As discussed in detail in our recent client alert, on December 14, 2022, the U.S. Securities and Exchange Commission (SEC) approved final rules amending Rule 10b5-1 under the Securities Exchange Act of 1934 which, among other things, impose additional conditions to the availability of the affirmative defense under Rule 10b5-1(c)(1).
In advance of the February 27, 2023, effective date of the amendments to Rule 10b5-1, we note that the final amendments will not result in significant changes to issuer share buy-backs through plans designed to make use of the affirmative defense, including structured share repurchases such as accelerated share repurchases (ASRs).
Although the SEC’s proposed amendments announced on December 15, 2021 would have required an issuer cooling-off period and imposed on issuers limitations on the use of concurrent repurchase plans (as discussed in our previous client alert regarding the initial proposal and its potential impact on ASRs), the final amendments exempt issuers from these new conditions on the availability of the Rule 10b5-1(c)(1) affirmative defense. As a result, we do not anticipate significant changes to ASRs or other issuer share buy-back arrangements.
In the adopting release of the final amendments, the SEC noted that it believes that further consideration of potential application of a cooling-off period to issuers is warranted, signaling the possibility of further amendments to Rule 10b5-1 at some point in the future. Wilson Sonsini’s corporate finance practice will continue to monitor this and other developments that may impact ASRs and other issuer structured share repurchase programs. In particular, we expect that upcoming amendments to issuer share repurchase disclosure requirements will have an impact on ASRs unless significant changes are made to the initial proposal from December 2021. A final rule adopting amendments is anticipated to be released by the SEC in April. We will provide an update at that time.
For more information on the final rules or any related matter, please do not hesitate to contact any member of Wilson Sonsini’s public company representation practice. For more information on the impact of finalized and proposed rulemaking on ASRs, please contact Andrew Ralston.
