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Senators join call for revisiting SEC stock buyback practices and rules

Senate Minority Leader Chuck Schumer, D-N.Y., is among nearly two dozen senators asking the SEC to review rules covering stock buybacks.

A group of Democratic senators called Thursday for the Securities and Exchange Commission to hear from the public about reviewing rules covering stock buybacks.

Led by Senate Minority Leader Chuck Schumer of New York and Sens. Chris Van Hollen of Maryland and Tammy Baldwin of Wisconsin, 18 other senators joined in writing to SEC Chairman Jay Clayton, noting that rules have not been updated since 2003.

"Since that time, there have been significant changes in executive compensation practices, shareholder activism and investing technology," they said.

Before the rule was adopted in 1982, New York Stock Exchange-listed companies spent 2% of profits on buybacks; from 2004 to 2014, the largest U.S. companies have spent 51% of profits on buybacks, according to a Brookings Institution study cited in the letter.

"While we are troubled by the magnitude of stock buybacks and the consequences for employees and communities, we are even more disturbed by the dramatic increase in stock sales by corporate insiders following the announcement of a buyback. This ... means it is imperative that the SEC revisit the evolution of Rule 10b-18 to ensure that corporate executives are not using the rule inappropriately to enable advantageous sales of their own stock while ignoring the needs of their companies' workers," the senators' letter said.

Rule 10b-18 allows public companies to buy back their stock without fear of being charged with stock market manipulation.

SEC Commissioner Robert Jackson Jr. also has also called on his fellow commissioners to revisit the rules and current practices of corporate stock buybacks, particularly after the 2017 tax reform bill, which has increased the number of buybacks.

In an email, Mr. Jackson said: "We shouldn't be surprised that a record wave of buybacks followed the Trump tax bill. And I am deeply concerned that executives are spending more time on short-term stock trading than long-term value creation. That's why I think it's high time the SEC re-examine its outdated buybacks rules, starting with an open comment period."