A Critical Approach to the Regulation of a Public Corporation's Purchase of Its Own Shares on the Open Market: Lessons from The Transatlantic Comparison

Open market repurchases (OMRs)—by far the most common form of share repurchases—have reached record levels following the dramatic increase in number since the adoption of the safe harbor rule in the US. This dramatic increase has been largely attributed to purported benefits of OMRs that matter especially within the Anglo-American economic and corporate model. However, these benefits fail to fully explain such increase. This failure suggests that illegitimate purposes, which could easily be concealed beneath purported benefits, might have also contributed to the increase in the number of OMRs and resulted in their excessive use. This suggestion is supported by the ineffectiveness of the safe harbor rule applicable to OMRs in the US that paves the way for the exploitation of OMRs by corporate actors having inside or superior information. On the other hand, any and all share repurchases used to be strictly regulated in the EU. However, some EU Member States and later the EU itself relaxed legal capital rules including the rule on share repurchases and adopted a safe harbor rule on OMRs that is essentially similar to that in the US. This substantial legal convergence has also been followed by an increase in the number of OMRs in the EU. Notwithstanding that the increase in the EU has been more rapid than that in the US, the number of OMRs in the EU has been much lower than in the US. The less frequent use of OMRs supports the claim that corporations substantially persist in the Continental European model. In this model, the purported benefits of OMRs have been less significant and the potential of abuse of OMRs have been less probable than in the US. Such persistence has also been partly reflected on the OMR regulation in the EU that prescribes a less ineffective framework than that in the US through a few but crucial regulatory technical differences. Hence, this dissertation compares and contrasts rules and practices relating to OMRs on both sides of the Atlantic and comes up with a series of regulatory proposals to maintain the purported benefits while curbing the number and eliminating the potential drawbacks arising from the abuse of OMRs, particularly in the US but also in the EU and elsewhere. These proposals include two main easy-to-implement regulatory policy proposals, namely the enhancement of current disclosure requirements and the increase of oversight mechanism on OMRs, and a number of complementary proposals that include recommendations for various market actors to reduce the excessive use of OMRs.