A Liquidity Program to Stabilize Equity Markets

Invited Editorial

“…6 And corporations have historically bought back their own shares, not simply because they feel the price is right from an investment prospective, but also to stabilize their share values when they believe a short-run price decrease is not justified. Schwartz [1988] and more recently Alan et al [2015] have set forth a specific procedure by which a listed company could more directly provide supplemental liquidity for its shares. The proposal calls for a company to establish a fund run by a third-party fiduciary to buy back the company's shares in a falling market and sell its shares in a rising market.…”

“…When it comes to a listed company taking a more direct role in making a market for its own shares, a primary concern is the possibility that the firm will manipulate its share price. Alan et al [2015] address this issue (along with the more general problem of gaming). They argue that the defense against manipulation (and gaming) lies in the high degree of transparency that their procedure calls for, along with requiring that all relevant parameters be pre-announced and that a third-party intermediary, such as a designated sponsor, play an important fiduciary and advisory role.…”