SEC Offers Improved Redemption Information


Dive brief:

  • The Securities and Exchange Commission (SEC) this week proposed improved disclosures this would require companies executing a share buyback to inform investors of the purpose of the program and whether executives bought or sold shares 10 days before or after the buyback.
  • “Share buybacks have become an important part of how public issuers return capital to shareholders,” SEC Chairman Gary Gensler said in a press release. “I believe we can reduce information asymmetries between issuers and investors with the improved speed and granularity of information that today’s proposal would provide.”
  • In addition to requiring companies to explain the rationale for the buyout, they should explain the process they used to determine the amount of buybacks and whether any restrictions are in place for company executives who buy or sell actions within a program, among others.

Dive overview:

The proposal introduces an SR form that companies must submit to the SEC by the end of the business day following a share buyback.

The form requires disclosure of the date of redemption, type of securities purchased, how much, at what average price and how many were purchased in the open market, among others.

The more substantial requirements, involving the justification for redemptions and how the share amount was determined, are not included in the SR form but are part of the enhanced periodic disclosure requirements.

Under surveillance

The SEC is not the only entity considering buyouts. Last month, the House passed a 1% buyback tax as part of its $ 2 trillion Build Back Better social spending legislation, a version of which the Senate may soon pass. It is not clear whether the Senate will maintain the tax, but earlier this year Sen. Ron Wyden (D-Ore), chairman of the Tax Drafting Finance Committee, introduced a bill to tax the redemptions at 2%.

Wyden says the tax is meant to encourage companies to pump profits back into the business to increase productivity rather than enrich shareholders by reducing dilution.

The SEC collects public comment on its improved information for 45 days after the proposal is released.

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