Dive Brief:
- The Securities and Exchange Commission (SEC) this week proposed enhanced disclosures that would require companies executing a stock buyback to let investors know the purpose behind the program and whether any executives bought or sold shares 10 days before or after the repurchase.
- "Share buybacks have become a significant component of how public issuers return capital to shareholders," SEC Chair Gary Gensler said in a statement. "I think we can lessen the information asymmetries between issuers and investors through enhanced timeliness and granularity of disclosures that today’s proposal would provide."
- In addition to requiring companies to explain the rationale for the buyback, they’re to explain what process they used to determine the amount of repurchases and whether any restrictions are in place for company officers buying or selling shares under a program, among other things.
Dive Insight:
The proposal introduces a Form SR that companies are to submit to the SEC by the end of the next business day after a share repurchase.
The form requires disclosure of the date of the repurchase, the kind of securities purchased, how many, at what average price and how many were purchased on the open market, among other things.
The more substantive requirements, involving the rationale for the repurchases and how the amount of shares were determined, aren’t included on the Form SR but are part of enhanced periodic disclosure requirements.
Under scrutiny
The SEC isn't the only entity looking at buybacks. The House last month passed a 1% tax on buybacks as part of its $2 trillion Build Back Better social-spending legislation, a version of which the Senate could take up soon. Whether the Senate will keep the tax isn't clear, but earlier this year Sen. Ron Wyden (D-Ore.), chair of the tax-writing Finance Committee, introduced a bill to tax buybacks at 2%.
Wyden says the tax is intended to encourage companies to plow profits back into the business to increase productivity rather than enrich shareholders by reducing dilution.
The SEC is taking public comments on its enhanced disclosures for 45 days once the proposal is published.
