Using ChatGPT:"How does asx companies do buyback? do they have a...

Using ChatGPT:"How does asx companies do buyback? do they have a broker or softwares with algorithm that calculates the number of shares on the market so as to not buyback too quickly and cause an extreme prise rise?"ChatGPT said:


ASX (Australian Securities Exchange) companies typically conduct share buybacks through a structured process that involves a few key steps. Here’s an overview of how it generally works:

1. Approval and Announcement

• Board Approval: The company’s board of directors must approve the buyback plan, including the total number of shares to be repurchased and the maximum price the company is willing to pay.
• Announcement: The company must announce the buyback to the market, outlining the details of the buyback, including its purpose, size, and duration. This is typically done through an ASX announcement.

2. Use of Brokers

• Broker Engagement: Companies usually engage a broker or multiple brokers to carry out the buyback on their behalf. The broker's role is to purchase the shares on the market in accordance with the company’s instructions.
• Execution: The broker uses market orders to buy the shares, ensuring compliance with regulations that prevent market manipulation, such as not purchasing shares at a price above the last traded price.

3. Price Control and Volume Restrictions

• Volume Limits: There are regulatory limits on how much of the company’s shares can be bought back in a single day. For example, under the Corporations Act 2001, companies are generally limited to buying back a maximum of 10% of their shares in a 12-month period without requiring shareholder approval.
• Price Management: The broker carefully times the purchases to avoid significant price movements. This is often done by spreading out the purchases over time, rather than buying a large block of shares all at once.

4. Use of Algorithms

• Algorithmic Trading: Some companies may use algorithmic trading systems, which are programmed to execute buybacks in a way that minimises market impact. These algorithms can monitor trading volumes, liquidity, and price movements in real-time to optimise the timing and size of share purchases.
• Avoiding Price Spikes: The algorithms are designed to avoid creating excessive demand that could drive the share price up too quickly. This is important because the goal of a buyback is to return value to shareholders, not to artificially inflate the stock price.

5. Reporting and Compliance

• Daily Reporting: The company must report the details of the shares bought back to the ASX on a daily basis. This includes the number of shares purchased and the price paid.
• Final Announcement: At the end of the buyback period, the company will usually issue a final announcement summarising the total number of shares repurchased and the total amount spent.

6. Cancellation of Shares

• Share Cancellation: Once repurchased, the shares are typically cancelled, reducing the total number of shares on issue, which can increase the value of the remaining shares.

7. Legal and Regulatory Compliance

• Regulatory Oversight: The entire process is subject to strict regulatory oversight by bodies like the Australian Securities and Investments Commission (ASIC) and the ASX itself. The company must comply with the ASX Listing Rules, the Corporations Act, and any other relevant regulations.

This combination of broker involvement, algorithmic trading, and strict regulatory controls helps ASX companies conduct share buybacks in a way that is efficient and avoids causing undue volatility in the market.