Share Repurchase Disclosure Modernization

Federal RegisterJun 1, 2023

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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:

15 U.S.C. 78a

et seq.

Commission reference

CFR citation

(17 CFR)

Regulation S-K:

Items 10 through 1305

§§ 229.10 through 229.1305.

Item 408

§ 229.408.

Item 601

§ 229.601.

Item 703

§ 229.703.

Regulation S-T:

Rules 10 through 903

§§ 232.10 through 232.903.

Rule 405

§ 232.405.

Securities Exchange Act of 1934 (“Exchange Act”):

Rule 13a-21

§ 240.13a-21.

Form F-SR

Form 20-F

§ 249.220f.

Form 10-Q

§ 249.308a.

Form 10-K

§ 249.310.

Form N-CSR

§§ 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

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,

the Commission proposed amendments to the disclosure requirements regarding purchases of classes of equity securities registered under 15 U.S.C. 78

(“Exchange Act section 12”) made by or on behalf of an issuer or any affiliated purchaser.

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.

Specifically the Commission proposed to:

Share Repurchase Disclosure Modernization,

Release No. 34-93783 (Dec. 15, 2021) [87 FR 8443 (Feb. 15, 2022)] (“Proposing Release”).

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.

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

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.

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”).

The disclosure requirements apply to both open market and private transactions, and currently require an issuer to disclose in tabular format:

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.

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.

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.

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

technological error in the Commission's internet comment form.

The First Reopening Release was published in the

Federal Register

on October 18, 2022, and the comment period ended on November 1, 2022.

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”).

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”).

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.

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

(“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.

We have considered the potential effects of the excise tax and the additional comments received

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.

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”).

See

Public Law 117-169, 136 Stat. 1818 (2022).

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.

See infra

Section V.A.2.

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.

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,

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,

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.

Rule 10b5-1 and Insider Trading,

Release No. 33-11013 (Jan. 13, 2022) [87 FR 8686 (Feb. 15, 2022)] (“Rule 10b5-1 Proposing Release”).

Insider Trading Arrangements and Related Disclosure,

Release No. 33-11138 (Dec. 14, 2022) [87 FR 80362 (Dec. 29, 2022)] (“Rule 10b5-1 Adopting Release”).

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”)

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.

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.

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

• Foreign private issuers (“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.

“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.

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.

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.

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.

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.

Existing studies, including a review by Commission staff in 2020,

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.

See

Section V.A.2,

infra.

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).

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.

However, as noted in the Proposing Release,

and by several commenters,

share repurchases may be at least partially motivated by factors other than long-term value maximization.

See

Bonaimé, A.A. & Kahle, K.M.,

Share Repurchases,

in Handbook of Corporate Finance (B. Espen Eckbo ed., forthcoming 2023) (“Bonaimé 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)”).

See

Bonaimé 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.

See

Proposing Release,

supra

note 2, at 8444-8446.

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”).

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.

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,

which through their mechanical effect of decreasing the denominator of that measure help such issuers to meet their target.

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

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.

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.

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.

In this regard,

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.

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”).

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).

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.

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.”

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.

See

letter from Prof. Edmans.

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.

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.

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.

See supra

notes 27-29 and accompanying text.

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

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.”

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.

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.”

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.

Proposing Release,

supra

note 2, at 8445.

Proposing Release,

supra

note 2, at 8446 and 8457.

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.

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.

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,

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.”

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.

See

Proposing Release,

supra

note 2, at 8444-8445.

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.

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.

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.”

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.”

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”).

Proposing Release,

supra

note 2, at 8457.

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.

Because issuers are repurchasing their

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.

See

Rule 10b5-1 Adopting Release,

supra

note 18, at 80362-80363 and 80372.

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

Bonaimé, 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) (“Bonaimé

et al.

(2020)”).

In light of these concerns, the concerns expressed by commenters,

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.

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.

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:

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;

and

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).

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

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.

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,

several commenters generally supported the proposed daily repurchase disclosure.

Some of the commenters that supported the proposed amendments asserted that they would reduce information asymmetries between issuers and investors,

which would result in “greater confidence that they can find accurate, comprehensive information about a security and the broader investment field.”

Other commenters stated that daily disclosure of share repurchases would increase transparency.

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”).

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.

See, e.g.,

letters from CFA Institute and Lewis.

See

letter from Lewis.

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.

Other commenters suggested that the costs of the proposed amendments would be minimal,

with one commenter noting that, at most, the proposed amendments would be “a minor incremental administrative burden.”

Some commenters indicated that the proposed amendments would enable the Commission to determine issuers' compliance with the Rule 10b-18 safe harbor.

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.”

See, e.g.,

letters from CalPERS and ICGN.

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”).

See

letter from CFA Institute.

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.

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.

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,

and share repurchase activity does not carry the same signaling value as those situations.

Other commenters asserted that the justification for the one business day requirement is not

evident.

A number of commenters asserted that the proposed amendments would increase costs without a corresponding benefit.

Some commenters suggested that daily repurchase disclosures could cause investors to misinterpret an issuer's day-to-day changes in trading activity,

which could result in unjustified stock price volatility

or the disruption of confidential merger or acquisition discussions.

Additionally, although some commenters suggested that investors might use daily disclosure data to identify the issuer's trading strategies,

other commenters observed that a move to periodic reporting should substantially mitigate any such concern.

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.

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.

See

letter from Davis Polk.

See

letters from Chamber II, NAM, and T. Rowe Price.

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.

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.

See, e.g.,

letters from Cravath, Davis Polk, Profs. Lewis and White, and SCG.

See, e.g.,

letters from Davis Polk, PNC, SIFMA II, and Sullivan.

See

letters from Home Depot and PNC.

See

letters from Cravath and Davis Polk.

Several commenters claimed that daily disclosures would result in an overload of information

that would be too disaggregated for retail investors to easily parse.

Commenters also expressed the view that hedge funds and other professional traders would leverage daily repurchase information to exploit arbitrage opportunities

and actually increase information asymmetry.

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.

See, e.g.,

letters from Dow, Kirkland Ellis, NYSE, SCG, and Vistra.

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.

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.

See, e.g.,

letters from NYSE and Profs. Lewis and White.

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.

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.

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.

See, e.g.,

letters from Chevron, Davis Polk, DLA Piper, Profs. Lewis and White, SIFMA II, and Sullivan.

See, e.g.,

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.

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.

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.”

See, e.g.,

letters from ACCO and Norfolk Southern.

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

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

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

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

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

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.,

Relatedly, some commenters raised concerns that daily disclosures would result in disclosure of information that is not material to investors,

215

or asked

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

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

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,

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 Thach

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