SEC Seeks Input On Proposal For Stock Buyback Plan

On December 7, 2022, the U.S. Securities and Exchange Commission reopened the comment period on proposed amendments to the required buyback disclosures. The SEC made the decision to call for additional public input following the passing of The Inflation Reduction Act of 2022. The Act was published after the original proposed amendments had been made available for public comment. 

The law imposes upon certain corporations a non-deductible excise tax equal to one percent of the fair market value of any stock of the corporation that was repurchased during the taxable year, for repurchases over $1 million. In response to that Act, the SEC prepared a memorandum that summarized the potential economic effects of the new excise tax. The public comment period will remain open for 30 days.

The new proposed amendment would require additional disclosures on these corporate stock buybacks. For example, it would require corporations to notify investors of buybacks within one business day, instead of quarterly. It would also require a more detailed justification for their repurchasing of the stock. 

According to data published by S&P Global, share repurchases hit a record of over $270 billion in the fourth quarter of 2021. Critics of corporate buybacks, such as the Wall Street reform advocacy organization, Better Markets have publicly expressed concern that executives are using buybacks to game certain financial metrics, such as earnings per share. Last April, the organization urged the SEC to follow through on its promise to require enhanced disclosures on buybacks.

The SEC agency staff estimated that 2,300 of the 3,600 companies that conducted buybacks last year would have been subject to this new tax. It is yet to be determined whether or not companies will be less likely to conduct buybacks given the new tax and, if so, what effects fewer buybacks would have on the agency's proposed rule.