Document ID: SEC-2022-1592-0001
Agency: sec
Document Type: Proposed Rule
Title: Share Repurchase Disclosure Modernization
Posted Date: 2022-12-12T05:00Z

[Federal Register Volume 87, Number 237 (Monday, December 12, 2022)]
[Proposed Rules]
[Pages 75975-75977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26898]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 232, 240, 249, and 274

[Release Nos. 34-96458; IC-34768; File No. S7-21-21]
RIN 3235-AM94

Reopening of Comment Period for Share Repurchase Disclosure 
Modernization

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule; reopening of comment period.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
reopening the comment period for its proposal, Share Repurchase 
Disclosure Modernization, Exchange Act Release No. 34-93783 (Dec. 15, 
2021) (``Proposing Release''). The Commission proposed amendments to 
modernize and improve disclosure about

[[Page 75976]]

repurchases of an issuer's equity securities that are registered under 
the Securities Exchange Act of 1934. Specifically, the proposed 
amendments would require an issuer to provide more timely disclosure on 
a new Form SR regarding purchases of its equity securities for each day 
that it, or an affiliated purchaser, makes a share repurchase. The 
proposed amendments would also enhance the existing periodic disclosure 
requirements about these purchases. The Commission subsequently 
reopened the comment period for the Proposing Release in Resubmission 
of Comments and Reopening of Comment Periods for Several Rulemaking 
Releases Due to a Technological Error in Receiving Certain Comments, 
Exchange Act Release No. 34-96005 (Oct. 7, 2022). In addition, after 
the proposed amendments were published for public comment, an excise 
tax on share repurchases was signed into law. A staff memorandum was 
added to the public comment file on December 7, 2022 to analyze the 
impact of the new excise tax on the potential economic effects of the 
proposed amendments. The Commission is reopening the comment period to 
allow interested persons the opportunity to analyze and comment on the 
additional analysis.

DATES: The comment period for the proposed amendments published 
February 15, 2022, at 87 FR 8443, which was initially reopened on 
October 7, 2022, at 87 FR 63016, is again reopened. Comments should be 
received on or before January 11, 2023.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/how-to-submit-comments); or

Paper Comments

     Send paper comments to Secretary, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-21-21. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method of submission. The Commission will post all comments on the 
Commission's website (http://www.sec.gov/rules/proposed.shtml). 
Comments also are available for website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549-1090, on official business days between the hours of 10 a.m. and 
3 p.m. Operating conditions may limit access to the Commission's public 
reference room. All comments received will be posted without change. 
Persons submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on our website. To ensure direct electronic 
receipt of such notifications, sign up through the ``Stay Connected'' 
option at www.sec.gov to receive notifications by email.

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 of the proposal 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: As described more fully in the Proposing 
Release, the Commission proposed changes to the requirements for 
disclosure of purchases of equity securities made by or on behalf of an 
issuer or any affiliated purchaser.\1\ The proposed amendments were 
intended to improve the quality, relevance, and timeliness of 
information related to issuer share repurchases. The proposed 
amendments would modernize and improve the disclosure required about 
repurchases of an issuer's equity securities by:
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    \1\ In the Proposing Release, the term ``issuer'' included 
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 10b-18(a)(3).
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     Requiring 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;
     Amending Item 703 \2\ of Regulation S-K,\3\ with 
corresponding changes to Item 16E of Form 20-F \4\ for foreign private 
issuers and Item 9 of Form N-CSR for certain registered-closed end 
investment management companies,\5\ to require additional detail 
regarding the structure of an issuer's repurchase program and its share 
repurchases; and
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    \2\ 17 CFR 229.703.
    \3\ 17 CFR 229.10 through 229.1305.
    \4\ 17 CFR 249.220f.
    \5\ 17 CFR 249.331 and 17 CFR 274.128.
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     Requiring information disclosed pursuant to Item 703, Item 
16E of Form 20-F, Item 9 of Form N-CSR, and new Form SR to be reported 
using a structured data language (specifically, Inline eXtensible 
Business Reporting Language).
    After the proposed amendments were published for public comment, 
The Inflation Reduction Act of 2022 (``Act'') was signed into law on 
August 16, 2022.\6\ Section 10201 of the Act adds new section 4501 of 
the Internal Revenue Code of 1986 (``Internal Revenue Code''),\7\ which 
imposes upon ``covered corporations'' a non-deductible excise tax equal 
to one percent of the fair market value of any stock of the corporation 
which is repurchased by such corporation during the taxable year. Under 
the Act, a ``covered corporation'' is any domestic corporation \8\ the 
stock of which is traded on an ``established securities market'' 
(within the meaning of section 7704(b)(1) of the Internal Revenue Code 
\9\). The excise tax applies to share repurchases after December 31, 
2022.\10\
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    \6\ See Public Law 117-169, 136 Stat. 1818 (2022).
    \7\ See 26 U.S.C. 4501.
    \8\ A domestic corporation means a corporation created or 
organized in the U.S. or under the law of the U.S. or of any State 
or the District of Columbia. See 26 U.S.C. 7701(a)(4). Section 
4501(d) of the Act also applies to certain domestic subsidiaries 
that purchase the stock of their non-U.S. corporate parents, the 
shares of which are traded on an established securities market.
    \9\ See 26 U.S.C. 7704(b)(1). The use of ``established 
securities market'' in section 7704(b)(1) is defined in 26 CFR 
1.7704-1(b). The definition includes national securities exchanges 
registered under Section 6 of the Securities Exchange Act of 1934, 
15 U.S.C. 78a et seq., national securities exchanges exempt from 
registration because of the limited volume of transactions, certain 
foreign securities exchanges, regional or local exchanges, and 
certain interdealer quotation systems.
    \10\ Additionally, Section 10201(e) of the Act sets forth 
certain exceptions to the applicability of the excise tax. Among 
these exceptions are repurchases that are treated as a dividend 
under the Internal Revenue Code and repurchases made by a real 
estate investment trust or by a ``regulated investment company.'' 
Section 851(a) of the Internal Revenue Code generally defines 
``regulated investment companies'' as domestic corporations that are 
registered under the Investment Company Act of 1940 (``Investment 
Company Act''), 15 U.S.C. 80a-2(c), as management companies or unit 
investment trusts, have in effect an election under the Investment 
Company Act to be treated as business development companies, or are 
certain common trust funds or similar funds. See 26 U.S.C. 851(a).
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    The staff of the Division of Economic and Risk Analysis has 
prepared a memorandum that discusses potential economic effects of the 
new excise tax

[[Page 75977]]

on the incidence and level of share repurchases,\11\ which are a part 
of the market baseline for the proposed amendments. We believe that the 
information presented in the Staff Memorandum has the potential to be 
informative for evaluating the proposed amendments in light of this 
recently enacted legislation. We are, therefore, reopening the comment 
period for an additional 30 days to permit interested parties to 
comment on the Staff Memorandum, which has been included in the comment 
file. In addition to the requests for comment included in the Proposing 
Release, the Commission specifically seeks comments on the following:
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    \11\ Memorandum of the Staff of the Division of Economic and 
Risk Analysis, Supplemental Analysis of the Potential Implications 
of the Recently Enacted Excise Tax on Share Repurchases for the 
Economic Effects of Share Repurchase Disclosure Modernization 
Amendments (Dec. 7, 2022) (``Staff Memorandum''), available at 
https://www.sec.gov/comments/s7-21-21/s72121.htm.
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Requests for Comment

    1. Would the Act's new excise tax affect the proposed amendments' 
potential economic effects? \12\ If so, what would the specific impact 
(or impacts) of the new excise tax be? How would the new excise tax 
interact with the effects of the direct and indirect costs of the 
proposed amendments on issuers and investors?
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    \12\ See Staff Memorandum, supra note 11, Section II.
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    2. The Staff Memorandum estimates that,\13\ based on year 2020 
(2021) data, of the approximately 3,300 (3,600) issuers engaged in 
repurchases and subject to the proposed amendments, approximately 2,000 
(2,300) issuers would be affected by the excise tax. Do you agree with 
these estimates? If you do not agree with these estimates, please 
explain why. Please also provide alternative estimates and explain why 
you believe those alternatives would be more accurate.
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    \13\ See id., supra note 11, Section II.A.
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    3. Do you agree with the qualitative analysis in the Staff 
Memorandum of the likely directional effects of the new excise tax on 
share repurchases? \14\ Is there other, additional research the staff 
should consider? If so, please discuss this research and why you 
believe it is relevant to the analysis.
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    \14\ See id., supra note 11, Section II.C.
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    4. What is the likelihood, if any, given the Act's new excise tax 
that issuers will replace share repurchases with dividends, including 
special dividends? \15\ Is it administratively more costly to 
distribute a dividend, or special dividend, as a means to return cash 
to shareholders as compared to repurchases? If so, please discuss how 
the costs differ.
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    \15\ See id., supra note 11.
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    5. The Staff Memorandum states that issuers subject to the proposed 
amendments, but that are exempted from the new excise tax, would not be 
directly affected by the new excise tax (but they may incur indirect 
effects).\16\ Are there any additional impacts that the staff should 
consider? Would these issuers incur any indirect effects? For example, 
the Staff Memorandum includes as possible indirect effects competitive 
spillovers of a decrease in repurchases among issuers subject to the 
excise tax, or changes in investor sentiment regarding repurchases in 
response to the decline in share repurchases among a considerable 
number of issuers. Would competitive spillovers or changes in investor 
sentiment affect share repurchase activity by issuers subject to the 
proposed amendments, but that are exempted from the new tax? If so, 
what would these impacts be? What other indirect effects would occur?
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    \16\ See id., supra note 11.
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    6. The Staff Memorandum states that the excise tax is not expected 
to change the direction of the expected economic effects of the 
proposed amendments with respect to any particular share repurchase 
that takes place, but that it may affect the total number of share 
repurchases that occur, and thus may affect the aggregate impact of the 
proposed amendments.\17\ Do you agree? Please provide the reasoning for 
your response.
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    \17\ See id., supra note 11, Section III.A.
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    7. The Staff Memorandum states that the categories of costs and 
benefits described in the Proposing Release would likely remain the 
same, but the magnitude may change as a result of the excise tax.\18\ 
Do you agree with this assessment? If not, what other costs or benefits 
should be considered in assessing the potential economic effects of the 
proposed amendments?
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    \18\ See id., supra note 11, Section III.B.
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    8. Do you agree with the conclusion in the Staff Memorandum that 
the general efficiency, competition, and capital formation 
considerations discussed in the Proposing Release are expected to 
continue to apply except for the potential competitive effects 
discussed in the Staff Memorandum? \19\
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    \19\ See id., supra note 11, Section III.D.
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    We request and encourage any interested person to submit comments 
regarding the proposed amendments, specific issues discussed in this 
release, the Staff Memorandum, or the Proposing Release, and other 
matters that may have an effect on the proposed amendments. Commenters 
are urged to be as specific as possible; when commenting, it would be 
most helpful if you include the reasoning behind your position or 
recommendation. All comments received to date on the proposed 
amendments will be considered and need not be resubmitted.

    By the Commission.

    Dated: December 7, 2022.
J. Mathew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-26898 Filed 12-9-22; 8:45 am]
BILLING CODE 8011-01-P