The new disclosures, effective early 2024, will increase transparency for investors and provide additional data for better buyback analysis.
On May 3, 2023, the SEC adopted new disclosure requirements related to corporate stock buybacks. The rule changes include:
The new disclosures, which go into effect in early 2024, will increase transparency for investors and provide additional granular data that investors can use to help analyze buybacks.
Currently, companies announce buyback programs, often via press releases and 8-Ks, then report buyback execution details in 10-Qs and 10-Ks. The quarterly and annual filings currently include a table that discloses the monthly cadence of buybacks, specifically the amount of shares purchased each month, average price for that month and the value left on the buyback program.
The following is a current example of how buybacks are disclosed. We used MasterCard’s (MA) disclosure from Q1’23, which shows the monthly buyback cadence increased at decreasing prices.
The new SEC amendment will require a table that discloses issuers’ repurchases aggregated on a daily basis instead of monthly. Data will continue to be revealed on a quarterly basis for U.S. domestic filers in 10-Qs and 10-Ks.
The table will include: 1) the class of shares; 2) average price paid per share; 3) total number of shares purchased; 4) aggregative maximum number of shares or value remaining on the plan; 5) total number of shares purchase on the open market; and 6) total number of shares purchased via 10b5-1 plans.
Of those, the first four are currently required. Note that the last two attributes — breaking out the amount bought back on the open market versus those acquired through 10b5-1 plans — are new additions to the tables that are filed in 10-Qs and 10-Ks.
In addition, companies will be required to include a checkbox indicating whether officers and directors (Section 16 insiders) purchased or sold shares within four days of the announcement date of the buyback plan or program.
The SEC will expand the requirements by having companies include “the objective or rationales for its share repurchases and the process or criteria used to determine the amount of repurchase.” Buybacks are often thought to be used because management teams believe repurchases of shares are accretive and a good use of shareholder capital. The variety of rationale provided by companies going forward in quarterly disclosures will be a notable attribute to track. We note that companies often provide reasoning when announcing plans, which are currently tagged and databased by VerityData, providing the ability to compare under the two disclosure regimes in the coming years.
Lastly, companies will also be required to disclose the adoption and termination of rule 10b5-1 trading plans used for buybacks. Disclosure will also be on a quarterly basis in 10-Qs and 10-Ks.
Taken together, these new updates will take effect for filings covering the quarter that begins October 1, 2023 (Q4 2023 for most companies) meaning that investors can anticipate the first enhanced disclosure in late January 2024.
The new amendments to disclosures for corporate repurchases extend the SEC’s modernization instituted over the past year, which includes updates to 10b5-1 plans for insiders and more timely disclosures of gifts. Aggregating buybacks on a daily basis and the granular separation of buybacks via 10b5-1 is another win for investors as it enhances transparency.
With improved data on execution, investors can focus their attention more on actions of companies rather than the intention through announcements of buyback programs.
At VerityData, we’ve long focused on execution-level data to differentiate companies that use buyback plans opportunistically versus more programmatically.
The chart below highlights Nvidia’s (NVDA) buyback execution over the last five years to show how management teams can be opportunistic in deploying capital to retire shares when advantageous.
NVDA accelerated repurchases in Q4’18 as the stock pulled back and didn’t return to the market until Q1’22 when their stock — and other stocks in the Technology space — slid. Volume essentially grew in lock-step with the fall in 2022. The stock has since rebounded in 2023, making the buybacks in 2022, at an average price of $156.07 look timely.
All in all, the SEC changes will be good for investors. We’re looking forward to adding to the dataset showing buyback execution on a daily basis.
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