The Problem with Share Buybacks

Share buybacks are a common practice where companies buy back their own shares. However, the current execution strategies for buybacks are not aligned with the best interests of the company or its shareholders. Many companies rely on packaged products from brokers that guarantee outperformance to a benchmark, but these benchmarks do not reflect what is best for the company or its shareholders. Furthermore, there is limited transparency in the market, making it challenging for shareholders and the market to see the structures and behaviors of these programs. This lack of transparency hinders analysis and understanding of the problem. In addition, the current safe harbor rules prevent shareholders from selling directly to the corporate buyback, which adds unnecessary complexity to the process. To address these issues, there is a need for innovation and competition in the market, with a focus on bringing down the cost of transacting in buybacks and improving transparency for both shareholders and corporates.