Want More Public Companies? Encourage More Stock Repurchases

Why It Matters

Reducing buyback restrictions could lower the cost of staying public, encouraging more companies to list and enhancing capital‑market depth for investors.

Key Takeaways

• SEC aims to halt decline of U.S. public firms.
• Rule 10b‑18 restricts buybacks for smaller companies.
• Buybacks outperform dividends and boost corporate resilience.
• Mega‑caps dominate repurchases, mid‑caps face compliance costs.
• Proposed amendment: allow purchases at NBBO midpoint.

Pulse Analysis

The United States has lost roughly 40 percent of its publicly listed firms over the past thirty years, prompting the new SEC leadership to treat the erosion of public companies as a strategic priority. While the agency’s traditional focus has been on tightening disclosure, officials now argue that excessive regulatory friction—particularly the costly compliance required for initial public offerings—discourages midsize enterprises from staying public. By easing these burdens, the SEC hopes to revive the pipeline of IPOs and preserve the diversity of capital‑raising options that underpin market depth and investor choice.

Share repurchases have become the dominant method of returning capital, outpacing dividends for five consecutive years and delivering tax‑efficient, flexible payouts. Empirical studies show that firms engaging in buybacks tend to pay higher wages, fund pension plans more robustly, and maintain larger cash buffers, contradicting narratives that buybacks erode employee compensation or corporate resilience. Yet the safe‑harbor provision of SEC Rule 10b‑18 imposes single‑broker, timing, volume and price caps that are manageable only for mega‑cap stocks with deep liquidity. Mid‑cap and smaller issuers frequently hit the 25 percent ADTV ceiling or risk front‑running, effectively locking them out of an otherwise valuable financing tool.

Policy makers therefore propose a modest amendment: permit buybacks at or below the midpoint of the NBBO rather than the current ceiling of the highest independent bid. This change would lower execution costs for mid‑cap companies, reduce predictability that high‑frequency traders exploit, and restore the original intent of the safe‑harbor—protecting issuers from manipulation while granting them pricing discretion. If adopted, the reform could broaden the pool of firms that can afford regular repurchases, improve capital allocation efficiency, and ultimately support the SEC’s broader goal of sustaining a vibrant public‑company ecosystem.