Yesterday, the U.S. Securities and Exchange Commission finalized a rule that requires new disclosures from companies conducting stock buybacks.
The background: Stock buybacks are a commonplace practice that allow companies to ensure that their cash reserves are being used effectively. Returning capital to shareholders benefits both the company and its investors by increasing shareholder returns, enhancing capital formation and ensuring efficient capital allocation.
- Over the past few years, however, policymakers and regulators have taken steps to discourage buybacks, and the SEC has now finalized a rule targeting them.
The burden: The SEC’s rule imposes several new burdens on manufacturers conducting buybacks:
- A requirement that companies disclose detailed buyback data from each day of a fiscal quarter—imposing significant costs and dramatically increasing the complexity of businesses’ quarterly filings
- A requirement that companies provide disclosures justifying their buybacks, which could further politicize these capital allocation decisions
- New disclosures related to companies’ stock buyback programs and transactions by company management and boards of directors
The pushback: The NAM spoke out against the SEC’s rule when it was proposed last year, detailing the harm it would do to manufacturers.
- In particular, the NAM called on the SEC to reverse its proposed next-day disclosure requirement, which would have mandated upward of 250 new SEC filings per year for many public companies.
The result: Thanks to the NAM’s advocacy, the SEC’s final rule left out the daily disclosure requirement—a significant victory for manufacturers.
- However, companies will still be required to track daily buyback activity to comply with the quarterly day-by-day reporting mandate.
Read the whole thing here.