Sen. Tammy Baldwin
Sen. Tammy Baldwin (D-WI) is pushing the Securities and Exchange Commission on just what it is that they are doing to regulate the market, in this case preventing companies from manipulating the stock market by buying back their own stocks. Turns out, the SEC
isn't doing anything
to enforce the existing rule, and doesn't intend to.
SEC Chair Mary Jo White made the acknowledgement in a response to Senator Tammy Baldwin (D-Wisc.), who queried the agency about stock buybacks. Baldwin is one of a growing number of politicians—including presidential candidates Hillary Clinton and Bernie Sanders—who are citing buybacks as an example of deliberate financial engineering that bolsters concentration of wealth and keeps working-class wages stagnant.
Stock buybacks are an increasingly common practice in which corporations take profits, and instead of investing in facilities, research and development, or boosting worker wages, buy shares of their own stock on the open market, thereby boosting demand and driving up its price. Companies bought back over half a trillion dollars’ worth of their own shares last year.
The practice creates short-term rewards for executives who are paid in stock and stock options, and benefit from an increased price. They also make corporate earnings look better by reducing outstanding shares and increasing the commonly reported ratio of earnings-per-share.
In 1982 the SEC adopted Rule 10b-18 which gave companies come leeway in buybacks, a procedure they'd been previously avoiding to not be prosecuted for market manipulation. The rule gave "safe harbor" to companies to buyback stock, within these four limitations: "not engaging in buybacks at the beginning or end of the trading day, using a single broker for the trades, purchasing shares at the prevailing market price, and limiting the volume of buybacks to 25 percent of the average daily trading volume over the previous four weeks." Baldwin wanted to know what the SEC was doing to make sure that companies were following this rule and abiding by these restrictions.
The answer that came back from White was that the SEC does not collect that information, though corporations have it, and furthermore, "Because Rule 10b-18 is a voluntary safe harbor, issuers cannot violate this rule." That's making the big assumption that all publicly traded companies are voluntarily staying within the safe harbor and therefore not violating the rules. But since the SEC isn't monitoring them to make sure they stay in that harbor. The agency is turning a blind eye to the practice.
Sen. Baldwin told the Intercept, which obtained a copy of White's letter, that she is "concerned that the SEC lacks the tools to properly evaluate this issue," and "disappointed that the SEC's official response does so little to even acknowledge the stock buyback phenomenon we are seeing in financial markets." Baldwin tried to amend the financial services appropriations bill to include a requirement that the SEC conduct a study on buybacks, but her amendment was blocked in committee.
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