This week, the Securities and Exchange Commission (SEC) approved new rules aimed at increasing transparency and integrity regarding stock buybacks. The updated disclosures will require public companies to provide more information than ever before, enabling investors to better assess issuer buyback programs. SEC Chairman Gary Gensler noted that US corporate buybacks have grown significantly in recent years, from $950 billion in 2021 to over $1.25 trillion in 2022. This year, Alphabet and Apple have both announced stock buybacks worth $70 billion and $90 billion, respectively.
The new disclosure rules will come into effect when US corporations report earnings for the fourth quarter of 2023. The rules will require public companies to disclose a daily log of share repurchase activity at the end of each quarter, a description of the rationale behind each buyback, and the criteria used to determine how many shares to repurchase. Additionally, companies will need to disclose whether certain directors or officers of the company bought or sold any shares within four days before or after the buyback. Furthermore, the rules will require more details about company stock trading agreements with directors and officers, known as 10b5-1 plans. This includes the start and end dates, the total number of shares, and the material terms of these plans.
The new rules mark the end of a years-long battle over how much information the public and shareholders have a right to know about the increasingly common practice of companies repurchasing their own shares. This reflects a bigger debate nationwide about share buybacks, which typically increase the value of a company’s shares by reducing the total number of shares in the market. However, some economists believe that the practice of public companies issuing debt to buy back their own shares poses a threat to the long-term health of the US economy.
The SEC’s initial proposed disclosure rules would have required public companies to report trades by corporate insiders on a daily basis. However, the final decision was influenced by concerns raised in public comments that daily reporting would be too expensive and time-consuming. Public interest groups applauded the new rules, while industry advocates called them onerous and unfair. However, bipartisan support for stricter buyback disclosure rules has been apparent since the SEC’s rulemaking process began more than a year ago.
In conclusion, the SEC’s new rules represent an effort to increase transparency and provide investors with better information about corporate stock buybacks. While some industry advocates may see the rules as onerous, the SEC’s decision reflects the growing importance of buybacks as a key element of corporate strategy.
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