Proposed Rule2022-26898
Reopening of Comment Period for Share Repurchase Disclosure Modernization
Primary source
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Published
December 12, 2022
Effective
February 15, 2022
Issuing agencies
Securities and Exchange Commission
Abstract
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 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.
Full Text
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<title>Federal Register, Volume 87 Issue 237 (Monday, December 12, 2022)</title>
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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/how-to-submit-comments">https://www.sec.gov/how-to-submit-comments</a>); or
Paper Comments
<bullet> 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 (<a href="http://www.sec.gov/rules/proposed.shtml">http://www.sec.gov/rules/proposed.shtml</a>).
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 <a href="http://www.sec.gov">www.sec.gov</a> 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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<bullet> 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;
<bullet> 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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<bullet> 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
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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
<a href="https://www.sec.gov/comments/s7-21-21/s72121.htm">https://www.sec.gov/comments/s7-21-21/s72121.htm</a>.
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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
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