Issuers’ growing use of buybacks has drawn fresh scrutiny from the UK Financial Conduct Authority, which has concluded a multi-firm review of bank structuring, marketing and execution with no material concerns about outcomes or unmanaged conflicts.
But an industry expert insists that the current system tilts advantages to the corporate bankers who perform the buybacks for issuers.
The FCA study covered 165 buybacks worth £40 billion executed by seven banks for FTSE 350 non-investment companies over 18 months; by comparison, FTSE 350 companies repurchased £78 billion over the same period. The FCA also notes buybacks have risen from 20% of shareholder distributions pre-COVID (2017–2019) to 42% in 2022–2024.
VWAP
The regulator distinguishes vanilla agency mandates from structured products, where fees are linked to “outperformance” versus a benchmark defined as the arithmetic average of daily VWAPs during the actual execution window. Benchmarks typically use continuous trading on the LSE and exclude auctions, reflecting Market Abuse Regulation (MAR) safe-harbour constraints. The FCA found structured buybacks represented 39% of transactions by number (45% by volume), that fee outcomes varied widely—including negative fees (rebates) in 30% of cases—and that, across four strategies, it found no statistically significant differences in average price outcomes.
Read more: The challenge of share buybacks
This comforting message is disputed by ex-Goldman Sachs veteran Michael Seigne, founder of Candor Partners, which provides consulting services on buyback execution. Speaking to Global Trading, Seigne argues that the review “does not draw the right conclusions” and leaves “the goal open to misalignment, opacity, and avoidable cost.” He welcomes the work’s scope but says the findings reveal structural weaknesses that boards and regulators should not ignore.
“When the regulator’s own findings reveal how these products tilt the playing field, it’s right to ask who really benefits from the current design and whether issuers, their boards and investors are getting the whole picture,” Seigne says.
On volatility risk transfer, Seigne notes the FCA describes banks monetising volatility by varying participation and determining the buyback’s completion within contractual bounds, discretion that drives outperformance versus the benchmark. Seigne says that “a well-designed buyback execution strategy does not need to incorporate a volatility bet.” He contrasts structured buybacks with convertibles, arguing the latter are securities with prospectuses and listing safeguards, whereas “structured buybacks lack these protections.”
Seigne’s second concern is the design of variable “outperformance” fees. Because the fee is calculated after completion as the difference between the achieved price and the contracted benchmark, he argues it “functions economically as a retroactive change to purchase price,” pointing to the Companies Act 2006 requirement that shares be fully paid at purchase.
Third, Seigne challenges benchmark construction. The FCA acknowledges that the common benchmark is the average of daily VWAPs (equal shares per day). “If the purpose is to execute a value-based buyback, the suitable product is self-evidently the one with a benchmark that uses the correct maths,” Seigne says, framing it as a suitability question when banks both design the benchmark and control the calculation window.
Seigne also highlights constraints embedded in the UK market abuse regulation (MAR) safe harbour, which exclude certain liquidity sources and can extend durations. The FCA acknowledges features of the listing rules and MAR “could weaken the efficiency of an issuer’s buyback programme” and pledges to “consider this feedback” in future reviews.
“Safe harbours are intended to protect against market-abuse liability, not to lock in long-term inefficiencies in the cost of returning capital to shareholders,” Seigne says.
Finally, Seigne points to asymmetric economics and fee caps. “A fee cap is not automatic; they must be contractually negotiated,”. He argues banks can retain upside from outperformance while their downside is limited by structure.
The FCA concludes it saw no unmanaged conflicts and that enhanced issuer education and clearer option menus—fee caps, price/volume constraints, early-termination terms—would improve outcomes. Seigne agrees education is necessary but insists it is not sufficient: boards should interrogate volatility transfer, benchmark suitability, disclosure of post-trade fee effects and asymmetric payoffs before approving structured buybacks.
