Happy 2024! I hope you enjoyed the holidays and were able to take some time off to rest and recharge. The last few weeks of the year always seem like a whirlwind! If this is the case for you, you might have missed some big news relating to an SEC disclosure rule. On December 19 (talk about squeezing something in before the end of the year!), a court vacated the SEC’s Share Repurchase Disclosure Modernization rule, which was finalized in May 2023. If you attended any of our SEC update webinars this year, this was a rule that we discussed; therefore, we want to provide you with a summarized update on what exactly happened to this rule.

The share repurchase rule was initially proposed by the SEC in early 2022 and was finalized in May 2023. The new rule expanded share repurchase disclosure requirements for domestic corporate issuers, foreign private issuers (FPIs), and listed closed-end funds and required these entities to provide a tabular disclosure of daily share repurchase activity to be filed quarterly (or semi-annually for closed-end funds). The rule was intended to provide additional transparency into an entity’s share repurchase activity and provide investors with additional information to assess the purposes and effects of share repurchases.

The rule was first effective for domestic corporate issuers, starting with the first filing that covered the first full fiscal quarter that began on or after October 1, 2023 (the rule became effective for other entities in 2024). However, the Chamber of Commerce had other ideas and filed a lawsuit against the SEC in May 2023, stating that the SEC did not appropriately address the Chamber’s comments against the rule and that the rule also violated the Administrative Procedure Act because the SEC failed to justify the rule’s purported benefits or quantify its economic effects.

The U.S. Court of Appeals for the Fifth Circuit happened to agree, and on October 31, the court ruled in favor of the Chamber of Commerce and gave the SEC 30 days to remediate the rule’s deficiencies. On November 22, the SEC delayed the effective date of the repurchase rule and asked the court for an extension to remediate the deficiencies, which was denied by the court. As a result, on December 1, the SEC informed the court that they could not meet the remediation deadline, so on December 19, the court vacated the repurchase rule in its entirety!

As a result of the vacated rule, entities were reminded that they should continue to provide share repurchase disclosures as required by existing rules. So, what are those existing rules?

Item 703 of Regulation S-K governs share repurchases, which requires issuers to report, in tabular form, quantitative aggregated monthly (not daily!) share repurchase data in their periodic reports (e.g., Form 10-Q and Form 10-K) and to also include a footnote (for the table) that includes the date the plan was announced, the dollar amount of the plan or the number of shares to be repurchased thereunder, and the plan’s expiration date. Additionally, issuers are required to notify the public of their entrance into, or modification of existing, share repurchase plans, which are typically done in a Form 8-K and include the maximum dollar amount or number of shares subject to the share repurchase plan, the term of the share repurchase plan and the manner in which the shares would be repurchased.

Let us know what you think about the repurchase rule, are you surprised it was vacated? Are you happy? I think it’s going to be an interesting 2024 for the SEC – so, stay tuned!

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