U.S. court vacates SEC’s new share buyback disclosure rules

On December 19, 2023, the U.S. Court of Appeals for the Fifth Circuit issued an order that vacated new rules¹ adopted earlier in 2023 by the U.S. Securities and Exchange Commission (SEC) governing the disclosure requirements concerning repurchases of an issuer’s equity securities, commonly referred to as share “buyback” or repurchase programs (Repurchase Rules).

As we discussed in our May 2023 bulletin, the rules would have applied to all issuers with securities listed on a U.S. national securities exchange or otherwise having a class of equity securities registered under Section 12 of the U.S. Securities Exchange Act of 1934, as amended (Exchange Act), other than Canadian issuers reporting under the multijurisdictional disclosure system (MJDS).

What the new Repurchase Rules would have required

Under the Repurchase Rules:

• Non-MJDS foreign private issuers (FPIs) would have been required to disclose the daily quantitative share repurchase information on a quarterly basis on a new Form F-SR beginning with the first full fiscal quarter commencing on or after April 1, 2024, and would have been required to provide narrative disclosures regarding share buyback programs starting in the first Form 20-F filed after their first Form F-SR has been filed (i.e., in the FY 2024 20-F, for calendar year-end reporting companies).
• Non-FPI issuers that report with the SEC as U.S. domestic companies would have been required to include the daily share repurchase data as an exhibit to, and provide the narrative disclosure in, their annual reports on Form 10-K and quarterly reports on Form 10-Q, beginning with the first full fiscal quarter on or after October 1, 2023.

Repurchase Rules vacated; existing rules remain in effect

Following adoption of the Repurchase Rules, the U.S. Chamber of Commerce, Texas Association of Business and Longview Chamber of Commerce commenced a lawsuit challenging the Repurchase Rules under the Administrative Procedures Act (APA). On October 31, the U.S. Court of Appeals for the Fifth Circuit (the Court) remanded the Repurchase Rules to the SEC to correct specified defects by November 30, 2023². The Court concluded, among other things, that the SEC had not adequately substantiated its grounds for adopting the Repurchase Rules, including by not conducting an adequate quantitative analysis of the economic impact of the rules.

In light of the Court’s decision, the SEC issued an order on November 22 postponing the effective date of the Repurchase Rules³. On November 26, the Court denied the SEC’s request to extend the 30-day period and on December 1, the SEC advised the Court that it had been unable to correct the defects by the November 30 deadline. On December 19, the Court granted the petitioners’ motion to vacate the rules⁴.

As a result, the Repurchase Rules have, in effect, been rescinded or set aside. Accordingly, FPIs will not be required to file quarterly reports on Form F-SR with daily share repurchase information and include narrative disclosures on Form 20-F, and U.S. domestic companies will not be required to report daily share repurchases or narrative disclosures on Forms 10-K and 10-Q.

Unless and until new SEC rules on share buyback disclosures are adopted, U.S. reporting companies should continue to provide share repurchase disclosures in accordance with the existing requirements, which are summarized below.

• Non-MJDS FPIs are required to present in their annual reports on Form 20-F a table of issuer or affiliated purchases of equity securities on a month-by-month basis for the most recently completed fiscal year⁵.
• Non-FPIs that report as U.S. domestic companies are required to provide a month-by-month table for the most recently completed fiscal quarter in their quarterly reports on Form 10-Q as well as (for the fourth fiscal quarter) in their  annual reports on Form 10-K⁶.
• MJDS issuers are not subject to U.S. disclosure requirements concerning share repurchases and instead are only required to report share repurchases to the extent required under Canadian securities laws.