SEC Adopts Amendments to Share Repurchase Disclosure Rules, Including for Listed Closed-End Funds

In a three-to-two vote at an open meeting held on May 3, 2023, the U.S. Securities and Exchange Commission (SEC) adopted amendments (Share Repurchase Disclosure Amendments) to the existing share repurchase disclosure requirements for certain issuers, including registered closed-end management investment companies that are exchange-traded (listed closed-end funds). The Share Repurchase Disclosure Amendments will require listed closed-end funds to provide quantitative and narrative disclosure regarding their repurchase activities in annual and semi-annual shareholder reports on Form N-CSR. The Share Repurchase Disclosure Amendments were adopted to modernize, improve and expand disclosure that aims to provide investors with standardized information to evaluate share repurchases and assess their purposes and effects across issuers. Key provisions of the Share Repurchase Disclosure Amendments are summarized below.

The Share Repurchase Disclosure Amendments

The Share Repurchase Disclosure Amendments include expanded disclosure requirements in Form N-CSR for listed closed-end funds, pursuant to which issuers will be required to provide tabular and narrative disclosure semi-annually. Prior to the SEC’s adoption of the Share Repurchase Disclosure Amendments, Regulation S-K required domestic corporate issuers to disclose, aggregated on a monthly basis, any purchases by or on behalf of the issuer of the issuer’s equity securities registered under Section 12 of the Securities Exchange Act of 1934 (the Exchange Act). Listed closed-end funds were required to provide the same disclosure on a semi-annual basis on Form N-CSR.

The existing requirements in Regulation S-K and Form N-CSR will be eliminated by the Share Repurchase Disclosure Amendments.

Quantitative Disclosure Requirements

As described in the SEC’s adopting release, the Share Repurchase Disclosure Amendments will require tabular disclosure of repurchase activities aggregated on a daily basis. The table must be included in the issuer’s semi-annual reports on Form N-CSR, and contain the following information:

• The date of repurchase.
• The class of shares repurchased.
• The total number of shares purchased, including all shares purchased by or on behalf of the issuer and any affiliated purchaser.
• The average price paid per share, excluding brokerage commissions and other execution costs.
• The total number of shares purchased as part of a publicly announced repurchase plan.
• The aggregate maximum number (or approximate dollar value) of shares that may yet be purchased under a publicly announced plan.
• The total number of shares purchased on the open market, including all shares repurchased by the issuer in open-market transactions (and not including shares purchased in tender offers, in satisfaction of the issuer’s obligations upon exercise of outstanding put options issued by the issuer or other transactions).
• The total number of shares purchased that are intended to qualify for the safe harbor in Rule 10b-18 under the Exchange Act.
• The total number of shares purchased pursuant to a plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

Narrative Disclosure Requirements

Issuers must provide narrative disclosure relating to repurchases made during the period covered by the applicable report, including:

• The objectives or rationales for each repurchase plan.
• The process or criteria used to determine the amount of repurchases.
• The number of shares purchased (other than through a publicly announced plan) and the nature of the transaction (such as open-market transactions or tender offers).
• For publicly announced repurchase plans:
  • The date the plan was announced.
  • The dollar or share amount approved.
  • The expiration date, if any, of the repurchase plan.
  • Each plan that has expired during the period covered by the tabular disclosure.
  • Each plan the issuer has determined to terminate prior to expiration or under which the issuer does not intend to make further purchases.
• Any policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during a repurchase program (including any restrictions on such transactions).

Additional Requirements for Issuers

• Issuers will also be required to check a box indicating whether certain directors or officers traded in the relevant securities within four business days of the public announcement of the issuer’s repurchase plan.
• Additionally, issuers will be required to disclose the adoption and termination dates of Rule 10b5-1 trading arrangements in a footnote to the tabular disclosure described above.
• The disclosure required by the Share Repurchase Disclosure Amendments must be reported using inline XBRL.

Compliance Timeline

Issuers will be required to include disclosure in reports that complies with the Share Repurchase Disclosure Amendments beginning with the report for the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024.

Practice Points

The SEC’s adoption of the Share Repurchase Disclosure Amendments illustrates the growing concern in recent years with the share buybacks and the SEC’s commitment to increasing transparency around these issuer transactions in their own securities. Although the Share Repurchase Disclosure Amendments, as adopted, do not require issuers to disclose repurchases within one business day as originally proposed, they will necessitate the aggregation of data regarding buyback activity throughout the quarter and require issuers to consider and articulate the rationale and objectives for that activity.

In its adopting release, the SEC acknowledged that “not all of the motivations for corporate issuer share repurchases apply to [listed closed-end funds] due to differences in the business model and organizational structure of a fund as compared to a corporate issuer,” but emphasized that investors in listed closed-end funds have an interest in evaluating the reasoning behind share repurchases and their impact on the value of shareholders’ investments, particularly in light of the connection between share repurchases and net asset value. As issuers prepare to comply with the Share Repurchase Disclosure Amendments, they should review their processes for conducting share repurchases, along with their share repurchase policies and procedures relating to officers and directors.