The Securities and Futures Com-mission (SFC, 證期會) yesterday completed final draft regulations that would allow listed companies to buy back their own shares.
The regulations could be implemented as earlier as next month and would help companies boost falling share prices.
According to the SFC's regulations, a company must disclose to investors details of its intended purchase -- including transaction volume and a reason explaining the buyback. In addition, once a company elects to conduct a buyback, it must be carried out within a month.
Furthermore, if the buyback exceeds 2 percent of the company's capitalization or NT$300 million, the firm must disclose its figures to the SFC.
The SFC has also ruled that the daily amount of shares being bought back cannot exceed 20 percent of a stock's 30-day moving average, or 25 percent of the company's total planned buyback.
The SFC said officials will closely watch for signs of insider trading or manipulation while companies engage in a buyback.
Analysts say the new rules will allow publicly traded companies to boost sagging share prices.
"Large blue chip companies, high-tech companies and bank and finance companies will likely be the biggest beneficiaries," said Lee Guan-huey (
"The amount of undistributed retained earnings and related funds of a listed company is also important when considering a company's buyback ability," Lee said. "Companies with high dividends and high profits will be able to accumulate more retained earnings and buy back more shares than others."
But Lee noted that a company cannot buy back more than 10 percent of its outstanding shares, and that for some companies more than 10 percent of its outstanding shares trade in a single day. Therefore, Lee said, "the effectiveness of a buyback to halt a share price's decline is likely to be limited."
Furthermore, Lee noted that a daily buyback purchase is limited to just 20 percent of average turnover in the previous 30 trading days.
If trading activity slows before a listed company steps into the market, its hands could be tied by the rule, Lee said.
"There are too many restrictions ... therefore the bullish effect will be much weaker than previously imagined," Lee said. "The bottom line is that a listed company has to gain recognition from investors through the company's fundamentals."
The SFC must now finalize the buyback regulations and win approvals from the Ministry of Finance and the executive branch.
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