such plans were affected by the costs of the additional disclosure
requirements.
    \376\ As a caveat, a complete estimate of the number of affected
issuers is limited by data coverage. A source of data commonly used
in existing studies, Standard & Poor's Compustat, has limited
coverage of small and unlisted issuers and FPIs. Therefore, we
supplement Compustat Fundamentals Annual data (version retrieved
June 27, 2022) with structured data from financial statement
disclosures in EDGAR filings (retrieved June 27, 2022), with the
caveat that variation in filer use of tags to characterize their
repurchases may result in some data noise.
    \377\ Based upon a staff review, we expect approximately 20
percent of Listed Closed-End Funds to be affected by the amendments
to engage in share repurchases, as compared to approximately half of
corporate issuers.
---------------------------------------------------------------------------

    New Item 408(d) will affect issuers that undertake share
repurchases through Rule 10b5-1 plans. Data on issuers' use of such
plans are very limited. Some issuers voluntarily disclose their use of
Rule 10b5-1 plans to carry out stock repurchases on Form 8-K or in
periodic reports. Such voluntary reporting is likely to underestimate
the number of affected issuers. Nevertheless, in the current disclosure
regime, it is the most direct source of information on the prevalence
of Rule 10b5-1 plan repurchases. One study examining different
repurchase methods identified ``at least 200 announcements of
repurchases using Rule 10b5-1 [plans] per year from 2011 to 2014'' and
found that ``[In 2014] 29% [of repurchase announcements] included a
10b5-1 plan.'' \378\ Based on a textual search of calendar year 2021
filings, we estimate that approximately 210 issuers (excluding asset-
backed issuers) disclosed share repurchase programs executed under a
Rule 10b5-1 plan.\379\
---------------------------------------------------------------------------

    \378\ See Bonaim[eacute] et al. (2020), supra note 58.
    \379\ The estimate is based on a textual search of calendar year
2021 filings of Forms 10-K, 10-Q, 8-K, as well as amendments and
exhibits thereto in Intelligize. The estimate is based on a textual
search using keywords ``10b5-1 repurchases'' or a combination of
keywords ``repurchase plan'' and ``10b5-1'' (the approach used in
the Proposing Release estimate). Due to a lack of standardized
presentation and the unstructured (i.e., non-machine-readable)
nature of the disclosure, these estimates are approximate and may be
over- or under-inclusive. Asset-backed issuers are not subject to
new Item 408(d). See supra note 358.
---------------------------------------------------------------------------

    Another, indirect approach to estimating the number of affected
issuers involves extrapolating the number of companies conducting
repurchases under Rule 10b5-1 plans in a given year from a combination
of the incidence of Rule 10b5-1 plan use among voluntarily announced
repurchases (estimated at 29 percent as previously noted \380\) and the
overall number of companies conducting repurchases based on their
financial statements.\381\ Based on data from Compustat and EDGAR
filings for fiscal years ending between January 1, 2021, and December
31, 2021, we estimate that approximately 3,600 operating companies
(excluding asset-backed issuers) conducted repurchases, yielding an
estimate of approximately 1,000 companies affected by the Item 408(d)
amendments.\382\ Item 408(d) does not apply to Listed Closed-End Funds.
---------------------------------------------------------------------------

    \380\ See Bonaim[eacute] et al. (2020), supra note 58.
    \381\ Using the number of issuers that announce repurchases in a
given year would underestimate the number significantly because
issuers may continue to implement a previously announced repurchase
program over multiple years.
    \382\ As a caveat, a complete estimate of the number of affected
issuers is limited by data coverage. A source of data commonly used
in existing studies, Standard & Poor's Compustat, has limited
coverage of small and unlisted registrants and foreign private
issuers. Therefore, we supplemented Standard & Poor's Compustat
Fundamentals Annual data (version retrieved June 27, 2022) with
structured data from financial statement disclosures in EDGAR
filings (retrieved June 27, 2022), with the caveat that variation in
filer use of tags to characterize their repurchases may result in
some data noise. 29 percent x 3600 = 1,044 ~ 1,000.
---------------------------------------------------------------------------

    Investors will also be affected by the final amendments to the
extent that they benefit from the additional insight into an issuer's
repurchase activity (and bear any costs of analyzing the additional
disclosure). Financial intermediaries that execute repurchases at the
issuer's instruction will also be affected by these amendments to the
extent that they prepare the information necessary for an issuer's
responsive disclosure, and indirectly, to the extent that the
amendments affect the incidence of repurchases and thus demand for
financial intermediaries' services in connection with executing
repurchases. The amendments will also impact officers and directors to
the extent that issuers establish policies or procedures imposing
restrictions on transactions during a repurchase program. Officers and
directors (particularly, in the case of FPIs whose senior management
and directors are not subject to section 16 reporting obligations) may
also be affected by having to provide issuers with information about
their trades. We lack data to assess how many of these parties will be
affected.
2. Baseline
    Many studies, spanning decades, examine the motivation for
corporate payout decisions, repurchases among them.\383\ Based on data
for 2021, share repurchases of U.S.-listed companies
---------------------------------------------------------------------------

    \383\ For a more detailed discussion of the data and research on
repurchases and other payouts, see 2020 Staff Study; and Farre-Mensa
et al. (2014), supra note 28. The focus of the 2020 Staff Study was
determined by the directive of Congress in its Joint Explanatory
Statement accompanying the Financial Services and General Government
Appropriations Act, which directed the staff to study the recent
growth of negative net equity issuances with respect to non-
financial issuers, including the history and effects of those
issuers repurchasing their own securities, and the effects of those
repurchases on investment, corporate leverage, and economic growth.
The study provided data and statistics on share repurchases across
different types of companies and time periods, as well as an
extensive discussion of related evidence in existing research, which
offers insight into the existing market baseline. For example, the
study discusses the evidence on the favorable market reaction to
repurchase announcements. Among its findings, the study notes that
``[r]epurchases are an increasingly common way firms distribute cash
to shareholders. There are several possible reasons firms conduct
repurchases; some support efficient investment and for some the
connection is less clear. The analysis below suggests that firms are
more likely to conduct repurchases when they have excess cash and
when they would benefit from increased reliance on debt financing.''
The study further notes that ``the data is consistent with firms
using repurchases to maintain optimal levels of cash holdings and to
minimize their cost of capital'' and that ``reasons for repurchases
where the connection to efficient investment is less clear are
unlikely to motivate the majority of repurchases since stock prices
typically increase in response to repurchase announcements,
suggesting that, at least on average, repurchases are viewed as
having a positive effect on firm value . . . [and] that the theories
inconsistent with firm value maximization cannot account for the
majority of repurchase activity.'' In discussing one of the
criticisms of share repurchases, the study notes ``that insider
sales may be timed to coincide with repurchase announcements. If
insiders time sales to coincide with repurchase announcements and
any resulting increase in stock price, executives may be
incentivized to recommend repurchase programs to further their own
gain.'' However, the study notes, it is ``difficult to ascertain the
motivations underlying insider sales.'' See also infra note 390 and
accompanying text.

---------------------------------------------------------------------------

amounted to approximately $950 billion.\384\ Aggregate repurchases have
grown significantly over the past four decades, but the increase
relative to aggregate market capitalization has been significantly more
modest due to the accompanying growth in aggregate market
capitalization; in addition, aggregate repurchases, both in absolute
terms and relative to aggregate market capitalization, have exhibited
considerable cyclical fluctuations (increasing during economic booms
and declining during recessions).\385\ As noted by a commenter, the
growth in repurchases was considerably smaller when adjusted for equity
issuance than when considered in gross terms.\386\ Dividends fluctuate
less than repurchases, consistent with dividends being viewed by the
market as a commitment to regularly return cash to shareholders.\387\
As a result, managers may endeavor to keep dividend payments stable,
mainly avoiding dividend cuts, justifying the market's
interpretation.\388\ Firms that exclusively pay dividends are
increasingly rare whereas the proportion of firms that regularly
conduct repurchases has increased over time, consistent with
repurchases being a partial substitute for dividends.\389\ As a caveat,
existing studies referenced in this release, including the 2020 Staff
Study, are necessarily constrained by existing disclosure
limitations.\390\
---------------------------------------------------------------------------

    \384\ Based on staff analysis of Standard & Poor's Compustat
Fundamentals Annual data (version retrieved June 27, 2022) related
to share repurchases conducted during fiscal years ending between
January 1, 2021 and December 31, 2021 by issuers listed on U.S.
exchanges (including financial industry issuers and U.S.-listed
issuers incorporated outside the U.S.). This estimate includes
financial industry issuers as well as U.S.-listed foreign-
incorporated issuers with Compustat data. As of this writing, we
lack complete data for fiscal years ending during January 1-December
31, 2022.
    \385\ See, e.g., Campello, M., Graham, J., & Harvey, C., The
Real Effects of Financial Constraints: Evidence from a Financial
Crisis, 97 J. Fin. Econ. 470 (2010); Dittmar, A. & Dittmar, R., The
Timing of Financing Decisions: An Examination of the Correlation in
Financing Waves, 90 J. Fin. Econ. 59 (2008) (``Dittmar and Dittmar
(2008)''); Floyd, E., Li, N., & Skinner, D., Payout Policy through
the Financial Crisis: The Growth of Repurchases and the Resilience
of Dividends, 118 J. Fin. Econ. 299 (2015). See also 2020 Staff
Study (observing that growth in aggregate repurchases has fluctuated
over the past several decades, as demonstrated by a large decline
and rebound following the financial crisis, and also observing that
share repurchases net of equity issuances as a percentage of
aggregate market capitalization of public companies have remained
relatively stable over the past decade, within the longer trend of
modest percentage growth over the last forty years). See also letter
from Chamber V (discussing cyclicality and seasonality of
repurchases).
    \386\ See letters from Chamber II and Profs. Lewis and White.
The commenter cites findings by Fried: Fried, J.M., & Wang, C.C. Are
Buybacks Really Shortchanging Investment? Harv. Bus. Rev., 88-95,
https://hbr.org/2018/03/are-buybacks-really-shortchanging-investment
(2018, March-April); Fried, J. https://hbr.org/2018/03/are-buybacks-really-shortchanging-investment; Fried, J.M., & Wang, C.C. Short-
Termism and Capital Flows, 8 Rev. Corp. Fin. Stud. 207 (2019); and
Fried, J.M., & Wang, C.C. Short-Termism, Shareholder Payouts and
Investment in the EU, 27 Eur. Fin. Mgmt. 389 (2021). As the
commenter also notes, Asness, Hazelkorn, and Richardson (2018)
``present empirical evidence that repurchases do not mechanically
grow earnings or reduce investment.'' See Asness, C., Hazelkorn, T.,
& Richardson, S. Buyback Derangement Syndrome, 44 J. Portfolio Mgmt.
50 (2018). As the commenter further notes, ``Edmans (2017, 2020)
also argues that issuers do not systematically misuse cash for
repurchases.'' See Edmans, A. (2017, September 15). The Case for
Stock Buybacks, Harv. Bus. Rev.; and Edmans, A. (2020). Grow the
Pie: How Great Companies Deliver Both Purpose and Profit. Cambridge
University Press.
    \387\ See, e.g., Brealey, R., Myers, S., & Allen, F., Principles
of Corporate Finance (12th ed. 2017). Issuers generally announce
dividend policies, and markets react strongly to increases and
reductions in dividends. See, e.g., Healy, P. & Palepu, K., Earnings
Information Conveyed by Dividend Initiations and Omissions, 21 J.
Fin. Econ. 149 (1988). Market reactions to initiations and omissions
are even more pronounced. See Michaely, R., Thaler, R., & Womack,
K., Price Reactions to Dividend Initiations and Omissions:
Overreaction or Drift? 50 J. Fin. 573 (1995); Lee, B.S. & Mauck, N.,
Dividend Initiations, Increases and Idiosyncratic Volatility, 40 J.
Corp. Fin. 47 (2016). These studies indicate that decreases in
buybacks do not elicit the same negative market reaction as dividend
decreases.
    \388\ For example, one survey of 384 chief financial officers
(``CFOs'') and executives suggests that the ability to avoid
reducing dividends was the top consideration of managers when
determining dividend policy. See Brav, A., Graham, J., Harvey, C., &
Michaely, R., Payout Policy in the 21st Century, 77 J. Fin. Econ.
483 (2005) (``Brav et al. (2005)'').
    \389\ See 2020 Staff Study. The partial substitution between
dividends and repurchases has also been documented in academic
studies. See, e.g., Skinner, D., The Evolving Relation between
Earnings, Dividends and Stock Repurchases, 87 J. Fin. Econ. 582
(2008); Grullon, G. & Michaely, R., Dividends, Share Repurchases,
and the Substitution Hypothesis, 57 J. Fin. 1649 (2002).
    \390\ The low frequency and the unstructured nature of existing
Item 703 data on repurchase activity limit the ability of existing
studies to gauge the extent of information asymmetry between issuers
and investors associated with the execution of repurchase programs
and its economic effects. Existing disclosure has also limited the
ability of existing studies to draw a causal connection between
managerial incentives and day-to-day execution of repurchase
programs as well as quantify its economic effects. Further, while
public attention has focused on the aggregate trends in repurchases,
the attribution of aggregate trends to specific drivers of
repurchases is complicated due to the presence of confounding
factors that cannot be readily isolated in existing data. The
discussed data limitations should be considered in evaluating
existing studies of the motivations of repurchases. Additional
caveats, where applicable, are referenced in the discussion of
individual strands of research and evidence on repurchases below.
---------------------------------------------------------------------------

    A recent change that followed the issuance of the Proposing Release
and that is likely to affect share repurchases is the enactment of the
one percent excise tax on share repurchases of covered corporations
under the Inflation Reduction Act, which took effect January 1,
2023.\391\ To the extent that the new excise tax causes some issuers to
reduce the frequency and/or size of their repurchases or choose to
declare a dividend instead, the number of issuers subject to the
amendments will decrease. Among issuers that continue to engage in
share repurchases after the effectiveness of the new excise tax, and
that therefore remain subject to the amendments, some may decrease the
level of share repurchases.\392\ Compared to the use of gross share
repurchases, the application of the excise tax to repurchases net of
equity issuance, which is clarified in recently issued Treasury
guidance,\393\ is likely to narrow the scope of the potential excise
tax effect.\394\ However, it is difficult to forecast how many filers
that engaged in repurchases in the past will cease or reduce
repurchases after the effectiveness of the excise tax due to several
limitations, including confounding macroeconomic and regulatory
factors, a lack of a directly comparable prior regulatory intervention,
uncertainty about how companies will weigh investors' personal tax
preferences against the corporate excise tax on repurchases, and the
fact that other company-specific factors, besides the excise tax on
buybacks, affect payout decisions.\395\
---------------------------------------------------------------------------

    \391\ See Public Law 117-169, 136 Stat. 1818 (2022). See also
Notice 2023-2 Initial Guidance Regarding the Application of the
Excise Tax on Repurchases of Corporate Stock under Section 4501 of
the Internal Revenue Code, available at https://www.irs.gov/pub/irs-drop/n-23-02.pdf (``Excise Tax Guidance'').
    \392\ See Staff Excise Tax Memorandum, at 5.
    \393\ See Excise Tax Guidance.
    \394\ See Staff Excise Tax Memorandum, at p. 3 and note 11. See
also 2020 Staff Study.
    \395\ See Staff Excise Tax Memorandum, at 4, 8. See also letter
from Chamber V (stating that the effects of the excise tax will
likely be unknown for at least a year after it becomes effective due
to the seasonality in stock repurchases and issuances, and also
noting the possibility of a global recession in 2023 that may affect
the quantification of the impact of the excise tax on repurchases
due to the cyclicality of share repurchases and issuances,
concluding that ``a period of at least two years is necessary to
properly gather data and quantify the impact of the excise tax on
share repurchase activity.'').
---------------------------------------------------------------------------

    As stated in Section I above, we have considered the potential
effects of the excise tax and the additional comments received. While
postponing the analysis of the amendments for one or two years
following the effectiveness of the Inflation Reduction Act would
provide additional repurchase data for the post-excise tax period, we
do not believe that such data is likely to yield meaningful changes to
the analysis of the economic effects of the amendments for two reasons.
First, to the extent that the

excise tax results in a decline in repurchase activity, both in terms
of the number of repurchasing issuers and the level of repurchases by
the issuers that continue to repurchase, those effects of a potential
change in the market baseline on the economic analysis of the proposed
amendments have been considered above and in the Staff Memorandum. We
do not believe that a decline in repurchase activity due to the excise
tax, should one occur, will have an effect on this economic analysis
that is meaningfully different from a decline in repurchase activity
for other reasons, such as a change in market conditions. Generally,
any significant trends of issuers discontinuing their repurchase
programs as a result of the excise tax will result in a decrease in the
aggregate costs of the rule. We document the evolution of share
repurchases, including the cyclicality in share repurchases, in the
2020 Staff Study. Furthermore, whether the aggregate level of share
repurchases decreases or remains largely unaffected, we continue to
believe that the underlying rationale for the rule--informing investors
in a more comprehensive fashion about the repurchase decisions of
issuers that do continue to conduct repurchases--remains applicable.
Moreover, when corporate repurchase decisions carry a new potential
cost to shareholder value, in the form of an excise tax, informing
shareholders about the reasoning behind, the structure of, and the
incremental nature of, an issuer's repurchase decisions may be even
more important.
    Second, more importantly, due to the significant problem of
aggregate confounding factors, obtaining even two additional years of
data after the effectiveness of the excise tax is unlikely to enable us
to identify the incremental contribution of the excise tax. Changes in
macroeconomic and regulatory factors could confound the interpretation
of any change in the level of repurchase activity. For example, it is
virtually impossible to disentangle the role of other aggregate factors
that would have a similar direction of the effect on the level of
repurchase activity, such as the changes in macroeconomic conditions
and monetary policy, from the effects of widespread application of a
new tax on corporate repurchases. For example, a deterioration in
macroeconomic conditions may also lead issuers to conserve cash and
reduce or eliminate share repurchases (the much more flexible form of
shareholder payouts, compared to cash dividends). As another example,
contemporaneous increases in interest rates could make debt relatively
less attractive, leading to a reduction in debt-financed equity
repurchases that would be unrelated to the excise tax change. While the
effects of the excise tax are not expected to change the direction and
the qualitative nature of the economic effects of the amendments
discussed in Sections V.B. and V.C. with respect to any particular
share repurchase that takes place, to the extent that there is a
reduction in the total number of issuers that undertake share
repurchases due to the excise tax, the aggregate economic effects of
the amendments will decrease.\396\ In addition, for issuers that
continue repurchases but decrease their level and thus remain subject
to the amendments, we expect the portion of costs and benefits that
scales with the level of repurchases to decrease.\397\
---------------------------------------------------------------------------

    \396\ See Staff Excise Tax Memorandum, at 9-12.
    \397\ See Staff Excise Tax Memorandum, at 9-12.
---------------------------------------------------------------------------

    Information about past repurchases is valuable to investors.
Several empirical studies show that on average share prices increase
after share repurchases.\398\ However, some studies do not find this
result.\399\ The differences in the conclusions may be due to
differences in empirical methodology and sample period.\400\ Because
these studies utilize presently available monthly data, they may suffer
from a lack of statistical power. Studies focused on share repurchase
announcements also find positive returns.\401\ Researchers have
identified several channels through which a repurchase could increase
the share price. One of the earliest strands of research on share
repurchases concludes that issuer share repurchases are related to the
undervaluation of its securities.\402\ Corporate insiders likely have a
superior understanding of their business and industry. Academic
research suggests that managers can use increases in distributions,
such as new repurchase programs, to signal their view that the stock is
undervalued and is expected to increase in the future.\403\ Issuers may
also undertake repurchases in an effort to provide price support by
supplying liquidity when selling pressure is high; thus, share prices
would be lower during an issuer's repurchases and higher
afterwards.\404\ Thus, more comprehensive and disaggregated, granular
information

about recent repurchases and prices of such repurchases should be
useful to investors in inferring the management's evolving beliefs
about the company's underlying value and, in conjunction with other
disclosures, improving price discovery.
---------------------------------------------------------------------------

    \398\ See, e.g., Dittmar, A. & Field, L.C., Can Managers Time
the Market? Evidence Using Repurchase Price Data, 115 J. Fin. Econ.
261 (2015) (``Dittmar and Field (2015)''); Ben-Rephael, A., Oded,
J., & Wohl, A., Do Firms Buy Their Stock at Bargain Prices? Evidence
From Actual Stock Repurchase Disclosures, 18 Rev. Fin. 1299 (2014)
(``Ben-Rephael et al. (2014)''); Chan, K., Ikenberry, D., & Lee, I.,
Do Managers Time the Market? Evidence from Open-Market Share
Repurchases, 31 J. Banking & Fin. 2673 (2007) (``Chan et al.
(2007)''); Cook, D., Krigman, L., & Leach, J.C., On the Timing and
Execution of Open Market Repurchases, 17 Rev. Fin. Stud. 463 (2004)
(``Cook et al. (2004)'') (finding that larger firms in the sample
perform better than smaller firms in timing the price at which
repurchases are executed); Bargeron, L. & Bonaim[eacute], A.A., Why
Do Firms Disagree with Short Sellers? Managerial Myopia versus
Private Information, 55 J. Fin. & Quantitative Analysis 2431 (2020)
(``Bargeron and Bonaim[eacute] (2020)'') (concluding that managers
of firms facing short selling pressure increase repurchases as a
result of managers' private information advantage over short
sellers). Horizons and methodologies employed in these studies
differ. For example, Dittmar and Field (2015) find that infrequent
repurchasers experience positive price trends for one, three, and
six months after months of actual repurchases (but the result is not
observed for frequent repurchasers); Ben-Rephael et al. (2014) find
a positive one-month drift following the disclosure of actual
repurchases; and Chan et al. (2007) show positive abnormal returns
after repurchase program announcements over up to a four-year
horizon.
    \399\ See, e.g., Obernberger, S., The Timing of Actual Share
Repurchases, Working paper (2014) (concluding that contrarian
trading rather than market timing ability explains the observed
relation between returns and actual share repurchases); Dittmar and
Dittmar (2008); Bonaim[eacute], A.A., Hankins, K., & Jordan, B., The
Cost of Financial Flexibility: Evidence From Share Repurchases, 38
J. Corp. Fin. 345 (2016) (``Bonaim[eacute] et al. (2016)'') (finding
that ``actual repurchase investments underperform hypothetical
investments that mechanically smooth repurchase dollars through time
by approximately two percentage points per year on average'').
    \400\ As a general caveat, any working papers cited here have
generally not undergone peer review and may be subject to revision.
    \401\ See, e.g., Evgeniou, T., Junqu[eacute] de Fortuny, E.,
Nassuphis, N., & Vermaelen, T., Volatility and the Buyback Anomaly,
49 J. Corp. Fin. 32 (2018); Bargeron, L., Kulchania, M., & Thomas,
S., The Timing and Source of Long-Run Returns Following Repurchases,
52 J. Fin. & Quantitative Analysis 491 (2017); Peyer, U., &
Vermaelen, T., The Nature And Persistence of Buyback Anomalies, 22
Rev. Fin. Stud. 1693 (2009). But see Fu, F. & Huang, S., The
Persistence of Long-Run Abnormal Returns Following Stock Repurchases
and Offerings, 62 Mgmt. Sci. 964 (2016) (documenting disappearance
of long-run, post-repurchase abnormal returns during 2003-2012).
    \402\ See the survey of the literature on share repurchases in
Farre-Mensa et al. (2014).
    \403\ For analysis of signaling with repurchases, see, e.g.,
Vermaelen, T., Common Stock Repurchases and Market Signaling: An
Empirical Study, 9 J. Fin. Econ. 139 (1981); Vermaelen, T.,
Repurchase Tender Offers, Signaling, and Managerial Incentives, 19
J. Fin. & Quantitative Analysis 163 (1984); Constantinides, G. &
Grundy, B., Optimal Investment with Stock Repurchase and Financing
as Signals, 2 Rev. Fin. Stud. 445 (1989); Hausch, D. & Seward, J.,
Signaling with Dividends and Share Repurchases: A Choice Between
Deterministic and Stochastic Cash Disbursement, 6 Rev. Fin. Stud.
121 (1993); McNally, W., Open Market Stock Repurchase Signaling, 28
Fin. Mgmt. 55 (1999). In some studies, authors find that repurchases
send a stronger signal than dividends. See, e.g., Ofer, A. & Thakor,
A., A Theory of Stock Price Responses to Alternative Corporate Cash
Disbursement Methods: Stock Repurchases and Dividends, 42 J. Fin.
365 (1987); Persons, J., Heterogeneous Shareholders and Signaling
with Share Repurchases, 3 J. Corp. Fin. 221 (1997).
    \404\ See, e.g., Liu, H. & Swanson, E., Is Price Support a
Motive for Increasing Share Repurchases?, 38 J. Corp. Fin. 77 (2016)
(``Liu and Swanson (2016)'').
---------------------------------------------------------------------------

    Comprehensive disclosure of recent actual repurchases should thus
contain valuable information about the issuer's beliefs about the
fundamental valuation of the company that is not revealed to the market
otherwise. Conversely, a lack of comprehensive disclosure contributes
to information asymmetries between investors and issuers. The
additional quantitative and qualitative disclosures we are adopting are
further expected to enhance the information about share repurchases,
providing clearer insights into how and why the issuers undertake
repurchases and the extent to which they are related to temporary
undervaluation of issuer shares, temporary cash windfalls that cannot
be deployed to positive-net present value (NPV) investment projects, or
other objectives. The benefit of the information contained in
disclosures of recent repurchase activity is expected to be lower to
the extent that large issuer repurchases already have a price impact,
resulting in price discovery and indirect revelation of information to
the market, even in the absence of additional disclosure.\405\
Nevertheless, to the extent that an issuer's repurchases incorporate
insiders' future outlook on the firm, they could be informative to
investors (complementing the information in Form 4 filings).
---------------------------------------------------------------------------

    \405\ See also letters from Chamber II and Profs. Lewis and
White (noting that ``the information contained in order flow may
subsume much of the information that would be contained in more
frequent disclosure'').
---------------------------------------------------------------------------

    The existing disclosure of share repurchases aggregated on a
monthly basis does not allow investors to evaluate the specific timing
of actual repurchases or repurchase patterns or changes in conjunction
with other public information and point-in-time disclosures made by the
issuer and, if applicable, its executives.
    Various studies address motivations behind corporate payouts and
the choice of the form of payout (repurchases or dividends).\406\ As
demonstrated by prior research, in a number of instances, the use of
repurchases can be efficient and aligned with shareholder value
maximization and benefit investors.\407\ Sometimes issuers that have
excess cash do not have profitable investment opportunities.\408\ In
such instances, distributing the cash through dividends or repurchases
can alleviate concerns that managers will spend the cash in sub-optimal
ways, such as empire-building acquisitions.\409\ Survey evidence
supports this theory, with the second most cited reason for conducting
a repurchase being the ``lack of good investment opportunities.'' \410\
By returning excess cash to shareholders, repurchases free up the
capital that can then be invested in other businesses that lack the
capital to pursue value-creating investment opportunities. Stock price
reactions to announcements of new repurchase programs are higher for
cash-rich issuers, which may be consistent with the creation of value
when managers remove their discretion over how to invest excess cash
and provide that cash to investors to redeploy as they see fit.\411\
---------------------------------------------------------------------------

    \406\ For a more detailed summary of the related studies, see
2020 Staff Study and Farre-Mensa et al. (2014).
    \407\ See 2020 Staff Study. See also letters from Chamber II and
Profs. Lewis and White; Lewis, C. M. The Economics of Share
Repurchase Programs (Feb. 2019), available at https://amac.us/wp-content/uploads/2019/02/The-Economics-of-Share-Repurchase-Programs1.pdf.
    \408\ See, e.g., 2020 Staff Study stating that ``most
repurchases are conducted by companies with excess cash relative to
investment opportunities,'' as pointed out by a commenter. See
letters from Chamber II and Profs. Lewis and White.
    \409\ See Jensen, M., Agency Costs of Free Cash Flow, Corporate
Finance, and Takeovers, 76 Am. Econ. Rev. 323 (1986).
    \410\ See Brav et al. (2005).
    \411\ See Grullon, G. & Michaely, R., The Information Content of
Share Repurchase Programs, 59 J. Fin. 651-680 (2004).
---------------------------------------------------------------------------

    Additionally, issuers may choose repurchases if the excess free
cash flow stems from a one-time windfall, or if they value financial
flexibility and wish to avoid a costly, long-term commitment to higher
dividends.\412\ For instance, firms that favor repurchases tend to have
more volatile cash flows than dividend-paying firms.\413\ Issuers with
excess free cash flow may also choose repurchases over dividends as the
method of payout because repurchases are more tax-efficient for
shareholders.\414\ Finally, repurchases may also be used to adjust an
issuer's leverage upward, as part of adjustment towards the target
capital structure, or as part of a market timing approach to capital
structure.\415\
---------------------------------------------------------------------------

    \412\ See, e.g., Guay, W. & Harford, J., The Cash-Flow
Permanence and Information Content of Dividend Increases versus
Repurchases, 57 J. Fin. Econ. 385 (2000); Jagannathan, M., Stephens,
C., & Weisbach, M., Financial Flexibility and the Choice between
Dividends and Stock Repurchases, 57 J. Fin. Econ. 355 (2000). See
also supra notes 387-388 and accompanying text.
    \413\ See Hoberg, G. & Prabhala, N., Disappearing Dividends,
Catering, and Risk, 22 Rev. Fin. Stud. 79 (2009) (showing that
riskier firms are less likely to pay dividends).
    \414\ See, e.g., Feng, L., Pukthuanthong, K., Thiengtham, D.,
Turtle, H.J., & Walker, T.J., The Effects of Cash, Debt, and
Insiders on Open Market Share Repurchases, 25 J. Applied Corp. Fin.
55 (2013). The tax advantage of repurchases has been attenuated but
not eliminated after the 2003 dividend tax cut. Outside of tax-
exempt/tax-deferred accounts, all shareholders are subject to taxes
on dividends for the year the dividend was paid. In the case of
repurchases, only selling shareholders are subject to taxes on
capital gains (the remaining shareholders do not pay taxes until
they sell their shares). See, e.g., Chetty, R. & Saez, E. Dividend
Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax
Cut, 120 Q. J. Econ. 791 (2005); Chetty, R. & Saez, E. The Effects
of the 2003 Dividend Tax Cut on Corporate Behavior: Interpreting the
Evidence, 96 Am. Econ. Rev. 124 (2006); Aboody, A. & Kasznik, R.
Executive Stock-Based Compensation and Firms' Cash Payout: The Role
of Shareholders' Tax-Related Payout Preferences, 13 Rev. Acct. Stud.
216 (2008); Blouin, J., Raedy, J., & Shackelford, D., Dividends,
Share Repurchases, and Tax Clienteles: Evidence from the 2003
Reductions in Shareholder Taxes, 86 Acct. Rev. 887 (2011). Studies
have found companies with investors less averse to dividends due to
tax reasons are more likely to pay dividends, and vice versa. See,
e.g., Desai, M. & Jin, L. Institutional Tax Clienteles and Payout
Policy, 100 J. Fin. Econ. 68 (2011). See also letter from Davis
Polk.
    \415\ See, generally, Baker, M. & Wurgler, J., Market Timing and
Capital Structure, 57 J. Fin. 1 (2002). Some other evidence suggests
that firms tend to repurchase stock and issue debt when the cost of
debt falls relative to the cost of equity. See Ma, Y., Nonfinancial
Firms as Cross[hyphen]Market Arbitrageurs, 74 J. Fin. 3041 (2019)
(``Ma (2019)''). See also Hovakimian, A., Role of Target Leverage in
Security Issues and Repurchases, 77 J. Bus. 1041 (2004) (finding
that ``equity issues and repurchases do not offset the accumulated
deviation from the target and they are timed to market
conditions'').
---------------------------------------------------------------------------

    Some commentators and studies have noted that opportunistic insider
behavior and agency conflicts, rather than firm value maximization, can
motivate repurchases. In particular, repurchases can serve as a form of
real earnings management (through decreasing the denominator of EPS)
and thus be subject to short-term earnings management objectives of an
executive seeking to meet or beat consensus forecasts.\416\ CFO survey
responses indicate that increasing EPS is an important factor affecting
share

repurchase decisions.\417\ Investors may take this into account when
evaluating EPS.\418\ Nevertheless, earnings management-motivated
repurchases can have negative real effects on the issuer and its
shareholders, such as forgoing valuable investments.\419\ Some sources
disagree.\420\ Announcements of repurchases and actual repurchase
trades can also result in short-term upward price pressure.\421\ Share
price- or EPS-tied compensation arrangements can thus incentivize
executives to undertake repurchases, in an attempt to maximize their
compensation, even if such repurchases are not optimal from the
shareholder value maximization perspective. A number of studies have
examined the use of repurchases to influence compensation tied to per-
share measures.\422\ Further, a different study examined the real cost
of EPS-motivated repurchases outside the context of compensation.\423\
However, a different study documented a link between EPS targets and
repurchases but did not find evidence of negative effects on
shareholders.\424\ As an important caveat, the discussed incentives
would be weaker to the extent executive compensation plans and board
committees that address executive compensation account for how
repurchases would affect compensation targets and the value of
incentive-based compensation.\425\

Another instance of potentially inefficient repurchase behavior that
some studies have shown could have a negative effect on investors
involves insider incentives to raise the share price prior to insider
sales.\426\ Other studies reach different conclusions.\427\ As a
caveat, some studies note that in cases where repurchase announcements
coincide with earnings announcements, insider sales activity after the
repurchase announcement may be the result of pent-up liquidity demand
because issuers generally prohibit insiders from trading in the period
leading up to earnings announcements as part of blackout periods.\428\
Further, in cases of findings related to trends in insider sales around
repurchase announcements, such trends may not directly translate to
patterns of insider sales around actual repurchases. As a final caveat,
omitted variables may affect both insider sales and repurchases.\429\
Conversely, some studies note that insider purchases of stock in
conjunction with a repurchase announcement may strengthen the
credibility of the repurchase signal.\430\ CFOs report that they
consider the price of the stock when deciding whether to repurchase
stock.\431\ Further, academic studies have found that firms conduct
repurchases when stock prices are low.\432\ The effects of such issuer
trading on liquidity are not fully certain, with several studies
finding improved liquidity during repurchase programs,\433\ and several
other studies pointing to adverse selection effects of trading by the
better informed issuer.\434\
---------------------------------------------------------------------------

    \416\ For evidence on the use of repurchases as a method of real
earnings management, see, e.g., Bens, D., Nagar, V., Skinner, D., &
Wong, M.H.F. Employee Stock Options, EPS Dilution, and Stock
Repurchases, 36 J. Acct. & Econ. 51 (2003) (finding that stock
repurchases increase when ``(1) the dilutive effect of outstanding
employee stock options (ESOs) on diluted EPS increases, and (2)
earnings are below the level required to achieve the desired rate of
EPS growth'' and concluding that executives' repurchase decisions
are ``driven by incentives to manage diluted but not basic EPS, and
strengthening our earnings management interpretation'');
Bonaim[eacute], A.A., Kahle, K., & Moore, D., Employee Compensation
Still Impacts Payout Policy, Working Paper (2020) (finding ``a
strong positive relation between the dilutive effect of stock-based
employee compensation and share repurchases''); Burnett, B., Cripe,
B., Martin, G., & McAllister, B., Audit Quality and the Trade-Off
Between Accretive Stock Repurchases and Accrual-Based Earnings
Management, 87 Acct. Rev. 1861 (2012).
    \417\ See Brav et al. (2005).
    \418\ For example, Hribar et al. (2006), supra note 33, finds
that the market discounts EPS announcements in situations in which
EPS would have been shy of analyst expectations but for share
repurchases (and where repurchases are disclosed along with
quarterly earnings); Kahle, K. When a Buyback isn't a Buyback: Open
Market Repurchases and Employee Options, 63 J. Fin. Econ. 235 (2002)
(noting that the market appears to recognize the anti-dilutive
motive for repurchases and reacts less positively to repurchases
announced by firms with high levels of nonmanagerial options). Kurt
(2018) studies the use of ASRs for real earnings management and
concludes investors ``are not fooled'' by managers' use of ASRs as
an earnings management device. However, Kurt (2018) notes that
``[u]pward revision observed in analysts' EPS forecasts upon the
announcement of ASRs is short-lived, indirectly facilitating firms'
use of ASRs to meet or beat consensus forecasts.'' See Kurt, A.,
Managing EPS and Signaling Undervaluation as a Motivation for
Repurchases: The Case of Accelerated Share Repurchases, 17 Rev.
Acct. Fin. 453 (2018). But see Edmans et al. (2022).
    \419\ For example, one recent study finds that repurchases used
to push EPS above analyst expectations are accompanied by a 10%
decrease in capital expenditures and a 3% decrease in research and
development. See, e.g., Almeida et al. (2016), supra note 33. Note
that the Almeida et al. (2016) findings do not necessarily
generalize to repurchases by issuers outside the range of EPS
approaching the earnings target, or to repurchases unrelated to EPS
manipulation. The Almeida et al. (2016) study further finds that,
amongst the subset of issuers that are close to missing the EPS
forecast, ``[i]t is clear that EPS-induced repurchases are on
average not detrimental to shareholder value or subsequent
performance,'' as pointed out by a commenter. See letters from
Chamber II and Profs. Lewis and White. However, the Almeida et al.
(2016) study also notes that ``some firms sacrifice valuable
investments to finance share repurchases.'' A 2016 McKinsey & Co.
report states that share repurchases do not improve shareholder
returns simply by increasing EPS because, under certain conditions,
there may have been more preferable uses for those funds such as
debt reduction and reinvestment in the firm. See Ezekoye, O.,
Koller, T., & Mittal, A., How Share Repurchases Boost Earnings
without Improving Returns, McKinsey (Apr. 29, 2016), available at
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-share-repurchases-boost-earnings-without-improving-returns.
    \420\ See PwC (2019) Share Repurchases, Executive Pay and
Investment, BEIS Research Paper No. 2019/011 (``PwC Report'')
(finding in UK data ``no relationship between share repurchases and
investment'' and also finding that, even when focused ``on firms
that would have just missed an EPS target in the absence of a
repurchase, and thus are particularly likely to cut investment to
finance a repurchase . . . [that] these firms did not cut investment
more than other firms that would have just met an EPS target in the
absence of a repurchase.''); Kay, I. & Martin, B. Are Share Buybacks
a Symptom of Managerial Short-Termism? New Insights on Executive
Pay, Share Buybacks, and Other Corporate Investments, PayGovernance
(2019) (finding that ``four-year post-buyback performance on TSR and
CapEx growth was higher for the companies in the large buyback
sample than for the companies with smaller buybacks'', ``that
companies with higher short-term TSR had equal or higher subsequent
long-term TSR and CapEx growth'', and also suggesting that both
companies with small and large buybacks ``appear to be optimizing
earnings growth'').
    \421\ With respect to actual share repurchases, a recent study
shows that price support provided by actual share repurchases
improves price efficiency, even when manipulation concerns might be
highest, such as those that occur prior to insider sales. See Busch,
B. & Obernberger, S., Actual Share Repurchases, Price Efficiency,
and The Information Content Of Stock Prices, 30 Rev. Fin. Stud. 324
(2017) (``Busch and Obernberger (2017)''). With respect to share
repurchase announcements, some have suggested that managers may take
advantage of positive stock price reactions to non-binding
repurchase announcements and use disingenuous repurchase
announcements to manipulate share prices. See Chan et al. (2010)
(finding in 1980-2000 data, which predates the 2003 Item 703
amendments, that a limited number of managers may have used
repurchases in a misleading way as ``cheap talk'', noting as a
caveat that ``the total number of buybacks where managers may have
been intending to mislead investors, while nonzero, also appears to
be limited''). Such ``cheap talk'' may result in lower announcement
returns. See, e.g., Bonaim[eacute], A.A., Repurchases, Reputation,
and Returns, 47 J. Fin. & Quantitative Analysis 469 (2012)
(``Bonaim[eacute] (2012)''); Bonaim[eacute] (2015). In contrast,
other studies argue that ``cheap-talk'' repurchase announcements may
correct mispricing by attracting additional market scrutiny. See
Almazan, A., Banerji, S., & De Motta, A., Attracting Attention:
Cheap Managerial Talk and Costly Market Monitoring, 63 J. Fin. 1399
(2008); Bhattacharya, U. & Jacobsen, S., The Share Repurchase
Announcement Puzzle: Theory and Evidence, 20 Rev. Fin. 725 (2016).
Further, as pointed out by some commenters, the 2020 Staff Study
concludes that ``[r]epurchase announcements are accompanied by stock
price increases. This announcement effect does not dissipate over
time, as one would expect if repurchases were based on efforts to
manipulate share prices.'' See letters from Chamber II and Profs.
Lewis and White.
    \422\ See, e.g., Cheng, Y., Harford, J., & Zhang, T., Bonus-
Driven Repurchases, 50 J. Fin. & Quantitative Analysis 447 (2015)
(``Cheng et al. (2015)'') (finding that ``when a CEO's bonus is
directly tied to earnings per share (EPS), his company is more
likely to conduct a buyback,'' with the effect being ``especially
pronounced when a company's EPS is right below the threshold for a
bonus award,'' that ``[s]hare repurchasing increases the probability
the CEO receives a bonus and the magnitude of that bonus, but only
when bonus pay is EPS based,'' and further finding that ``[b]onus-
driven repurchasing firms do not exhibit positive long-run abnormal
returns''); Kim, S. & Ng, J., Executive Bonus Contract
Characteristics and Share Repurchases, 93 Acct. Rev. 289 (2018)
(finding that ``managers are more (less) likely to repurchase shares
and spend more (less) on repurchases when as-if EPS just misses
(exceeds) the bonus threshold (maximum) EPS level,'' and that
``[m]anagers making bonus-motivated repurchases do so at a higher
cost''); Marquardt, C., Tan, C., & Young, S. (2011) Accelerated
Share Repurchases, Bonus Compensation, and CEO Horizons, Working
paper (finding that firms are more likely to choose ASRs over open
market repurchases ``when the repurchase is accretive to EPS, when
annual bonus compensation is explicitly tied to EPS performance,
when CEO horizons are short, and when CEOs are more entrenched'').
See also letter from S. Kaswell (supporting benefits of additional
disclosure about whether repurchase plans trigger additional
executive compensation).
    \423\ See Almeida et al. (2016) (finding that ``[t]he
probability of share repurchases that increase earnings per share
(EPS) is sharply higher for firms that would have just missed the
EPS forecast in the absence of the repurchase, when compared with
firms that `just beat' the EPS forecast'' and that ``EPS-motivated
repurchases are associated with reductions in employment and
investment, and a decrease in cash holdings'' and concluding that
``managers are willing to trade off investments and employment for
stock repurchases that allow them to meet analyst EPS forecasts'').
See also Rulemaking Petition 4-746.
    \424\ See Young, S. & Yang, J., Stock Repurchases and Executive
Compensation Contract Design: The Role of Earnings Per Share
Performance Conditions, 86 Acct. Rev. 703-733 (2011) (finding ``a
strong positive association between repurchases and EPS-contingent
compensation arrangements'' but also finding ``net benefits to
shareholders from this association'' (including ``larger increases
in total payouts'', a more pronounced ``positive association between
repurchases and cash performance'' in the presence of surplus cash;
greater likelihood of undervalued firms ``signal[ing] mispricing
through a repurchase,'' and ``lower abnormal accruals'') and ``no
evidence that EPS-driven repurchases impose costs on share-holders
in the form of investment myopia'').
    \425\ See 2020 Staff Study (finding that, based on a review of
compensation disclosures in proxy statements for a sample of 50
firms that repurchased the most stock in 2018 and 2019,''82% of the
firms reviewed either did not have EPS-linked compensation targets
or had EPS targets but their board considered the impact of
repurchases when determining whether performance targets were met or
in setting the targets'' and concluding that ``[m]ost of the money
spent on repurchases over the past two years was at companies that
either do not link managerial compensation to EPS-based performance
targets or whose boards considered the impact of repurchases when
determining whether EPS-based performance targets were met or in
setting the targets, suggesting that other rationales motivated the
repurchases''), which was noted by several commenters. See, e.g.,
letters from Bishop, Cato, Chamber II, Coalition, Profs. Lewis and
White, T. Rowe Price, Virtu, and Vistra. The 2020 Staff Study also
notes that ``[collectively], these findings potentially suggest that
most repurchase activity does not represent an effort to
artificially inflate stock prices or influence the value of option-
based or EPS-linked compensation'', as noted by a commenter (see
letters from Chamber II and Profs. Lewis and White). See also, e.g.,
Fields, R., Buybacks and the Board: Director Perspectives on the
Share Repurchase Revolution, Sept. 20, 2016, available at https://corpgov.law.harvard.edu/2016/09/20/buybacks-and-the-board-director-perspectives-on-the-share-repurchase-revolution/ (concluding, based
on interviews of ``44 directors serving on the boards of 95 publicly
traded U.S. companies with an aggregate market capitalization of
$2.7 trillion'' that ``most directors said that their companies are
aware of the relationship between buyback programs and compensation
and that they make deliberate, informed choices to ensure that they
reward executives for desired behavior rather than for financial
manipulation of share prices. Anticipated buyback effects on EPS are
usually factored into EPS targets, they say, and unanticipated
effects can be adjusted out.''); PwC Report (finding in the UK
setting, which has daily reporting, ``no significant relationship
between share repurchases and either the existence of an EPS
condition or the proportion of an incentive award linked to that
condition within executive pay incentives and share repurchases,''
and finding in UK survey data that ``30% of companies adjust their
EPS targets contained within LTIPs for share repurchase activity,
and most senior executives acknowledge share repurchases should be
reviewed by remuneration committees.''); Bargeron, L., Kulchania,
M., & Thomas, S. Accelerated Share Repurchases, 101 J. Fin. Econ. 69
(2011) (finding limited evidence of earnings management motives for
ASRs in the presence of proxies for the value of flexibility);
Bennett, B., Bettis, C., Gopalan, R., & Milbourn, T. Compensation
Goals and Firm Performance, 124 J. Fin. Econ. 307 (2017) (in Table
5, not finding evidence that firms that just exceed the compensation
EPS goal undertake more repurchases than firms that just miss the
EPS goal, inconsistent with strategic use of repurchases to manage
EPS targets in compensation contracts). See also letters from
Chamber II; Vistra; Maryland Bar; Virtu; T. Rowe Price; Pay
Governance; SCG; Coalition; Cato; PA Chamber; Bishop; and Profs.
Lewis and White.
    \426\ See, e.g., letters from AFREF et al., Better Markets I,
CFA Institute, CII, Oxfam, Prof. Palladino, and Public Citizen. See
also, e.g., Chan et al. (2010). See also Bonaim[eacute], A.A. &
Ryngaert, M.D., Insider Trading and Share Repurchases: Do Insiders
and Firms Trade in the Same Direction?, 22 J. Corp. Fin. 35-53
(2013) (``Bonaim[eacute] and Ryngaert (2013)'') (finding that
repurchases that coincide with net insider selling may be related to
price support and/or reasons related to option exercises); Cziraki
et al. (2021), supra note 34, (finding that ``[h]igher insider net
buying is associated with better post-event operating performance, a
reduction in undervaluation, and, for repurchases, lower post-event
cost of capital. Insider trading also predicts announcement returns
and long-term abnormal returns following events.'' They conclude
their results suggest ``insider trades before corporate events
[repurchases and SEOs] contain information about changes both in
fundamentals and in investor sentiment''); Palladino (2020) (finding
increased insider selling in quarters where buybacks are occurring);
Ahmed, W., Insider Trading Around Open Market Share Repurchase
Announcements, Working paper, University of Warwick (2017) (finding
that ``insiders take advantage of higher post-[repurchase]
announcement price and sell more heavily'', and that such selling is
predictive of lower long-term returns). See also Rulemaking Petition
4-746, at 5 and note 17 (expressing concern and citing evidence of
repurchases used to increase share prices at the time when insiders
sell shares) and letter from Prof. Jackson, Dr. Hu, and Dr. Zytnick.
See also, generally, Edmans et al. (2018), supra note 35 (finding
that ``CEOs release 20% more discretionary news items in months in
which they are expected to sell equity, predicted using scheduled
vesting months'' and that ``[t]he increase arises for positive news,
but not neutral or negative news, nor nondiscretionary news'' and
concluding that ``[n]ews in vesting months generates a temporary
increase in stock prices and market liquidity, which the CEO
exploits by cashing out shortly afterwards''; as an important
caveat, while the study includes buybacks among announcements, and
based on other evidence, they are generally viewed as positive
announcements, the study does not provide specific results for
buybacks); Edmans et al. (2022), supra note 34 (finding that
``[v]esting equity is positively associated with the probability of
a firm repurchasing shares'' but that ``it is also associated with
more negative long-term returns over two to three years following
repurchases'' and that ``CEOs sell their own stock shortly after
using company money to buy the firm's stock, also inconsistent with
repurchases being motivated by undervaluation'').
    \427\ See, e.g., Liu and Swanson (2016) (finding that
``[c]orporate insiders do not sell from personal stock holdings
during the price support quarter.''); see also Busch and Obernberger
(2017) (concluding with respect to actual share repurchases, that
price support provided by repurchases improves price efficiency,
even when manipulation concerns might be highest, such as those that
occur prior to insider sales).
    \428\ See Dittmann et al. (2022), supra note 40 (finding that
``both the timing of buyback programs and the timing of equity
compensation, i.e., the granting, vesting, and selling of equity,
are largely determined by the corporate calendar through blackout
periods and earnings announcement dates,'' ``not support[ing] the
conclusion that CEOs systematically misuse share repurchases at the
expense of shareholders,'' and concluding that ``equity compensation
increases the propensity to launch a buyback program when buying
back shares is beneficial for long-term shareholder value.''); and
Profs. Lewis and White (finding that the rise in insider selling
after repurchase announcements is driven by outliers and issuer
blackout periods) and letter from Chamber II. As a caveat, we note
that the commenters and the Dittmann et al. (2022) study do not
appear to have ruled out the possibility that repurchase and vesting
calendars are not aligned coincidentally.
    \429\ As noted in Edmans et al. (2022), an analysis of insider
sales around repurchases may be susceptible to endogeneity concerns
due to omitted variable bias (e.g., if poor investment opportunities
cause the CEO to divest shares and also make it optimal for the firm
to pay out surplus free cash flow).
    \430\ Announcement returns are positively related to past
insider purchases, especially for firms that are priced less
efficiently. See, e.g., Dittmar & Field (2015) (finding that
``repurchasing firms with relatively high net insider buying have
significantly lower relative repurchase prices'' and concluding that
firms with more net insider buying repurchase undervalued stock);
Babenko, I., Tserlukevich, Y., & Vedrashko, A., The Credibility of
Open Market Share Repurchase Signaling, 47 J. Fin. & Quantitative
Analysis 1059 (2012) (``Babenko and Vedrashko (2012)'');
Bonaim[eacute] and Ryngaert (2013) (finding that net insider buying
reinforces the undervaluation signal conveyed by repurchases while
net insider selling weakens it); Cziraki et al. (2021), supra note
34, (showing that ``pre-event insider trading contains information
regarding future changes in the cost of capital for repurchasing
firms''). Setting aside the signaling theory, purchases by insiders
during an issuer's repurchases if such insiders are in possession of
material nonpublic information may represent unlawful insider
trading that may harm other market participants. Similar to
insiders, issuers that purchase their securities while in possession
of material nonpublic information may be subject to Rule 10b-5
liability.
    \431\ Brav et al. (2005).
    \432\ See, e.g., Dittmar and Field (2015); Ben-Rephael et al.
(2014); Chan et al. (2007); Cook et al. (2004).
    \433\ See, e.g., Busch and Obernberger (2017); Cook et al.
(2004); Hillert, A., Maug, E., & Obernberger, S., Stock Repurchases
and Liquidity, 119 J. Fin. Econ. 186 (2016). See also letters from
Chamber II and Profs. Lewis and White; Lewis, C.M., & White, J.T.
(2021). Corporate Liquidity Provision and Share Repurchase Programs,
U.S. Chamber of Commerce: Center for Capital Markets Competitiveness
(Fall 2021), available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2021/09/CCMC_Stock-Buybacks_WhitePaper_10.2.21.pdf. See also letter from Chamber II.
    \434\ See, e.g., Barclay, M.J., & Smith, C.W. Corporate Payout
Policy: Cash Dividends versus Open Market Repurchases, 22 J. Fin.
Econ. 61 (1988); Ginglinger, E., & Hamon, J., Actual Share
Repurchases, Timing and Liquidity, 31 J. Banking & Fin. 915 (2007)
(using data from France); Brockman, P., & Chung, D.Y. Managerial
Timing and Corporate Liquidity: Evidence from Actual Share
Repurchases, 61 J. Fin. Econ. 417 (2001) (using data from Hong
Kong).
---------------------------------------------------------------------------

    Presently, information about repurchases, aggregated at the monthly

level, is provided in periodic reports (on a quarterly basis for
domestic issuers that report on Forms 10-Q and 10-K, on a semi-annual
basis for Listed Closed-End Funds that report on Form N-CSR, and on an
annual basis for FPIs that report on Form 20-F).\435\ Issuers are not
required to provide more disaggregated information than the monthly
aggregates to investors about repurchases. This lack of disaggregated
disclosure about past repurchases likely contributes to information
asymmetries and thus makes it harder for investors to evaluate an
issuer's share repurchase program, determine the correct valuation of
an issuer's securities, and as a result make informed investment
decisions.
---------------------------------------------------------------------------

    \435\ In addition to the disclosures on Form N-CSR that provide
more detailed information about Listed Closed-End Fund repurchases,
Form N-CEN also requires closed-end management investment companies
to indicate whether they engaged in a repurchase during the
reporting period and, if so, for what type of security. See supra
footnote 7.
---------------------------------------------------------------------------

    Although issuers, particularly exchange-listed issuers, may often
announce details of their repurchase programs on a voluntary basis,
issuers are not currently required to do so, or to disclose the
structure or objectives and rationales for their repurchase program. In
particular, to our knowledge, most issuers subject to the final
amendments do not currently disclose daily share repurchase
information. Further, issuers are not required to disclose whether they
allow insiders to trade during repurchases. Thus, it can sometimes be
difficult for investors to determine whether the undertaken repurchases
were efficient and aligned with shareholder value maximization, or were
driven at least in part by factors other than shareholder interests.
    The last significant change to repurchase reporting was adopted in
2003,\436\ when the Commission required issuers to present monthly data
on actual repurchases on a quarterly basis in Form 10-Q or 10-K for
domestic corporate issuers, semi-annual basis in Form N-CSR for Listed
Closed-End Funds, and on an annual basis in Form 20-F for FPIs. One
study examined the consequences of this change and found that ``[f]irms
announce significantly fewer and slightly smaller open market
repurchase plans in the enhanced disclosure environment,'' however,
``completion rates (the amount of stock repurchased as a percentage of
the announced amount) significantly increase.'' \437\ The study further
states that ``[m]ore conservative announcement strategies and more
aggressive completion rates are consistent with a decline in false
signaling . . . open market repurchase announcements are viewed as more
credible, on average, in the enhanced disclosure environment.'' \438\
However, as the study notes, ``[a]s with any analysis based on a
regulatory change affecting all firms simultaneously, other
unobservable, macroeconomic trends could have affected repurchase
behavior.'' \439\
---------------------------------------------------------------------------

    \436\ See 2003 Adopting Release, supra note 5.
    \437\ See Bonaim[eacute] (2015).
    \438\ Id.
    \439\ Id.
---------------------------------------------------------------------------

    Available data on issuer use of Rule 10b5-1 plans under the
baseline was discussed in Section V.A.1 above.
    In Sections V.B. and V.C. below we evaluate the anticipated costs
and benefits of the final rule and the anticipated effects of the final
rule on efficiency, competition, and capital formation.

B. Benefits

    We begin the discussion with the general benefits applicable to all
of the final amendments, continue to discuss the benefits specific to
the new quantitative repurchase disclosure, and then proceed to the
benefits specific to other amendments.
1. General Benefits of the Disclosures
    We anticipate the amendments will give rise to benefits by
strengthening investor protection, improving market efficiency, and
facilitating capital formation. The amended disclosure requirements are
expected to benefit investors (including existing shareholders
contemplating a sale of securities or a purchase of additional
securities) by providing investors with more comprehensive and
comparable disclosures about share repurchases and thus enabling them
to value the issuer's securities more accurately, resulting in better
informed investment decisions.\440\ Existing evidence in academic
research (discussed in detail in Section V.A.2. above) and various
comment letters on the proposal \441\ support the presence of
significant information asymmetries between insiders and other
investors on undertaken repurchases and the extent to which they may
relate to the fundamental value of the issuer's stock. The issuer's
evolving knowledge of the issuer's future prospects, and thus, share
valuation may be reflected in the execution of actual share repurchases
following a repurchase program announcement. Thus, more comprehensive
disclosure of the issuer's repurchase strategy may indirectly inform
investors about the issuer's fundamental value, in addition to other
existing disclosures (unrelated to issuer repurchases). Moreover, to
the extent that reasons for actual repurchases may be confounded by
managerial self-interest, additional information on the timing of
repurchases can be indicative of such agency problems, informing
investors about the likely impacts of repurchases on shareholder
value.\442\ Hence, we disagree with some commenters' \443\ suggestion
that there is no market failure necessitating additional repurchase
disclosures. Continuing the existing regime where issuers are only
mandated to provide abbreviated and aggregated disclosure of share
repurchases, as compared to the final amendments, and relying solely on
voluntary disclosure of additional repurchase plan details to fill
these information gaps is not a solution to the information asymmetry
issues because of market failures arising from collective action and
moral hazard problems.
---------------------------------------------------------------------------

    \440\ See supra notes 403-404, 402-404, 432 and accompanying
text.
    \441\ See supra notes 65, 146, 247, and 264.
    \442\ See supra notes 416-426 and accompanying and following
text.
    \443\ See, e.g., letters from Chamber II and Profs. Lewis and
White for a detailed discussion of this argument.
---------------------------------------------------------------------------

    Specifically, there are potential collective action problems that
preclude an optimal level of additional voluntary disclosure.
Voluntarily disclosing the additional details of their share repurchase
strategy when other issuers do not do so can place the issuer at a
relative disadvantage. For example, such disclosures can be costly to
individual firms due to the costs of compiling the disclosures, the
potential legal risk stemming from such disclosures, and the potential
costs of leaking valuable private information to competitors that may
infer proprietary information about the issuer. In addition, such
disclosures may reveal information to other traders that may trade
against the issuer, resulting in a less favorable repurchase price,
particularly for multi-quarter repurchase programs. While more
comprehensive repurchase disclosure is privately costly to individual
issuers in such a voluntary framework, such disclosure has positive
informational externalities for investors and other market participants
which are not internalized by each issuer, which may lead issuers to
rationally under-disclose relative to what is optimal from the
investors' perspective.\444\
---------------------------------------------------------------------------

    \444\ As an alternative to the voluntary repurchase strategy
disclosure, to address the information asymmetries, insiders could
publicly reveal their private information about the stock's
fundamental value. However, an individual issuer doing so could
reveal private information on the firm's strategy to their
competitors, also giving rise to a collective action problem--thus,
a voluntary regime results in too little disclosure.

---------------------------------------------------------------------------

    Under the final amendments, all issuers would be required to follow
the same standard framework to disclose repurchase information at the
level of detail that facilitates investor evaluation of repurchase
information and helps them make comparisons among all issuers, thus
enabling better informed investment decisions. The final amendments
would therefore address the aforementioned market failure resulting
from collective action problems.
    Furthermore, to the extent that managerial self-interest may affect
some repurchase decisions, moral hazard problems may also contribute to
this market failure by undermining the optimal provision of voluntary
disclosure about share repurchases to investors. In order for voluntary
disclosure to result in the complete revelation of all relevant private
information, there would need to be no agency problems (i.e., no
conflicts of interest between managers and shareholders) such that
managers' sole objective with respect to repurchase disclosures would
be to optimally disclose to shareholders information about repurchases.
However, if managers have other objectives and incentives that
interfere with the decision to make fulsome repurchase disclosures on a
voluntary basis, reliance on the additional disclosures being made
voluntarily may not result in the same complete information. For
example, if some repurchases are not made to maximize shareholder value
due to agency problems, managers may not wish to provide detailed
disclosure. Moreover, when agency problems exist, investors can no
longer be sure if the absence of additional, voluntarily provided
disclosure reflects good or bad news for the firm, given that some
managers may have self-serving incentives. To the extent that there are
instances where some repurchase decisions benefit the management rather
than maximize shareholder value, they would give rise to agency
conflicts with respect to providing sufficient disclosure about
repurchases.
    More comprehensive and standardized disclosure about recent
repurchase activity is therefore expected to alleviate information
asymmetries about an issuer's repurchase strategy and therefore be
beneficial to investors (as discussed in detail in Section V.B. below).
Further, the final amendments will ensure greater uniformity across
issuers in the provision of qualitative and quantitative information
about repurchases to investors, facilitating investor comparison and
analysis of information across issuers and time periods. We thus
believe that the decrease in information asymmetry as a result of the
amended disclosure requirements would benefit investors, facilitating
better informed investment decisions. Some commenters have expressed
concern that the disclosure mandated by the amendments will undermine
benefits to investors by eliminating information acquisition
incentives.\445\ However, the disclosure will not eliminate all
information asymmetries for several reasons: (i) the final amendments
include a delay in the timing of the disclosure of the issuer's
repurchase trades; (ii) the final amendments require the revelation of
significant aspects of the repurchase program rather than require the
issuers to reveal the entirety of its private information; and (iii)
investors have disclosure processing costs and differ in their learning
from, and analysis of, public disclosures.\446\
---------------------------------------------------------------------------

    \445\ See letters from Chamber II and Profs. Lewis and White,
referring to the argument, motivated by Grossman and Stiglitz
(1980), that ``[w]ithout some level of asymmetric information, there
would be fewer incentives to invest in information collection,
resulting in less price discovery and a corresponding reduction in
liquidity.'' See Grossman, S.J., & Stiglitz, J.E. (1980). On the
Impossibility of Informationally Efficient Markets, 70 Am. Econ.
Rev. 393.
    \446\ See Blankespoor, E., deHaan, E. and Marinovic, I. (2020)
Disclosure Processing Costs, Investors' Information Choice, and
Equity Market Outcomes: A Review, 70 J. Acct. & Econ. 101344
(discussing the investor costs of ``monitoring for, acquiring, and
analyzing [public] firm disclosures,'' which they collectively
characterize as ``disclosure processing costs,'' and noting that
``[t]he existence of processing costs means that learning from
disclosures is an active economic choice, much like learning from
any private information source. Rational investors expect a
competitive return to processing and, thus, disclosure pricing
cannot be perfectly efficient'' and that ``[t]here is extensive
evidence that disclosure processing costs affect all types of
investors, from the smallest to most sophisticated, and can affect
stock returns and other market outcomes within rational
equilibria.'').
---------------------------------------------------------------------------

    Relative to the baseline of existing disclosure requirements, the
final amendments will require more comprehensive and detailed
disclosure about issuer repurchase programs (including their structure
and objectives, policies related to insider trading around repurchases,
and information about issuer repurchase plans under Rule 10b5-1) and
actual repurchases undertaken by issuers, enabling more insight into
issuers' repurchase decisions and how they impact shareholder value.
    The benefits of the amended disclosure requirements may vary across
investors. The described benefits may be more limited for some
sophisticated investors to the extent that those investors can gauge
partial information from the existing disclosures and public
announcements of repurchase programs, and to the extent that some large
repurchases have price impact, indirectly from existing market data.
However, information that is available today is generally much less
extensive and much less standardized across issuers than is required
under the final amendments. Further, investors may differ in their
ability to efficiently process and interpret the additional
disclosures. For example, some commenters indicated that the benefit of
granular day-by-day information about repurchases for informing trading
strategies may be greatest for more sophisticated traders.\447\
However, overall, we believe the amendments will result in
significantly more standardized, comparable, accessible, and generally
more comprehensive disclosure about repurchases, for all repurchasing
issuers subject to the amendments, which is expected to benefit all
investors, including less sophisticated investors.
---------------------------------------------------------------------------

    \447\ See infra note 452.
---------------------------------------------------------------------------

2. Additional Quantitative Repurchase Disclosure
    The more detailed disclosure of actual repurchases at the daily
level will provide additional information to inform investment
decisions compared to repurchase information aggregated to the monthly
level that is required to be disclosed today (and voluntary
announcements of repurchase programs issuers make today). More granular
data on daily repurchase activity levels and repurchase prices,
relative to existing disclosures, can provide more insight to investors
about the issuer's share repurchase strategy, including the timing of
execution of share repurchase decisions, the evolving outlook on the
valuation of its shares (as revealed by issuer trading), as well as how
recent repurchase decisions relate to other value-relevant corporate
decisions. Investors are expected to derive additional information
benefits from combining the amended repurchase disclosures with
existing financial and other disclosures in periodic reports, earnings
guidance and earnings announcements, proxy statements, etc. In
addition, for FPIs that presently are subject to repurchase disclosure
requirements in annual reports on Form 20-F, the amended disclosure
requirements will ensure significantly timelier disclosure of
repurchase information, making it available to investors on a quarterly
basis.

    Over the last several decades, repurchases have become a partial
substitute for dividends as a means of returning cash to
investors.\448\ Unlike dividends which are smoothed and therefore
highly predictable, repurchases are less so. Overall, the additional
disclosure under the amended requirements will enable investors to
better understand the issuer's share repurchase decisions and how they
relate to shareholder value maximization, what the company's repurchase
strategy is (including the use of Rules 10b-18 and 10b5-1), how the
repurchase strategy varies with market conditions, as applicable, and
whether the repurchase is based on the need to gradually return cash,
potential temporary mispricing, or other factors. This will allow
investors, particularly, shareholders that sell shares during issuer
repurchases, to evaluate a more consistent and standardized disclosure
across various issuers, relative to the baseline. Furthermore, any
decrease in the information asymmetry between issuers and investors and
among investors due to the final amendments should contribute to a
reduction in adverse selection costs, which may promote liquidity.
---------------------------------------------------------------------------

    \448\ See supra note 389.
---------------------------------------------------------------------------

    In addition, repurchase activity data disaggregated on a day-by-day
basis, combined with other existing disclosures and public information
(e.g., dates and details of earnings announcements, analyst forecasts,
earnings guidance, acquisition announcements, compensation awards,
insider trades etc.), may enable investors to evaluate more accurately
whether some recent repurchases coincided with events that may give
rise to repurchase incentives other than undervaluation of shares or
distribution of excess free cash flow (e.g., meeting/beating the
consensus earnings forecast ahead of the earnings announcements,
increasing the share price prior to an insider's sale, meeting a
threshold in the compensation arrangement etc.). To the extent that the
amended disclosure requirements refine the ability of investors to
gauge the likely impacts of share repurchases on shareholder value
maximization, they are expected to result in better informed investment
decisions. Further, the amended disclosure is expected to provide
investors with additional context (with a greater level of granularity
than the existing disclosure presently reported on an aggregated,
month-by-month basis) for interpreting past repurchase announcements,
which may help investors in evaluating future repurchase announcements
by the issuer. Finally, one potential indirect effect of the amendments
may be to disincentivize repurchases that are not conducive to
shareholder value maximization, to the extent they are present at a
given firm, by drawing investor attention to such instances, benefiting
shareholders.
    Some commenters on the daily reporting proposal have suggested that
repurchase data at the daily level may be noisy \449\ (in the sense
that daily fluctuations in repurchases may have various causes other
than new information about the firm's valuation) \450\ and also lead
some investors to draw inaccurate inferences.\451\ These considerations
are in our view unlikely to limit the information benefits of the
disclosure, particularly in the presence of sophisticated investor
bases. Further, the change from the proposal will allow investors to
analyze daily repurchase data within the context of the repurchase
disclosures for the entire quarter and the accompanying qualitative
disclosures, filtering out noise better, rather than trade in response
to each daily report, potentially alleviating some of the commenter
concerns about noise and volatility.
---------------------------------------------------------------------------

    \449\ See supra notes 79-81.
    \450\ See also Core, J.E. A Review of the Empirical Disclosure
Literature: Discussion, 31 J. Acct. & Econ. 441 (2001) (noting the
finding in Bushee and Noe (2001) that ``increases in `transient'
institutional investors (institutions that trade aggressively) are
associated with increases in stock price volatility'' and stating
that ``[a]ssuming that increases in stock price volatility are
costly, this finding is consistent with the intuition that partial
disclosure is optimal, and that too much disclosure can be as costly
as too little disclosure.'')
    \451\ See supra notes 79-80, 84-85, and 92. But see, e.g.,
letter from Roosevelt (disagreeing with the idea that daily data
would lead to too much noise).
---------------------------------------------------------------------------

    While some commenters have noted the concern that the daily
granularity of repurchase information may represent data that is too
disaggregated for retail investors to easily parse and benefit
from,\452\ we disagree that this information will widen information
asymmetries among investors. By making more detailed information
accessible to all investors which was not accessible in any way before,
we expect the final amendments to provide more information to retail
investors rather than less. Thus retail investors are expected to
incrementally benefit from the final amendments.
---------------------------------------------------------------------------

    \452\ See supra notes 86-87. But see supra note 65 (discussing
comment letters supporting the information benefits of higher-
frequency reporting for investors, including individual investors)
and see also, generally, Easley, D., & O'Hara, M. Information and
the Cost of Capital 59 J. Fin. 1553 (2004) (``Easley and O'Hara
(2004)'') (showing, in a theoretical framework, a positive role for
public information because it reduces the risk for uninformed
traders of holding the asset). Moreover, in equilibrium, the ability
of sophisticated investors to capitalize on their superior
information processing technology strengthens their incentive to
compete for information and contributes to greater informational
efficiency of prices. Furthermore, many of the sophisticated
institutional investors may be involved in delegated portfolio
management, advising or managing portfolios for the benefit of less
sophisticated clients.
---------------------------------------------------------------------------

    Consistent with the existing repurchase disclosure requirement, the
new disclosure of historical daily repurchase activity will be required
to be filed rather than furnished. Having the information be filed,
rather than furnished, ensures consistency in the liability standard
applicable to the additional repurchase disclosures provided under
amended Item 703 and the disclosures required to be provided under Item
703 today.\453\
---------------------------------------------------------------------------

    \453\ See supra note 7.
---------------------------------------------------------------------------

3. Additional Qualitative Repurchase Disclosures
a. Objectives and Rationales and Repurchase Program Structure
Disclosures
    Further, amended Item 703 \454\ will require periodic disclosure of
the objectives and rationales, as well as the structure, of the
issuer's repurchase program. This disclosure is expected to improve the
ability of investors to assess the shareholder value implications of
the issuer's repurchase policy.\455\ Such information benefits are not
limited to instances where share repurchases are not aligned with
shareholder value maximization. In particular, as discussed in Section
V.A.1 above and noted by a commenter,\456\ there are various scenarios
where share repurchases are aligned with shareholder value maximization
(for example, repurchasing undervalued securities, signaling future
issuer prospects, distributing excess free cash flow, or adjusting
capital structure). Disclosure of the objectives and rationales of
share repurchases that enhance shareholder value is also expected to
inform investor decisions and potentially provide investors with a more
comprehensive picture of the repurchasing issuer's circumstances and
future outlook. We continue to recognize the fact that the benefits of
the

information about the rationales, and the structure of, repurchase
programs could be limited in cases where issuers already voluntarily
provide similar information in repurchase program announcements or
periodic reports, or if some investors are able to infer the purpose or
structure of repurchases from other public information.\457\ The
benefits of the information about the rationales for repurchases may
also be limited if such disclosures provide relatively little
specificity to investors.\458\ However, as discussed above, the final
amendments will require more standardized and comparable disclosure of
the rationales for all issuers subject to the amendments, giving all
investors equal access to this information and thus facilitating all
investors' ability to process this information more effectively.
---------------------------------------------------------------------------

    \454\ See supra note 7.
    \455\ See supra notes 146-148 and 247 and accompanying text
(discussing comment letters that supported the information benefits
of the amended Item 703 disclosures of the objective and rationale
of the repurchase program and the use of Rules 10b5-1 and 10b-18 to
conduct the repurchase program).
    \456\ See, e.g., letter from Chamber II for a detailed
discussion.
    \457\ See letter from Chamber II. See also, e.g., Bonaim[eacute]
(2012) (tabulating, in Table 3, evidence on the stated motive of the
announced repurchase program and program completion rates). The
paper finds that ``[f]ew stated motives for repurchases affect
completion rates. Firms that mention undervaluation or general
corporate purposes in their announcements have significantly lower
completion rates, while firms that mention extending a prior plan or
having a strong cash position have significantly higher completion
rates on average. With the above exceptions, completion rates depend
more on what issuers are doing (implied motives) than on what they
are saying (stated motives).'' As a caveat, data obtained from a
voluntary regime may not fully generalize to the mandatory
disclosure of the rationale for repurchases under the amendments.
See also, e.g., letters from Cravath, Dow, and Maryland Bar, which
indicate that investors are unlikely to benefit from the disclosure
of whether repurchases were structured under Rule 10b5-1(c)(1) or
Rule 10b-18.
    \458\ See also supra note 250 and accompanying text (discussing
comment letters that stated that the objective and rationale
disclosure would result in boilerplate disclosure that will not
prove meaningful to investors).
---------------------------------------------------------------------------

    In some cases, incentives for repurchases may not be aligned with
shareholder value maximization, as discussed in Section V.A.2 above.
The inclusion of the disclosure of the objectives and rationales for
share repurchases may aid investors in assessing whether recent
repurchases were consistent with shareholder value maximization,
potentially resulting in better informed investment decisions.
b. Issuer Rule 10b5-1 Repurchase Plans
    The new disclosure requirements under Item 408(d) (discussed in
Section III.D.3 above) will benefit investors in companies that
undertake share repurchases under Rule 10b5-1 by providing greater
transparency about such trading arrangements.\459\ This enhanced
transparency should enable better informed investment decisions and
more efficient allocation of investor capital. The timing of issuer
trading arrangement adoptions and terminations, as well as a
description of the material terms of the trading arrangements, is
expected to provide additional insight into the issuer's repurchase
strategy and the implementation of the previously announced repurchase
plans, potentially aiding investors in making more informed investment
decisions. These informational benefits may be lower in cases in which
investors already can obtain sufficient insight into the issuer
repurchase program from existing repurchase disclosures.
---------------------------------------------------------------------------

    \459\ See supra note 339.
---------------------------------------------------------------------------

    Informational benefits of the Item 408(d) disclosure may also be
lower in cases of trades that are not driven by temporary
undervaluation of issuers' shares but, for instance, involve gradual
disbursement of excess cash flow or rebalancing of capital structure
towards a target leverage ratio. Finally, similar to the recently
adopted Item 408(a) related to officer and director trading
arrangements, in a change from the proposal, price terms of issuer Rule
10b5-1 plans will be outside the scope of the new Item 408(d)
disclosure. This change will reduce the informational benefits to
investors, compared to the proposed amendments.
c. Insider Trading Checkbox and Policies and Procedures Disclosures
    The final amendments require disclosure of: (i) any policies and
procedures relating to purchases and sales of the issuer's securities
by its officers and directors during a repurchase program, including
any restriction on such transactions, and (ii) whether any section 16
reporting officer or director of an issuer that files on domestic
forms--or senior management or directors of an FPI--purchased or sold
shares or other units of the class of the issuer's securities that are
the subject of an issuer share repurchase plan or program within four
business days before or after the issuer's repurchase announcement.
These requirements may also benefit investors by enabling better
informed investment decisions.\460\ This information may help investors
better interpret repurchase program announcements and disclosures of
actual repurchase activity in formulating projections of an issuer's
future share price. As one example, a lack of restrictions on insider
selling during repurchases, alongside historical disclosures of insider
selling, may help investors gauge whether a repurchase announcement, or
actual repurchases, may be inefficient, for example, potentially
motivated by boosting the share price prior to insiders' sales of their
securities, rather than conveying a true signal of undervaluation or
efficiently disbursing excess cash.\461\ As another example, such a
disclosure may also prompt investors to check whether insiders bought
shares within a few days before the share repurchase announcement. In a
change from the proposal, after considering commenter concerns about
the utility of the disclosure, we are limiting the checkbox disclosure
to insider trading within four business days, rather than ten business
days, before and after the repurchase announcement. By focusing the
disclosure on a narrower time frame more specific to the repurchase
announcement, this is expected to improve the informativeness of the
disclosure to investors.
---------------------------------------------------------------------------

    \460\ See supra note 264 and accompanying text.
    \461\ See supra note 426.
---------------------------------------------------------------------------

    As an indirect effect of the amendments, if the additional
disclosures draw investor scrutiny to insider selling during
repurchases, to the extent it occurs at some companies,\462\ the
amendments also may disincentivize repurchase announcements and actual
repurchases motivated by boosting share prices in advance of insider
selling, to the extent such activity exists, instead of shareholder
value maximization, or lead issuers to adopt policies prohibiting such
insider selling.\463\ The benefits of the disclosure of whether any
officer or director has purchased or sold securities of the issuer
around the repurchase announcement are likely to be small for many
issuers that file on domestic forms \464\ to the extent the investors
can obtain the same information from existing Exchange Act section 16
disclosures and public announcements of repurchases.\465\ Nevertheless,
the checkbox disclosure should present this information to investors in
an incrementally more accessible way, resulting in a small decrease in
the costs of accessing this information for those investors that do not
already collate beneficial ownership filings. Further, for

investors in FPIs whose officers and directors are not subject to
section 16, the disclosure will provide new information that investors
may utilize in conjunction with the qualitative and quantitative
repurchase disclosures.
---------------------------------------------------------------------------

    \462\ See supra note 426 and accompanying text.
    \463\ Studies have found evidence that changes in mandatory
disclosure affect behavior. See, e.g., Chuk, E.C., Economic
Consequences of Mandated Accounting Disclosures: Evidence from
Pension Accounting Standards, 88 Acct. Rev. 395 (2013);
Bonaim[eacute] (2015).
    \464\ Officers and directors of FPIs are not subject to section
16 reporting obligations and would therefore incur higher costs.
    \465\ See supra note 272 (discussing comment letters that
supported the benefits of requiring the checkbox disclosure). But
see supra notes 276-282 (discussing comment letters that indicate
that this disclosure is unnecessary).
---------------------------------------------------------------------------

4. Inline XBRL
    The use of a structured data language (specifically, Inline XBRL)
for the repurchase disclosures under the final amendments will enable
automated extraction of data on issuers' repurchase programs and actual
repurchases, which will allow investors, information intermediaries,
and other market participants to efficiently perform large-scale
analyses and comparisons of repurchases across issuers and time
periods, in line with the suggestions of various commenters that it
would improve the usability of the data.\466\ Structured data on
repurchases could also be efficiently combined with other information
available in a structured data language in corporate filings (e.g.,
financial statement information in periodic reports, as well as
information on insider sales and purchases of securities) and with
market data contained in external machine-readable databases (e.g.,
information on daily share prices and trading volume). The use of a
structured data language will also enable considerably faster analysis
of the disclosed data by investors and other market participants. In
that regard, we expect the particular investors most likely to use the
structured disclosures for their analysis are institutional investors
with the sophistication to process structured data; retail investors
will be more likely to benefit indirectly from the use of structured
disclosure by other parties.\467\
---------------------------------------------------------------------------

    \466\ See supra note 360.
    \467\ See supra note 452. But see Birt, J.L. Muthusamy, K. &
Bir, P., XBRL and the Qualitative Characteristics of Useful
Financial Information, 30 J. Acct. Res. 107 (2017) (finding
``financial information presented with XBRL tagging is significantly
more relevant, understandable and comparable to non-professional
investors''). Evidence indicates XBRL tagging has improved analyst
coverage and, in some cases, forecast accuracy. See, e.g., Liu, C.,
Wang, T., & Yao, L.J., XBRL's impact on analyst forecast behavior:
An empirical study. J. Acct. Pub. Pol., 33 (2014). Retail investors
have been observed to rely heavily on analyst interpretation of
financial information. See, e.g., Lawrence, A., Ryans, J.P., & Sun,
E.Y., Investor Demand for Sell-Side Research, 92 Acct. Rev. 2
(2017).
---------------------------------------------------------------------------

    As with the repurchase disclosures, the Inline XBRL structuring
requirements for the insider trading disclosures should augment their
benefits by improving their usability. The magnitude of these benefits
is likely to be modest to the extent that past insider selling activity
around past repurchases, disclosed on beneficial ownership filings,
could be sufficiently representative of future insider selling behavior
in such circumstances, even in the absence of a disclosure of
restrictions. The magnitude of these benefits of reduced information
asymmetry may further be limited to the extent that the existing
repurchase and disclosure practices are already sufficient for price
efficiency.\468\
---------------------------------------------------------------------------

    \468\ For example, one recent study shows that price support
provided by actual share repurchases contributes to improved price
efficiency, even when manipulation concerns might be highest, such
as those that occur prior to insider sales. See Busch and
Obernberger (2017). See also letter from Chamber II (stating that
managers strategically use share repurchases during periods of
uncertainty and that ``these effects help mitigate risks, allow
institutional and retail investors alike to buy and sell shares
without having a large price impact, and stabilize trading markets.
Thus, repurchases help to reduce volatility, which presents a
benefit to all shareholders, including retail investors, regardless
of whether investors buy and sell shares in their own accounts or
participate indirectly through investment in retirement
accounts.'').
---------------------------------------------------------------------------

C. Costs

    We begin the discussion with the general costs applicable to all of
the final amendments, continue to discuss the costs specific to the new
quantitative repurchase disclosure, and then address the costs specific
to other amendments.\469\
---------------------------------------------------------------------------

    \469\ See Section VI for a detailed description of the estimated
burden of the amended disclosure requirements for purposes of the
Paperwork Reduction Act (``PRA''). 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

1. General Costs of the Disclosures
    The amended disclosure requirements will impose costs on issuers
(and therefore existing shareholders). The costs of the additional
quantitative repurchase disclosure include direct (compliance-related)
costs to compile and report additional disaggregated repurchase data
compared to what is presently required by Item 703 of Regulation S-K,
Item 16E of Form 20-F, and Item 14 of Form N-CSR (and for FPIs not
reporting on domestic forms, which file annual reports on Form 20-F
today, to provide repurchase disclosures on new Form F-SR, on a
significantly more timely and frequent basis than required today). Such
direct costs of compliance with the final amendments may include both
in-house counsel and external costs.
    The final amendments will also impose indirect costs, potentially
affecting the shareholder value. A potential indirect cost of the final
amendments is the risk of sharing sensitive information with
competitors.\470\ It is unclear how likely it is that the amended
disclosure requirements of historical repurchases or the disclosure of
the rationales behind, and structure of, repurchases reveals
significant proprietary information about the issuer's business and
repurchase strategy, above and beyond competitive information that may
be revealed by other disclosures about the business and financial
condition of the issuer. Thus, we expect such indirect costs to be
relatively modest for most issuers.
---------------------------------------------------------------------------

    \470\ See supra note 249 and accompanying text (discussing
commenter concerns that the disclosures required by the amendments
could divulge competitive or sensitive information). See also supra
notes 81 and 151 and accompanying text (discussing commenter
concerns about the additional disclosure potentially disrupting
confidential merger negotiations).
---------------------------------------------------------------------------

    Another potential indirect cost of the amended disclosure
requirements is the possibility that the amended disclosure
requirements cause issuers to inefficiently decrease repurchases or
otherwise inefficiently deviate from an optimal payout policy. For
example, the described costs of the amended disclosure may potentially
discourage some issuers from repurchases that would otherwise be
optimal for shareholder value (e.g., as a more flexible method of
payout that is generally more efficient from the personal tax
standpoint, compared to dividends).\471\ Such issuers may instead
inefficiently overweigh dividends \472\ or reduce overall corporate
payouts and inefficiently retain excess cash within the firm. Further,
if the costs of the amended disclosure requirements cause issuers to
decrease overall payouts, even if issuers lack positive-net present
value investment opportunities, the resulting decrease in the ability
of investors to efficiently reallocate cash to other, higher-net
present value investment opportunities, may potentially lead to
inefficiencies in the aggregate allocation of capital across
issuers.\473\ Indirect costs specific to the additional quantitative
repurchase disclosure are discussed in Section V.C.2 below.
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    \471\ See supra note 414. See also, e.g., letters from Davis
Polk, DLA Piper, Quest, SCG, and Vistra. However, the personal tax
treatment is not a concern for investors exempt from taxation.
    \472\ See, e.g., letter from PA Chamber (noting that the cost of
the amendments will particularly affect companies that rely on share
repurchases as a rational means of investor return and do not have
the business model to make shareholder returns entirely or even
partially via dividend).
    \473\ See also letter from Vistra (noting that the proposed
daily reporting frequency requirements could be so ``unreasonably
burdensome as to deter potential capital allocation decisions'').
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    The described direct and indirect costs of the amended disclosure
requirements, if realized, will decrease shareholder value for affected
issuers.

    Finally, the amended disclosure requirements may also affect
financial intermediaries involved in executing repurchases on behalf of
issuers. Such intermediaries may incur additional costs of compiling
disaggregated information about repurchase trades to facilitate the
issuer's compliance with the amended disclosure requirements. Such
information is likely to be relatively readily available. Thus direct
costs are likely to be modest. Nevertheless, intermediaries may need to
make incremental modifications to how they use their existing trade
recordkeeping systems to extract and compile the information required
by the issuer for the new disclosure. Financial intermediaries may also
incur indirect costs of the amended disclosure requirements in the form
of lower revenue if the amended disclosure requirements lead to a
decrease in repurchases.\474\ Intermediaries may pass on their costs to
issuers, which will in turn affect shareholders.
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    \474\ See also letter from Guzman (discussing adverse
competitive effects on smaller financial intermediaries). However,
conversely, financial intermediaries will realize benefits in the
form of higher revenue if the amended disclosure requirements are
followed by an increase in repurchases.
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2. Additional Quantitative Repurchase Disclosure
    The costs of the additional quantitative repurchase disclosure
include direct (compliance-related) costs to compile and report
additional disaggregated repurchase data. The aggregate direct costs of
compliance may be larger for issuers that repurchase shares more often
and may incur an incrementally higher cost of preparing the new
repurchase disclosures, including the new periodic disclosure of
historical repurchase activity disaggregated at the daily level. While
we expect many issuers to already compile repurchase information to
comply with current monthly aggregate reporting requirements, issuers
that do not presently compile such repurchase information may incur
some incremental costs to modify their recordkeeping systems and
processes to compile such information. Issuers may incur a cost to
prepare the new disclosures (including the cost of additional time of
in-house counsel or the cost of retaining an outside service provider).
In addition, issuers may need to update their internal recordkeeping
systems and policies and procedures to maintain the information
required by the final amendments and report it on the frequency
required by the amendments.
    As one commenter on the daily reporting frequency proposal
indicated, companies may incur additional costs to incorporate new
disclosure into their disclosure controls and procedures to ensure
accurate reporting.\475\ Another commenter on the daily reporting
frequency proposal expressed concern about the significant time and
expense required to collect and collate trade information, research and
correct possible errors, and consult legal and other experts.\476\ In
addition, some commenters pointed out that the daily disclosure may
raise the risk of frivolous litigation, resulting in issuers incurring
legal costs to defend against such claims.\477\
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    \475\ See letter from Norfolk Southern.
    \476\ See letter from Empire.
    \477\ See, e.g., letters from Davis Polk, Dow, and SCG. See
also, generally, Rogers, J. & Van Buskirk, A. Shareholder Litigation
and Changes in Disclosure Behavior, 47 J. Acct. & Econ. 136 (2009)
(finding that firms reduce the level of information provided after
being involved in disclosure-related class-action securities
litigation cases); Bourveau, T., Lou, Y., & Wang, R. Shareholder
Litigation and Corporate Disclosure: Evidence from Derivative
Lawsuits, 56 J. Acct. Res. 797 (2018) (finding that firms issue more
voluntary disclosure and increaser the length of management
discussion & analysis in their 10-K filings after passage of laws
that make it more difficult to file derivative lawsuits). However,
one study finds that, after accounting for endogeneity, additional
disclosure does not increase the risk of litigation. See Field, L.,
Lowry, M., & Shu, S., Does Disclosure Deter or Trigger Litigation?
39 J. Acct. & Econ. 487 (2005). As an important caveat, the study
analyzes voluntary disclosure of anticipated bad earnings news
rather than mandatory repurchase disclosures. Furthermore, to the
extent that the disclosure raises the risk of shareholder litigation
that is not frivolous, the threat of litigation may serve as a
disciplinary mechanism that curtails inefficient managerial
behavior. See, generally, Chung, C.Y., Kim, I., Rabarison, M.K., To,
T.Y., & Wu, E. Shareholder Litigation Rights and Corporate
Acquisitions, 62 J. Corp. Fin. 101599 (finding that ``reduced risk
of litigation gives managers incentives to engage in value-
destroying acquisitions''); Ferris, S.P., Jandik, T., Lawless, R.M.,
& Makhija, A. Derivative Lawsuits as a Corporate Governance
Mechanism: Empirical Evidence on Board Changes Surrounding Filings,
42 J. Fin. & Quantitative Analysis 143 (2007) (concluding that
``shareholder derivative lawsuits are not frivolous as is often
claimed, but rather that they can serve as an effective corporate
governance mechanism''); Pukthuanthong, K., Turtle, H., Walker, T.,
& Wang, J. Litigation Risk and Institutional Monitoring, 45 J. Corp.
Fin. 342 (2017) (concluding that ``[l]itigation is an effective
monitoring device for short-term investors that substitutes for
internal corporate governance'').
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    In a change from the proposal, after considering the concerns of
commenters about the costs of the proposed daily frequency of reporting
repurchase information,\478\ we are not requiring the daily frequency
of reporting. We believe that preparing the disclosure of the
disaggregated repurchase information on a quarterly basis for operating
companies--and on a semi-annual basis for Listed Closed-End Funds--will
considerably decrease the described costs to issuers of the final
amendments, compared to the proposed daily reporting of disaggregated
repurchase information. However, although there is not necessarily
going to be a large cost impact of the final amendments on each
individual issuer, we recognize that, due to the large number of
repurchasing issuers (see Section V.A.1 above), the compliance costs
across issuers that conduct repurchases may be considerable in the
aggregate.\479\
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    \478\ See supra note 64. But see supra notes 70-71 and
accompanying text (discussing commenters that indicated that the
costs of compliance with the proposed requirements would be
minimal).
    \479\ For example, as one commenter has noted ``SIFMA
understands from feedback that there are over 500 companies that
repurchase shares on an average trading day.'' See letter from SIFMA
II.
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    The new disclosure of historical daily repurchase activity will be
required to be filed rather than furnished. The filing requirement is
expected to result in higher legal costs than the furnishing
requirement, due to potential legal risk of liability under Exchange
Act section 18.\480\ However, because the final amendments will not
require the daily reporting frequency, and because issuers will have a
considerable amount of time to obtain, verify, and compile the
disclosure, the costs of filing, rather than furnishing, the new
disclosure should be relatively modest.
---------------------------------------------------------------------------

    \480\ See also letter from NASAA (discussing concerns about
private lawsuits if the daily repurchase disclosure is filed rather
than furnished). See also, generally, supra note 477.
---------------------------------------------------------------------------

    The additional quantitative repurchase disclosure will also result
in indirect costs. A key indirect cost of the proposed daily reporting
frequency requirement, as discussed by various commenters,\481\ might
have been that the disclosure may cause the stock price to rise faster
than it would absent such disclosure potentially making additional
repurchases more costly. The reason that daily reporting may have had
this effect is that it could reveal the issuer's plans to repurchase
additional stock to outside investors (to the extent repurchases are
taking place over multiple months and to the extent that investors view
repurchases as being driven by the issuer's positive outlook on the
future stock price).\482\ To the

extent issuers would have incurred such a cost, other market
participants, who would have otherwise been less informed about the
issuer's outlook on its future share price, would have realized a
benefit in that case. Several commenters also pointed to the potential
for increased market volatility and investor misinterpretation of day-
to-day fluctuations in issuer repurchases as potential costs of the
proposed daily reporting.\483\ Additional indirect costs might include
inefficient changes to their repurchase programs in anticipation of
potential investor scrutiny of the new disclosures.\484\ In some
discrete instances, granular daily disclosure reporting may also
retrospectively reveal potentially sensitive information to competitors
due to a pattern of recent halts of daily repurchases.\485\ Because the
final amendments are not implementing the proposed daily reporting
frequency requirement, and are instead requiring much less frequent
reporting of historical repurchase activity, we expect the described
costs of the final amendments to be significantly more modest compared
to the proposal. In particular, while all indirect costs of the
amendments are expected to be alleviated compared to proposal, the
costs of revelation of the issuer's repurchase strategy to other
traders (referred to as ``front-running'' by various commenters) and
competitors, as well as the costs of potential market volatility
stemming from misinterpretation of daily reports of repurchase activity
are expected to be largely eliminated. To the extent that the much more
tailored approach to quantitative disclosures in the final amendments
compared to the proposal reduces the overall compliance and indirect
costs of the final amendments, in turn, the final amendments should
result in far fewer inefficient reductions in share repurchases,
relative to the proposal.
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    \481\ See supra note 78 (referencing comment letters that
discussed the front-running concern stemming from the proposed daily
disclosure). However, because the final rules do not contain a daily
disclosure requirement, we believe that such costs will be
substantially alleviated, if not eliminated, compared to the
proposal.
    \482\ This cost could be more pronounced for repurchases under a
Rule 10b5-1(c) plan to the extent that such repurchases exhibit a
greater degree of periodicity and occur over a period of time,
enabling market participants to predict future repurchases to a
greater extent based on historical daily data. However, such
investors may benefit from being able to purchase securities before
the issuer completes the repurchase program, potentially at a lower
price than they would have otherwise.
    \483\ See supra notes 450-451 and accompanying text. In
addition, as other commenters point out, an issuer's halt of
repurchases due to a material undisclosed event or confidential
merger discussions may trigger significant market volatility and
potentially derail such confidential discussions. See supra notes
80-81 and accompanying text.
    \484\ See, e.g., letters from SIFMA II and Sullivan (noting that
some issuers may continue daily repurchases when it does not make
financial sense to do so, to mitigate the consequences of daily
disclosure). Other issuers may bunch large repurchases into a
compressed time period may experience greater price impact from
large trades. See, e.g., letter from DLA Piper (stating that the
proposed daily disclosure could discourage more efficient daily
repurchases and lead issuers to undertake less efficient periodic
repurchases). See also letters from Chevron and Davis Polk, which
note that the proposed daily disclosure requirement might have led
issuers to follow the more costly practice of effecting larger
repurchases on fewer days. See also supra note 90 and accompanying
text (discussing commenter concerns that the proposed daily
disclosure requirement might, in turn, have led issuers to limit
their average daily repurchase trading volume to try to ensure that
sophisticated investors view the daily trades as immaterial, even if
a larger volume would be more beneficial to shareholders). With the
important caveat about the difficulty of extrapolating inference
about repurchases across international market settings, the limited
available evidence does not point to the prevalence of such bunching
in at least one active trading market with daily reporting of
repurchases (the U.K.). See, e.g., Kulchania, M., & Sonika, R.
Flexibility in Share Repurchases: Evidence from UK, 29 Eur. Fin.
Mgmt. 196 (2023).
    \485\ See supra note 81 and accompanying text (discussing
letters from commenters concerned about potential information
leakage of confidential merger negotiations or another similar
material undisclosed event, particularly, if both the prospective
target and the prospective acquirer have halted previously regular
repurchases). We believe that such information leakage concerns are
not likely to be a substantial cost on most issuers, given the most
probable repurchase strategy scenarios. To the extent such concerns
may apply, they could be alleviated, for example, by indicating in
the initial repurchase program announcement that the issuer plans to
repurchase shares intermittently, or by making very minor
modifications to the repurchase strategy that deviate from a
completely predictable trading schedule while the program is being
executed.
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3. Additional Qualitative Repurchase Disclosures
    The qualitative disclosure requirements will also result in costs
for issuers. Issuers will incur costs to provide additional disclosure
in periodic reports (including, when required, a description of the
rationales and structure of the repurchase program). While issuers
likely have most of the additional information readily available, these
disclosures may require additional time of counsel and/or management to
describe the rationales for the repurchase program, and the program's
structure, in the periodic report.
    The new Item 408(d) requirement for Form 10-K and 10-Q filers will
also impose costs. Such costs will be lower for issuers that already
disclose some information about share repurchase programs under Rule
10b5-1. Issuers are likely to have the information required by this
item readily available, resulting in likely modest direct costs. In the
case of multi-quarter repurchase programs with a fairly repetitive
schedule of pre-planned trades, new Item 408(d) in combination with the
new disclosure of historical repurchase activity and repurchase program
structure, may contribute to potential revelation of detailed
information about the issuer's repurchase strategy and the potential
timeline of likely issuer repurchase trades to other market
participants, which could result in a less favorable repurchase price,
particularly in cases of repurchase programs that span multiple
quarters.\486\ In a change from the proposal, the amendments exclude
price terms of the trading arrangement from the scope of the new
disclosure, which should significantly alleviate such potential costs
to issuers.
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    \486\ See supra note 345 and accompanying text. However, there
is some evidence that even the revelation of large predictable
planned trades may not result in such effects. See Bessembinder, H.
et al., Liquidity, Resiliency and Market Quality Around Predictable
Trades: Theory and Evidence, 121 J. Fin. Econ. 142 (2016) (showing,
in a setting with large and predictable exchange-traded fund trades,
that ``traders supply liquidity to rather than exploit predictable
trades in resilient markets'' and not finding ``evidence of the
systematic use of predatory strategies'').
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    The requirement to check a box as to whether the specified officer
or director purchased or sold securities in the four business days
before or after a repurchase announcement will involve costs associated
with collecting information from officers and directors. Such costs may
be relatively modest for issuers that file on domestic forms to the
extent that they can rely on the officers' and directors' section 16
filings or representations about their trading activity. However, such
costs are likely to be higher for FPIs whose senior management and
directors are not subject to section 16.
    The amended disclosure requirements may also impose costs on
corporate insiders. In particular, the requirement that issuers
publicly disclose whether they have policies and procedures related to
purchases and sales by officers and directors during repurchases, as
well as the disclosure of whether certain officers or directors
purchased or sold shares or other units of the class of the issuer's
equity securities that is the subject of an issuer share repurchase
plan or program within four business days before or after the issuer's
announcement of such repurchase plan or program, may cause issuers to
increasingly adopt such restrictions in anticipation of the market
scrutiny following such disclosure.\487\

This disclosure requirement may impose reputational costs or draw
additional scrutiny to officers or directors that engaged in selling
around repurchase announcements, discouraging such selling. The
incremental costs of this disclosure requirement to corporate insiders
of many issuers that file on domestic forms are generally likely to be
small \488\ to the extent the investors can already obtain the same
information from beneficial ownership disclosures and public
announcements of repurchases. However, as some commenters indicated,
there may be potential for misinterpretation that could follow from the
checkbox disclosure, whereby investors draw conclusions about insider
trading activity occurring in proximity to repurchase activity that are
inaccurate.\489\ The costs may be higher for senior management and
directors of FPIs that do not have a section 16 reporting obligation.
In a change from the proposal, after considering commenter concerns
about the checkbox disclosure, we are limiting the checkbox disclosure
to insider trading within four business days, rather than ten business
days, before and after the repurchase announcement. By focusing the
disclosure on a narrower time frame more specific to the repurchase
announcement, this change is expected to reduce some of the costs of
the disclosure to issuers and insiders, relative to the proposal.
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    \487\ See, e.g., letter from PNC (expressing concern that the
requirement to disclose policies and procedures relating to trading
by officers and directors during a repurchase program could create
an expectation that issuers must have such policies) and letter from
Quest (expressing concern that it may end up either having to
restrict officers and directors from trading during share
repurchases, or consider the impact on officers and directors when
scheduling its repurchases). Any restrictions an issuer imposes on
officer and director trading, for instance, in anticipation of
investor scrutiny of the new disclosures, could also limit the
ability of corporate insiders to purchase or sell securities at
issuers that conduct repurchases periodically over an extended
period of time (such as open market repurchases under a multi-
quarter program, or a Rule 10b5-1 plan). To the extent any such
restrictions limit insider sales, they may decrease the liquidity of
insiders' holdings of an issuer's securities.
    \488\ Officers and directors of FPIs are not subject to section
16 reporting obligations and would therefore incur higher costs.
    \489\ See supra note 284 and accompanying and following text
(discussing commenter concerns about misinterpretation of the
checkbox disclosure).
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    To the extent that the requirement to disclose whether any officer
or director has purchased or sold securities around the repurchase
announcements leads some companies to forgo making a repurchase
announcement to limit market scrutiny, the amount of information
available to investors about companies' forward-looking repurchase
plans may decrease. Importantly, the described costs are likely to be
small in the case of many issuers that file on domestic forms \490\ to
the extent that investors can already readily obtain the same
information by combining beneficial ownership disclosures of officer
and director trades with public announcements of repurchases.
---------------------------------------------------------------------------

    \490\ See supra note 464.
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4. Inline XBRL
    The requirement to use a structured data language for reporting the
newly required disclosures will impose incremental compliance costs on
issuers.\491\ Such costs are expected to be modest as issuers affected
by the amendments (including SRCs and FPIs) already are required to use
Inline XBRL to comply with other disclosure obligations. Moreover, the
scope of the disclosures required to be reported using a structured
data language is limited and thus will require a relatively simple
taxonomy of additional tags, minimizing initial and ongoing costs of
complying with the new tagging requirement.
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    \491\ See letter from NYC Bar (expressing concern regarding the