The $1 Trillion Question: New Approaches to Regulating Stock Buybacks
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The $1 Trillion Question: New Approaches to
Regulating Stock Buybacks
Lenore Palladinot
Stock buybacks transactions in which public companies buy back their
own equity securities on the open market-are on track to reach $1 trillion in
2018. Such repurchases manipulate the market price for issuer securities. They
represent a choice by firms to prioritize shareholder payouts over other uses of
corporate funds, contributing to widening economic inequality. Currently, stock
buybacks are regulated by the Securities and Exchange Commission's Rule l0b-
18, a safe harbor rule that does not ameliorate market manipulation. This
Essay recommends a new regulatory regime, outlining several alternative
approaches to ensure the integrity ofcapital markets and corporate productivity.
Introduction .................... .................89
I. The Problems with Stock Buybacks ................... ......91
A. Justifications for Stock Buybacks........................91
B. The Harms ofStock Buybacks.............................94
II. A New Regulatory Regime for Stock Buybacks ...... ..........97
A. A Landscape ofRegulatory Alternatives ..... ...........97
B. New Rules at the Securities and Exchange Commission ........ 101
C. Congressional Approaches to Reining in Stock Buybacks ..... 103
Conclusion ....................................... .....104
Introduction
Stock buybacks' by America's public companies are on track to hit $1
trillion in 2018.2 Stock buybacks are regulated by the Securities and Exchange
T Lenore Palladino is Senior Economist and Policy Counsel at the Roosevelt Institute
and a Lecturer at Smith College. Palladino is Of Counsel at the law firm of Jason Wiener P.C.. Palladino
earned her Ph.D. from the New School University and her J.D. from Fordham Law School. Special thanks
to William Lazonick and the Roosevelt Institute staff for their support.
1. Stock buybacks are known by a variety of terms, including issuer repurchases and
open-market share repurchases. All refer to the same activity.
2. Jeff Cox, Companies Set to Buy Back $1 Trillion Worth of Shares This Year, and
That Should Keep Market Afloat, Goldman Says, CNBC (Aug. 6, 2018, 11:01 AM),
https://www.cnbc.com/2018/08/06/companies-set-to-buy-back-1 -trillion-worth-of-shares-this-year-to-
kee.html [https://perma.cc/VE5J-BBW2].
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The $1 Trillion Question: New Approaches to Regulating Stock Buybacks
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