains largely unaffected, we continue to believe that the underlying rationale for the rule--informing investors in a more comprehensive fashion about the repurchase decisions of issuers that do continue to conduct repurchases--remains applicable. Moreover, when corporate repurchase decisions carry a new potential cost to shareholder value, in the form of an excise tax, informing shareholders about the reasoning behind, the structure of, and the incremental nature of, an issuer's repurchase decisions may be even more important. Second, more importantly, due to the significant problem of aggregate confounding factors, obtaining even two additional years of data after the effectiveness of the excise tax is unlikely to enable us to identify the incremental contribution of the excise tax. Changes in macroeconomic and regulatory factors could confound the interpretation of any change in the level of repurchase activity. For example, it is virtually impossible to disentangle the role of other aggregate factors that would have a similar direction of the effect on the level of repurchase activity, such as the changes in macroeconomic conditions and monetary policy, from the effects of widespread application of a new tax on corporate repurchases. For example, a deterioration in macroeconomic conditions may also lead issuers to conserve cash and reduce or eliminate share repurchases (the much more flexible form of shareholder payouts, compared to cash dividends). As another example, contemporaneous increases in interest rates could make debt relatively less attractive, leading to a reduction in debt-financed equity repurchases that would be unrelated to the excise tax change. While the effects of the excise tax are not expected to change the direction and the qualitative nature of the economic effects of the amendments discussed in Sections V.B. and V.C. with respect to any particular share repurchase that takes place, to the extent that there is a reduction in the total number of issuers that undertake share repurchases due to the excise tax, the aggregate economic effects of the amendments will decrease.\396\ In addition, for issuers that continue repurchases but decrease their level and thus remain subject to the amendments, we expect the portion of costs and benefits that scales with the level of repurchases to decrease.\397\ --------------------------------------------------------------------------- \396\ See Staff Excise Tax Memorandum, at 9-12. \397\ See Staff Excise Tax Memorandum, at 9-12. --------------------------------------------------------------------------- Information about past repurchases is valuable to investors. Several empirical studies show that on average share prices increase after share repurchases.\398\ However, some studies do not find this result.\399\ The differences in the conclusions may be due to differences in empirical methodology and sample period.\400\ Because these studies utilize presently available monthly data, they may suffer from a lack of statistical power. Studies focused on share repurchase announcements also find positive returns.\401\ Researchers have identified several channels through which a repurchase could increase the share price. One of the earliest strands of research on share repurchases concludes that issuer share repurchases are related to the undervaluation of its securities.\402\ Corporate insiders likely have a superior understanding of their business and industry. Academic research suggests that managers can use increases in distributions, such as new repurchase programs, to signal their view that the stock is undervalued and is expected to increase in the future.\403\ Issuers may also undertake repurchases in an effort to provide price support by supplying liquidity when selling pressure is high; thus, share prices would be lower during an issuer's repurchases and higher afterwards.\404\ Thus, more comprehensive and disaggregated, granular information [[Page 36033]] about recent repurchases and prices of such repurchases should be useful to investors in inferring the management's evolving beliefs about the company's underlying value and, in conjunction with other disclosures, improving price discovery. --------------------------------------------------------------------------- \398\ See, e.g., Dittmar, A. & Field, L.C., Can Managers Time the Market? Evidence Using Repurchase Price Data, 115 J. Fin. Econ. 261 (2015) (``Dittmar and Field (2015)''); Ben-Rephael, A., Oded, J., & Wohl, A., Do Firms Buy Their Stock at Bargain Prices? Evidence From Actual Stock Repurchase Disclosures, 18 Rev. Fin. 1299 (2014) (``Ben-Rephael et al. (2014)''); Chan, K., Ikenberry, D., & Lee, I., Do Managers Time the Market? Evidence from Open-Market Share Repurchases, 31 J. Banking & Fin. 2673 (2007) (``Chan et al. (2007)''); Cook, D., Krigman, L., & Leach, J.C., On the Timing and Execution of Open Market Repurchases, 17 Rev. Fin. Stud. 463 (2004) (``Cook et al. (2004)'') (finding that larger firms in the sample perform better than smaller firms in timing the price at which repurchases are executed); Bargeron, L. & Bonaim[eacute], A.A., Why Do Firms Disagree with Short Sellers? Managerial Myopia versus Private Information, 55 J. Fin. & Quantitative Analysis 2431 (2020) (``Bargeron and Bonaim[eacute] (2020)'') (concluding that managers of firms facing short selling pressure increase repurchases as a result of managers' private information advantage over short sellers). Horizons and methodologies employed in these studies differ. For example, Dittmar and Field (2015) find that infrequent repurchasers experience positive price trends for one, three, and six months after months of actual repurchases (but the result is not observed for frequent repurchasers); Ben-Rephael et al. (2014) find a positive one-month drift following the disclosure of actual repurchases; and Chan et al. (2007) show positive abnormal returns after repurchase program announcements over up to a four-year horizon. \399\ See, e.g., Obernberger, S., The Timing of Actual Share Repurchases, Working paper (2014) (concluding that contrarian trading rather than market timing ability explains the observed relation between returns and actual share repurchases); Dittmar and Dittmar (2008); Bonaim[eacute], A.A., Hankins, K., & Jordan, B., The Cost of Financial Flexibility: Evidence From Share Repurchases, 38 J. Corp. Fin. 345 (2016) (``Bonaim[eacute] et al. (2016)'') (finding that ``actual repurchase investments underperform hypothetical investments that mechanically smooth repurchase dollars through time by approximately two percentage points per year on average''). \400\ As a general caveat, any working papers cited here have generally not undergone peer review and may be subject to revision. \401\ See, e.g., Evgeniou, T., Junqu[eacute] de Fortuny, E., Nassuphis, N., & Vermaelen, T., Volatility and the Buyback Anomaly, 49 J. Corp. Fin. 32 (2018); Bargeron, L., Kulchania, M., & Thomas, S., The Timing and Source of Long-Run Returns Following Repurchases, 52 J. Fin. & Quantitative Analysis 491 (2017); Peyer, U., & Vermaelen, T., The Nature And Persistence of Buyback Anomalies, 22 Rev. Fin. Stud. 1693 (2009). But see Fu, F. & Huang, S., The Persistence of Long-Run Abnormal Returns Following Stock Repurchases and Offerings, 62 Mgmt. Sci. 964 (2016) (documenting disappearance of long-run, post-repurchase abnormal returns during 2003-2012). \402\ See the survey of the literature on share repurchases in Farre-Mensa et al. (2014). \403\ For analysis of signaling with repurchases, see, e.g., Vermaelen, T., Common Stock Repurchases and Market Signaling: An Empirical Study, 9 J. Fin. Econ. 139 (1981); Vermaelen, T., Repurchase Tender Offers, Signaling, and Managerial Incentives, 19 J. Fin. & Quantitative Analysis 163 (1984); Constantinides, G. & Grundy, B., Optimal Investment with Stock Repurchase and Financing as Signals, 2 Rev. Fin. Stud. 445 (1989); Hausch, D. & Seward, J., Signaling with Dividends and Share Repurchases: A Choice Between Deterministic and Stochastic Cash Disbursement, 6 Rev. Fin. Stud. 121 (1993); McNally, W., Open Market Stock Repurchase Signaling, 28 Fin. Mgmt. 55 (1999). In some studies, authors find that repurchases send a stronger signal than dividends. See, e.g., Ofer, A. & Thakor, A., A Theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchases and Dividends, 42 J. Fin. 365 (1987); Persons, J., Heterogeneous Shareholders and Signaling with Share Repurchases, 3 J. Corp. Fin. 221 (1997). \404\ See, e.g., Liu, H. & Swanson, E., Is Price Support a Motive for Increasing Share Repurchases?, 38 J. Corp. Fin. 77 (2016) (``Liu and Swanson (2016)''). --------------------------------------------------------------------------- Comprehensive disclosure of recent actual repurchases should thus contain valuable information about the issuer's beliefs about the fundamental valuation of the company that is not revealed to the market otherwise. Conversely, a lack of comprehensive disclosure contributes to information asymmetries between investors and issuers. The additional quantitative and qualitative disclosures we are adopting are further expected to enhance the information about share repurchases, providing clearer insights into how and why the issuers undertake repurchases and the extent to which they are related to temporary undervaluation of issuer shares, temporary cash windfalls that cannot be deployed to positive-net present value (NPV) investment projects, or other objectives. The benefit of the information contained in disclosures of recent repurchase activity is expected to be lower to the extent that large issuer repurchases already have a price impact, resulting in price discovery and indirect revelation of information to the market, even in the absence of additional disclosure.\405\ Nevertheless, to the extent that an issuer's repurchases incorporate insiders' future outlook on the firm, they could be informative to investors (complementing the information in Form 4 filings). --------------------------------------------------------------------------- \405\ See also letters from Chamber II and Profs. Lewis and White (noting that ``the information contained in order flow may subsume much of the information that would be contained in more frequent disclosure''). --------------------------------------------------------------------------- The existing disclosure of share repurchases aggregated on a monthly basis does not allow investors to evaluate the specific timing of actual repurchases or repurchase patterns or changes in conjunction with other public information and point-in-time disclosures made by the issuer and, if applicable, its executives. Various studies address motivations behind corporate payouts and the choice of the form of payout (repurchases or dividends).\406\ As demonstrated by prior research, in a number of instances, the use of repurchases can be efficient and aligned with shareholder value maximization and benefit investors.\407\ Sometimes issuers that have excess cash do not have profitable investment opportunities.\408\ In such instances, distributing the cash through dividends or repurchases can alleviate concerns that managers will spend the cash in sub-optimal ways, such as empire-building acquisitions.\409\ Survey evidence supports this theory, with the second most cited reason for conducting a repurchase being the ``lack of good investment opportunities.'' \410\ By returning excess cash to shareholders, repurchases free up the capital that can then be invested in other businesses that lack the capital to pursue value-creating investment opportunities. Stock price reactions to announcements of new repurchase programs are higher for cash-rich issuers, which may be consistent with the creation of value when managers remove their discretion over how to invest excess cash and provide that cash to investors to redeploy as they see fit.\411\ --------------------------------------------------------------------------- \406\ For a more detailed summary of the related studies, see 2020 Staff Study and Farre-Mensa et al. (2014). \407\ See 2020 Staff Study. See also letters from Chamber II and Profs. Lewis and White; Lewis, C. M. The Economics of Share Repurchase Programs (Feb. 2019), available at https://amac.us/wp-content/uploads/2019/02/The-Economics-of-Share-Repurchase-Programs1.pdf. \408\ See, e.g., 2020 Staff Study stating that ``most repurchases are conducted by companies with excess cash relative to investment opportunities,'' as pointed out by a commenter. See letters from Chamber II and Profs. Lewis and White. \409\ See Jensen, M., Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, 76 Am. Econ. Rev. 323 (1986). \410\ See Brav et al. (2005). \411\ See Grullon, G. & Michaely, R., The Information Content of Share Repurchase Programs, 59 J. Fin. 651-680 (2004). --------------------------------------------------------------------------- Additionally, issuers may choose repurchases if the excess free cash flow stems from a one-time windfall, or if they value financial flexibility and wish to avoid a costly, long-term commitment to higher dividends.\412\ For instance, firms that favor repurchases tend to have more volatile cash flows than dividend-paying firms.\413\ Issuers with excess free cash flow may also choose repurchases over dividends as the method of payout because repurchases are more tax-efficient for shareholders.\414\ Finally, repurchases may also be used to adjust an issuer's leverage upward, as part of adjustment towards the target capital structure, or as part of a market timing approach to capital structure.\415\ --------------------------------------------------------------------------- \412\ See, e.g., Guay, W. & Harford, J., The Cash-Flow Permanence and Information Content of Dividend Increases versus Repurchases, 57 J. Fin. Econ. 385 (2000); Jagannathan, M., Stephens, C., & Weisbach, M., Financial Flexibility and the Choice between Dividends and Stock Repurchases, 57 J. Fin. Econ. 355 (2000). See also supra notes 387-388 and accompanying text. \413\ See Hoberg, G. & Prabhala, N., Disappearing Dividends, Catering, and Risk, 22 Rev. Fin. Stud. 79 (2009) (showing that riskier firms are less likely to pay dividends). \414\ See, e.g., Feng, L., Pukthuanthong, K., Thiengtham, D., Turtle, H.J., & Walker, T.J., The Effects of Cash, Debt, and Insiders on Open Market Share Repurchases, 25 J. Applied Corp. Fin. 55 (2013). The tax advantage of repurchases has been attenuated but not eliminated after the 2003 dividend tax cut. Outside of tax- exempt/tax-deferred accounts, all shareholders are subject to taxes on dividends for the year the dividend was paid. In the case of repurchases, only selling shareholders are subject to taxes on capital gains (the remaining shareholders do not pay taxes until they sell their shares). See, e.g., Chetty, R. & Saez, E. Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut, 120 Q. J. Econ. 791 (2005); Chetty, R. & Saez, E. The Effects of the 2003 Dividend Tax Cut on Corporate Behavior: Interpreting the Evidence, 96 Am. Econ. Rev. 124 (2006); Aboody, A. & Kasznik, R. Executive Stock-Based Compensation and Firms' Cash Payout: The Role of Shareholders' Tax-Related Payout Preferences, 13 Rev. Acct. Stud. 216 (2008); Blouin, J., Raedy, J., & Shackelford, D., Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes, 86 Acct. Rev. 887 (2011). Studies have found companies with investors less averse to dividends due to tax reasons are more likely to pay dividends, and vice versa. See, e.g., Desai, M. & Jin, L. Institutional Tax Clienteles and Payout Policy, 100 J. Fin. Econ. 68 (2011). See also letter from Davis Polk. \415\ See, generally, Baker, M. & Wurgler, J., Market Timing and Capital Structure, 57 J. Fin. 1 (2002). Some other evidence suggests that firms tend to repurchase stock and issue debt when the cost of debt falls relative to the cost of equity. See Ma, Y., Nonfinancial Firms as Cross[hyphen]Market Arbitrageurs, 74 J. Fin. 3041 (2019) (``Ma (2019)''). See also Hovakimian, A., Role of Target Leverage in Security Issues and Repurchases, 77 J. Bus. 1041 (2004) (finding that ``equity issues and repurchases do not offset the accumulated deviation from the target and they are timed to market conditions''). --------------------------------------------------------------------------- Some commentators and studies have noted that opportunistic insider behavior and agency conflicts, rather than firm value maximization, can motivate repurchases. In particular, repurchases can serve as a form of real earnings management (through decreasing the denominator of EPS) and thus be subject to short-term earnings management objectives of an executive seeking to meet or beat consensus forecasts.\416\ CFO survey responses indicate that increasing EPS is an important factor affecting share [[Page 36034]] repurchase decisions.\417\ Investors may take this into account when evaluating EPS.\418\ Nevertheless, earnings management-motivated repurchases can have negative real effects on the issuer and its shareholders, such as forgoing valuable investments.\419\ Some sources disagree.\420\ Announcements of repurchases and actual repurchase trades can also result in short-term upward price pressure.\421\ Share price- or EPS-tied compensation arrangements can thus incentivize executives to undertake repurchases, in an attempt to maximize their compensation, even if such repurchases are not optimal from the shareholder value maximization perspective. A number of studies have examined the use of repurchases to influence compensation tied to per- share measures.\422\ Further, a different study examined the real cost of EPS-motivated repurchases outside the context of compensation.\423\ However, a different study documented a link between EPS targets and repurchases but did not find evidence of negative effects on shareholders.\424\ As an important caveat, the discussed incentives would be weaker to the extent executive compensation plans and board committees that address executive compensation account for how repurchases would affect compensation targets and the value of incentive-based compensation.\425\ [[Page 36035]] Another instance of potentially inefficient repurchase behavior that some studies have shown could have a negative effect on investors involves insider incentives to raise the share price prior to insider sales.\426\ Other studies reach different conclusions.\427\ As a caveat, some studies note that in cases where repurchase announcements coincide with earnings announcements, insider sales activity after the repurchase announcement may be the result of pent-up liquidity demand because issuers generally prohibit insiders from trading in the period leading up to earnings announcements as part of blackout periods.\428\ Further, in cases of findings related to trends in insider sales around repurchase announcements, such trends may not directly translate to patterns of insider sales around actual repurchases. As a final caveat, omitted variables may affect both insider sales and repurchases.\429\ Conversely, some studies note that insider purchases of stock in conjunction with a repurchase announcement may strengthen the credibility of the repurchase signal.\430\ CFOs report that they consider the price of the stock when deciding whether to repurchase stock.\431\ Further, academic studies have found that firms conduct repurchases when stock prices are low.\432\ The effects of such issuer trading on liquidity are not fully certain, with several studies finding improved liquidity during repurchase programs,\433\ and several other studies pointing to adverse selection effects of trading by the better informed issuer.\434\ --------------------------------------------------------------------------- \416\ For evidence on the use of repurchases as a method of real earnings management, see, e.g., Bens, D., Nagar, V., Skinner, D., & Wong, M.H.F. Employee Stock Options, EPS Dilution, and Stock Repurchases, 36 J. Acct. & Econ. 51 (2003) (finding that stock repurchases increase when ``(1) the dilutive effect of outstanding employee stock options (ESOs) on diluted EPS increases, and (2) earnings are below the level required to achieve the desired rate of EPS growth'' and concluding that executives' repurchase decisions are ``driven by incentives to manage diluted but not basic EPS, and strengthening our earnings management interpretation''); Bonaim[eacute], A.A., Kahle, K., & Moore, D., Employee Compensation Still Impacts Payout Policy, Working Paper (2020) (finding ``a strong positive relation between the dilutive effect of stock-based employee compensation and share repurchases''); Burnett, B., Cripe, B., Martin, G., & McAllister, B., Audit Quality and the Trade-Off Between Accretive Stock Repurchases and Accrual-Based Earnings Management, 87 Acct. Rev. 1861 (2012). \417\ See Brav et al. (2005). \418\ For example, Hribar et al. (2006), supra note 33, finds that the market discounts EPS announcements in situations in which EPS would have been shy of analyst expectations but for share repurchases (and where repurchases are disclosed along with quarterly earnings); Kahle, K. When a Buyback isn't a Buyback: Open Market Repurchases and Employee Options, 63 J. Fin. Econ. 235 (2002) (noting that the market appears to recognize the anti-dilutive motive for repurchases and reacts less positively to repurchases announced by firms with high levels of nonmanagerial options). Kurt (2018) studies the use of ASRs for real earnings management and concludes investors ``are not fooled'' by managers' use of ASRs as an earnings management device. However, Kurt (2018) notes that ``[u]pward revision observed in analysts' EPS forecasts upon the announcement of ASRs is short-lived, indirectly facilitating firms' use of ASRs to meet or beat consensus forecasts.'' See Kurt, A., Managing EPS and Signaling Undervaluation as a Motivation for Repurchases: The Case of Accelerated Share Repurchases, 17 Rev. Acct. Fin. 453 (2018). But see Edmans et al. (2022). \419\ For example, one recent study finds that repurchases used to push EPS above analyst expectations are accompanied by a 10% decrease in capital expenditures and a 3% decrease in research and development. See, e.g., Almeida et al. (2016), supra note 33. Note that the Almeida et al. (2016) findings do not necessarily generalize to repurchases by issuers outside the range of EPS approaching the earnings target, or to repurchases unrelated to EPS manipulation. The Almeida et al. (2016) study further finds that, amongst the subset of issuers that are close to missing the EPS forecast, ``[i]t is clear that EPS-induced repurchases are on average not detrimental to shareholder value or subsequent performance,'' as pointed out by a commenter. See letters from Chamber II and Profs. Lewis and White. However, the Almeida et al. (2016) study also notes that ``some firms sacrifice valuable investments to finance share repurchases.'' A 2016 McKinsey & Co. report states that share repurchases do not improve shareholder returns simply by increasing EPS because, under certain conditions, there may have been more preferable uses for those funds such as debt reduction and reinvestment in the firm. See Ezekoye, O., Koller, T., & Mittal, A., How Share Repurchases Boost Earnings without Improving Returns, McKinsey (Apr. 29, 2016), available at https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-share-repurchases-boost-earnings-without-improving-returns. \420\ See PwC (2019) Share Repurchases, Executive Pay and Investment, BEIS Research Paper No. 2019/011 (``PwC Report'') (finding in UK data ``no relationship between share repurchases and investment'' and also finding that, even when focused ``on firms that would have just missed an EPS target in the absence of a repurchase, and thus are particularly likely to cut investment to finance a repurchase . . . [that] these firms did not cut investment more than other firms that would have just met an EPS target in the absence of a repurchase.''); Kay, I. & Martin, B. Are Share Buybacks a Symptom of Managerial Short-Termism? New Insights on Executive Pay, Share Buybacks, and Other Corporate Investments, PayGovernance (2019) (finding that ``four-year post-buyback performance on TSR and CapEx growth was higher for the companies in the large buyback sample than for the companies with smaller buybacks'', ``that companies with higher short-term TSR had equal or higher subsequent long-term TSR and CapEx growth'', and also suggesting that both companies with small and large buybacks ``appear to be optimizing earnings growth''). \421\ With respect to actual share repurchases, a recent study shows that price support provided by actual share repurchases improves price efficiency, even when manipulation concerns might be highest, such as those that occur prior to insider sales. See Busch, B. & Obernberger, S., Actual Share Repurchases, Price Efficiency, and The Information Content Of Stock Prices, 30 Rev. Fin. Stud. 324 (2017) (``Busch and Obernberger (2017)''). With respect to share repurchase announcements, some have suggested that managers may take advantage of positive stock price reactions to non-binding repurchase announcements and use disingenuous repurchase announcements to manipulate share prices. See Chan et al. (2010) (finding in 1980-2000 data, which predates the 2003 Item 703 amendments, that a limited number of managers may have used repurchases in a misleading way as ``cheap talk'', noting as a caveat that ``the total number of buybacks where managers may have been intending to mislead investors, while nonzero, also appears to be limited''). Such ``cheap talk'' may result in lower announcement returns. See, e.g., Bonaim[eacute], A.A., Repurchases, Reputation, and Returns, 47 J. Fin. & Quantitative Analysis 469 (2012) (``Bonaim[eacute] (2012)''); Bonaim[eacute] (2015). In contrast, other studies argue that ``cheap-talk'' repurchase announcements may correct mispricing by attracting additional market scrutiny. See Almazan, A., Banerji, S., & De Motta, A., Attracting Attention: Cheap Managerial Talk and Costly Market Monitoring, 63 J. Fin. 1399 (2008); Bhattacharya, U. & Jacobsen, S., The Share Repurchase Announcement Puzzle: Theory and Evidence, 20 Rev. Fin. 725 (2016). Further, as pointed out by some commenters, the 2020 Staff Study concludes that ``[r]epurchase announcements are accompanied by stock price increases. This announcement effect does not dissipate over time, as one would expect if repurchases were based on efforts to manipulate share prices.'' See letters from Chamber II and Profs. Lewis and White. \422\ See, e.g., Cheng, Y., Harford, J., & Zhang, T., Bonus- Driven Repurchases, 50 J. Fin. & Quantitative Analysis 447 (2015) (``Cheng et al. (2015)'') (finding that ``when a CEO's bonus is directly tied to earnings per share (EPS), his company is more likely to conduct a buyback,'' with the effect being ``especially pronounced when a company's EPS is right below the threshold for a bonus award,'' that ``[s]hare repurchasing increases the probability the CEO receives a bonus and the magnitude of that bonus, but only when bonus pay is EPS based,'' and further finding that ``[b]onus- driven repurchasing firms do not exhibit positive long-run abnormal returns''); Kim, S. & Ng, J., Executive Bonus Contract Characteristics and Share Repurchases, 93 Acct. Rev. 289 (2018) (finding that ``managers are more (less) likely to repurchase shares and spend more (less) on repurchases when as-if EPS just misses (exceeds) the bonus threshold (maximum) EPS level,'' and that ``[m]anagers making bonus-motivated repurchases do so at a higher cost''); Marquardt, C., Tan, C., & Young, S. (2011) Accelerated Share Repurchases, Bonus Compensation, and CEO Horizons, Working paper (finding that firms are more likely to choose ASRs over open market repurchases ``when the repurchase is accretive to EPS, when annual bonus compensation is explicitly tied to EPS performance, when CEO horizons are short, and when CEOs are more entrenched''). See also letter from S. Kaswell (supporting benefits of additional disclosure about whether repurchase plans trigger additional executive compensation). \423\ See Almeida et al. (2016) (finding that ``[t]he probability of share repurchases that increase earnings per share (EPS) is sharply higher for firms that would have just missed the EPS forecast in the absence of the repurchase, when compared with firms that `just beat' the EPS forecast'' and that ``EPS-motivated repurchases are associated with reductions in employment and investment, and a decrease in cash holdings'' and concluding that ``managers are willing to trade off investments and employment for stock repurchases that allow them to meet analyst EPS forecasts''). See also Rulemaking Petition 4-746. \424\ See Young, S. & Yang, J., Stock Repurchases and Executive Compensation Contract Design: The Role of Earnings Per Share Performance Conditions, 86 Acct. Rev. 703-733 (2011) (finding ``a strong positive association between repurchases and EPS-contingent compensation arrangements'' but also finding ``net benefits to shareholders from this association'' (including ``larger increases in total payouts'', a more pronounced ``positive association between repurchases and cash performance'' in the presence of surplus cash; greater likelihood of undervalued firms ``signal[ing] mispricing through a repurchase,'' and ``lower abnormal accruals'') and ``no evidence that EPS-driven repurchases impose costs on share-holders in the form of investment myopia''). \425\ See 2020 Staff Study (finding that, based on a review of compensation disclosures in proxy statements for a sample of 50 firms that repurchased the most stock in 2018 and 2019,''82% of the firms reviewed either did not have EPS-linked compensation targets or had EPS targets but their board considered the impact of repurchases when determining whether performance targets were met or in setting the targets'' and concluding that ``[m]ost of the money spent on repurchases over the past two years was at companies that either do not link managerial compensation to EPS-based performance targets or whose boards considered the impact of repurchases when determining whether EPS-based performance targets were met or in setting the targets, suggesting that other rationales motivated the repurchases''), which was noted by several commenters. See, e.g., letters from Bishop, Cato, Chamber II, Coalition, Profs. Lewis and White, T. Rowe Price, Virtu, and Vistra. The 2020 Staff Study also notes that ``[collectively], these findings potentially suggest that most repurchase activity does not represent an effort to artificially inflate stock prices or influence the value of option- based or EPS-linked compensation'', as noted by a commenter (see letters from Chamber II and Profs. Lewis and White). See also, e.g., Fields, R., Buybacks and the Board: Director Perspectives on the Share Repurchase Revolution, Sept. 20, 2016, available at https://corpgov.law.harvard.edu/2016/09/20/buybacks-and-the-board-director-perspectives-on-the-share-repurchase-revolution/ (concluding, based on interviews of ``44 directors serving on the boards of 95 publicly traded U.S. companies with an aggregate market capitalization of $2.7 trillion'' that ``most directors said that their companies are aware of the relationship between buyback programs and compensation and that they make deliberate, informed choices to ensure that they reward executives for desired behavior rather than for financial manipulation of share prices. Anticipated buyback effects on EPS are usually factored into EPS targets, they say, and unanticipated effects can be adjusted out.''); PwC Report (finding in the UK setting, which has daily reporting, ``no significant relationship between share repurchases and either the existence of an EPS condition or the proportion of an incentive award linked to that condition within executive pay incentives and share repurchases,'' and finding in UK survey data that ``30% of companies adjust their EPS targets contained within LTIPs for share repurchase activity, and most senior executives acknowledge share repurchases should be reviewed by remuneration committees.''); Bargeron, L., Kulchania, M., & Thomas, S. Accelerated Share Repurchases, 101 J. Fin. Econ. 69 (2011) (finding limited evidence of earnings management motives for ASRs in the presence of proxies for the value of flexibility); Bennett, B., Bettis, C., Gopalan, R., & Milbourn, T. Compensation Goals and Firm Performance, 124 J. Fin. Econ. 307 (2017) (in Table 5, not finding evidence that firms that just exceed the compensation EPS goal undertake more repurchases than firms that just miss the EPS goal, inconsistent with strategic use of repurchases to manage EPS targets in compensation contracts). See also letters from Chamber II; Vistra; Maryland Bar; Virtu; T. Rowe Price; Pay Governance; SCG; Coalition; Cato; PA Chamber; Bishop; and Profs. Lewis and White. \426\ See, e.g., letters from AFREF et al., Better Markets I, CFA Institute, CII, Oxfam, Prof. Palladino, and Public Citizen. See also, e.g., Chan et al. (2010). See also Bonaim[eacute], A.A. & Ryngaert, M.D., Insider Trading and Share Repurchases: Do Insiders and Firms Trade in the Same Direction?, 22 J. Corp. Fin. 35-53 (2013) (``Bonaim[eacute] and Ryngaert (2013)'') (finding that repurchases that coincide with net insider selling may be related to price support and/or reasons related to option exercises); Cziraki et al. (2021), supra note 34, (finding that ``[h]igher insider net buying is associated with better post-event operating performance, a reduction in undervaluation, and, for repurchases, lower post-event cost of capital. Insider trading also predicts announcement returns and long-term abnormal returns following events.'' They conclude their results suggest ``insider trades before corporate events [repurchases and SEOs] contain information about changes both in fundamentals and in investor sentiment''); Palladino (2020) (finding increased insider selling in quarters where buybacks are occurring); Ahmed, W., Insider Trading Around Open Market Share Repurchase Announcements, Working paper, University of Warwick (2017) (finding that ``insiders take advantage of higher post-[repurchase] announcement price and sell more heavily'', and that such selling is predictive of lower long-term returns). See also Rulemaking Petition 4-746, at 5 and note 17 (expressing concern and citing evidence of repurchases used to increase share prices at the time when insiders sell shares) and letter from Prof. Jackson, Dr. Hu, and Dr. Zytnick. See also, generally, Edmans et al. (2018), supra note 35 (finding that ``CEOs release 20% more discretionary news items in months in which they are expected to sell equity, predicted using scheduled vesting months'' and that ``[t]he increase arises for positive news, but not neutral or negative news, nor nondiscretionary news'' and concluding that ``[n]ews in vesting months generates a temporary increase in stock prices and market liquidity, which the CEO exploits by cashing out shortly afterwards''; as an important caveat, while the study includes buybacks among announcements, and based on other evidence, they are generally viewed as positive announcements, the study does not provide specific results for buybacks); Edmans et al. (2022), supra note 34 (finding that ``[v]esting equity is positively associated with the probability of a firm repurchasing shares'' but that ``it is also associated with more negative long-term returns over two to three years following repurchases'' and that ``CEOs sell their own stock shortly after using company money to buy the firm's stock, also inconsistent with repurchases being motivated by undervaluation''). \427\ See, e.g., Liu and Swanson (2016) (finding that ``[c]orporate insiders do not sell from personal stock holdings during the price support quarter.''); see also Busch and Obernberger (2017) (concluding with respect to actual share repurchases, that price support provided by repurchases improves price efficiency, even when manipulation concerns might be highest, such as those that occur prior to insider sales). \428\ See Dittmann et al. (2022), supra note 40 (finding that ``both the timing of buyback programs and the timing of equity compensation, i.e., the granting, vesting, and selling of equity, are largely determined by the corporate calendar through blackout periods and earnings announcement dates,'' ``not support[ing] the conclusion that CEOs systematically misuse share repurchases at the expense of shareholders,'' and concluding that ``equity compensation increases the propensity to launch a buyback program when buying back shares is beneficial for long-term shareholder value.''); and Profs. Lewis and White (finding that the rise in insider selling after repurchase announcements is driven by outliers and issuer blackout periods) and letter from Chamber II. As a caveat, we note that the commenters and the Dittmann et al. (2022) study do not appear to have ruled out the possibility that repurchase and vesting calendars are not aligned coincidentally. \429\ As noted in Edmans et al. (2022), an analysis of insider sales around repurchases may be susceptible to endogeneity concerns due to omitted variable bias (e.g., if poor investment opportunities cause the CEO to divest shares and also make it optimal for the firm to pay out surplus free cash flow). \430\ Announcement returns are positively related to past insider purchases, especially for firms that are priced less efficiently. See, e.g., Dittmar & Field (2015) (finding that ``repurchasing firms with relatively high net insider buying have significantly lower relative repurchase prices'' and concluding that firms with more net insider buying repurchase undervalued stock); Babenko, I., Tserlukevich, Y., & Vedrashko, A., The Credibility of Open Market Share Repurchase Signaling, 47 J. Fin. & Quantitative Analysis 1059 (2012) (``Babenko and Vedrashko (2012)''); Bonaim[eacute] and Ryngaert (2013) (finding that net insider buying reinforces the undervaluation signal conveyed by repurchases while net insider selling weakens it); Cziraki et al. (2021), supra note 34, (showing that ``pre-event insider trading contains information regarding future changes in the cost of capital for repurchasing firms''). Setting aside the signaling theory, purchases by insiders during an issuer's repurchases if such insiders are in possession of material nonpublic information may represent unlawful insider trading that may harm other market participants. Similar to insiders, issuers that purchase their securities while in possession of material nonpublic information may be subject to Rule 10b-5 liability. \431\ Brav et al. (2005). \432\ See, e.g., Dittmar and Field (2015); Ben-Rephael et al. (2014); Chan et al. (2007); Cook et al. (2004). \433\ See, e.g., Busch and Obernberger (2017); Cook et al. (2004); Hillert, A., Maug, E., & Obernberger, S., Stock Repurchases and Liquidity, 119 J. Fin. Econ. 186 (2016). See also letters from Chamber II and Profs. Lewis and White; Lewis, C.M., & White, J.T. (2021). Corporate Liquidity Provision and Share Repurchase Programs, U.S. Chamber of Commerce: Center for Capital Markets Competitiveness (Fall 2021), available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2021/09/CCMC_Stock-Buybacks_WhitePaper_10.2.21.pdf. See also letter from Chamber II. \434\ See, e.g., Barclay, M.J., & Smith, C.W. Corporate Payout Policy: Cash Dividends versus Open Market Repurchases, 22 J. Fin. Econ. 61 (1988); Ginglinger, E., & Hamon, J., Actual Share Repurchases, Timing and Liquidity, 31 J. Banking & Fin. 915 (2007) (using data from France); Brockman, P., & Chung, D.Y. Managerial Timing and Corporate Liquidity: Evidence from Actual Share Repurchases, 61 J. Fin. Econ. 417 (2001) (using data from Hong Kong). --------------------------------------------------------------------------- Presently, information about repurchases, aggregated at the monthly [[Page 36036]] level, is provided in periodic reports (on a quarterly basis for domestic issuers that report on Forms 10-Q and 10-K, on a semi-annual basis for Listed Closed-End Funds that report on Form N-CSR, and on an annual basis for FPIs that report on Form 20-F).\435\ Issuers are not required to provide more disaggregated information than the monthly aggregates to investors about repurchases. This lack of disaggregated disclosure about past repurchases likely contributes to information asymmetries and thus makes it harder for investors to evaluate an issuer's share repurchase program, determine the correct valuation of an issuer's securities, and as a result make informed investment decisions. --------------------------------------------------------------------------- \435\ In addition to the disclosures on Form N-CSR that provide more detailed information about Listed Closed-End Fund repurchases, Form N-CEN also requires closed-end management investment companies to indicate whether they engaged in a repurchase during the reporting period and, if so, for what type of security. See supra footnote 7. --------------------------------------------------------------------------- Although issuers, particularly exchange-listed issuers, may often announce details of their repurchase programs on a voluntary basis, issuers are not currently required to do so, or to disclose the structure or objectives and rationales for their repurchase program. In particular, to our knowledge, most issuers subject to the final amendments do not currently disclose daily share repurchase information. Further, issuers are not required to disclose whether they allow insiders to trade during repurchases. Thus, it can sometimes be difficult for investors to determine whether the undertaken repurchases were efficient and aligned with shareholder value maximization, or were driven at least in part by factors other than shareholder interests. The last significant change to repurchase reporting was adopted in 2003,\436\ when the Commission required issuers to present monthly data on actual repurchases on a quarterly basis in Form 10-Q or 10-K for domestic corporate issuers, semi-annual basis in Form N-CSR for Listed Closed-End Funds, and on an annual basis in Form 20-F for FPIs. One study examined the consequences of this change and found that ``[f]irms announce significantly fewer and slightly smaller open market repurchase plans in the enhanced disclosure environment,'' however, ``completion rates (the amount of stock repurchased as a percentage of the announced amount) significantly increase.'' \437\ The study further states that ``[m]ore conservative announcement strategies and more aggressive completion rates are consistent with a decline in false signaling . . . open market repurchase announcements are viewed as more credible, on average, in the enhanced disclosure environment.'' \438\ However, as the study notes, ``[a]s with any analysis based on a regulatory change affecting all firms simultaneously, other unobservable, macroeconomic trends could have affected repurchase behavior.'' \439\ --------------------------------------------------------------------------- \436\ See 2003 Adopting Release, supra note 5. \437\ See Bonaim[eacute] (2015). \438\ Id. \439\ Id. --------------------------------------------------------------------------- Available data on issuer use of Rule 10b5-1 plans under the baseline was discussed in Section V.A.1 above. In Sections V.B. and V.C. below we evaluate the anticipated costs and benefits of the final rule and the anticipated effects of the final rule on efficiency, competition, and capital formation. B. Benefits We begin the discussion with the general benefits applicable to all of the final amendments, continue to discuss the benefits specific to the new quantitative repurchase disclosure, and then proceed to the benefits specific to other amendments. 1. General Benefits of the Disclosures We anticipate the amendments will give rise to benefits by strengthening investor protection, improving market efficiency, and facilitating capital formation. The amended disclosure requirements are expected to benefit investors (including existing shareholders contemplating a sale of securities or a purchase of additional securities) by providing investors with more comprehensive and comparable disclosures about share repurchases and thus enabling them to value the issuer's securities more accurately, resulting in better informed investment decisions.\440\ Existing evidence in academic research (discussed in detail in Section V.A.2. above) and various comment letters on the proposal \441\ support the presence of significant information asymmetries between insiders and other investors on undertaken repurchases and the extent to which they may relate to the fundamental value of the issuer's stock. The issuer's evolving knowledge of the issuer's future prospects, and thus, share valuation may be reflected in the execution of actual share repurchases following a repurchase program announcement. Thus, more comprehensive disclosure of the issuer's repurchase strategy may indirectly inform investors about the issuer's fundamental value, in addition to other existing disclosures (unrelated to issuer repurchases). Moreover, to the extent that reasons for actual repurchases may be confounded by managerial self-interest, additional information on the timing of repurchases can be indicative of such agency problems, informing investors about the likely impacts of repurchases on shareholder value.\442\ Hence, we disagree with some commenters' \443\ suggestion that there is no market failure necessitating additional repurchase disclosures. Continuing the existing regime where issuers are only mandated to provide abbreviated and aggregated disclosure of share repurchases, as compared to the final amendments, and relying solely on voluntary disclosure of additional repurchase plan details to fill these information gaps is not a solution to the information asymmetry issues because of market failures arising from collective action and moral hazard problems. --------------------------------------------------------------------------- \440\ See supra notes 403-404, 402-404, 432 and accompanying text. \441\ See supra notes 65, 146, 247, and 264. \442\ See supra notes 416-426 and accompanying and following text. \443\ See, e.g., letters from Chamber II and Profs. Lewis and White for a detailed discussion of this argument. --------------------------------------------------------------------------- Specifically, there are potential collective action problems that preclude an optimal level of additional voluntary disclosure. Voluntarily disclosing the additional details of their share repurchase strategy when other issuers do not do so can place the issuer at a relative disadvantage. For example, such disclosures can be costly to individual firms due to the costs of compiling the disclosures, the potential legal risk stemming from such disclosures, and the potential costs of leaking valuable private information to competitors that may infer proprietary information about the issuer. In addition, such disclosures may reveal information to other traders that may trade against the issuer, resulting in a less favorable repurchase price, particularly for multi-quarter repurchase programs. While more comprehensive repurchase disclosure is privately costly to individual issuers in such a voluntary framework, such disclosure has positive informational externalities for investors and other market participants which are not internalized by each issuer, which may lead issuers to rationally under-disclose relative to what is optimal from the investors' perspective.\444\ --------------------------------------------------------------------------- \444\ As an alternative to the voluntary repurchase strategy disclosure, to address the information asymmetries, insiders could publicly reveal their private information about the stock's fundamental value. However, an individual issuer doing so could reveal private information on the firm's strategy to their competitors, also giving rise to a collective action problem--thus, a voluntary regime results in too little disclosure. --------------------------------------------------------------------------- [[Page 36037]] Under the final amendments, all issuers would be required to follow the same standard framework to disclose repurchase information at the level of detail that facilitates investor evaluation of repurchase information and helps them make comparisons among all issuers, thus enabling better informed investment decisions. The final amendments would therefore address the aforementioned market failure resulting from collective action problems. Furthermore, to the extent that managerial self-interest may affect some repurchase decisions, moral hazard problems may also contribute to this market failure by undermining the optimal provision of voluntary disclosure about share repurchases to investors. In order for voluntary disclosure to result in the complete revelation of all relevant private information, there would need to be no agency problems (i.e., no conflicts of interest between managers and shareholders) such that managers' sole objective with respect to repurchase disclosures would be to optimally disclose to shareholders information about repurchases. However, if managers have other objectives and incentives that interfere with the decision to make fulsome repurchase disclosures on a voluntary basis, reliance on the additional disclosures being made voluntarily may not result in the same complete information. For example, if some repurchases are not made to maximize shareholder value due to agency problems, managers may not wish to provide detailed disclosure. Moreover, when agency problems exist, investors can no longer be sure if the absence of additional, voluntarily provided disclosure reflects good or bad news for the firm, given that some managers may have self-serving incentives. To the extent that there are instances where some repurchase decisions benefit the management rather than maximize shareholder value, they would give rise to agency conflicts with respect to providing sufficient disclosure about repurchases. More comprehensive and standardized disclosure about recent repurchase activity is therefore expected to alleviate information asymmetries about an issuer's repurchase strategy and therefore be beneficial to investors (as discussed in detail in Section V.B. below). Further, the final amendments will ensure greater uniformity across issuers in the provision of qualitative and quantitative information about repurchases to investors, facilitating investor comparison and analysis of information across issuers and time periods. We thus believe that the decrease in information asymmetry as a result of the amended disclosure requirements would benefit investors, facilitating better informed investment decisions. Some commenters have expressed concern that the disclosure mandated by the amendments will undermine benefits to investors by eliminating information acquisition incentives.\445\ However, the disclosure will not eliminate all information asymmetries for several reasons: (i) the final amendments include a delay in the timing of the disclosure of the issuer's repurchase trades; (ii) the final amendments require the revelation of significant aspects of the repurchase program rather than require the issuers to reveal the entirety of its private information; and (iii) investors have disclosure processing costs and differ in their learning from, and analysis of, public disclosures.\446\ --------------------------------------------------------------------------- \445\ See letters from Chamber II and Profs. Lewis and White, referring to the argument, motivated by Grossman and Stiglitz (1980), that ``[w]ithout some level of asymmetric information, there would be fewer incentives to invest in information collection, resulting in less price discovery and a corresponding reduction in liquidity.'' See Grossman, S.J., & Stiglitz, J.E. (1980). On the Impossibility of Informationally Efficient Markets, 70 Am. Econ. Rev. 393. \446\ See Blankespoor, E., deHaan, E. and Marinovic, I. (2020) Disclosure Processing Costs, Investors' Information Choice, and Equity Market Outcomes: A Review, 70 J. Acct. & Econ. 101344 (discussing the investor costs of ``monitoring for, acquiring, and analyzing [public] firm disclosures,'' which they collectively characterize as ``disclosure processing costs,'' and noting that ``[t]he existence of processing costs means that learning from disclosures is an active economic choice, much like learning from any private information source. Rational investors expect a competitive return to processing and, thus, disclosure pricing cannot be perfectly efficient'' and that ``[t]here is extensive evidence that disclosure processing costs affect all types of investors, from the smallest to most sophisticated, and can affect stock returns and other market outcomes within rational equilibria.''). --------------------------------------------------------------------------- Relative to the baseline of existing disclosure requirements, the final amendments will require more comprehensive and detailed disclosure about issuer repurchase programs (including their structure and objectives, policies related to insider trading around repurchases, and information about issuer repurchase plans under Rule 10b5-1) and actual repurchases undertaken by issuers, enabling more insight into issuers' repurchase decisions and how they impact shareholder value. The benefits of the amended disclosure requirements may vary across investors. The described benefits may be more limited for some sophisticated investors to the extent that those investors can gauge partial information from the existing disclosures and public announcements of repurchase programs, and to the extent that some large repurchases have price impact, indirectly from existing market data. However, information that is available today is generally much less extensive and much less standardized across issuers than is required under the final amendments. Further, investors may differ in their ability to efficiently process and interpret the additional disclosures. For example, some commenters indicated that the benefit of granular day-by-day information about repurchases for informing trading strategies may be greatest for more sophisticated traders.\447\ However, overall, we believe the amendments will result in significantly more standardized, comparable, accessible, and generally more comprehensive disclosure about repurchases, for all repurchasing issuers subject to the amendments, which is expected to benefit all investors, including less sophisticated investors. --------------------------------------------------------------------------- \447\ See infra note 452. --------------------------------------------------------------------------- 2. Additional Quantitative Repurchase Disclosure The more detailed disclosure of actual repurchases at the daily level will provide additional information to inform investment decisions compared to repurchase information aggregated to the monthly level that is required to be disclosed today (and voluntary announcements of repurchase programs issuers make today). More granular data on daily repurchase activity levels and repurchase prices, relative to existing disclosures, can provide more insight to investors about the issuer's share repurchase strategy, including the timing of execution of share repurchase decisions, the evolving outlook on the valuation of its shares (as revealed by issuer trading), as well as how recent repurchase decisions relate to other value-relevant corporate decisions. Investors are expected to derive additional information benefits from combining the amended repurchase disclosures with existing financial and other disclosures in periodic reports, earnings guidance and earnings announcements, proxy statements, etc. In addition, for FPIs that presently are subject to repurchase disclosure requirements in annual reports on Form 20-F, the amended disclosure requirements will ensure significantly timelier disclosure of repurchase information, making it available to investors on a quarterly basis. [[Page 36038]] Over the last several decades, repurchases have become a partial substitute for dividends as a means of returning cash to investors.\448\ Unlike dividends which are smoothed and therefore highly predictable, repurchases are less so. Overall, the additional disclosure under the amended requirements will enable investors to better understand the issuer's share repurchase decisions and how they relate to shareholder value maximization, what the company's repurchase strategy is (including the use of Rules 10b-18 and 10b5-1), how the repurchase strategy varies with market conditions, as applicable, and whether the repurchase is based on the need to gradually return cash, potential temporary mispricing, or other factors. This will allow investors, particularly, shareholders that sell shares during issuer repurchases, to evaluate a more consistent and standardized disclosure across various issuers, relative to the baseline. Furthermore, any decrease in the information asymmetry between issuers and investors and among investors due to the final amendments should contribute to a reduction in adverse selection costs, which may promote liquidity. --------------------------------------------------------------------------- \448\ See supra note 389. --------------------------------------------------------------------------- In addition, repurchase activity data disaggregated on a day-by-day basis, combined with other existing disclosures and public information (e.g., dates and details of earnings announcements, analyst forecasts, earnings guidance, acquisition announcements, compensation awards, insider trades etc.), may enable investors to evaluate more accurately whether some recent repurchases coincided with events that may give rise to repurchase incentives other than undervaluation of shares or distribution of excess free cash flow (e.g., meeting/beating the consensus earnings forecast ahead of the earnings announcements, increasing the share price prior to an insider's sale, meeting a threshold in the compensation arrangement etc.). To the extent that the amended disclosure requirements refine the ability of investors to gauge the likely impacts of share repurchases on shareholder value maximization, they are expected to result in better informed investment decisions. Further, the amended disclosure is expected to provide investors with additional context (with a greater level of granularity than the existing disclosure presently reported on an aggregated, month-by-month basis) for interpreting past repurchase announcements, which may help investors in evaluating future repurchase announcements by the issuer. Finally, one potential indirect effect of the amendments may be to disincentivize repurchases that are not conducive to shareholder value maximization, to the extent they are present at a given firm, by drawing investor attention to such instances, benefiting shareholders. Some commenters on the daily reporting proposal have suggested that repurchase data at the daily level may be noisy \449\ (in the sense that daily fluctuations in repurchases may have various causes other than new information about the firm's valuation) \450\ and also lead some investors to draw inaccurate inferences.\451\ These considerations are in our view unlikely to limit the information benefits of the disclosure, particularly in the presence of sophisticated investor bases. Further, the change from the proposal will allow investors to analyze daily repurchase data within the context of the repurchase disclosures for the entire quarter and the accompanying qualitative disclosures, filtering out noise better, rather than trade in response to each daily report, potentially alleviating some of the commenter concerns about noise and volatility. --------------------------------------------------------------------------- \449\ See supra notes 79-81. \450\ See also Core, J.E. A Review of the Empirical Disclosure Literature: Discussion, 31 J. Acct. & Econ. 441 (2001) (noting the finding in Bushee and Noe (2001) that ``increases in `transient' institutional investors (institutions that trade aggressively) are associated with increases in stock price volatility'' and stating that ``[a]ssuming that increases in stock price volatility are costly, this finding is consistent with the intuition that partial disclosure is optimal, and that too much disclosure can be as costly as too little disclosure.'') \451\ See supra notes 79-80, 84-85, and 92. But see, e.g., letter from Roosevelt (disagreeing with the idea that daily data would lead to too much noise). --------------------------------------------------------------------------- While some commenters have noted the concern that the daily granularity of repurchase information may represent data that is too disaggregated for retail investors to easily parse and benefit from,\452\ we disagree that this information will widen information asymmetries among investors. By making more detailed information accessible to all investors which was not accessible in any way before, we expect the final amendments to provide more information to retail investors rather than less. Thus retail investors are expected to incrementally benefit from the final amendments. --------------------------------------------------------------------------- \452\ See supra notes 86-87. But see supra note 65 (discussing comment letters supporting the information benefits of higher- frequency reporting for investors, including individual investors) and see also, generally, Easley, D., & O'Hara, M. Information and the Cost of Capital 59 J. Fin. 1553 (2004) (``Easley and O'Hara (2004)'') (showing, in a theoretical framework, a positive role for public information because it reduces the risk for uninformed traders of holding the asset). Moreover, in equilibrium, the ability of sophisticated investors to capitalize on their superior information processing technology strengthens their incentive to compete for information and contributes to greater informational efficiency of prices. Furthermore, many of the sophisticated institutional investors may be involved in delegated portfolio management, advising or managing portfolios for the benefit of less sophisticated clients. --------------------------------------------------------------------------- Consistent with the existing repurchase disclosure requirement, the new disclosure of historical daily repurchase activity will be required to be filed rather than furnished. Having the information be filed, rather than furnished, ensures consistency in the liability standard applicable to the additional repurchase disclosures provided under amended Item 703 and the disclosures required to be provided under Item 703 today.\453\ --------------------------------------------------------------------------- \453\ See supra note 7. --------------------------------------------------------------------------- 3. Additional Qualitative Repurchase Disclosures a. Objectives and Rationales and Repurchase Program Structure Disclosures Further, amended Item 703 \454\ will require periodic disclosure of the objectives and rationales, as well as the structure, of the issuer's repurchase program. This disclosure is expected to improve the ability of investors to assess the shareholder value implications of the issuer's repurchase policy.\455\ Such information benefits are not limited to instances where share repurchases are not aligned with shareholder value maximization. In particular, as discussed in Section V.A.1 above and noted by a commenter,\456\ there are various scenarios where share repurchases are aligned with shareholder value maximization (for example, repurchasing undervalued securities, signaling future issuer prospects, distributing excess free cash flow, or adjusting capital structure). Disclosure of the objectives and rationales of share repurchases that enhance shareholder value is also expected to inform investor decisions and potentially provide investors with a more comprehensive picture of the repurchasing issuer's circumstances and future outlook. We continue to recognize the fact that the benefits of the [[Page 36039]] information about the rationales, and the structure of, repurchase programs could be limited in cases where issuers already voluntarily provide similar information in repurchase program announcements or periodic reports, or if some investors are able to infer the purpose or structure of repurchases from other public information.\457\ The benefits of the information about the rationales for repurchases may also be limited if such disclosures provide relatively little specificity to investors.\458\ However, as discussed above, the final amendments will require more standardized and comparable disclosure of the rationales for all issuers subject to the amendments, giving all investors equal access to this information and thus facilitating all investors' ability to process this information more effectively. --------------------------------------------------------------------------- \454\ See supra note 7. \455\ See supra notes 146-148 and 247 and accompanying text (discussing comment letters that supported the information benefits of the amended Item 703 disclosures of the objective and rationale of the repurchase program and the use of Rules 10b5-1 and 10b-18 to conduct the repurchase program). \456\ See, e.g., letter from Chamber II for a detailed discussion. \457\ See letter from Chamber II. See also, e.g., Bonaim[eacute] (2012) (tabulating, in Table 3, evidence on the stated motive of the announced repurchase program and program completion rates). The paper finds that ``[f]ew stated motives for repurchases affect completion rates. Firms that mention undervaluation or general corporate purposes in their announcements have significantly lower completion rates, while firms that mention extending a prior plan or having a strong cash position have significantly higher completion rates on average. With the above exceptions, completion rates depend more on what issuers are doing (implied motives) than on what they are saying (stated motives).'' As a caveat, data obtained from a voluntary regime may not fully generalize to the mandatory disclosure of the rationale for repurchases under the amendments. See also, e.g., letters from Cravath, Dow, and Maryland Bar, which indicate that investors are unlikely to benefit from the disclosure of whether repurchases were structured under Rule 10b5-1(c)(1) or Rule 10b-18. \458\ See also supra note 250 and accompanying text (discussing comment letters that stated that the objective and rationale disclosure would result in boilerplate disclosure that will not prove meaningful to investors). --------------------------------------------------------------------------- In some cases, incentives for repurchases may not be aligned with shareholder value maximization, as discussed in Section V.A.2 above. The inclusion of the disclosure of the objectives and rationales for share repurchases may aid investors in assessing whether recent repurchases were consistent with shareholder value maximization, potentially resulting in better informed investment decisions. b. Issuer Rule 10b5-1 Repurchase Plans The new disclosure requirements under Item 408(d) (discussed in Section III.D.3 above) will benefit investors in companies that undertake share repurchases under Rule 10b5-1 by providing greater transparency about such trading arrangements.\459\ This enhanced transparency should enable better informed investment decisions and more efficient allocation of investor capital. The timing of issuer trading arrangement adoptions and terminations, as well as a description of the material terms of the trading arrangements, is expected to provide additional insight into the issuer's repurchase strategy and the implementation of the previously announced repurchase plans, potentially aiding investors in making more informed investment decisions. These informational benefits may be lower in cases in which investors already can obtain sufficient insight into the issuer repurchase program from existing repurchase disclosures. --------------------------------------------------------------------------- \459\ See supra note 339. --------------------------------------------------------------------------- Informational benefits of the Item 408(d) disclosure may also be lower in cases of trades that are not driven by temporary undervaluation of issuers' shares but, for instance, involve gradual disbursement of excess cash flow or rebalancing of capital structure towards a target leverage ratio. Finally, similar to the recently adopted Item 408(a) related to officer and director trading arrangements, in a change from the proposal, price terms of issuer Rule 10b5-1 plans will be outside the scope of the new Item 408(d) disclosure. This change will reduce the informational benefits to investors, compared to the proposed amendments. c. Insider Trading Checkbox and Policies and Procedures Disclosures The final amendments require disclosure of: (i) 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, and (ii) whether any section 16 reporting officer or director of an issuer that files on domestic forms--or senior management or directors of an FPI--purchased or sold shares or other units of the class of the issuer's securities that are the subject of an issuer share repurchase plan or program within four business days before or after the issuer's repurchase announcement. These requirements may also benefit investors by enabling better informed investment decisions.\460\ This information may help investors better interpret repurchase program announcements and disclosures of actual repurchase activity in formulating projections of an issuer's future share price. As one example, a lack of restrictions on insider selling during repurchases, alongside historical disclosures of insider selling, may help investors gauge whether a repurchase announcement, or actual repurchases, may be inefficient, for example, potentially motivated by boosting the share price prior to insiders' sales of their securities, rather than conveying a true signal of undervaluation or efficiently disbursing excess cash.\461\ As another example, such a disclosure may also prompt investors to check whether insiders bought shares within a few days before the share repurchase announcement. In a change from the proposal, after considering commenter concerns about the utility of the disclosure, we are limiting the checkbox disclosure to insider trading within four business days, rather than ten business days, before and after the repurchase announcement. By focusing the disclosure on a narrower time frame more specific to the repurchase announcement, this is expected to improve the informativeness of the disclosure to investors. --------------------------------------------------------------------------- \460\ See supra note 264 and accompanying text. \461\ See supra note 426. --------------------------------------------------------------------------- As an indirect effect of the amendments, if the additional disclosures draw investor scrutiny to insider selling during repurchases, to the extent it occurs at some companies,\462\ the amendments also may disincentivize repurchase announcements and actual repurchases motivated by boosting share prices in advance of insider selling, to the extent such activity exists, instead of shareholder value maximization, or lead issuers to adopt policies prohibiting such insider selling.\463\ The benefits of the disclosure of whether any officer or director has purchased or sold securities of the issuer around the repurchase announcement are likely to be small for many issuers that file on domestic forms \464\ to the extent the investors can obtain the same information from existing Exchange Act section 16 disclosures and public announcements of repurchases.\465\ Nevertheless, the checkbox disclosure should present this information to investors in an incrementally more accessible way, resulting in a small decrease in the costs of accessing this information for those investors that do not already collate beneficial ownership filings. Further, for [[Page 36040]] investors in FPIs whose officers and directors are not subject to section 16, the disclosure will provide new information that investors may utilize in conjunction with the qualitative and quantitative repurchase disclosures. --------------------------------------------------------------------------- \462\ See supra note 426 and accompanying text. \463\ Studies have found evidence that changes in mandatory disclosure affect behavior. See, e.g., Chuk, E.C., Economic Consequences of Mandated Accounting Disclosures: Evidence from Pension Accounting Standards, 88 Acct. Rev. 395 (2013); Bonaim[eacute] (2015). \464\ Officers and directors of FPIs are not subject to section 16 reporting obligations and would therefore incur higher costs. \465\ See supra note 272 (discussing comment letters that supported the benefits of requiring the checkbox disclosure). But see supra notes 276-282 (discussing comment letters that indicate that this disclosure is unnecessary). --------------------------------------------------------------------------- 4. Inline XBRL The use of a structured data language (specifically, Inline XBRL) for the repurchase disclosures under the final amendments will enable automated extraction of data on issuers' repurchase programs and actual repurchases, which will allow investors, information intermediaries, and other market participants to efficiently perform large-scale analyses and comparisons of repurchases across issuers and time periods, in line with the suggestions of various commenters that it would improve the usability of the data.\466\ Structured data on repurchases could also be efficiently combined with other information available in a structured data language in corporate filings (e.g., financial statement information in periodic reports, as well as information on insider sales and purchases of securities) and with market data contained in external machine-readable databases (e.g., information on daily share prices and trading volume). The use of a structured data language will also enable considerably faster analysis of the disclosed data by investors and other market participants. In that regard, we expect the particular investors most likely to use the structured disclosures for their analysis are institutional investors with the sophistication to process structured data; retail investors will be more likely to benefit indirectly from the use of structured disclosure by other parties.\467\ --------------------------------------------------------------------------- \466\ See supra note 360. \467\ See supra note 452. But see Birt, J.L. Muthusamy, K. & Bir, P., XBRL and the Qualitative Characteristics of Useful Financial Information, 30 J. Acct. Res. 107 (2017) (finding ``financial information presented with XBRL tagging is significantly more relevant, understandable and comparable to non-professional investors''). Evidence indicates XBRL tagging has improved analyst coverage and, in some cases, forecast accuracy. See, e.g., Liu, C., Wang, T., & Yao, L.J., XBRL's impact on analyst forecast behavior: An empirical study. J. Acct. Pub. Pol., 33 (2014). Retail investors have been observed to rely heavily on analyst interpretation of financial information. See, e.g., Lawrence, A., Ryans, J.P., & Sun, E.Y., Investor Demand for Sell-Side Research, 92 Acct. Rev. 2 (2017). --------------------------------------------------------------------------- As with the repurchase disclosures, the Inline XBRL structuring requirements for the insider trading disclosures should augment their benefits by improving their usability. The magnitude of these benefits is likely to be modest to the extent that past insider selling activity around past repurchases, disclosed on beneficial ownership filings, could be sufficiently representative of future insider selling behavior in such circumstances, even in the absence of a disclosure of restrictions. The magnitude of these benefits of reduced information asymmetry may further be limited to the extent that the existing repurchase and disclosure practices are already sufficient for price efficiency.\468\ --------------------------------------------------------------------------- \468\ For example, one recent study shows that price support provided by actual share repurchases contributes to improved price efficiency, even when manipulation concerns might be highest, such as those that occur prior to insider sales. See Busch and Obernberger (2017). See also letter from Chamber II (stating that managers strategically use share repurchases during periods of uncertainty and that ``these effects help mitigate risks, allow institutional and retail investors alike to buy and sell shares without having a large price impact, and stabilize trading markets. Thus, repurchases help to reduce volatility, which presents a benefit to all shareholders, including retail investors, regardless of whether investors buy and sell shares in their own accounts or participate indirectly through investment in retirement accounts.''). --------------------------------------------------------------------------- C. Costs We begin the discussion with the general costs applicable to all of the final amendments, continue to discuss the costs specific to the new quantitative repurchase disclosure, and then address the costs specific to other amendments.\469\ --------------------------------------------------------------------------- \469\ See Section VI for a detailed description of the estimated burden of the amended disclosure requirements for purposes of the Paperwork Reduction Act (``PRA''). 44 U.S.C. 3501 et seq. --------------------------------------------------------------------------- 1. General Costs of the Disclosures The amended disclosure requirements will impose costs on issuers (and therefore existing shareholders). The costs of the additional quantitative repurchase disclosure include direct (compliance-related) costs to compile and report additional disaggregated repurchase data compared to what is presently required by Item 703 of Regulation S-K, Item 16E of Form 20-F, and Item 14 of Form N-CSR (and for FPIs not reporting on domestic forms, which file annual reports on Form 20-F today, to provide repurchase disclosures on new Form F-SR, on a significantly more timely and frequent basis than required today). Such direct costs of compliance with the final amendments may include both in-house counsel and external costs. The final amendments will also impose indirect costs, potentially affecting the shareholder value. A potential indirect cost of the final amendments is the risk of sharing sensitive information with competitors.\470\ It is unclear how likely it is that the amended disclosure requirements of historical repurchases or the disclosure of the rationales behind, and structure of, repurchases reveals significant proprietary information about the issuer's business and repurchase strategy, above and beyond competitive information that may be revealed by other disclosures about the business and financial condition of the issuer. Thus, we expect such indirect costs to be relatively modest for most issuers. --------------------------------------------------------------------------- \470\ See supra note 249 and accompanying text (discussing commenter concerns that the disclosures required by the amendments could divulge competitive or sensitive information). See also supra notes 81 and 151 and accompanying text (discussing commenter concerns about the additional disclosure potentially disrupting confidential merger negotiations). --------------------------------------------------------------------------- Another potential indirect cost of the amended disclosure requirements is the possibility that the amended disclosure requirements cause issuers to inefficiently decrease repurchases or otherwise inefficiently deviate from an optimal payout policy. For example, the described costs of the amended disclosure may potentially discourage some issuers from repurchases that would otherwise be optimal for shareholder value (e.g., as a more flexible method of payout that is generally more efficient from the personal tax standpoint, compared to dividends).\471\ Such issuers may instead inefficiently overweigh dividends \472\ or reduce overall corporate payouts and inefficiently retain excess cash within the firm. Further, if the costs of the amended disclosure requirements cause issuers to decrease overall payouts, even if issuers lack positive-net present value investment opportunities, the resulting decrease in the ability of investors to efficiently reallocate cash to other, higher-net present value investment opportunities, may potentially lead to inefficiencies in the aggregate allocation of capital across issuers.\473\ Indirect costs specific to the additional quantitative repurchase disclosure are discussed in Section V.C.2 below. --------------------------------------------------------------------------- \471\ See supra note 414. See also, e.g., letters from Davis Polk, DLA Piper, Quest, SCG, and Vistra. However, the personal tax treatment is not a concern for investors exempt from taxation. \472\ See, e.g., letter from PA Chamber (noting that the cost of the amendments will particularly affect companies that rely on share repurchases as a rational means of investor return and do not have the business model to make shareholder returns entirely or even partially via dividend). \473\ See also letter from Vistra (noting that the proposed daily reporting frequency requirements could be so ``unreasonably burdensome as to deter potential capital allocation decisions''). --------------------------------------------------------------------------- The described direct and indirect costs of the amended disclosure requirements, if realized, will decrease shareholder value for affected issuers. [[Page 36041]] Finally, the amended disclosure requirements may also affect financial intermediaries involved in executing repurchases on behalf of issuers. Such intermediaries may incur additional costs of compiling disaggregated information about repurchase trades to facilitate the issuer's compliance with the amended disclosure requirements. Such information is likely to be relatively readily available. Thus direct costs are likely to be modest. Nevertheless, intermediaries may need to make incremental modifications to how they use their existing trade recordkeeping systems to extract and compile the information required by the issuer for the new disclosure. Financial intermediaries may also incur indirect costs of the amended disclosure requirements in the form of lower revenue if the amended disclosure requirements lead to a decrease in repurchases.\474\ Intermediaries may pass on their costs to issuers, which will in turn affect shareholders. --------------------------------------------------------------------------- \474\ See also letter from Guzman (discussing adverse competitive effects on smaller financial intermediaries). However, conversely, financial intermediaries will realize benefits in the form of higher revenue if the amended disclosure requirements are followed by an increase in repurchases. --------------------------------------------------------------------------- 2. Additional Quantitative Repurchase Disclosure The costs of the additional quantitative repurchase disclosure include direct (compliance-related) costs to compile and report additional disaggregated repurchase data. The aggregate direct costs of compliance may be larger for issuers that repurchase shares more often and may incur an incrementally higher cost of preparing the new repurchase disclosures, including the new periodic disclosure of historical repurchase activity disaggregated at the daily level. While we expect many issuers to already compile repurchase information to comply with current monthly aggregate reporting requirements, issuers that do not presently compile such repurchase information may incur some incremental costs to modify their recordkeeping systems and processes to compile such information. Issuers may incur a cost to prepare the new disclosures (including the cost of additional time of in-house counsel or the cost of retaining an outside service provider). In addition, issuers may need to update their internal recordkeeping systems and policies and procedures to maintain the information required by the final amendments and report it on the frequency required by the amendments. As one commenter on the daily reporting frequency proposal indicated, companies may incur additional costs to incorporate new disclosure into their disclosure controls and procedures to ensure accurate reporting.\475\ Another commenter on the daily reporting frequency proposal expressed concern about the significant time and expense required to collect and collate trade information, research and correct possible errors, and consult legal and other experts.\476\ In addition, some commenters pointed out that the daily disclosure may raise the risk of frivolous litigation, resulting in issuers incurring legal costs to defend against such claims.\477\ --------------------------------------------------------------------------- \475\ See letter from Norfolk Southern. \476\ See letter from Empire. \477\ See, e.g., letters from Davis Polk, Dow, and SCG. See also, generally, Rogers, J. & Van Buskirk, A. Shareholder Litigation and Changes in Disclosure Behavior, 47 J. Acct. & Econ. 136 (2009) (finding that firms reduce the level of information provided after being involved in disclosure-related class-action securities litigation cases); Bourveau, T., Lou, Y., & Wang, R. Shareholder Litigation and Corporate Disclosure: Evidence from Derivative Lawsuits, 56 J. Acct. Res. 797 (2018) (finding that firms issue more voluntary disclosure and increaser the length of management discussion & analysis in their 10-K filings after passage of laws that make it more difficult to file derivative lawsuits). However, one study finds that, after accounting for endogeneity, additional disclosure does not increase the risk of litigation. See Field, L., Lowry, M., & Shu, S., Does Disclosure Deter or Trigger Litigation? 39 J. Acct. & Econ. 487 (2005). As an important caveat, the study analyzes voluntary disclosure of anticipated bad earnings news rather than mandatory repurchase disclosures. Furthermore, to the extent that the disclosure raises the risk of shareholder litigation that is not frivolous, the threat of litigation may serve as a disciplinary mechanism that curtails inefficient managerial behavior. See, generally, Chung, C.Y., Kim, I., Rabarison, M.K., To, T.Y., & Wu, E. Shareholder Litigation Rights and Corporate Acquisitions, 62 J. Corp. Fin. 101599 (finding that ``reduced risk of litigation gives managers incentives to engage in value- destroying acquisitions''); Ferris, S.P., Jandik, T., Lawless, R.M., & Makhija, A. Derivative Lawsuits as a Corporate Governance Mechanism: Empirical Evidence on Board Changes Surrounding Filings, 42 J. Fin. & Quantitative Analysis 143 (2007) (concluding that ``shareholder derivative lawsuits are not frivolous as is often claimed, but rather that they can serve as an effective corporate governance mechanism''); Pukthuanthong, K., Turtle, H., Walker, T., & Wang, J. Litigation Risk and Institutional Monitoring, 45 J. Corp. Fin. 342 (2017) (concluding that ``[l]itigation is an effective monitoring device for short-term investors that substitutes for internal corporate governance''). --------------------------------------------------------------------------- In a change from the proposal, after considering the concerns of commenters about the costs of the proposed daily frequency of reporting repurchase information,\478\ we are not requiring the daily frequency of reporting. We believe that preparing the disclosure of the disaggregated repurchase information on a quarterly basis for operating companies--and on a semi-annual basis for Listed Closed-End Funds--will considerably decrease the described costs to issuers of the final amendments, compared to the proposed daily reporting of disaggregated repurchase information. However, although there is not necessarily going to be a large cost impact of the final amendments on each individual issuer, we recognize that, due to the large number of repurchasing issuers (see Section V.A.1 above), the compliance costs across issuers that conduct repurchases may be considerable in the aggregate.\479\ --------------------------------------------------------------------------- \478\ See supra note 64. But see supra notes 70-71 and accompanying text (discussing commenters that indicated that the costs of compliance with the proposed requirements would be minimal). \479\ For example, as one commenter has noted ``SIFMA understands from feedback that there are over 500 companies that repurchase shares on an average trading day.'' See letter from SIFMA II. --------------------------------------------------------------------------- The new disclosure of historical daily repurchase activity will be required to be filed rather than furnished. The filing requirement is expected to result in higher legal costs than the furnishing requirement, due to potential legal risk of liability under Exchange Act section 18.\480\ However, because the final amendments will not require the daily reporting frequency, and because issuers will have a considerable amount of time to obtain, verify, and compile the disclosure, the costs of filing, rather than furnishing, the new disclosure should be relatively modest. --------------------------------------------------------------------------- \480\ See also letter from NASAA (discussing concerns about private lawsuits if the daily repurchase disclosure is filed rather than furnished). See also, generally, supra note 477. --------------------------------------------------------------------------- The additional quantitative repurchase disclosure will also result in indirect costs. A key indirect cost of the proposed daily reporting frequency requirement, as discussed by various commenters,\481\ might have been that the disclosure may cause the stock price to rise faster than it would absent such disclosure potentially making additional repurchases more costly. The reason that daily reporting may have had this effect is that it could reveal the issuer's plans to repurchase additional stock to outside investors (to the extent repurchases are taking place over multiple months and to the extent that investors view repurchases as being driven by the issuer's positive outlook on the future stock price).\482\ To the [[Page 36042]] extent issuers would have incurred such a cost, other market participants, who would have otherwise been less informed about the issuer's outlook on its future share price, would have realized a benefit in that case. Several commenters also pointed to the potential for increased market volatility and investor misinterpretation of day- to-day fluctuations in issuer repurchases as potential costs of the proposed daily reporting.\483\ Additional indirect costs might include inefficient changes to their repurchase programs in anticipation of potential investor scrutiny of the new disclosures.\484\ In some discrete instances, granular daily disclosure reporting may also retrospectively reveal potentially sensitive information to competitors due to a pattern of recent halts of daily repurchases.\485\ Because the final amendments are not implementing the proposed daily reporting frequency requirement, and are instead requiring much less frequent reporting of historical repurchase activity, we expect the described costs of the final amendments to be significantly more modest compared to the proposal. In particular, while all indirect costs of the amendments are expected to be alleviated compared to proposal, the costs of revelation of the issuer's repurchase strategy to other traders (referred to as ``front-running'' by various commenters) and competitors, as well as the costs of potential market volatility stemming from misinterpretation of daily reports of repurchase activity are expected to be largely eliminated. To the extent that the much more tailored approach to quantitative disclosures in the final amendments compared to the proposal reduces the overall compliance and indirect costs of the final amendments, in turn, the final amendments should result in far fewer inefficient reductions in share repurchases, relative to the proposal. --------------------------------------------------------------------------- \481\ See supra note 78 (referencing comment letters that discussed the front-running concern stemming from the proposed daily disclosure). However, because the final rules do not contain a daily disclosure requirement, we believe that such costs will be substantially alleviated, if not eliminated, compared to the proposal. \482\ This cost could be more pronounced for repurchases under a Rule 10b5-1(c) plan to the extent that such repurchases exhibit a greater degree of periodicity and occur over a period of time, enabling market participants to predict future repurchases to a greater extent based on historical daily data. However, such investors may benefit from being able to purchase securities before the issuer completes the repurchase program, potentially at a lower price than they would have otherwise. \483\ See supra notes 450-451 and accompanying text. In addition, as other commenters point out, an issuer's halt of repurchases due to a material undisclosed event or confidential merger discussions may trigger significant market volatility and potentially derail such confidential discussions. See supra notes 80-81 and accompanying text. \484\ See, e.g., letters from SIFMA II and Sullivan (noting that some issuers may continue daily repurchases when it does not make financial sense to do so, to mitigate the consequences of daily disclosure). Other issuers may bunch large repurchases into a compressed time period may experience greater price impact from large trades. See, e.g., letter from DLA Piper (stating that the proposed daily disclosure could discourage more efficient daily repurchases and lead issuers to undertake less efficient periodic repurchases). See also letters from Chevron and Davis Polk, which note that the proposed daily disclosure requirement might have led issuers to follow the more costly practice of effecting larger repurchases on fewer days. See also supra note 90 and accompanying text (discussing commenter concerns that the proposed daily disclosure requirement might, in turn, have led issuers to limit their average daily repurchase trading volume to try to ensure that sophisticated investors view the daily trades as immaterial, even if a larger volume would be more beneficial to shareholders). With the important caveat about the difficulty of extrapolating inference about repurchases across international market settings, the limited available evidence does not point to the prevalence of such bunching in at least one active trading market with daily reporting of repurchases (the U.K.). See, e.g., Kulchania, M., & Sonika, R. Flexibility in Share Repurchases: Evidence from UK, 29 Eur. Fin. Mgmt. 196 (2023). \485\ See supra note 81 and accompanying text (discussing letters from commenters concerned about potential information leakage of confidential merger negotiations or another similar material undisclosed event, particularly, if both the prospective target and the prospective acquirer have halted previously regular repurchases). We believe that such information leakage concerns are not likely to be a substantial cost on most issuers, given the most probable repurchase strategy scenarios. To the extent such concerns may apply, they could be alleviated, for example, by indicating in the initial repurchase program announcement that the issuer plans to repurchase shares intermittently, or by making very minor modifications to the repurchase strategy that deviate from a completely predictable trading schedule while the program is being executed. --------------------------------------------------------------------------- 3. Additional Qualitative Repurchase Disclosures The qualitative disclosure requirements will also result in costs for issuers. Issuers will incur costs to provide additional disclosure in periodic reports (including, when required, a description of the rationales and structure of the repurchase program). While issuers likely have most of the additional information readily available, these disclosures may require additional time of counsel and/or management to describe the rationales for the repurchase program, and the program's structure, in the periodic report. The new Item 408(d) requirement for Form 10-K and 10-Q filers will also impose costs. Such costs will be lower for issuers that already disclose some information about share repurchase programs under Rule 10b5-1. Issuers are likely to have the information required by this item readily available, resulting in likely modest direct costs. In the case of multi-quarter repurchase programs with a fairly repetitive schedule of pre-planned trades, new Item 408(d) in combination with the new disclosure of historical repurchase activity and repurchase program structure, may contribute to potential revelation of detailed information about the issuer's repurchase strategy and the potential timeline of likely issuer repurchase trades to other market participants, which could result in a less favorable repurchase price, particularly in cases of repurchase programs that span multiple quarters.\486\ In a change from the proposal, the amendments exclude price terms of the trading arrangement from the scope of the new disclosure, which should significantly alleviate such potential costs to issuers. --------------------------------------------------------------------------- \486\ See supra note 345 and accompanying text. However, there is some evidence that even the revelation of large predictable planned trades may not result in such effects. See Bessembinder, H. et al., Liquidity, Resiliency and Market Quality Around Predictable Trades: Theory and Evidence, 121 J. Fin. Econ. 142 (2016) (showing, in a setting with large and predictable exchange-traded fund trades, that ``traders supply liquidity to rather than exploit predictable trades in resilient markets'' and not finding ``evidence of the systematic use of predatory strategies''). --------------------------------------------------------------------------- The requirement to check a box as to whether the specified officer or director purchased or sold securities in the four business days before or after a repurchase announcement will involve costs associated with collecting information from officers and directors. Such costs may be relatively modest for issuers that file on domestic forms to the extent that they can rely on the officers' and directors' section 16 filings or representations about their trading activity. However, such costs are likely to be higher for FPIs whose senior management and directors are not subject to section 16. The amended disclosure requirements may also impose costs on corporate insiders. In particular, the requirement that issuers publicly disclose whether they have policies and procedures related to purchases and sales by officers and directors during repurchases, as well as the disclosure of whether certain officers or directors purchased or sold shares or other units of the class of the issuer's equity securities that is the subject of an issuer share repurchase plan or program within four business days before or after the issuer's announcement of such repurchase plan or program, may cause issuers to increasingly adopt such restrictions in anticipation of the market scrutiny following such disclosure.\487\ [[Page 36043]] This disclosure requirement may impose reputational costs or draw additional scrutiny to officers or directors that engaged in selling around repurchase announcements, discouraging such selling. The incremental costs of this disclosure requirement to corporate insiders of many issuers that file on domestic forms are generally likely to be small \488\ to the extent the investors can already obtain the same information from beneficial ownership disclosures and public announcements of repurchases. However, as some commenters indicated, there may be potential for misinterpretation that could follow from the checkbox disclosure, whereby investors draw conclusions about insider trading activity occurring in proximity to repurchase activity that are inaccurate.\489\ The costs may be higher for senior management and directors of FPIs that do not have a section 16 reporting obligation. In a change from the proposal, after considering commenter concerns about the checkbox disclosure, we are limiting the checkbox disclosure to insider trading within four business days, rather than ten business days, before and after the repurchase announcement. By focusing the disclosure on a narrower time frame more specific to the repurchase announcement, this change is expected to reduce some of the costs of the disclosure to issuers and insiders, relative to the proposal. --------------------------------------------------------------------------- \487\ See, e.g., letter from PNC (expressing concern that the requirement to disclose policies and procedures relating to trading by officers and directors during a repurchase program could create an expectation that issuers must have such policies) and letter from Quest (expressing concern that it may end up either having to restrict officers and directors from trading during share repurchases, or consider the impact on officers and directors when scheduling its repurchases). Any restrictions an issuer imposes on officer and director trading, for instance, in anticipation of investor scrutiny of the new disclosures, could also limit the ability of corporate insiders to purchase or sell securities at issuers that conduct repurchases periodically over an extended period of time (such as open market repurchases under a multi- quarter program, or a Rule 10b5-1 plan). To the extent any such restrictions limit insider sales, they may decrease the liquidity of insiders' holdings of an issuer's securities. \488\ Officers and directors of FPIs are not subject to section 16 reporting obligations and would therefore incur higher costs. \489\ See supra note 284 and accompanying and following text (discussing commenter concerns about misinterpretation of the checkbox disclosure). --------------------------------------------------------------------------- To the extent that the requirement to disclose whether any officer or director has purchased or sold securities around the repurchase announcements leads some companies to forgo making a repurchase announcement to limit market scrutiny, the amount of information available to investors about companies' forward-looking repurchase plans may decrease. Importantly, the described costs are likely to be small in the case of many issuers that file on domestic forms \490\ to the extent that investors can already readily obtain the same information by combining beneficial ownership disclosures of officer and director trades with public announcements of repurchases. --------------------------------------------------------------------------- \490\ See supra note 464. --------------------------------------------------------------------------- 4. Inline XBRL The requirement to use a structured data language for reporting the newly required disclosures will impose incremental compliance costs on issuers.\491\ Such costs are expected to be modest as issuers affected by the amendments (including SRCs and FPIs) already are required to use Inline XBRL to comply with other disclosure obligations. Moreover, the scope of the disclosures required to be reported using a structured data language is limited and thus will require a relatively simple taxonomy of additional tags, minimizing initial and ongoing costs of complying with the new tagging requirement. --------------------------------------------------------------------------- \491\ See letter from NYC Bar (expressing concern regarding the ``unnecessary and significant'' compliance costs and complexity that would result from the Inline XBRL requirement). See also letter from VEUO (stating, with respect to foreign private issuers, that the structured data requirement would be an additional and unnecessary burden for such issuers). --------------------------------------------------------------------------- D. Efficiency, Competition, and Capital Formation On balance we expect that the final amendments may have positive overall effects on efficiency, competition, and capital formation. In particular, a decrease in the information asymmetry between issuers and investors about the value of an issuer's securities as a result of the disclosure may lead to more informationally efficient prices, and more efficient capital allocation in investor portfolios.\492\ The decrease in information asymmetry among investors can alleviate adverse selection costs and improve stock liquidity. Decreased information asymmetries between investors and issuers as a result of the enhanced disclosure under the amendments may also incrementally facilitate capital formation and reduce the cost of capital.\493\ Further, by enabling public disclosure of additional repurchase information, the amendments may result in information being more fully incorporated into share prices, and therefore, more informationally efficient share prices. Taken together, the final rules may contribute to more efficient allocation of capital, capital formation, competition, and the maintenance of fair and orderly markets. Some commenters on the daily reporting proposal \494\ asserted that daily repurchase disclosure furnished one business day after an issuer repurchase may contain considerable noise, which may lead some investors to draw inaccurate inferences, reducing these information benefits and potentially leading to increased volatility and speculative trading. This consideration is more likely to be pronounced for issuers with a less sophisticated investor base. As discussed in Section V.C.2 above, because the final amendments are not implementing the daily reporting frequency requirement, we believe that these concerns are likely to be substantially alleviated, if not fully addressed, under the final amendments. --------------------------------------------------------------------------- \492\ But see supra note 445. \493\ As discussed above, the final rules are expected to reduce information asymmetry between investors and repurchasing issuers, which can reduce investors' uncertainty about estimated future cash flows, thus lowering the risk premium they demand and, potentially, issuer cost of capital. See, e.g., Easley and O'Hara (2004); Botosan, C., Disclosure and the Cost of Capital: What Do We Know?, 36 Acct. & Bus. Res. 31 (2006) (stating that ``[t]he overriding conclusion of existing theoretical and empirical research is that greater disclosure reduces cost of capital''); Lambert, R., Leuz, C., & Verrecchia, R., Accounting Information, Disclosure, and the Cost of Capital, 45 J. Acct. Res. 385 (2007) (showing, in a conceptual framework, that ``increasing the quality of mandated disclosures should in general move the cost of capital closer to the risk-free rate'' and ``generally reduce the cost of capital for each firm in the economy'' and further noting that ``the benefits of mandatory disclosures are likely to differ across firms.''); Accelerated Filer and Large Accelerated Filer Definitions, Rel. No. 34-88365 (Mar. 12, 2020) [85 FR 17178 (Mar. 26, 2020)], at 17215, note 477. As a caveat, while the cited examples relate to disclosure and cost of capital, they examine other disclosure contexts (not the frequency of share repurchase reporting), as pointed out by a commenter. See letters from Chamber II and Profs. Lewis and White. \494\ See supra notes 79-81. --------------------------------------------------------------------------- To the extent that the amended requirements affect smaller issuers to a greater extent than larger issuers, they could result in adverse effects on competition.\495\ The fixed component of the legal costs of preparing the disclosure could be one contributing factor.\496\ The lower liquidity of smaller issuers' securities,\497\ which may [[Page 36044]] exacerbate the price impact of the new disclosure, may also contribute to disproportionate effects of the disclosure on smaller issuers. The latter effect could be mitigated by the lower incidence, and the lower average level (relative to issuer size), of repurchases among smaller issuers.\498\ To the extent that the quarterly reporting of repurchases for FPIs that file on Form 20-F is a significant additional cost \499\ for such issuers as they do not file quarterly reports with the Commission, such costs may discourage some foreign issuers from listing in the U.S. market, resulting in adverse effects on competition. Compared to the proposal, the much lower frequency of reporting of additional disaggregated repurchase information is expected to significantly reduce the compliance and indirect costs of the disclosure requirements in the final amendments. As a result, to the extent that smaller filers would have incurred a disproportionate impact of the new disclosures, this change will also reduce the potential negative effects of the amendments on competition, compared to the proposal. --------------------------------------------------------------------------- \495\ See, e.g., letters from ACCO and Profs. Lewis and White. See also letter from Guzman (stating that the proposed disclosures could negatively affect competition in the financial services sector by inducing issuers to use larger intermediaries instead of smaller financial firms). \496\ In the case of funds, while we expect larger Listed Closed-End Funds and business development companies, or funds that are part of a large fund complex, to incur higher costs related to final amendments in absolute terms relative to a smaller fund or a fund that is part of a smaller fund complex, we expect a smaller fund to find it more costly, per dollar managed, to comply with the final amendments because it would not be able to benefit from a larger fund complex's economies of scale. \497\ See, e.g., Amihud, Y. & Mendelson, H., Liquidity and Stock Returns, 42 Fin. Analysts J. 43 (1986) (noting that ``[t]he stocks of small firms suffer from market `thinness,' which impairs their liquidity''.); Duarte, H. & Young, L., Why is PIN priced? 91 J. Fin. Econ. 119 (2009) (in Table 6, showing that larger firm size is correlated with higher liquidity based on different measures); Collver, C., A Characterization of Market Quality for Small Capitalization US Equities, September 2014, available at https://www.sec.gov/files/marketstructure/research/small_cap_liquidity.pdf (2014) (finding that ``[s]mall cap stocks had larger quoted and effective spreads and traded much lower volumes than mid cap stocks'' and that ``[l]iquidity improved with market capitalization''). \498\ See, e.g., Dittmar, A., Why Do Firms Repurchase Stock, 73 J. Bus. 331 (2000) (finding that ``large firms are the dominant repurchasers''); Cheng et al. (2015) (showing in Table 2 that repurchasing firms are significantly larger than nonrepurchasing firms); Jiang, Z., Kim, K.A., Lie, E., and Yang, S., Share Repurchases, Catering, and Dividend Substitution, 21 J. Corp. Fin. 36 (2013) (showing in Table 5 that firm size is positively related to the fraction of outstanding share purchases by firms on a monthly basis). \499\ FPIs may file current reports with the Commission on a more frequent basis. Further, some FPIs already are subject to more granular repurchase reporting requirements in their home jurisdiction, in which case their incremental cost of complying with the final amendments may be lower than for domestic issuers. --------------------------------------------------------------------------- As discussed in Section V.C.1 above, a potential indirect cost of the amended disclosure requirements is the possibility that issuers inefficiently decrease repurchases. Further, to the extent that repurchases currently contribute to more informationally efficient prices and greater liquidity,\500\ any inefficient reduction in repurchases in response to the amended disclosure requirements will result in the indirect costs of decreased price efficiency (partly offset by the information benefits of the new disclosures) and decreased liquidity. We have discussed mitigating factors for these effects in detail in Section V.C.1 above. As discussed in Section V.C.1 above, we also believe that the change to the frequency of reporting the disaggregated repurchase information is likely significantly alleviate these concerns, compared to the proposal. --------------------------------------------------------------------------- \500\ See supra note 433. --------------------------------------------------------------------------- E. Reasonable Alternatives 1. Alternative Reporting Frequencies and Disclosure Granularity In a change from the proposal, the final amendments require corporate issuers that file on domestic forms that engage in share repurchases to report information on repurchases conducted during each quarter, disaggregated on a day-by-day basis, as suggested by two commenters.\501\ Relatedly, we are requiring FPIs not reporting on domestic forms to report the same share repurchase information on Form F-SR. Listed Closed-End Funds that report on Form N-CSR will be required to report the information on repurchases, similarly disaggregated on a day-by-day basis, on a semi-annual basis. As an alternative, we could require issuers to report repurchase activity disaggregated on a less granular basis--such as biweekly basis, as suggested by one commenter,\502\ or weekly basis, as suggested by other commenters.\503\ Compared to the final amendments, this alternative would decrease direct and indirect issuer costs associated with the amended disclosure requirements, as discussed in greater detail in Section V.C above. In turn, it would also reduce the information benefits of the disclosure to investors, discussed in greater detail in Section V.B above, compared to the final amendments. The net effects would be smaller if the daily repurchase trading has relatively little incremental information content compared to the more aggregated--weekly or bi-weekly--totals (e.g., exhibits relatively little variation from day to day in repurchase volumes and prices), if existing market data is sufficiently informative about likely issuer repurchases (due to price impact of large repurchases, even absent disclosure), or if investors are unable to accurately parse historical repurchase data disaggregated on a daily basis (e.g., due to noise, as suggested by some commenters \504\). --------------------------------------------------------------------------- \501\ See supra notes 110-111. \502\ See letter from Home Depot. \503\ See, e.g., letters from BrilLiquid, Guzman, Hecht, and Pentacoff. \504\ See supra notes 483-484 and accompanying text. --------------------------------------------------------------------------- As another alternative, we could adopt a more frequent repurchase reporting requirement--for example, a daily reporting frequency requirement, as proposed,\505\ a weekly reporting frequency requirement,\506\ or a monthly reporting frequency requirement.\507\ Compared to the final amendments, requiring more frequent reporting would provide investors with less delayed information about issuer repurchases and potentially enable them to perform a more timely evaluation of an issuer's repurchase activity, independently or in conjunction with other disclosures. This alternative may enable investors that trade based on short-term information to construct a potentially better informed trading strategy, as well as gauge more quickly the extent to which recent repurchases, conducted at a specific point in time, were likely to be aligned with shareholder value maximization. Such effects would be larger if the alternative disclosure frequency is higher and/or if the repurchase information is of a time-sensitive nature. In turn, more frequent reporting, particularly, the daily reporting frequency, would dramatically increase issuer costs, including compliance costs, front-running risks, indirect costs due to potentially inefficient decrease in repurchases, and other costs discussed in detail in Section V.C above, compared to the final amendments and the baseline, as noted by various commenters.\508\ --------------------------------------------------------------------------- \505\ See supra note 65. \506\ See supra note 116. \507\ See supra notes 113 (supporting monthly reporting of daily data), 114 (proposing, among various alternatives, monthly reporting of biweekly data), and 115 (recommending monthly reporting of monthly aggregate historical repurchase activity). \508\ See supra notes 481 (discussing front-running costs) and 484 (discussing potential for inefficient efforts to restructure repurchase programs in an attempt to minimize the effects of front- running and price impact of the daily reporting) and accompanying text. --------------------------------------------------------------------------- As another alternative, we could adopt a combination of alternative reporting frequency and an alternative level of disaggregation of the reported data. For example, we could require reporting of monthly repurchase activity information on a monthly basis, as suggested by various commenters.\509\ The costs and benefits of this alternative, compared to the final amendments, would be determined by the tradeoffs described above with respect to the greater timeliness of information as well as a lower level of granularity of repurchase data. --------------------------------------------------------------------------- \509\ See supra note 115. --------------------------------------------------------------------------- 2. Alternative Scope of the Disclosure We could modify the scope of the amended disclosure, for instance, omitting information about the use of Rule 10b-18 and/or Rule 10b5-1 in the [[Page 36045]] new quantitative disclosure,\510\ information about the objectives and rationales for repurchases,\511\ information about issuer trading plans in new Item 408(d), or information about any policies and procedures relating to purchases and sales of the issuer's securities by officers and directors during repurchases, including any restrictions on such transactions.\512\ Compared to the final amendments, narrowing the scope of the required disclosure would reduce the costs to issuers. However, this alternative would also provide less information to investors and result in potentially greater information asymmetry, compared to the final amendments. As another alternative, we could expand the scope of the amended disclosure, for instance, requiring additional disclosure in periodic reports about how issuers are financing their share repurchases, as suggested by some commenters.\513\ Compared to the final amendments, broadening the scope of the required disclosure would increase the costs to issuers. However, this alternative could also on the margin provide additional information to investors, compared to the final amendments. The information benefit would depend on whether investors already are able to infer the additional information from other financial statement disclosures and MD&A discussion. For example, some investors may be able to use existing financial statement disclosures to infer whether debt or other sources of funds were used for share repurchases. --------------------------------------------------------------------------- \510\ See supra note 150. But see supra notes 146-149. \511\ See supra note 248. \512\ See, e.g., letter from PNC (expressing concern that ``such disclosure requirements are often seen as creating an expectation that well-managed companies should have such policies and procedures''). \513\ See, e.g., letters from Senators Rubio & Baldwin, CalPERS, Prof. Palladino, Roosevelt, AFREF et al., Better Markets, and CFA Institute. --------------------------------------------------------------------------- 3. Exemptions for Certain Issuer Categories We could provide exemptions from all, or some, of the amended disclosure requirements, or modify the disclosure requirements, for SRCs.\514\ As another alternative, we could require only the reporting of repurchases that exceed a certain threshold, such as one or two percent of the number of shares outstanding,\515\ or provide a principles-based exemption from the additional disclosure requirements for repurchases that are not material.\516\ These alternatives could reduce the aggregate costs of the rule but also reduce the information available to investors, compared to the final amendments. The economic effects of the alternative of excluding small filers are uncertain to the extent that the effects of the amended disclosure on small issuers are somewhat ambiguous. On the one hand, smaller issuers are more likely to be affected by the costs of additional disclosure, all else equal (holding constant the disclosure burden). On the other hand, smaller issuers are less likely to have repurchases,\517\ which limits the incremental burden (as well as the incremental benefits) of additional reporting under the amendments for each small filer. Further, to the extent that small filers have relatively high information asymmetries because of lower analyst and institutional coverage, disclosure about their repurchases may be relatively more informative to investors.\518\ --------------------------------------------------------------------------- \514\ See supra notes 131-135. \515\ See supra notes 101-104. See also letter from ABA Committee (recommending a higher, five percent, trigger for SRCs). \516\ See also, e.g., letter from Cravath (recommending that a share repurchase plan that is not material not be required to be disclosed publicly on periodic reports). \517\ See supra notes 134-135 and accompanying text. \518\ See also supra note 129 (discussing comment letters that recommended not exempting smaller issuers from the amendments). --------------------------------------------------------------------------- As another alternative, we could provide exemptions or different requirements for FPIs not reporting on domestic forms,\519\ Listed Closed-End Funds,\520\ or issuers without an established securities market.\521\ These alternatives would eliminate or reduce the costs for the affected issuers but also reduce the information benefits for investors in these issuers, compared to the final amendments. For example, as suggested by commenters, not all of the motivations for corporate issuers' share repurchases will apply to Listed Closed-End Funds because of differences in the business model and organizational structure of a fund as compared to a corporate issuer.\522\ We believe, however, that investors would benefit from receiving timely details about a fund's repurchase activity so they can make an informed decision as to whether the fund's share price has been influenced by this repurchase activity, which is difficult to do without the daily details the final amendments will provide. --------------------------------------------------------------------------- \519\ See supra note 122. \520\ See supra note 140 and accompanying text. \521\ See supra note 136 and accompanying text. \522\ See supra note 140 and accompanying text. --------------------------------------------------------------------------- Additionally, exempting FPIs reporting on FPI forms would prevent the affected issuers from incurring the cost of multiple, different layers of repurchase disclosures (and in some cases, on the margin potentially adding to the burden of U.S. disclosure requirements that can discourage a U.S. listing). However, it would also reduce the amount of information available to investors, potentially reducing their ability to make informed investment decisions, compared to the final amendments.\523\ Further, exempting such issuers may place them at a relative competitive advantage to issuers subject to the new disclosure requirements. Ultimately, the aggregate effects of exempting these categories of issuers may be incremental as such issuers engage in relatively fewer repurchases than domestic issuers, as seen in Section V.A.1 above. --------------------------------------------------------------------------- \523\ See also supra note 123 and accompanying text (discussing comment letters that supported the benefits of extending the amendments to foreign private issuers). --------------------------------------------------------------------------- Relatedly, exempting unlisted issuers or issuers without any established securities market more generally would eliminate the costs of the amendments for such issuers.\524\ Nevertheless, investors in such issuers would lose the information benefits of the additional disclosures, which might be relatively more consequential for investors in issuers with a thin trading market or without a trading market that lack the price discovery from active trading. The discussion of the alternative of exempting small issuers also pertains to unlisted issuers or issuers without an established securities market to the extent that such issuers tend to be smaller companies. --------------------------------------------------------------------------- \524\ See letter from Publix. Based on staff analysis of section 12(b) registration status data on issuers with an exchange-listed class of securities and of Over-the-Counter (``OTC'') Markets' data on OTC quotation for 2021, we estimate that an established securities market cannot be identified for approximately 500 out of 7,500 affected filers of Forms 10-Q, 10-K, or 20-F and for approximately 100 out of 3,600 issuers that undertook repurchases. See also supra notes 374 and 376. --------------------------------------------------------------------------- As another alternative, suggested by some commenters,\525\ we could exempt bank holding companies from the amended disclosure requirements. Under this alternative, banks would not incur the costs of the amendments discussed in Section V.C above (including the cost of potentially divulging confidential information).\526\ The incremental effect on bank investors may be smaller to the extent that banks' use of capital is subject to significant regulatory oversight and banks already disclose more capital and capital planning information than other [[Page 36046]] issuers.\527\ Nonetheless, we believe that information about issuer repurchases under the final amendments is valuable for addressing information asymmetries between banks and their investors. Under this alternative, bank investors would receive significantly less information about issuer repurchases, compared to the final amendments. --------------------------------------------------------------------------- \525\ See supra note 140. \526\ Id. \527\ Id. --------------------------------------------------------------------------- 4. Alternative Implementation Approaches We could modify some of the elements of implementation of the amended disclosure requirements. The final amendments require daily repurchase data to be reported periodically (as an exhibit to Forms 10- Q and 10-K, on Form N-CSR, and for FPIs reporting on FPI forms, on new Form F-SR). As one alternative, we could require all issuers, rather than only FPIs, to report the historical daily repurchase information on a new form. By introducing a new form for all issuers, this alternative could incrementally increase the initial transition costs, compared to the final amendments. On balance, this alternative is unlikely to impact ongoing disclosure costs, compared to the final amendments, holding the scope and frequency of the required disclosure constant. However, in the case of Listed Closed-End Funds, such an alternative would require more frequent--quarterly, rather than semi- annual--reporting of historical daily repurchase data resulting in timelier disclosure of such information to investors and higher direct and indirect costs of reporting (described in greater detail in Section V.C. above) for affected issuers, compared to the final amendments. Compared to corporate issuers, relatively few funds engage in share repurchases, as discussed in Section V.A.1 above. Thus, the aggregate costs and benefits of such an alternative for affected fund issuers are likely to be modest.\528\ As another alternative, we could require issuers that file on Forms 10-K and 10-Q to provide the same historical daily repurchase disclosure in the body of the form, rather than in an exhibit. Moving the disclosure from the exhibit to the body of the form is not expected to affect the costs for issuers or informational benefits to investors, conditional on the contents of the disclosure requirements remaining the same. In cases of issuers with more daily repurchases to be disclosed, the increase in the length of the main body of the periodic report under this alternative could make the periodic report somewhat less readable to investors (especially those investors not specifically seeking daily repurchase data), compared to the final amendments. --------------------------------------------------------------------------- \528\ See also supra note 140 and accompanying text (discussing potentially smaller benefits for funds). --------------------------------------------------------------------------- We are eliminating the existing requirement to provide monthly breakdowns of repurchase activity in periodic reports. As an alternative, we could retain this requirement. The costs and benefits of this alternative compared to the final amendments are similarly likely to be fairly incremental because the aggregation of daily information into a monthly breakdown is likely to be low-cost for filers, and of relatively little incremental importance to investors. As another alternative, we could require that issuers announce all share repurchase plans in advance, as suggested by a few commenters.\529\ Under this alternative, investors may benefit from additional information related to the issuer's future repurchase plans. The incremental benefit of the requirement may be limited for issuers that already routinely disclose repurchase announcements--under exchange listing standards, companies are required to promptly disclose material new developments, and, according to at least one law firm, board authorization of a buyback is generally treated as requiring disclosure under these standards.\530\ However, such an alternative would ensure greater consistency, particularly among non-exchange- listed issuers, in the information being made available to investors about an issuer's future repurchase plans. As discussed in Section V.A. above, the authorization of a repurchase program can indicate the issuer's belief that the stock is undervalued or convey other value- relevant information to investors. At the same time, to the extent that issuers that do not presently pre-announce repurchase programs avoid such announcements because such announcements would be costly for them--for instance, by effecting a greater degree of upward price pressure than subsequent periodic reporting of repurchase activity, and therefore increasing the price of the purchased shares--this alternative would impose greater cost on such issuers (and their existing shareholders that do not sell during a repurchase program), compared to the final amendments. --------------------------------------------------------------------------- \529\ See, e.g., letters from CFA Institute; CalPERS; BrilLiquid; and ICGN. \530\ See SEC Proposes Rules to Modernize Share Repurchase Disclosures, Wilmer Hale (Dec. 27, 2021), https://www.wilmerhale.com/insights/client-alerts/20211227-sec-proposes-rules-to-modernize-share-repurchase-disclosures. --------------------------------------------------------------------------- 5. Structured Disclosure As another alternative, we could scale the structured disclosure requirements compared to the amendments, for instance, by not requiring that the quantitative disclosure in periodic reports, or the narrative disclosure, be structured. These alternatives could incrementally increase the cost of the extraction and analysis of additional information about the structure and purpose of repurchase programs, compared to the final amendments. At the same time, the incremental cost savings for issuers, compared to the final amendments, would likely be modest since affected filers already tag various other disclosures in their filings with the Commission.\531\ --------------------------------------------------------------------------- \531\ See 17 CFR 232.405(b) (setting forth structured disclosure requirements for, inter alia, corporate issuers and closed-end management investment companies). --------------------------------------------------------------------------- 6. Compliance Dates FPIs that file on FPI forms will be required to comply with the new disclosure requirements in the first filing that covers the first full fiscal quarter that begins on or after April 1, 2024; Listed Closed-End Funds--in the first filing that covers the first fiscal period that begins on or after January 1, 2024; and all other issuers--in the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023. As an alternative, we could provide a longer transition period (for example, for up to one year after the effective date of the final rules), as suggested by some commenters.\532\ Under this alternative, the costs and benefits of the final amendments discussed above would be deferred until the compliance date. Further, to the extent that affected issuers and intermediaries that assist them with the execution of repurchase programs require some time to implement new systems, processes, and policies to gather information for the new disclosures, the alternative could further incrementally mitigate some of the initial transition challenges and associated burden, by enabling affected issuers to do so with fewer time pressures. --------------------------------------------------------------------------- \532\ See, e.g., letters from SIFMA II; Sullivan; Wilson Sonsini. --------------------------------------------------------------------------- VI. Paperwork Reduction Act A. Summary of the Collections of Information Certain provisions of our rules and forms that will be affected by the final [[Page 36047]] amendments contain ``collection of information'' requirements within the meaning of the PRA.\533\ The Commission published notices requesting comment on revisions to these collections of information requirements in the Proposing Release and the Rule 10b5-1 Proposing Release, and it has submitted these requirements to the Office of Management and Budget (``OMB'') for review in accordance with the PRA.\534\ The hours and costs associated with preparing and filing the forms constitute reporting and cost burdens imposed by each collection of information. An agency may not conduct or sponsor, and a person is not required to comply with, a collection of information unless it displays a currently valid OMB control number. Compliance with the information collections is mandatory. Responses to the information collections are not kept confidential and there is no mandatory retention period for the information disclosed. The titles for the affected collections of information are: --------------------------------------------------------------------------- \533\ See supra note 469. \534\ See 44 U.S.C. 3507(d) and 5 CFR 1320.11. --------------------------------------------------------------------------- ``Form 10-K'' (OMB Control No. 3235-0063); ``Form 10-Q'' (OMB Control No. 3235-0070); ``Form 20-F'' (OMB Control No. 3235-0288); ``Form N-CSR'' (OMB Control No. 3235-0570); and ``Form F-SR'' (a new collection of information). We adopted the existing forms pursuant to the Exchange Act and Investment Company Act, and are adopting the new form pursuant to the Exchange Act. The forms set forth the disclosure requirements for periodic reports filed by issuers to help investors make informed investment and voting decisions. A description of the final amendments, including the need for the information and its use, as well as a description of the likely respondents, may be found in Sections I, II, and III above, and a discussion of the economic effects of the proposed amendments may be found in Section V above. B. Summary of Comment Letters In the Proposing Release, the Commission requested comment on the PRA burden hour and cost estimates and the analysis used to derive such estimates. One commenter directly addressed the PRA analysis of the proposed amendments,\535\ and other commenters provided responses to certain requests for comment that have informed some of our PRA estimates.\536\ Generally, these commenters asserted that the costs and burdens of the proposed amendments would likely be greater than what the Commission estimated in the Proposing Release. --------------------------------------------------------------------------- \535\ See letter from Empire. \536\ See, e.g., letters from Norfolk Southern and SIFMA II. --------------------------------------------------------------------------- In the Rule 10b5-1 Proposing Release, the Commission similarly requested comment on the PRA burden hour and cost estimates and the analysis used to derive the estimates in that release. We did not receive any comments that directly addressed the PRA analysis of those proposed amendments. However, as noted in the Rule 10b5-1 Adopting Release, we made some changes to proposed Item 408(a) as a result of comments received in response to the Rule 10b5-1 Proposing Release and revised our estimates, taking into account the changes and the comments received. New Item 408(d) that we are adopting in this release reflects corresponding changes. C. Summary of Collections of Information Requirements As discussed in more detail in the Proposing Release \537\ and the Rule 10b5-1 Proposing Release,\538\ we derived the burden hour estimates by estimating the change in paperwork burden as a result of the amendments. As noted in Section III, we have made some changes to the proposed amendments as a result of comments received, and have revised our PRA estimates to take into account these changes. --------------------------------------------------------------------------- \537\ See Section V of the Proposing Release, supra note 2. \538\ See Section V of the Rule 10b5-1 Proposing Release, supra note 17. --------------------------------------------------------------------------- 1. Estimated Paperwork Burden for Daily Quantitative Share Repurchase Disclosures In the Proposing Release, we estimated a burden of 1.5 hours for each proposed Form SR, which would include the effects of compiling the required data elements for each date that the form would be required, tagging the data using Inline XRBL, and preparing and submitting the form. Although the final amendments require the same additional detail regarding the structure of an issuer's repurchase program and its daily share repurchases as in the Proposing Release, the frequency and manner of the disclosure is different from the proposal. Instead of requiring issuers to provide quantitative daily repurchase disclosure on a new Form SR one business day after execution of an issuer's share repurchase order, as proposed, the final amendments require issuers to provide quantitative daily repurchase disclosure on a less frequent periodic basis.\539\ --------------------------------------------------------------------------- \539\ The final amendments require domestic corporate issuers and FPIs filing on the FPI forms to file their information quarterly in their Form 10-Q and Form 10-K (for an issuer's fourth fiscal quarter) and new Form F-SR, respectively, and Listed Closed-End Funds to file that information semi-annually in Form N-CSR. --------------------------------------------------------------------------- The final amendments require corporate issuers reporting on domestic forms and Listed Closed-End Funds to file daily aggregated repurchase data in their periodic reports, and FPIs filing on the FPI forms to file daily aggregated repurchase data quarterly on new Form F- SR. The repurchase data is to be tagged using Inline XBRL.\540\ The final amendments require disclosure of a potentially greater quantity of repurchase data in the particular periodic filing (repurchases over a quarterly or six-month period, depending on the filer) than would have been required under proposed Form SR, which would have only included the repurchases from one day.\541\ In consideration of these changes, we are estimating the burden hours for the daily quantitative share repurchase disclosure to be 5.0 hours. --------------------------------------------------------------------------- \540\ Any burdens associated with interactive data associated with the final amendments are estimated to be negligible. For administrative simplicity, these burdens therefore are incorporated into the burdens associated with the forms, discussed below. \541\ We recognize that, for issuers to prepare monthly repurchase data under the current disclosure requirement, they may already be collecting daily repurchase data. As a result, they may already have the systems or processes in place to collect or report some of the repurchase data, which they may be able to leverage for the new disclosure and may mitigate some of the burdens. --------------------------------------------------------------------------- We recognize that the burden hours may be higher or lower depending on the number of applicable repurchases that the issuer conducts in the period covered by the form. These adjustments will be reflected on Forms 10-Q, 10-K, N-CSR, and F-SR.\542\ Because any disclosure under the final amendments would be made quarterly or semi-annually, depending on the filer type, rather than daily, in total we estimate that the burdens and costs of the final amendments should be lower than for the proposed amendments.\543\ --------------------------------------------------------------------------- \542\ We also estimate a burden of 1.0 hour to submit new Form F-SR. The other forms are existing forms that already reflect a submission burden. \543\ We believe the costs for issuers will be lower on an annual basis because issuers will be required to provide this disclosure a maximum of four times per year for domestic corporate issuers and FPIs, and a maximum of two times per year for registered-closed end funds. The proposed amendments would likely have required issuers to provide significantly more forms per year at a greater cost than the final amendments because the proposed amendments would have required issuers to provide proposed Form SR one business day after execution every one of an issuer's share repurchase orders. See letter from SIFMA II (``Additionally, time and cost implications should also be considered. The 1.5 hours per day preparation time estimated by the SEC quickly turns into 7.5 hours a week, or more for those who are in the market daily, for the duration of the share repurchase plan.''). --------------------------------------------------------------------------- [[Page 36048]] Additionally, issuers are required currently to file monthly aggregated repurchase data in their periodic reports. We are eliminating this requirement. Accordingly, for PRA purposes, we estimate a reduction in costs and burdens associated with this requirement of 2.0 hours. These adjustments will be reflected in Forms 10-K, 10-Q, N-CSR, and 20-F. Our estimates are for the average burden over the first three years of reporting.\544\ The following table summarizes the estimated paperwork burden associated with the final amendments' required daily quantitative repurchase disclosures for issuers of equity securities registered under section 12 of the Exchange Act in existing Forms 10-K, 10-Q, and N-CSR, and in new Form F-SR and the elimination of the monthly repurchase disclosures in Forms 10-K, 10-Q, N-CSR, and 20-F. --------------------------------------------------------------------------- \544\ We acknowledge that final amendments may initially entail a higher burden as issuers get accustomed to collecting data for, and preparing, the form. We believe, however, that the burden will be reduced with subsequent filings. PRA Table 1--Estimated Paperwork Burden of Daily Quantitative Share Repurchase Disclosures and Elimination of Monthly Repurchase Disclosures ------------------------------------------------------------------------ Brief explanation of Affected forms Estimated burden estimated burden ------------------------------------------------------------------------ Form 10-K, Form 10-Q, Form N- An increase of This estimated burden CSR. 5.0 burden hours includes the for each estimated 5.0-hour affected form. burden for the compilation of the data elements, tagging the data using Inline XBRL, and preparing the exhibit (in Form 10- K and 10-Q) or table (in Form N-CSR). Form F-SR..................... 6.0 burden hours This estimated burden for each includes the affected form. estimated 5.0-hour burden for the compilation of the data elements, tagging the data using Inline XBRL, and preparing the form, plus a 1.0- hour burden for submitting the Form F-SR. Form 10-K, Form 10-Q, Form N- A decrease of 2.0 This estimated burden CSR, Form 20-F. burden hours for reduction reflects each affected the elimination of form. the monthly aggregated repurchase data. ------------------------------------------------------------------------ We estimate that the new daily quantitative repurchase disclosure requirements will change the paperwork burden for filings on the affected periodic disclosure forms that include share repurchase disclosure. However, not all filings on the affected forms will include these disclosures because the disclosures are required only when an issuer conducts a share repurchase. Based on staff analysis of data from Compustat and EDGAR filings for fiscal year 2021,\545\ we estimate that the daily quantitative repurchase disclosure requirements in the final amendments will affect approximately 3,300 domestic corporate issuers, 300 FPIs, and 100 Listed Closed-End Funds. --------------------------------------------------------------------------- \545\ See supra Section V.A.1. --------------------------------------------------------------------------- Additionally, we note that most issuers that conduct share repurchases do so over a period of time, rather than by making a single purchase or a few isolated purchases during the year. Therefore, for purposes of this PRA analysis, we assume that the daily quantitative repurchase disclosures will be distributed evenly throughout an issuer's fiscal year. As a result, we estimate that, annually, the required daily quantitative repurchase disclosure will be included in one Form 10-K and three Form 10-Qs for each affected corporate issuer filing on domestic forms, four Form F-SRs for each affected FPI, and two Form N-CSRs for each affected Listed Closed-End Fund. Based on the staff's findings, the table below sets forth our estimates of the number of filings on these forms that include share repurchase disclosure.\546\ --------------------------------------------------------------------------- \546\ We used this data to extrapolate the effect of these changes on the paperwork burden for the listed periodic reports. The OMB's PRA filing inventories represent a three-year average, which may not align with the actual number of filings in any given year. PRA Table 2--Estimated Number of Affected Filings -------------------------------------------------------------------------------------------------------------------------------------------------------- Number of Number of forms that Number of Increase in burden Decrease in burden issuers Current include filings that hours for daily hours for daily affected by Forms that include annual share include share quantitative share quantitative share Issuer type the share repurchase responses repurchase repurchase repurchase repurchase repurchase disclosure in PRA disclosure disclosure disclosures per disclosures per disclosure inventory annually annually per form form, form annually per issuer (A) (B)................ (C) (D) (E) = (A) x (D) (F) = (E) x 5.0 (G) = (E) x 2.0 [Forms 10-K, 10-Q, [Forms 10-K, 10-Q, N-CSR] or 6.0 20-F, N-CSR] [Form F-SR] -------------------------------------------------------------------------------------------------------------------------------------------------------- Corporate Issuer Reporting on 3,300 10-K............... 8,292 1 3,300 16,500 (6,600) Domestic Forms. 10-Q............... 22,925 3 9,900 49,500 (19,800) FPI............................... 300 F-SR............... 0 4 1,200 7,200 20-F............... 729 1 300 (600) Registered Closed-End Fund........ 100 N-CSR.............. 6,898 2 200 1,000 (400) -------------------------------------------------------------------------------------------------------------------------------------------------------- [[Page 36049]] 2. Estimated Paperwork Burdens of the Narrative Share Repurchase Disclosures in Item 703 of Regulation S-K, Form 20-F, Form N-CSR, and Form F-SR As discussed in Section III.B.3., the modifications in the final amendments from the proposed amendments relating to the narrative disclosures in Item 703 of Regulation S-K and Form N-CSR are generally limited to clarifying certain aspects of the proposed amendments. Therefore, because the substantive requirements for those disclosures is the same, our PRA estimate is the same as the PRA estimate in the Proposing Release. As a result, we continue to estimate a burden of 3.0 hours for each form for all the narrative disclosures in Item 703 of Regulation S-K and Form N-CSR. We estimate those 3.0 hours to consist of 0.5 hours for the checkbox and 2.5 hours for the remaining narrative disclosures. However, in a change from the proposal, the final amendments require FPIs to include one part of their narrative disclosures, the checkbox disclosure requirement, in Form F-SR, whereas the other three narrative disclosures will be in Form 20-F. Accordingly, we are estimating that the narrative disclosure burden for Form 20-F will be 2.5 hours, consistent with the 2.5 hour narrative disclosure burden for corporate issuers filing on domestic forms and Listed Closed-End Funds without the burden for the checkbox. However, because Exchange Act section 16 does not apply to investors in FPIs and thus FPIs may not rely on Exchange Act section 16 filings, we believe FPIs will have a larger burden in collecting the information necessary to comply with the checkbox requirement than other issuers. Therefore, we are estimating the burden hours for the checkbox requirement for Form F-SR to be 1.0 hour, rather than 0.5 hours. Our estimate is for the average burden over the first three years of reporting.\547\ The following table summarizes the estimated paperwork burdens associated with the final amendments' required narrative disclosure for issuers of equity securities registered under section 12 of the Exchange Act in Forms 10-K, 10-Q, 20-F, N-CSR, and F- SR. --------------------------------------------------------------------------- \547\ We acknowledge that final amendments may initially entail a higher burden as issuers get accustomed to collecting data for, and preparing, the form. We believe, however, that the burden will be reduced with subsequent filings. PRA Table 3--Estimated Paperwork Burden of the Narrative Share Repurchase Disclosures in Item 703 of Regulation S-K, Form 20-F, and Form N-CSR ------------------------------------------------------------------------ Estimated burden Brief explanation of Affected forms increase estimated burden ------------------------------------------------------------------------ Form 10-K, Form 10-Q, Form N- An increase of This estimated burden CSR. 3.0 burden hours includes the for each estimated 3.0-hour affected form. burden for the narrative share repurchase disclosures, including the checkbox requirement, and the use of structured data for this information. Form 20-F..................... An increase of This estimated burden 2.5 burden hours includes the for each estimated 2.5-hour affected form. burden for the narrative share repurchase disclosures, other than the checkbox requirement, and the use of structured data for this information. Form F-SR..................... 1.0 burden hour This estimated burden for each includes the affected form. estimated 1.0-hour burden for the checkbox requirement in the narrative share repurchase disclosures and the use of structured data for this information. ------------------------------------------------------------------------ We estimate that the new narrative disclosure requirements will increase the paperwork burden for filings on the affected periodic disclosure forms that include share repurchase disclosure. However, as we discussed above, not all filings on the affected forms will include these disclosures because the disclosures are required only when an issuer conducts a share repurchase. Additionally, as discussed above, we estimate that the narrative disclosure requirements in the final amendments will affect approximately 3,300 domestic corporate issuers, 300 FPIs, and 100 Listed Closed-End Funds. Additionally, because most issuers that conduct share repurchases do so over time, rather than by making a single purchase or a few isolated purchases during the year, for purposes of this PRA analysis, we assume that the narrative disclosures will be distributed evenly throughout an issuer's fiscal year. As a result, we estimate that, annually, the required narrative disclosure will be included in one Form 10-K and three Form 10-Qs for each affected corporate issuer filing on domestic forms, four Form F-SRs and one Form 20-F for each affected FPI, and two Form N-CSRs for each affected Listed Closed-End Fund. Based on the staff's findings, the table below sets forth our estimates of the number of filings on these forms that will include share repurchase disclosure.\548\ --------------------------------------------------------------------------- \548\ We used this data to extrapolate the effect of these changes on the paperwork burden for the listed periodic reports. The OMB's PRA filing inventories represent a three-year average, which may not align with the actual number of filings in any given year. PRA Table 4--Estimated Number of Affected Filings ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Number of Number of forms that issuers Current include Number of filings Burden hour Burden hour Burden hour affected by Forms that include share annual share that include increase for increase for increase for Issuer type the repurchase disclosure responses repurchase share repurchase narrative share narrative share narrative share repurchase in PRA disclosure disclosure repurchase repurchase repurchase disclosure inventory annually annually per form disclosures disclosures disclosures annually per issuer (A) (B)........................... (C) (D) (E) = (A) x (D) (F) = (E) x 3.0 (G) = (E) x 2.5 (H) = (E) x 1.0 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Corporate Issuer Reporting on Domestic Forms.. 3,300 10-K.......................... 8,292 1 3,300 9,900 10-Q.......................... 22,925 3 9,900 29,700 FPI........................................... 300 20-F.......................... 729 1 300 750 F-SR.......................... 0 4 1,200 1,200 [[Page 36050]] Listed Closed-End Fund........................ 100 N-CSR......................... 6,898 2 200 600 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ 3. Estimated Paperwork Burdens of New Item 408(d) New Item 408(d) requires disclosure with respect to an issuer's adoption or termination of a contract, instruction, or written plan to purchase or sell its own securities that is intended to satisfy the affirmative defenses conditions of Rule 10b5-1(c). The final amendments do not require issuers to disclose information about the adoption or termination of any trading arrangement for the purchase or sale of the issuer's securities that meets the requirements of a non-Rule 10b5-1 trading arrangement, nor do the final amendments require issuers to disclose pricing terms. We estimate a three-hour disclosure burden with respect to the issuer's adoption or termination of a contract, instruction, or written plan to purchase or sell its own securities that is intended to satisfy the affirmative defenses conditions of Rule 10b5-1(c).\549\ Our estimate is for the average burden over the first three years of reporting. --------------------------------------------------------------------------- \549\ In the Rule 10b5-1 Proposing Release, see supra note 17, the Commission estimated that the average incremental burden for an issuer to prepare the proposed Item 408(a) disclosure would be 15 hours. However, in the Rule 10b5-1 Adopting Release, see supra note 18, the Commission modified Item 408(a) so that the final rule does not require disclosure of pricing terms or quarterly disclosure regarding an issuer's adoption and termination of Rule 10b5-1 plans and non-Rule 10b5-1 trading arrangements. As a result, the Commission reduced the estimated PRA burden for Item 408(a) disclosure by five hours, because it estimated a two-hour burden of disclosing the pricing terms and a three-hour burden of preparing the proposed disclosure regarding the adoption and termination of Rule 10b5-1 and non-Rule 10b5-1 trading arrangements by issuers. --------------------------------------------------------------------------- The following table summarizes the estimated paperwork burdens associated with the final amendments' required Item 408(d) disclosures for issuers in Forms 10-K and 10-Q. PRA Table 5--Estimated Paperwork Burden of New Item 408(d) ------------------------------------------------------------------------ Brief explanation of Affected forms Estimated burden estimated burden increase increase ------------------------------------------------------------------------ Form 10-K, Form 10-Q.......... An increase of This estimated burden 3.0 burden hours includes the for each of the estimated 3.0-hour affected forms. burden for the required disclosure of an issuer's adoption or termination of any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and require the use of structured data for this information. ------------------------------------------------------------------------ We estimate that the new Item 408(d) disclosure will increase the current paperwork burden for filings on the affected forms. However, as we discussed above, not all filings on the affected forms will include these disclosures because the disclosures are required only when an issuer adopts or terminates a contract, instruction, or written plan to purchase or sell its own securities that is intended to satisfy the affirmative defenses conditions of Rule 10b5-1(c). As noted in Section V.A.1, an indirect approach to estimating the number of affected issuers involves extrapolating the number of companies conducting repurchases under Rule 10b5-1 plans in a given year from a combination of the incidence of Rule 10b5-1 plan use among voluntarily announced repurchases (estimated at 29 percent as previously noted) \550\ and the overall number of companies conducting repurchases based on their financial statements.\551\ Based on data from Compustat and EDGAR filings for fiscal years ending between January 1, 2021, and December 31, 2021, we estimate that approximately 3,600 operating companies conducted repurchases, yielding an estimate of approximately 1,000 companies affected by the Item 408(d) amendments.\552\ --------------------------------------------------------------------------- \550\ See supra note 378. \551\ Using the number of issuers that announce repurchases in a given year would underestimate the number significantly because issuers may continue to implement a previously announced repurchase program over multiple years. \552\ Item 408(d) does not apply to FPIs filing on FPI forms or Listed Closed-End Funds. --------------------------------------------------------------------------- Additionally, because most issuers adopt or terminate a Rule 10b5-1 trading plan throughout the year, rather than adopting or terminating a single Rule 10b5-1 trading plan during the year, for purposes of this PRA analysis, we assume that each issuer will enter, adopt or terminate Rule 10b5-1 trading plans evenly throughout the year. As a result, we estimate that, annually, the new Item 408(d) disclosure will be included in one Form 10-K and three Form 10-Qs. Based on the staff's findings, the table below sets forth our estimates of the number of filings on Forms 10-K and 10-Q that will be affected by new Item 408(d).\553\ --------------------------------------------------------------------------- \553\ We used this data to extrapolate the effect of these changes on the paperwork burden for the listed periodic reports. The OMB's PRA filing inventories represent a three-year average, which may not align with the actual number of filings in any given year. --------------------------------------------------------------------------- [[Page 36051]] PRA Table 6--Estimated Number of Affected Filings for New Item 408(d) -------------------------------------------------------------------------------------------------------------------------------------------------------- Number of Number of forms that issuers Current include Number of filings Burden hour affected by Forms that include share annual share that include increase for new Issuer type the repurchase disclosure responses repurchase share repurchase item 408(d) repurchase in PRA disclosure disclosure disclosures disclosure inventory annually annually per form annually per issuer (A) (B).......................... (C) (D) (E) = (A) x (D) (F) = (E) x 3.0 -------------------------------------------------------------------------------------------------------------------------------------------------------- Corporate Issuer Reporting on Domestic Forms. 1,000 10-K......................... 8,292 1 1,000 3,000 10-Q......................... 22,925 3 3,000 9,000 -------------------------------------------------------------------------------------------------------------------------------------------------------- D. Incremental and Aggregate Burden and Cost Estimates Below we estimate the incremental and aggregate changes in paperwork burden as a result of the final amendments. These estimates represent the average burden for all issuers, both large and small. In deriving our estimates, we recognize that the burdens will likely vary among individual issuers. The final amendments will create a new required collection of information and change the burden per response of existing collections of information. We calculated the burden estimates by multiplying the estimated number of responses by the estimated average amount of time it would take an issuer to prepare and review disclosure required under the final amendments. For purposes of the PRA, the burden is to be allocated between internal burden hours and outside professional costs. The table below sets forth the percentage estimates we typically use for the burden allocation for each collection of information and the estimated burden allocation for the new collection of information. We also estimate that the average cost of retaining outside professionals is $600 per hour.\554\ --------------------------------------------------------------------------- \554\ We recognize that the costs of retaining outside professionals may vary depending on the nature of the professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of $600 per hour. At the proposing stage, we used an estimated cost of $400 per hour. We are increasing this cost estimate to $600 per hour to adjust the estimate for inflation from August 2006. PRA Table 7--Estimated Burden Allocation for the Affected Collections of Information ------------------------------------------------------------------------ Outside Collection of information Internal (%) professionals (%) ------------------------------------------------------------------------ Forms 10-K, 10-Q, and N-CSR............ 75 25 Forms 20-F and F-SR.................... 25 75 ------------------------------------------------------------------------ The table below illustrates the incremental change to the total annual compliance burden of affected forms, in hours and in costs, as a result of the final amendments' estimated effect on the paperwork burden per response. PRA Table 8--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Final Amendments -------------------------------------------------------------------------------------------------------------------------------------------------------- Total incremental Change in outside Change in outside Collection of information increase in Change in company hours professional hours professional costs burden hours (A) \a\ (B) = (A) x 0.75 or 0.25 (C) = (A) x 0.25 or 0.75 (D) = (C) x $600 -------------------------------------------------------------------------------------------------------------------------------------------------------- 10-K................................................... 22,800 17,100 5,700 $3,420,000 10-Q................................................... 68,400 51,300 17,100 10,260,000 20-F................................................... 150 37.5 112.5 67,500 N-CSR.................................................. 1,200 900 300 180,000 -------------------------------------------------------------------------------------------------------------------------------------------------------- \a\ Sum of columns (F), (G), or (H) in Tables 2, 4, and 6 for each affected form. [[Page 36052]] The following tables summarize the requested paperwork burden, including the estimated total reporting burdens and costs, under the final amendments. PRA Table 9--Requested Paperwork Burden Under the Final Amendments \555\ ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Current burden Program change Requested change in burden ------------------------------------------------------------------------------------------------------------------------------------- Change in Form Current Current burden Current outside Number of Change in outside Current Outside annual hours professional affected company professional annual Burden hours professional responses cost burden responses hours costs responses cost burden (A) (B) (C) (D) (E) \a\ (F) \b\ (G) \c\ (H) = (B) + (I) = (C) + (F) (E) ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Form 10-K................................................. 8,292 13,988,770 $1,835,588,919 3,300 17,100 $3,420,000 8,292 14,005,870 $1,839,008,919 Form 10-Q................................................. 22,925 3,098,084 410,257,154 9,900 51,300 10,260,000 22,925 3,149,384 420,517,154 Form 20-F................................................. 729 478,983 576,490,625 300 38 67,500 729 479,021 576,558,125 Form N-CSR................................................ 23,680 227,137 5,949,524 200 900 180,000 23,680 228,037 6,129,524 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \a\ From column (B) in Table 8. \b\ From column (D) in Table 8. \c\ From column (A). The below summarizes the requested paperwork burden for the new Form F-SR collection of information, including the estimated total reporting burdens and costs, under the final amendments as described in Section III.A. For purposes of the PRA, we estimate that new Form F-SR will entail a 6.5-hour compliance burden per response with 1,200 annual responses. PRA Table 10--Requested Paperwork Burden for the New Collection of Information ---------------------------------------------------------------------------------------------------------------- Requested paperwork burden Collection of information -------------------------------------------------------------------------------- Annual responses Burden hours Outside professional cost burden (A) \a\ (A) x 7.0 x (0.25) \b\ (A) x 7.0 x (0.75) x $600 \c\ ---------------------------------------------------------------------------------------------------------------- Form F-SR...................... 1,200 2,100 $3,780,000 ---------------------------------------------------------------------------------------------------------------- \a\ From column (E) in Tables 2 and 4. VII. Final Regulatory Flexibility Analysis This Final Regulatory Flexibility Analysis (``FRFA'') has been prepared in accordance with the Regulatory Flexibility Act (``RFA'').\556\ It relates to the final amendments to the rules and forms described in Section III above. --------------------------------------------------------------------------- \555\ Figures in this table are rounded to the nearest whole number. \556\ 5 U.S.C. 601 et seq. --------------------------------------------------------------------------- A. Need for, and Objectives of, the Final Amendments The final amendments modernize and improve disclosure about repurchases of an issuer's equity securities that are registered under section 12 of the Exchange Act. The amendments require additional detail regarding the structure of an issuer's repurchase program and its share repurchases, require the filing of daily quantitative repurchase data either quarterly or semi-annually, and eliminate the requirement to file monthly repurchase data in an issuer's periodic reports. The amendments also revise and expand the existing periodic disclosure requirements about these purchases. Finally, the amendments add new quarterly disclosure in certain periodic reports related to an issuer's adoption and termination of certain trading arrangements. The reasons for, and objectives of, the final amendments are discussed in more detail in Sections I, II, and III above. We discuss the economic impact and potential alternatives to the amendments in Section V, and the estimated compliance costs and burdens of the amendments under the PRA in Section VI above. B. Significant Issues Raised by Public Comments In the Proposing Release \557\ and the Rule 10b5-1 Proposing Release,\558\ the Commission requested comment on any aspect of the Initial Regulatory Flexibility Analysis (``IRFA''), including the number of small entities that would be affected by the proposed amendments, the existence or nature of the potential impact of the proposed amendments on small entities discussed in the analysis, how the proposed amendments could further lower the burden on small entities, and how to quantify the impact of the proposed amendments. We did not receive any comments that specifically addressed the IRFA. However, some commenters addressed aspects of the proposals that could potentially affect small entities. --------------------------------------------------------------------------- \557\ See supra note 2. \558\ See supra note 17. --------------------------------------------------------------------------- In particular, two commenters asserted that the proposed amendments would increase the burdens on smaller issuers,\559\ and another commenter indicated its concern that the proposed amendments would induce issuers to use larger financial services firms over smaller ones.\560\ Several commenters [[Page 36053]] did not support exempting smaller issuers from the proposed amendments,\561\ but some of these commenters suggested providing small issuers with more time to provide the daily quantitative repurchase disclosures.\562\ Additionally, one commenter on the Rule 10b5-1 Proposing Release supported exempting SRCs from proposed Item 408(a), which we are adopting as new Item 408(d).\563\ For the reasons discussed in further detail above,\564\ we have not adopted any exemption for small entities. --------------------------------------------------------------------------- \559\ See letters from ACCO (``Regarding the Commission's Buyback Proposal, we find the real-time disclosure and incremental detail of Form SR to be onerous and unnecessary, but we would support similar enhanced disclosure to be reported in line with XBRL as part of the normal periodic reporting process. We don't view the proposed additional frequency and details as benefiting investors, while the burden (including the costs of compliance) placed on smaller public companies like ours would be significant.'') and Profs. Lewis and White (``Although small issuers likely conduct fewer repurchases than larger ones, they do repurchase their own shares periodically to offset equity dilution from compensation plans or to alter their capital structure. By nature of their size, small issuers incur disproportionate relative compliance costs.''). \560\ See letter from Guzman (``[T]he new rules would have the collateral damage of likely decreasing competition in the investment banking industry, shifting business away from smaller firms to large bulge bracket investment banks. This collateral effect would be driven by the erroneous perception that larger firms are better able to cope with the additional reporting requirements. While this concern is absolutely without basis in our case, it is a perception that may be common among risk-averse corporate treasuries. Multiple companies have told us that they believe larger institutions would be better equipped to (1) handle the additional compliance requirements and (2) better protect them from potential front- running trading that is likely to be created if their repurchase activity is reported daily.''). \561\ See, e.g., letters from Better Markets I, BrilLiquid, CFA Institute, Cravath, Hecht, and ICGN. \562\ See, e.g., letters from Cravath and Hecht. \563\ See letter in response to the Rule 10b5-1 Proposing Release from Maryland Bar. \564\ See Sections III.B.3 and III.C.3. --------------------------------------------------------------------------- C. Small Entities Subject to the Final Amendments The final amendments would affect some issuers that are small entities. The RFA defines ``small entity'' to mean ``small business,'' ``small organization,'' or ``small governmental jurisdiction.'' \565\ For purposes of the RFA, under our rules, an issuer, other than an investment company, is a ``small business'' or ``small organization'' if it had total assets of $5 million or less on the last day of its most recent fiscal year and is engaged or proposing to engage in an offering of securities not exceeding $5 million.\566\ An investment company, including a business development company,\567\ is considered to be a ``small business'' or ``small organization'' if it, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year.\568\ --------------------------------------------------------------------------- \565\ 5 U.S.C. 601(6). \566\ See 17 CFR 240.0-10(a). \567\ Business development companies are a category of closed- end investment company that are not registered under the Investment Company Act. See 15 U.S.C. 80a-2(a)(48) and 80a-53-64. \568\ 17 CFR 270.0-10(a). --------------------------------------------------------------------------- Commission staff estimates that there are approximately 780 issuers with a class of securities registered under section 12 of the Exchange Act that file with the Commission (other than investment companies),\569\ 23 Listed Closed-End Funds,\570\ and nine business development companies \571\ that may be considered small entities and are potentially subject to the final amendments other than new Item 408(d). Commission staff also estimates that, as of January 2022, there were approximately 1,380 issuers and two business development companies that may be considered small entities that would be subject to new Item 408(d).\572\ --------------------------------------------------------------------------- \569\ This estimate is based on staff analysis of issuers, excluding co-registrants, subsidiaries, investment companies, or asset-backed securities, with EDGAR filings of Form 10-K and 20-F, or amendments thereto, filed during the calendar year of January 1, 2021, to December 31, 2021. Analysis is based on data from XBRL filings, Compustat, Ives Group Audit Analytics, and manual review of filings submitted to the Commission. \570\ This estimate is derived from an analysis of data obtained from Morningstar Direct as well as data reported to the Commission for the period ending June 2021. \571\ Id. \572\ This estimate is based on staff analysis of Form 10-K filings on EDGAR, or amendments thereto, filed during the calendar year of Jan. 1, 2021, to Dec. 31, 2021, and on data from XBRL filings, Compustat, and Ives Group Audit Analytics. The staff noted that the estimated number of small entities includes approximately 344 entities that are special purpose acquisition companies (``SPACs''). A SPAC is typically a shell company that is organized for the purpose of merging with or acquiring one or more unidentified private operating companies within a certain time frame. Some of these small entities that are SPACs are unlikely to remain small entities once the SPAC has completed its initial business combination and becomes an operating company. --------------------------------------------------------------------------- D. Projected Reporting, Recordkeeping and Other Compliance Requirements The final amendments apply to small entities to the same extent as other entities, irrespective of size. As noted in Section VI.D. above, while we acknowledge that smaller entities are more likely to be affected by the costs of additional disclosure, smaller entities are also less likely to have share repurchases, which would limit the incremental burden of additional reporting under the final amendments.\573\ In addition, while we expect larger Listed Closed-End Funds and business development companies (``funds''), or funds that are part of a large fund complex, to incur higher costs related to final amendments in absolute terms relative to a smaller fund or a fund that is part of a smaller fund complex, we expect a smaller fund to find it more costly, per dollar managed, to comply with the final amendments because it would not be able to benefit from a larger fund complex's economies of scale. --------------------------------------------------------------------------- \573\ See supra Section V.D. In addition, in Section V.C. above we further note that to the extent that the final amendments affect small filers to a greater extent than large filers, they could result in adverse effects on competition. --------------------------------------------------------------------------- The final amendments require additional detail regarding the structure of an issuer's repurchase program and quantitative disclosure of its daily repurchase data that the issuer must tag using Inline XBRL. The final amendments are intended to modernize and improve disclosure about repurchases of an issuer's equity securities that are registered under section 12 of the Exchange Act. More specifically, the final amendments require: Corporate issuers that file on domestic forms to disclose daily quantitative repurchase data at the end of every quarter in an exhibit to their Form 10-Q and Form 10-K (for an issuer's fourth fiscal quarter); Listed Closed-End Funds to disclose daily quantitative repurchase data in their annual and semi-annual reports on Form N-CSR; and FPIs reporting on the FPI forms to disclose daily quantitative repurchase data at the end of every quarter in the new Form F-SR, which will be due 45 days after the end of an FPI's fiscal quarter. Additionally, the final amendments require an issuer to include a checkbox above its tabular disclosures indicating whether its officers and directors subject to the Exchange Act section 16(a) reporting requirements (for domestic corporate issuers and Listed Closed-End Funds) or its directors and members of senior management who would be identified pursuant to Item 1 of Form 20-F (for FPIs) purchased or sold shares or other units of the class of the issuer's equity securities that are registered pursuant to section 12 of the Exchange Act and subject of a publicly announced plan or program within four (4) business days before or after the issuer's announcement of such repurchase plan or program or the announcement of an increase of an existing share repurchase plan or program. Further, the final amendments eliminate the current requirements in Item 703 of Regulation S-K, Item 16E of Form 20-F, and Item 14 of Form N-CSR to disclose monthly repurchase data in periodic reports. Additionally, the final amendments require an issuer to disclose: The objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases; Any policies and procedures relating to purchases and sales of the issuer's securities during a repurchase program by the officers and directors, including any restriction on such transactions; and Whether it made its repurchases pursuant to a plan that is intended to satisfy the affirmative defense conditions of Rule 10b5- 1(c) and the date that the plan was adopted or terminated, and/or whether its repurchases were intended to qualify for [[Page 36054]] the Rule 10b-18 non-exclusive safe harbor. The final amendments also include new Item 408(d), which requires quarterly disclosure in periodic reports on Forms 10-Q and 10-K (for the issuer's fourth fiscal quarter) about an issuer's adoption and termination of Rule 10b5-1 trading arrangements. This information will also be reported using Inline XBRL. We anticipate that the direct costs of preparing disclosures in response to the final amendments will likely be relatively small as repurchase information will be readily available to issuers, including small entities, because they are already required to provide repurchase disclosures under existing rules. Additionally, to the extent that the final requirements have a greater effect on small filers relative to large filers, they could result in adverse effects on competition. The fixed component of the legal costs of preparing the disclosure could be one contributing factor. Compliance with certain provisions of the final amendments may require the use of professional skills, including accounting, legal, and technical skills.\574\ The final amendments are discussed in detail in Sections I, II, and III above. We discuss the economic impact, including the estimated compliance costs and burdens of the final rules on all issuers, including small entities, in Sections V and VI above. --------------------------------------------------------------------------- \574\ See supra Section III. --------------------------------------------------------------------------- E. Agency Action To Minimize Effect on Small Entities The RFA directs us to consider alternatives that would accomplish our stated objectives, while minimizing any significant adverse impact on small entities. In connection with the amendments, we considered the following alternatives: Establishing different compliance or reporting requirements or timetables that take into account the resources available to small entities; Clarifying, consolidating, or simplifying compliance and reporting requirements under the rules for small entities; Using performance rather than design standards; and Exempting small entities from all or part of the requirements.\575\ --------------------------------------------------------------------------- \575\ See supra Section III. --------------------------------------------------------------------------- The final amendments are intended to improve disclosure about repurchases of an issuer's equity securities for investors to evaluate those activities and decrease information asymmetry between issuers and investors. The additional disclosure, which will be provided in a machine-readable format, should permit investors to more quickly and efficiently evaluate information relating to issuer share repurchases, on a more granular basis. Moreover, any burdens associated with interactive data associated with the final amendments are estimated to be negligible.\576\ --------------------------------------------------------------------------- \576\ See supra note 540. --------------------------------------------------------------------------- With respect to using performance rather than design standards, the final amendments use design standards to promote uniform compliance requirements for all registrants and to address the concerns underlying the amendments, which apply to entities of all size. For example, the final amendments set forth specific disclosure requirements an issuer must satisfy in providing its daily quantitative disclosure information. These design standards will better ensure that investors will be provided with further insight into the details of an issuer's share repurchases, which when combined with other information available about the issuer, could diminish informational asymmetry, enhance transparency, and enable investors to undertake a more thorough assessment of issuer share repurchases. The final amendments do not provide an exemption or otherwise establish a delayed compliance timetable for small entities. We note, however, that small entities (and other issuers) are already required to provide repurchase disclosures under existing rules. Moreover, while we acknowledge that small entities are more likely to be affected by the costs of additional disclosure, all else equal (holding constant the disclosure burden), small entities are less likely to have share repurchases,\577\ which would limit the incremental burden of additional reporting under the final amendments for each small entity. Further, to the extent that small entities have relatively high information asymmetries because of lower analyst and institutional coverage, the additional disclosure about their repurchases may be relatively more informative to investors. The final amendments do, however, simplify and consolidate reporting for small entities (and other issuers) by requiring quarterly and semi-annual reporting of daily quantitative repurchase data instead of daily reporting of such data, as proposed. --------------------------------------------------------------------------- \577\ See supra Section V.D. --------------------------------------------------------------------------- Statutory Authority The amendments contained in this release are being adopted under the authority set forth in sections 12, 13, 15, and 23(a) of the Exchange Act, and sections 8, 23, 24(a), 30, 31, and 38 of the Investment Company Act. List of Subjects in 17 CFR Parts 229, 232, 240, 249, and 274 Reporting and record keeping requirements, Securities. For the reasons set forth in the preamble, the Commission is amending title 17, chapter II of the Code of Federal Regulations as follows: PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND CONSERVATION ACT OF 1975--REGULATION S-K 0 1. The authority citation for part 229 continues to read as follows: Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u- 5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a- 31(c), 80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012). 0 2. Amend Sec. 229.408 by adding paragraph (d) to read as follows: Sec. 229.408 (Item 408) Insider trading arrangements and policies. * * * * * (d)(1) Disclose whether, during the registrant's last fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report), the registrant adopted or terminated any Rule 10b5-1 trading arrangement as that term is defined in paragraph (a)(1)(i) of this section. In addition, provide a description of the material terms of the Rule 10b5-1 trading arrangement (other than terms with respect to the price at which the party executing the Rule 10b5-1 trading arrangement is authorized to trade), such as: (i) The date on which the registrant adopted or terminated the Rule 10b5-1 trading arrangement; (ii) The duration of the Rule 10b5-1 trading arrangement; and (iii) The aggregate number of securities to be purchased or sold pursuant to the Rule 10b5-1 trading arrangement. Note 1 to paragraph (d)(1): If the disclosure provided pursuant to Sec. 229.703 contains disclosure that would satisfy the requirements of paragraph (d)(1) of this section, a cross-reference to that disclosure will also satisfy the requirements of [[Page 36055]] paragraph (d)(1). (2) The disclosure provided pursuant to paragraph (d)(1) of this section must be provided in an Interactive Data File as required by Sec. 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual. 0 3. Amend Sec. 229.601 by: 0 a. In the exhibit table in paragraph (a), adding entry 26; and 0 b. Adding paragraph (b)(26). The additions read as follows: Sec. 229.601 (Item 601) Exhibits. (a) * * * Exhibit Table ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Securities act forms Exchange act forms ----------------------------------------------------------------------------------------------------------------------------------------------------- S-1 S-3 SF-1 SF-3 S-4 \1\ S-8 S-11 F-1 F-3 F-4 \1\ 10 8-K \2\ 10-D 10-Q 10-K ABS-EE ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ * * * * * * * (26) Purchases of equity securities by the ...... ...... ........ ........ ........ ...... ....... ...... ...... ........ ..... ........ ........ X X ............ issuer and affiliated purchasers......... * * * * * * * ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \1\ An exhibit need not be provided about a company if: (1) With respect to such company an election has been made under Form S-4 or F-4 to provide information about such company at a level prescribed by Form S-3 or F-3; and (2) the form, the level of which has been elected under Form S-4 or F-4, would not require such company to provide such exhibit if it were registering a primary offering. \2\ A Form 8-K exhibit is required only if relevant to the subject matter reported on the Form 8-K report. For example, if the Form 8-K pertains to the departure of a director, only the exhibit described in paragraph (b)(17) of this section need be filed. A required exhibit may be incorporated by reference from a previous filing. * * * * * * * (b) * * * (26) Purchases of equity securities by the issuer and affiliated purchasers. (i) Every issuer that has a class of equity securities registered pursuant to section 12 of the Exchange Act (15 U.S.C. 781) that files quarterly reports on Form 10-Q or an annual report on Form 10-K must file, in the following tabular format, an exhibit to those reports disclosing, for the period covered by the report (or the issuer's fourth fiscal quarter, in the case of an annual report on Form 10-K), the total purchases made each day by or on behalf of the issuer or any ``affiliated purchaser,'' as defined in Sec. 240.10b-18(a)(3) of this chapter, of shares or other units of any class of the issuer's equity securities that are registered by the issuer pursuant to section 12 of the Exchange Act. (ii) The information provided pursuant to this paragraph (b)(26) must be provided in an Interactive Data File as required by Sec. 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual. (iii) This paragraph (b)(26) shall not apply to an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.). (iv) Disclose in the table: (A) The date, which is the date on which the purchase of shares (or units) is executed (column (a)); (B) The class of shares (or units), which should clearly identify the class, even if the issuer has only one class of securities outstanding (column (b)); (C) The total number of shares (or units) purchased on this date, which includes all shares (or units) purchased by or on behalf of the issuer or any affiliated purchaser, regardless of whether made pursuant to publicly announced repurchase plans or programs (column (c)); (D) The average price paid per share (or unit), which shall be reported in U.S. dollars and exclude brokerage commissions and other costs of execution (column (d)); (E) The total number of shares (or units) purchased on this date as part of publicly announced repurchase plans or programs (column (e)); (F) The aggregate maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the publicly announced repurchase plans or programs (column (f)); (G) Total number of shares (or units) purchased on this date on the open market, which includes all shares (or units) repurchased by the issuer in open-market transactions, and does not include shares (or units) purchased in tender offers, in satisfaction of the issuer's obligations upon exercise of outstanding put options issued by the issuer, or other transactions (column (g)); (H) Total number of shares (or units) purchased on this date that are intended by the issuer to qualify for the safe harbor in Sec. 240.10b-18 of this chapter (Rule 10b-18) (column (h)); and (I) Total number of shares (or units) purchased on this date pursuant to a plan that is intended by the issuer to satisfy the affirmative defense conditions of Sec. 240.10b5-1(c) of this chapter (Rule 10b5-1(c)) (column (i)). (v) Disclose, by footnote to the table, the date any plan that is intended to satisfy the affirmative defense conditions of Rule 10b5- 1(c) for the shares (or units) in column (i) was adopted or terminated. (vi) In determining whether to check the box under ``Issuer Purchases of Equity Securities,'' the issuer may rely on the following, unless the issuer knows or has reason to believe that a form was filed inappropriately or that a form should have been filed but was not: (A) A review of Forms 3 and 4 (Sec. Sec. 249.103 and 249.104 of this chapter) and amendments thereto filed electronically with the Commission during the issuer's most recent fiscal year; (B) A review of Form 5 (Sec. 249.105 of this chapter) and amendments thereto filed electronically with the Commission with respect to the issuer's most recent fiscal year; (C) Any written representation from the reporting person that no Form 5 is required. The issuer must maintain the representation in its records for two years, making a copy available to the Commission or its staff upon request; and (D) For foreign private issuers, any written representations from the directors and senior management who would be identified pursuant to Item 1 of Form 20-F, provided that the reliance is reasonable. The issuer must maintain the representation in its records for two years, making a copy available to the Commission or its staff upon request. BILLING CODE 8011-01-P [[Page 36056]] Figure 1 to Paragraph (b)(26)--Issuer Purchases of Equity Securities (Tabular Format) [GRAPHIC] [TIFF OMITTED] TR01JN23.000 BILLING CODE 8011-01-C * * * * * 0 4. Revise Sec. 229.703 to read as follows: Sec. 229.703 (Item 703) Purchases of equity securities by the issuer and affiliated purchasers. (a) Disclose the specified information in narrative form with respect to the issuer's repurchases of equity securities disclosed pursuant to Sec. 229.601(b)(26) (Item 601(b)(26) of Regulation S-K) and refer to the particular repurchases in the table in Item 601(b)(26) of Regulation S-K that correspond to the different parts of the narrative, if applicable: (1) The objectives or rationales for each repurchase plan or program and the process or criteria used to determine the amount of repurchases. (2) The number of shares (or units) purchased other than through a publicly announced plan or program, and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the issuer's obligations upon exercise of outstanding put options issued by the issuer, or other transactions). (3) For publicly announced repurchase plans or programs: (i) The date each plan or program was announced; (ii) The dollar amount (or share or unit amount) approved; (iii) The expiration date (if any) of each plan or program; (iv) Each plan or program that has expired during the period covered by the table in Item 601(b)(26) of Regulation S-K; and [[Page 36057]] (v) 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. (4) 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 restrictions on such transactions. (b) The disclosure provided pursuant to paragraph (a) of this section must be provided in an Interactive Data File as required by Sec. 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual. PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR ELECTRONIC FILINGS 0 5. The general authority citation for part 232 continues to read as follows: Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 80a-8, 80a-29, 80a-30, 80a-37, 80b-4, 80b-6a, 80b-10, 80b-11, 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted. * * * * * 0 6. Amend Sec. 232.405 by: 0 a. Revising the introductory text and paragraphs (a)(2) and (4) and (b)(4)(iii); 0 b. Adding paragraph (b)(4)(iv); and 0 c. Revising Note 1 to Sec. 232.405. The revisions and addition read as follows: Sec. 232.405 Interactive Data File submissions. This section applies to electronic filers that submit Interactive Data Files. Section 229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K), General Instruction F of Form 11-K (Sec. 249.311 of this chapter); paragraph (101) of Part II--Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (Sec. 239.40 of this chapter), Sec. 240.13a-21 of this chapter (Rule 13a-21 under the Exchange Act), paragraph 101 of the Instructions as to Exhibits of Form 20-F (Sec. 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (Sec. 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (Sec. 249.306 of this chapter), Sec. 240.17Ad-27(d) of this chapter (Rule 17Ad-27(d) under the Exchange Act), Note D.5 of Sec. 240.14a-101 of this chapter (Rule 14a-101 under the Exchange Act), Item 1 of Sec. 240.14c-101 of this chapter (Rule 14c-101 under the Exchange Act), General Instruction I of Form F-SR (Sec. 249.333 of this chapter), General Instruction C.3.(g) of Form N-1A (Sec. Sec. 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (Sec. Sec. 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (Sec. Sec. 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (Sec. Sec. 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (Sec. Sec. 239.17c and 274.11d of this chapter), and General Instruction C.4 of Form N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter) specify when electronic filers are required or permitted to submit an Interactive Data File (Sec. 232.11), as further described in note 1 to this section. This section imposes content, format, and submission requirements for an Interactive Data File, but does not change the substantive content requirements for the financial and other disclosures in the Related Official Filing (Sec. 232.11). (a) * * * (2) Be submitted only by an electronic filer either required or permitted to submit an Interactive Data File as specified by Item 601(b)(101) of Regulation S-K, General Instruction F of Form 11-K (Sec. 249.311 of this chapter); paragraph (101) of Part II-- Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (Sec. 239.40 of this chapter), Sec. 240.13a-21 of this chapter (Rule 13a-21 under the Exchange Act), paragraph 101 of the Instructions as to Exhibits of Form 20-F (Sec. 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (Sec. 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (Sec. 249.306 of this chapter), Rule 17Ad- 27(d) under the Exchange Act, Note D.5 of Rule 14a-101 under the Exchange Act, Item 1 of Rule 14c-101 under the Exchange Act, General Instruction I to Form F-SR (Sec. 249.333 of this chapter), General Instruction C.3.(g) of Form N-1A (Sec. Sec. 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (Sec. Sec. 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (Sec. Sec. 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (Sec. Sec. 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (Sec. Sec. 239.17c and 274.11d of this chapter), or General Instruction C.4 of Form N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter), as applicable; * * * * * (4) Be submitted in accordance with the EDGAR Filer Manual and, as applicable, Item 601(b)(101) of Regulation S-K, General Instruction F of Form 11-K (Sec. 249.311 of this chapter), paragraph (101) of Part II--Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (Sec. 239.40 of this chapter), Rule 13a-21 under the Exchange Act, paragraph 101 of the Instructions as to Exhibits of Form 20-F (Sec. 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (Sec. 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (Sec. 249.306 of this chapter), Rule 17Ad-27(d) under the Exchange Act, Note D.5 of Rule 14a- 101 under the Exchange Act, Item 1 of Rule 14c-101 under the Exchange Act, General Instruction I to Form F-SR (Sec. 249.333 of this chapter), General Instruction C.3.(g) of Form N-1A (Sec. Sec. 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (Sec. Sec. 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (Sec. Sec. 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (Sec. Sec. 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (Sec. Sec. 239.17c and 274.11d of this chapter); or General Instruction C.4 of Form N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter). (b) * * * (4) * * * (iii) Any disclosure provided in response to: Sec. 229.402(x) of this chapter (Item 402(x) of Regulation S-K); Sec. 229.408(a)(1) and (2) of this chapter (Item 408(a)(1) and (2) of Regulation S-K); Sec. 229.408(b)(1) of this chapter (Item 408(b)(1) of Regulation S-K); Sec. 229.408(d) of this chapter (Item 408(d) of Regulation S-K); and Item 16J(a) of Form 20-F (Sec. 249.220f of this chapter). (iv) Any disclosure provided in response to: Sec. 229.601(b)(26) of this chapter (Item 601(b)(26) of Regulation S-K); Sec. 229.703 of this chapter (Item 703 of Regulation S-K); Item 16E of Form 20-F (Sec. 249.220f of this chapter); Item 14 of Form N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter); Rule 13a-21 under the Exchange Act; and General Instruction I to Form F-SR (Sec. 249.333 of this chapter). * * * * * Note 1 to Sec. 232.405: Item 601(b)(101) of Regulation S-K specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Sec. Sec. 239.11 (Form S-1), 239.13 (Form S-3), 239.25 (Form S-4), 239.18 (Form S-11), 239.31 (Form F-1), 239.33 (Form F-3), 239.34 (Form F-4), 249.310 (Form 10- K), 249.308a (Form 10-Q), and 249.308 (Form 8-K). General Instruction F of Form 11-K (Sec. 249.311 of this chapter) specifies the circumstances under which an Interactive Data File must be submitted, and the circumstances under which it is permitted to be submitted, with respect to Form 11-K. Paragraph (101) of Part II-- Information not [[Page 36058]] Required to be Delivered to Offerees or Purchasers of Form F-10 (Sec. 239.40 of this chapter) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Form F-10. Paragraph 101 of the Instructions as to Exhibits of Form 20-F (Sec. 249.220f of this chapter) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Form 20-F. Paragraph B.(15) of the General Instructions to Form 40-F (Sec. 249.240f of this chapter) and Paragraph C.(6) of the General Instructions to Form 6-K (Sec. 249.306 of this chapter) specify the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Sec. Sec. 249.240f (Form 40-F) and 249.306 of this chapter (Form 6-K). Rule 17Ad-27(d) under the Exchange Act specifies the circumstances under which an Interactive Data File must be submitted with respect the reports required under Rule 17Ad-27. Note D.5 of Sec. 240.14a-101 of this chapter (Schedule 14A) and Item 1 of Sec. 240.14c-101 of this chapter (Schedule 14C) specify the circumstances under which an Interactive Data File must be submitted with respect to Schedules 14A and 14C. Rule 13a-21 under the Exchange Act and General Instruction I to Form F-SR (Sec. 249.333 of this chapter) specify the circumstances under which an Interactive Data File must be submitted, with respect to Form F-SR. Item 601(b)(101) of Regulation S-K, paragraph (101) of Part II--Information not Required to be Delivered to Offerees or Purchasers of Form F-10, paragraph 101 of the Instructions as to Exhibits of Form 20-F, paragraph B.(15) of the General Instructions to Form 40-F, and paragraph C.(6) of the General Instructions to Form 6-K all prohibit submission of an Interactive Data File by an issuer that prepares its financial statements in accordance with Sec. Sec. 210.6-01 through 210.6-10 of this chapter (Article 6 of Regulation S-X). For an issuer that is a management investment company or separate account registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.) or a business development company as defined in section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), General Instruction C.3.(g) of Form N-1A (Sec. Sec. 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (Sec. Sec. 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (Sec. Sec. 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (Sec. Sec. 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (Sec. Sec. 239.17c and 274.11d of this chapter), and General Instruction C.4 of Form N-CSR (Sec. Sec. 249.331 and 274.128 of this chapter), as applicable, specifies the circumstances under which an Interactive Data File must be submitted. PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 0 7. The general authority citation for part 240 continues to read as follows: Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. * * * * * 0 8. Add Sec. 240.13a-21 to read as follows: Sec. 240.13a-21 Purchases of equity securities by a foreign private issuer and affiliated purchasers. (a) Every foreign private issuer that has a class of equity securities registered pursuant to section 12 of the Act (15 U.S.C. 781) and that does not file quarterly reports on Form 10-Q (Sec. 249.308a of this chapter) and annual reports on Form 10-K (Sec. 249.310 of this chapter) must file a Form F-SR (Sec. 249.333 of this chapter) disclosing, for the period covered by the form and as specified by the form, the aggregate purchases during each day made by or on behalf of the issuer or any ``affiliated purchaser,'' as defined in Sec. 240.10b-18(a)(3), of shares or other units of any class of the issuer's equity securities that is registered by the issuer pursuant to section 12 of the Act, within the time period specified in General Instruction I to Form F-SR. The information provided pursuant to the form must be provided in an Interactive Data File as required by Sec. 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual. (b) Paragraph (a) of this section shall not apply to an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et. seq.). PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934 0 9. The authority citation for part 249 continues to read, in part, as follows: Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat. 1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec. 107 Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94, 129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat. 1063 (2020), unless otherwise noted. Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 306(a), 401(a), 401(b), 406 and 407, Pub. L. 107-204, 116 Stat. 745, and secs. 2 and 3, Pub. L. 116-222, 134 Stat. 1063. * * * * * Section 249.308a is also issued under secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745. * * * * * Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 406 and 407, Pub. L. 107-204, 116 Stat. 745. * * * * * 0 10. Amend Form 20-F (referenced in Sec. 249.220f) by revising Part II, Item 16E. Note: Form 20-F is attached as Appendix A to this document. Form 20-F will not appear in the Code of Federal Regulations. 0 11. Amend Form 10-Q (referenced in Sec. 249.308a) by revising the heading of Item 2 in Part II, paragraph (c) to Item 2 in Part II, and paragraph (c) to Item 5 in Part II. Note: Form 10-Q is attached as Appendix B to this document. Form 10-Q will not appear in the Code of Federal Regulations. 0 12. Amend Form 10-K (referenced in Sec. 249.310) by revising General Instruction J(1)(l), paragraph (c) to Item 5 in Part II and Item 9B in Part II. Note: Form 10-K is attached as Appendix C to this document. Form 10-K will not appear in the Code of Federal Regulations. 0 13. Add Sec. 249.333 to read as follows: Sec. 249.333 Form F-SR. This form shall be used for reporting of purchases by or on behalf of the issuer or an affiliated purchaser of equity securities registered by the issuer pursuant to section 12 of the Exchange Act (15 U.S.C. 781) that does not file quarterly reports on Form 10-Q (Sec. 249.308a), and annual reports on Form 10-K (Sec. 249.310), pursuant to Sec. 240.13a-21 of this chapter. 0 14. Add Form F-SR (referenced in Sec. 249.333). Note: Form F-SR is attached as Appendix D to this document. Form F-SR will not appear in the Code of Federal Regulations. PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940 0 15. The general authority citation for part 274 continues to read as follows: Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and 80a-37 unless otherwise noted. * * * * * [[Page 36059]] 0 16. Amend Form N-CSR (referenced in Sec. Sec. 249.331 and 274.128) by revising Item 14. Note: The text of Form N-CSR is attached as Appendix E to this document. Form N-CSR will not appear in the Code of Federal Regulations. By the Commission. Dated: May 3, 2023. Vanessa A. Countryman, Secretary. Appendix A--Form 20-F Form 20-F * * * * * Part II * * * * * Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers (a) For the Form F-SRs filed during the fiscal year covered by the Form 20-F, disclose the specified information in narrative form with respect to the issuer's repurchases of equity securities that were disclosed in the issuer's Form F-SRs (required by Sec. 240.13a-21 of this chapter), and refer to the particular repurchases in the table in the applicable Form F-SR that correspond to the different parts of the narrative, if applicable: (1) The objectives or rationales for each repurchase plan or program and the process or criteria used to determine the amount of repurchases. (2) The number of shares (or units) purchased other than through a publicly announced plan or program, and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the issuer's obligations upon exercise of outstanding put options issued by the company, or other transactions). (3) For publicly announced repurchase plans or programs: (i) The date each plan or program was announced; (ii) The dollar amount (or share or unit amount) approved; (iii) The expiration date (if any) of each plan or program; (iv) Each plan or program that has expired during the period covered by the tables in Form F-SRs; and (v) 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. (4) Any policies and procedures relating to purchases and sales of the issuer's securities by its directors and members of senior management during a repurchase program, including any restrictions on such transactions. (b) The disclosure provided pursuant to this Item must be provided in an Interactive Data File as required by Sec. 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual. * * * * * Appendix B--Form 10-Q FORM 10-Q * * * * * Part II--Other Information * * * * * Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities. (c) Furnish the information required by Item 703 of Regulation S-K (Sec. 229.703 of this chapter) for any repurchases made in the quarter covered by the report. * * * * * Item 5. Other Information. * * * * * (c) Furnish the information required by Items 408(a) and 408(d) of Regulation S-K ((Sec. Sec. 229.408(a) and 229.408(d)). * * * * * FORM 10-K * * * * * General Instructions * * * * * J. Use of This Form by Asset-Backed Issuers * * * * * (1) * * * * * * * * (l) Item 9A, Controls and Procedures and Item 9B(b), Other Information; * * * * * Part II * * * * * Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities * * * * * (c) Furnish the information required by Item 703 of Regulation S-K (Sec. 229.703 of this chapter) for any repurchase made in the fourth quarter of the fiscal year covered by the report. * * * * * Item 9B. Other Information (a) The registrant must disclose under this item any information required to be disclosed in a report on Form 8-K during the fourth quarter of the year covered by this Form 10-K, but not reported, whether or not otherwise required by this Form 10-K. If disclosure of such information is made under this item, it need not be repeated in a report on Form 8-K which would otherwise be required to be filed with respect to such information or in a subsequent report on Form 10-K. (b) Furnish the information required by Items 408(a) and 408(d) of Regulation S-K (Sec. Sec. 229.408(a) and 229.408(d) of this chapter). * * * * * Appendix D--Form F-SR United States Securities and Exchange Commission Washington, DC 20549 FORM F-SR Foreign Private Issuer Share Repurchase Report ----------------------------------------------------------------------- (Exact name of registrant as specified in its charter) ----------------------------------------------------------------------- (Translation of Registrant's name into English) ----------------------------------------------------------------------- (Jurisdiction of incorporation or organization) ----------------------------------------------------------------------- (Address of Principal Executive Offices) ----------------------------------------------------------------------- ----------------------------------------------------------------------- (Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person) Securities registered pursuant to Section 12(b) of the Act: ------------------------------------------------------------------------ Trading Name of each exchange Title of each class symbol(s) on which registered ------------------------------------------------------------------------ ------------------------------------------------------------------------ Securities registered pursuant to section 12(g) of the Act: ----------------------------------------------------------------------- (Title of class) ----------------------------------------------------------------------- (Title of class) General Instructions I. Repurchases To Be Reported and Time for Filing of Report If purchases are made by or on behalf of the registrant or any ``affiliated purchaser,'' as defined in 17 CFR 10b-18(a)(3) of this chapter, of shares or other units of any class of the registrant's equity securities that is registered pursuant to section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781), file with the Commission in accordance with the requirements of 17 CFR 240.13a-21 (Rule 13a-21) the information set forth below in an Interactive Data File as required by 17 CFR 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual within 45 days after the end of the registrant's fiscal quarter. [[Page 36060]] II. Items To Be Disclosed in Form F-SR (a) The date, which is the date on which the purchase of shares (or units) is executed (column (a)); (b) The class of shares (or units), which should clearly identify the class, even if the registrant has only one class of securities outstanding (column (b)); (c) The total number of shares (or units) purchased on this date, which includes all shares (or units) purchased by or on behalf of the registrant or any affiliated purchaser, regardless of whether made pursuant to publicly announced repurchase plans or programs (column (c)); (d) The average price paid per share (or unit), which shall be reported in U.S. dollars and exclude brokerage commissions and other costs of execution (column (d)); (e) The total number of shares (or units) purchased on this date as part of publicly announced repurchase plans or programs (column (e)); (f) The aggregate maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the publicly announced repurchase plans or programs (column (f)); (g) Total number of shares (or units) purchased on this date on the open market, which includes all shares (or units) repurchased by the registrant in open-market transactions, and does not include shares (or units) purchased in tender offers, in satisfaction of the registrant's obligations upon exercise of outstanding put options issued by the registrant, or other transactions (column (g)); (h) Total number of shares (or units) purchased on this date that are intended by the registrant to qualify for the safe harbor in Sec. 240.10b-18 of this chapter (Rule 10b-18) (column (h)); and (i) Total number of shares (or units) purchased on this date pursuant to a plan that is intended by the registrant to satisfy the affirmative defense conditions of Sec. 240.10b5-1(c) of this chapter (Rule 10b5-1(c)) (column (i)). (j) Disclose, by footnote to the table, the date any plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) for the shares (or units) in column (i) was adopted or terminated. III. Instructions for Preparing the Report (a) This form is not to be used as a blank form to be filled in, but only as a guide in the preparation of the report meeting the requirements of 17 CFR 240.13a-21 (Rule 13a-21). The report shall contain all columns of the table, and any columns for which there is no relevant information may be appropriately marked or left blank. The table may contain additional columns as necessary to provide disclosure responsive to the requirements of Rule 13a-21 provided the answers thereto are prepared in the manner specified in Rule 12b-13 (17 CFR 240.12b-13). These General Instructions are not to be filed with the report. (b) The disclosure provided relates to the registrant's securities in ordinary share form, whether the registrant has repurchased the shares or depositary receipts that represent the shares. (c) Price data and other data should be stated in the same currency used in the registrant's primary financial statements. (d) In determining whether to check the box under ``Registrant Purchases of Equity Securities,'' the registrant may rely on written representations from the directors and senior management who would be identified pursuant to Item 1 of Form 20-F, provided that the reliance is reasonable. The registrant must maintain the representation in its records for two years, making a copy available to the Commission or its staff upon request. IV. Submission of the Form This form must be submitted in electronic format via our Electronic Data Gathering Analysis and Retrieval System (EDGAR) in accordance with EDGAR rules set forth in Regulation S-T (17 CFR part 232). You must provide the signatures required for the Form in accordance with 17 CFR 232.302. BILLING CODE 8011-01-P [[Page 36061]] [GRAPHIC] [TIFF OMITTED] TR01JN23.002 BILLING CODE 8011-01-C [[Page 36062]] Appendix E--Form N-CSR Form N-CSR * * * * * Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers (a) Purchases of Equity Securities by the Registrant and Affiliated Purchasers. (i) If the registrant is a closed-end management investment company, provide the specified information in the following tabular format, disclosing, for the period covered by the report, the total purchases made during each day by or on behalf of the registrant or any ``affiliated purchaser,'' as defined in Sec. 240.10b-18(a)(3) of this chapter, of shares or other units of any class of the registrant's equity securities that is registered by the registrant pursuant to section 12 of the Exchange Act. (ii) Disclose in the table: (A) The date, which is the date on which the purchase of shares (or units) is executed (column (a)); (B) The class of shares (or units), which should clearly identify the class, even if the registrant has only one class of securities outstanding (column (b)); (C) The total number of shares (or units) purchased on this date, which includes all shares (or units) purchased by or on behalf of the registrant or any affiliated purchaser, regardless of whether made pursuant to publicly announced repurchase plans or programs (column (c)); (D) The average price paid per share (or unit), which shall be reported in U.S. dollars and exclude brokerage commissions and other costs of execution (column (d)); (E) The total number of shares (or units) purchased on this date as part of publicly announced repurchase plans or programs (column (e)); (F) The aggregate maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the publicly announced repurchase plans or programs (column (f)); (G) Total number of shares (or units) purchased on this date on the open market, which includes all shares (or units) repurchased by the registrant in open-market transactions, and does not include shares (or units) purchased in tender offers, in satisfaction of the registrant's obligations upon exercise of outstanding put options issued by the registrant, or other transactions (column (g)); (H) Total number of shares (or units) purchased on this date that are intended by the registrant to qualify for the safe harbor in Sec. 240.10b-18 (Rule 10b-18) of this chapter (column (h)); and (I) Total number of shares (or units) purchased on this date pursuant to a plan that is intended by the registrant to satisfy the affirmative defense conditions of Sec. 240.10b5-1(c) (Rule 10b5- 1(c)) of this chapter (column (i)). (iii) Disclose, by footnote to the table, the date any plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) for the shares (or units) in column (i) was adopted or terminated. (iv) In determining whether to check the box under ``Registrant Purchases of Equity Securities,'' the registrant may rely on the following, unless the registrant knows or has reason to believe that a form was filed inappropriately or that a form should have been filed but was not: (A) A review of Forms 3 and 4 (17 CFR 249.103 and 249.104) and amendments thereto filed electronically with the Commission during the registrant's most recent fiscal year; (B) A review of Form 5 (17 CFR 249.105) and amendments thereto filed electronically with the Commission with respect to the registrant's most recent fiscal year; and (C) Any written representation from the reporting person that no Form 5 is required. The registrant must maintain the representation in its records for two years, making a copy available to the Commission or its staff upon request. BILLING CODE 8011-01-P [[Page 36063]] [GRAPHIC] [TIFF OMITTED] TR01JN23.001 (b) Disclose the specified information in narrative form with respect to the registrant's repurchases of equity securities disclosed in paragraph (a) and refer to the particular repurchases in the table in paragraph (a) that correspond to the different parts of the narrative, if applicable: (1) The objectives or rationales for each repurchase plan or program and the process or criteria used to determine the amount of repurchases; (2) The number of shares (or units) purchased other than through a publicly announced plan or program, and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the registrant's obligations upon exercise of outstanding put options issued by the registrant, or other transactions); (3) For publicly announced repurchase plans or programs: (i) The date each plan or program was announced; (ii) The dollar amount (or share or unit amount) approved; (iii) The expiration date (if any) of each plan or program; (iv) Each plan or program that has expired during the period covered by the table in paragraph (a); and (v) Each plan or program the registrant has determined to terminate prior to expiration, or under which the registrant does not intend to make further purchases. (4) Any policies and procedures relating to purchases and sales of the registrant's securities by its officers and directors during a repurchase program, including any restrictions on such transactions. (c) The disclosure provided pursuant to this Item must be provided in an Interactive Data File as required by Sec. 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual. [FR Doc. 2023-09965 Filed 5-31-23; 8:45 am] BILLING CODE 8011-01-C
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