The Biden administration is going after corporate stock buybacks as part of its budget plan for 2023 – a regulation that “does not make a lot of sense”, says former chairman of the U.S. SEC.
Clayton explains why stock buybacks are important
According to Jay Clayton, share repurchase helps both index and individual investors as an efficient means of capital reallocation. This morning on CNBC’s “Squawk Box”, he said:
Buybacks are an extremely efficient way to reallocate capital. Restricting them beyond ensuring they comply with manipulation rules and are undertaken when there’s no material information asymmetry between the company and the marketplace, doesn’t make a lot of sense.
President Biden wants to disable corporate executives from selling their company shares for three years after the launch of the buyback programme.
Why does the U.S. President want to limit buybacks?
Opponents of buybacks claim executives use them to derive personal benefit rather than business growth, a problem that Clayton acknowledged but disagreed that the solution lies in what the Biden administration is proposing.
We have for good reason allocated compensation heavily toward equity. We want to align our insiders with long-term stockholders. At some point, individuals should have some opportunity to diversify away from that equity.
S&P 500 companies repurchased $882 billion worth of their stocks last year, a number that will top $1.0 trillion in 2022, as per Goldman Sachs.
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