The Securities and Exchange Commission (SEC) will enforce new disclosure rules later this year that will increase “transparency and integrity” of corporate stock repurchasing, according to SEC Chairman Gary Gensler.
The newly adopted SEC rules will compel companies to disclose far more information about stock buybacks than they ever have before.
Regulations will start applying to publicly traded companies in the fourth quarter of this year, CNBC reports.
The new disclosure rules will allow investors “to better assess issuer buyback programs,” SEC Chairman Gary Gensler said.
The Chairman also noted the soaring rate at which U.S. corporate buybacks have grown in recent years, from a total of $950 billion worth in 2021, to more than $1.25 trillion worth last year.
These new disclosure rules will begin to apply when U.S. corporations report earnings for the fourth quarter of 2023, and to foreign issuers on a slightly longer timeline.
Public companies will need to disclose a daily log of repurchase activity, a description of the rationale behind each buyback, whether directors or officers of the company bought or sold shares within four days of the buyback, and other trading details.
Approved by a commission vote of 3-2 on Wednesday, the new rules mark the end of a yearslong 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.
The commission said its final decision was influenced by concerns raised in public comments.
Investors Argue Stock Buyback Combats Shorting
Some investors argue that stock buyback actually combats heavy shorting in the market.
With a buyback, companies can increase earnings per share and increase the stock’s potential upside for shareholders who want to remain owners.
Stock buybacks are also a more tax-efficient way to return the earnings of the business to shareholders.
Warren Buffett has commented frequently on the merits of share repurchases over the years and has called their disciplined use the surest way for a company to use its cash intelligently.
“Stock buybacks have grown substantially in recent years and increasingly they are used to enrich executives instead of re-investing capital to advance a company’s long-term productivity, profitability, and employee welfare,” said Stephen Hall, legal director at the nonprofit Better Markets.
“This final rule will certainly increase the quantity, quality, and timeliness of reporting on these controversial transactions.”
But industry advocates called the new rules onerous and unfair, and accused the SEC of trying to deter companies from repurchasing their own shares.
Retail investors say the SEC should focus more on the naked shorting problem in the markets.
The banking sector has even begun to raise concerns about manipulative trading in bank stocks.
Bankers and Retail Investors Urge the SEC to Tackle Manipulative Short Selling Practices
Bankers are urging the SEC for an emergency ban on short selling.
Last week, bankers began to raise concerns of manipulative trading, particularly into abusive short selling.
Reuters reported that the White House had vowed to monitor the possibility of illegal short selling as shares in the banking sector plunged.
Blockchain Daily says industry experts, such as analysts at JPMorgan, the financial giant that recently acquired First Republic Bank from government receivership, have anticipated that Washington will be compelled to implement further measures.
One such measure being considered is the imposition of an emergency ban on short-selling, a practice utilized to speculate on declining share prices of banks.
But it seems like the SEC has its focus and efforts in less detrimental issues.
The increased short-selling activity has triggered some calls for a temporary ban, but an SEC official told Reuters on Wednesday the agency was “not currently contemplating” such a move.
Do you think these new disclosure rules will benefit retail investors?
Or is this more lip service from regulators to demonstrate some sort of action in the markets?
Leave your thoughts below.
Related: Mullen Announces New Illegal Shorting Investigation
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