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SEC proposes modernised stock buyback rules

By Robert Davis

17:34, 16 December 2021

Financial concept
Stock repurchases reached an all-time high in 2021 - Photo: Shutterstock

The US Securities and Exchange Commission (SEC) proposed new rules on Wednesday the agency said will modernise how it regulates corporate stock repurchases, also known as buybacks.

The proposed rules will establish a new Form SR that businesses must file within 24 hours of repurchasing shares of its stock. Form SR records the transaction in detail, including the type of security and the price paid.

Other measures include requiring business to disclose their reasoning and rationale for a buyback in the existing periodic reports they filed with the SEC and making stock issuers disclose whether the repurchase is a part of an existing trading plan.

“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.”

Repurchases reach an all-time high

The proposed amendments come as the S&P Dow Jones Buyback Index shows that stock repurchases reached an all-time high in 2021 after receding slightly last year.

So far this year, the Index has increased by nearly 27% compared to the 4% growth it saw in 2020.

In the third quarter, the total value of corporate stock repurchases was valued at $234.5bn (£176.09bn), exceeding the previous record set in the fourth quarter of 2018 at $233bn, according to data from Yardeni Research.

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Lawmakers on Capitol Hill have tried to reign in corporate buybacks in the past. Senator Sherrod Brown (Democrat-Ohio) is currently sponsoring a bill that would force companies to give each worker a $1 dividend for every $1m they spend on stock repurchases.

“The first step to workers getting their fair share is learning just how much corporate executives are spending on themselves and large shareholders – instead of wages and research and development,” Brown, who chairs the Senate Banking Committee, said in a statement in response to the SEC’s proposed amendments.

Increasing transparency

Other SEC commissioners said the rules will serve to increase transparency surrounding buyback transactions.

Commissioner Caroline Crenshaw described the rules as “an important goal” in a statement. Crenshaw also applauded the proposed rules for including requirements for companies to submit software-readable data in their reports and addressing the “opportunistic trading window” typically created by a buyback announcement.

Commissioner Allison Herren Lee said the volume and magnitude of impact that buybacks can have are two reasons the “phenomenon should be thoroughly and accurately disclosed and well understood by investors and markets.”

“To the extent companies are making smart and thoughtful choices regarding buybacks, this increased transparency will serve them well,” Lee said.

Read more: Alphabet reports record profit and bn share buyback

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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