What Are the Item 703 Disclosure Requirements?

Item 703 of Regulation S-K is a disclosure rule from the U.S. Securities and Exchange Commission (SEC) that requires public companies to report their purchases of their own equity securities, a practice known as a stock buyback. The purpose of this regulation is to provide investors with transparent information about these activities. By mandating these disclosures, the SEC helps shareholders understand how a company uses its capital and how management’s actions might affect share value.

This rule helps standardize the reporting of buybacks, which can be executed to return capital to shareholders, signal management’s confidence in the company’s valuation, or manage the number of outstanding shares. The disclosures are intended to give the public a clear window into these transactions, allowing for a more informed assessment of a company’s financial strategy.

Required Disclosures Under Item 703

The core of Item 703 is a specific table that companies must include in their periodic reports. This table presents a month-by-month summary of repurchase activity for the relevant reporting period, such as a fiscal quarter. The information is organized into four distinct columns.

The first column, (a), shows the total number of shares the company repurchased during each month of the quarter. This figure represents the aggregate of all shares bought back, whether through a formal, publicly announced plan or through other means.

Column (b) details the average price paid per share for the shares reported in the first column. This allows investors to see the cost basis of the repurchases and compare it to the market price of the stock during the same period.

The third column, (c), specifies the total number of shares that were purchased as part of a publicly announced repurchase plan or program. This number is a subset of the total shares reported in column (a).

Finally, column (d) discloses the maximum number of shares, or the approximate dollar value of shares, that may still be purchased under the company’s existing publicly announced plans. This figure provides a forward-looking view of the company’s authorized repurchase capacity. Companies must also provide footnote disclosures describing the principal terms of any announced repurchase programs, such as their announcement and expiration dates.

Locating and Reading the Disclosure

The disclosure required by Item 703 is located within a company’s quarterly reports on Form 10-Q and its annual reports on Form 10-K. This information is presented under Part II, Item 5 of these filings, which is titled “Other Information.”

An investor can track the data over several quarters to identify trends in the volume and price of repurchases. A significant increase in buyback activity might suggest management believes the stock is undervalued, while a slowdown could indicate a shift in capital allocation priorities.

Comparing the figures across the columns is also an important analytical step. If the number of shares in column (c) is significantly lower than the total shares in column (a), it may prompt questions about the nature of the other repurchases. The figure in column (d) is particularly useful, as it shows the remaining capacity in a company’s announced buyback program.

Recent Amendments to Share Repurchase Disclosures

In May 2023, the SEC adopted new rules to expand share buyback disclosures and provide more timely information to the market. These amendments would have required most domestic public companies to report their daily repurchase activity in a new exhibit, Form SR, which would have replaced the monthly aggregated data.

The amendments also called for expanded narrative disclosures in quarterly and annual reports. Companies would have been required to explain the objectives or rationale for their share repurchases and describe the criteria used to determine the amount of shares to be repurchased. Another component was a new requirement for companies to disclose quarterly whether any of their directors or officers traded in the company’s stock around the public announcement of a repurchase plan.

However, the implementation of these enhanced disclosure rules has been halted. Following a legal challenge, the U.S. Court of Appeals for the Fifth Circuit found that the SEC had violated the Administrative Procedure Act in adopting the rule. After the SEC was unable to correct the identified defects, the Fifth Circuit vacated the entire rule in December 2023. As a result, companies are not required to comply with these amendments and should continue to follow the existing Item 703 disclosure requirements.