The SEC Plans to Make it Harder for Companies to Buyback Stock

The Securities and Exchange Commission (SEC) proposed a rule that would force most public companies in the US to provide significantly more information about their stock buyback transactions, the Wall Street Journal reported on Wednesday. Share repurchases hit a new record high of $923 billion in 2022.

Current Stock Buyback Disclosure Requirements

The SEC is set to host a vote on Wednesday to decide whether it should adopt a new rule asking publicly-listed companies for more disclosure when buying back their shares. The move comes after Congress implemented a 1% excise tax on share repurchases in 2022, a toll that US President Joe Biden thinks should be four times higher.

Alongside dividend payments, stock buybacks are another method public companies use to return capital to their shareholders. But unlike the former, the buybacks were not taxable in the US until this year.

Under current rules, public companies must calculate the number of shares they bought back, the amount of capital they spent on repurchases, and the average share price. The calculations are then reported in the companies’ quarterly financial results.

The Democratic Parry has been a longtime critic of stock buybacks, alleging that such transactions distort the tax system and encourage companies to award shareholders and executives rather than re-investing their profits into technology, production, and employees. In 2022, share repurchases by S&P 500 companies rose to a new all-time high of $923 billion.

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What Does the SEC Propose?

According to the WSJ, the SEC takes a neutral stance on whether stock buybacks are good or bad. Instead, officials said the security regulator’s primary objective is to help companies’ investors better evaluate the purposes and effects of buybacks.

Under the SEC’s proposal, the new rules would still require information about these transactions to be included in quarterly reports. However, instead of providing monthly totals, the companies would be asked to include daily tallies as more frequent disclosures would make it easier for analysts to compare the timing of these transactions and insider trades and identify purchases that were made to boost executive pay or corporate earnings.

If the SEC’s commissioners vote in favor of the new rules, most US-listed companies would be required to include new stock buyback disclosures starting with their Q4 report this year.

Do you agree that the US authorities should increase the disclosure requirements for share repurchases? Let us know in the comments below.