buyback
A buyback refers to when a corporation repurchases its own outstanding stock . By doing so, the number of overall shares in the market drops and the value of each individual share tends to increase. Issuing a buyback offer is not binding on any individual shareholders and merely represents the corporation's offer to purchase shares at a given price.
Buybacks are one of the primary tools a corporation can use to fend off a hostile takeover or raider attempt. By repurchasing a controlling share of the corporation, the company prevents another party from seizing control against the wishes of the board of directors .
Nonetheless, stock buybacks are controversial because they can arguably be viewed as market manipulation. As a result, a company wishing to engage in repurchasing their own shares must follow the procedures and regulations outlined in Security Exchange Commission rule 10b-18 . These procedures include registering a specific day in which the buybacks will take place and restricting the company’s ability to set the price of their buyback offer.
[Last reviewed in June of 2022 by the Wex Definitions Team ]
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