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Related and sort of a follow-up to Can a company legally depress their stock price in order to supercharge their buyback program?

Let's say a company has a share buyback plan in progress. They know that their next earnings release is going to be "poor" (inverted commas because the company is making solid profits - they are buying back shares after all - but the market has hugely inflated expectations). Therefore they can predict with some confidence that the stock will crash after the earnings report.

Can the company legally pause the buyback until after the earnings report, or would this fall afoul of insider trading rules?

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  • What would the goal of doing this be? How are you thinking that management or the board would benefit from this? Feb 16, 2022 at 4:00
  • @CharlesE.Grant if you have the buyback after the stock crashes, you can buyback more shares for the same price, which is good since the buyback is more effective..
    – Allure
    Feb 16, 2022 at 4:04
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    Good for who? Management? The board? Shareholders at large? Generally the goal of a buyback is to distribute company profits to the shareholders at large so that they will be happy with management and the board. Secondarily it can raise the P/E ratio and increase the percentage ownership of the remaining owners. Insofar as management and the board can argue that the timing is beneficial for the shareholders they are probably free to choose the timing. But it's not like a buyback puts money in the pocket of management or the board, except insofar as they are shareholders. Feb 16, 2022 at 4:20
  • @CharlesE.Grant You think so? I view the goal of the buyback as to reduce the float, and that is obviously better when you buy at a lower price. If the goal is just to distribute profits to shareholders, one can just have a dividend instead.
    – Allure
    Feb 16, 2022 at 4:46
  • There are tax considerations that sometimes make a buyback preferable to a dividend. Reducing the float can indeed be a reason for having a buyback. Insofar as the motivation is improving the fiscal health of the company which redounds to the benefit of the stockholders that's fine. Perhaps I'm misunderstanding, but I'm getting the impression you think there is some nefarious benefit to management or the board in delaying the buyback, and I'm not seeing it. Feb 16, 2022 at 5:04

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Companies can run into trouble trading on non-public information, but the rules are distinct from insider trading rules. The hazard is triggering rule 240.10b-5 "Employment of manipulative and deceptive devices", which is a general prohibition against deceptive practices. However, companies offering stock buybacks were offered a "safe harbor" in 240.10b-18 - "Purchases of certain equity securities by the issuer and others" which offers companies protection from liability for "the manner, timing, price, and volume of their repurchases when they repurchase the issuer's common stock in the market", as long as they stick with the other rules for buybacks.

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