Share repurchase

Share repurchase (or stock buyback) is the re-acquisition by a company of its own stock. It represents a more flexible way (relative to dividends) of returning money to shareholders. Share repurchase (or stock buyback) is the re-acquisition by a company of its own stock. It represents a more flexible way (relative to dividends) of returning money to shareholders. In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares outstanding. The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance. Under U.S. corporate law, there are five primary methods of stock repurchase: open market, private negotiations, repurchase 'put' rights and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction. More than 95% of the buyback programs worldwide are through an open-market method, whereby the company announces the buyback program and then repurchases shares in the open market (stock exchange). In the late 20th and the early 21st century, there was a sharp rise in the volume of share repurchases in the United States: US$5 billion in 1980 rose to US$349 billion in 2005. Large share repurchases started later in Europe than in the United States, but are nowadays a common practice around the world. It is relatively easy for insiders to capture insider-trading-like gains through the use of 'open market repurchases'. Such transactions are legal and generally encouraged by regulators through safe harbours against insider trading liability. U.S. Securities and Exchange Commission (SEC) rule 10b-18 sets requirements for stock repurchase in the United States.