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US Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before the Senate Banking, Housing and Urban Affairs Committee during a hearing on Capitol Hill in Washington, September 15, 2022.
Evelyn Hochstein | Reuters
WASHINGTON — As investors focused this week on regional earnings and banks, the Securities and Exchange Commission quietly adopted new rules requiring public companies to disclose more information about share buybacks than ever before.
The new rules will “increase the transparency and integrity” of corporate stock buybacks in general, and allow investors to “better evaluate issuers’ buyback programs,” Gary Gensler, chairman of the Saudi Electricity Company, said in a statement about the updated disclosures.
Gensler also noted the high rate at which US corporate buybacks have grown in recent years, from a total of $950 billion in 2021, to more than $1.25 trillion last year.
This year it could be the same size. Alphabet, the parent company of Google, announced last month that its board of directors had approved $70 billion worth of share buybacks this year, which is about the same amount the company spent buying back its shares in 2022. This week, Apple announced plans to buy back its own shares. Buy more Google shares: worth $90 billion this year, on the heels of the previous $90 billion in 2022.
the New disclosure rules Application will begin when US companies report their earnings for the fourth quarter of 2023, and to foreign exporters in a slightly longer time frame.
What public companies will need to disclose
- A daily record of stock repurchase activity, disclosed at the end of each quarter as an exhibit in the 10-Q Reports and the 10-K Annual Report.
- A description of the rationale behind each buyback and the goals of the buyback. The issuer will also need to explain the criteria it used to determine how many shares to buy back.
- Whether some of the directors or officers of the company bought or sold any of the shares in question within four days before or after the repurchase.
- More details about the company’s stock trading agreements with its directors and officers, known as 10b5-1 plans. This includes the start and end dates, the total number of shares, and the intrinsic terms of these plans.
The committee, by a vote of 3-2 on Wednesday, approved the New laws marking the end of a years-long battle over how much information the public and shareholders are entitled to know about the increasingly common practice of companies buying back their own stock.
They also reflect a larger nationwide debate about share buybacks, which typically increase the value of a company’s stock by reducing the total number of shares on the market.
Because compensation of senior executives is often correlated with measures of stock price performance, buybacks have emerged in the past decade as a relatively simple and quick way to raise a company’s stock price, much simpler in many cases than increasing sales, expanding operations, or increasing profits.
The markets also saw an increase in The practice of issuing public corporate bonds In order to buy back their shares, a practice Some economists It is believed to pose a threat to the long-term health of the US economy.
The changes approved Wednesday represent a relaxation of the Securities and Exchange Commission’s initial proposed disclosure rules, which would have required public companies to report trades by corporate insiders on a daily basis. The committee said its final decision was influenced by concerns raised in public comments, that daily reporting would be expensive and time-consuming.
Public interest groups, many of which have become increasingly critical of large-scale corporate buybacks, have praised the new rules.
“Stock buybacks have grown exponentially in recent years and are increasingly being used to enrich executives rather than reinvest capital to enhance a company’s long-term productivity, profitability and employee well-being,” said Stephen Hall, legal director at the nonprofit Better Markets. . “This final rule will certainly increase the quantity, quality, and timeliness of reporting of these controversial transactions.”
But industry advocates have called the new rules onerous and unfair, and accused the SEC of trying to deter companies from buying back their stock.
said Chris Netram, vice president of the National Association of Manufacturers.
On Capitol Hill, bipartisan support for stricter buyback disclosure rules has been evident since the SEC’s rule-making process began, more than a year ago.
Sens. Tammy Baldwin, and Marco, write that capital markets “provide the means by which companies can raise and invest capital productively for the benefit of investors, workers, communities, and ultimately our country as a whole.” Rubio, R-Fla. , in a Letter to Gensler in 2022.
The explosion of corporate buybacks, they wrote, represented a shift “towards transactions in securities for purposes of financial engineering over raising capital to invest productively in commerce and industry.”
The SEC has repeatedly stated that it has no position on whether companies’ stock buybacks are good or bad, and that the new disclosure rules only reflect the growing importance of buybacks as a key component of corporate strategy.
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