WASHINGTON, D.C.—Legal Director and Securities Specialist Stephen Hall issued the following statement on the filing of Better Markets’ Comment Letter to the Securities and Exchange Commission (SEC) in response to the agency’s reopening of the comment period for its proposed rule to modernize and improve disclosures on share repurchases, also known as stock buybacks:
“The SEC’s proposal will go a long way toward giving investors the information they need to understand how stock buybacks affect the price of a company’s stock and the reasons companies engage in stock buybacks. Buybacks are often touted by public companies as the most efficient use of capital and as a way to increase shareholder value. However, a deeper look shows that they are often in fact used by corporate executives to artificially inflate execution compensation metrics such as earnings per share and as a short-term boost to the company’s stock price, which too many executives use as a time to sell their own stock.
“So powerful is management’s incentive that buybacks will sometimes go forward even as they imperil a company’s financial condition. For example, Bed Bath and Beyond (a company teetering on the edge of bankruptcy) has bought back nearly $11.7 billion in stock since 2004 at an average price of $44 share. Today, that investment is down nearly 90 percent.
“The SEC appropriately reopened comment on the proposal to better understand the potential impact of a recently enacted tax provision that would impose a 1% excise tax on stock buybacks. As we explained in our supplemental comment letter, however, the tax will have little or no impact on share repurchase activity and it therefore provides no justification for withholding or diluting this important reform.
“The proposed rule would require much more timely reporting, moving from a molasses-like quarterly timetable to an ’end of next business day’ deadline following repurchases. And it would enhance the quality of the reporting by requiring disclosure of the objective or rationale for the repurchases and whether any of the issuer’s officers or directions purchased or sold shares 10 business days before or after the announcement of a repurchase plan.
“The SEC should move forward without delay to finalize the rule.”
Read our full comment letter here.
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org