U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler, testifies before the Senate Banking, Housing and Urban Affairs Committee during an oversight hearing on Capitol Hill in Washington, September 15, 2022.
Evelyn Hockstein | Reuters
WASHINGTON — As investors focus on regional banking and earnings this week, the Securities and Exchange Commission quietly passed new rules requiring public companies to disclose more information. on share buybacks compared to the past.
SEC Chairman Gary Gensler said in a statement of updated disclosures, the new rules “will increase transparency and integrity” of the company’s share buybacks and allow investors to “assess better price than the issuer’s buyback programs”.
Gensler also noted the skyrocketing rate at which U.S. corporate acquisitions have increased in recent years, from a total value of $950 billion in 2021, to more than $1.25 trillion in last.
This year could be just as big. Google’s Mother Alphabet announced Last month, its board approved a $70 billion share buyback this year, matching the amount the company spent buying back its own stock in 2022. This week, Apple announced the plan to buy back more shares than Google: worth $90 billion this year, following the previous $90 billion in 2022.
The new information disclosure regulations will begin to apply when U.S. corporations report earnings for the fourth quarter of 2023, and to foreign issuers a little longer.
What information will public companies need to disclose?
- A daily log of share repurchases, disclosed at the end of each quarter as part of the 10-Q report and the annual 10-K report.
- Describe the rationale behind each acquisition and the goal of that acquisition. The issuer will also need to explain the criteria used to determine the number of shares to repurchase.
- Whether certain directors or officers of the company purchased or sold any of the shares mentioned within four days before or after the acquisition.
- More detailed information about a company’s stock purchase agreement with its directors and officers is known as a 10b5-1 plan. This includes the start and end dates, total stakes, and key terms of these plans.
Approved by a 3-2 committee vote on Wednesday, new rule marks 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 buying back their own shares.
They also reflect a larger national debate about share buybacks, which typically increase the value of a company’s stock by reducing the total number of shares on the market.
With compensation for top executives often linked to metrics of stock price performance, buybacks have emerged over the past decade as a relatively simple, quick means of raising prices. A company’s stock is, in many cases, much simpler than increasing revenue, expanding operations, or increasing profits.
The market has also seen an increase in Public company debt issuance practices to buy back their own shares, a practice that some economists is believed to pose a threat to the long-term health of the US economy.
The changes approved Wednesday represent a relaxation of the SEC’s original proposed disclosure rules, which would have required public companies to report transactions by company insiders on a daily basis. The committee said its final decision was influenced by concerns raised in public comments that daily reporting would be too costly and time consuming.
Public interest groups, many of which have been increasingly critical of large-scale corporate acquisitions, have welcomed the new rules.
“Share buybacks have increased dramatically in recent years, and they are increasingly being used to enrich executives,” said Stephen Hall, legal director at the nonprofit Better Markets. rather than reinvesting capital to enhance the long-term productivity, profitability and well-being of the company”. . “This final rule will certainly increase the quantity, quality and timeliness of reporting on these controversial transactions.”
But industry advocates call the new rules difficult and unfair, and accuse the SEC of trying to prevent companies from buying back their own shares.
Chris Netram, executive vice president of the National Association, said: “The commission’s attempt to thwart these routine, routine transactions through an overly complicated, costly disclosure mandate and unfeasible is … a departure from the mission of enhancing capital formation and protecting investors”. of manufacturers.
On Capitol Hill, bipartisan support for stricter acquisition disclosure rules has been evident since the start of the SEC’s rule-making process, more than a year ago.
Capital markets “provide a means by which companies effectively raise capital and invest for the benefit of their investors, their workers, their communities and, ultimately, their entire country as a whole. me,” Sens. Tammy Baldwin, D-Wisc., and Marco write Rubio, R-Fla., in one letter to Gensler in 2022.
The boom in corporate buybacks, they wrote, represents a shift “towards transactions in securities for financial engineering purposes rather than raising capital for productive investment in commerce and industry. “
The SEC has repeatedly stated that it has no opinion on whether a company’s share buybacks are good or bad, and that the new disclosure rules only reflect the growing importance of buybacks as a key element of the company’s strategy.