Debevoise Digest: Securities Law Synopsis – June 2023

June 2023

Share Repurchase Disclosure Rules

On May 3, 2023, the SEC adopted rules mandating additional disclosures from issuers engaged in repurchases of equity securities registered under Section 12 of the Securities Exchange Act of 1934, which will apply to most issuers beginning in their first full fiscal quarter that begins on or after October 1, 2023. The rules require most issuers to disclose daily repurchase activity on a quarterly basis, including the number of shares repurchased, the average price paid and whether certain officers and directors traded in the relevant securities. The rules also require narrative disclosure regarding repurchases to include (i) the objectives or rationales for repurchases and (ii) the policies and procedures relating to purchases and sales of securities during a repurchase program. Additionally, the rules add a new item to Regulation S-K requiring disclosure of how issuers use Rule 10b5-1 trading arrangements. The SEC believes that the amendments will enhance disclosure and provide investors with better information to assess the purposes and effects of repurchases. However, the U.S. Chamber of Commerce, along with other business groups, has filed a lawsuit against the SEC to block these rules, asserting that they do not protect investors and needlessly discourage share buybacks.

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Reopening of Comment Period for Beneficial Ownership Reporting Proposal

The SEC has extended the comment period to at least June 27, 2023 on a proposal to shorten the time in which large investors must disclose their beneficial ownership stakes in a company under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as it seeks to address the "information asymmetry" between activist investors and other shareholders. The SEC proposal would require those who acquire at least 5% of a public company to report their position within five days, or half the time of the existing requirement, with amendments to such filings required within one business day. An analysis provided by the SEC acknowledges the uncertain impact of the proposed rules on the campaigns of activist shareholders. The SEC has responded that lessening an informational advantage that some market participants may perceive as unfair could enhance trust in the securities markets and promote capital formation.

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SEC’s Division of Corporation Finance Issues Compliance and Disclosure Interpretations (C&DIs) Related to Recent Rule 10b5-1 Trading Plan and Trading-Related Disclosure and Reporting Requirements

In December 2022, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 and new disclosure requirements relating to trading activity of corporate insiders and the trading policies of issuers, which add significant conditions to the availability of Rule 10b5-1’s affirmative defense to insider trading liability, including a cooling-off period, certification as to the absence of possession of no material nonpublic information, limitations on overlapping and single trade plans and an explicit requirement to act in good faith. On May 25, 2023, the SEC’s Division of Corporation Finance issued three C&DIs related to these amendments. Of particular interest, C&DI 120.28 confirms that if an earlier-commencing plan ends by its terms without action by an individual, the cooling-off period for a later-commencing plan is not reset and trading may begin as soon as the plan’s original cooling-off period is satisfied, thereby confirming that it is possible for individuals to structure their Rule 10b5-1 plans to operate on a continuous basis.

For more information, see Debevoise Insights.