Share buybacks: A valuable tool for Italian listed companies

Introduction

The repurchase of a company’s own shares (so called, share buyback) is a transaction in which a company acquires its own share capital, either directly or through its subsidiaries. 

Although the own shares repurchased under a share buyback can serve a multitude of purposes, these transactions are increasingly regarded as a strategic tool for capital structure optimization and indirect distribution of value to shareholders.  

Considering their impact on share price and capital structure of listed companies, Italian and European laws have established a system of safeguards to protect investors, preserve the integrity of share capital and prevent the risks of illegal insider trading and market manipulation.

This Whitepaper describes the main corporate and securities law requirements that Italian companies with shares listed on the Euronext Milan should consider before carrying out a share buyback.  

Share buybacks regulatory framework 

The share buybacks carried out by Italian issuers are governed by both Italian and European laws, each of which is aimed at safeguarding different interests. 

Italian law provisions, which are mandatory for Italian issuers, (set forth in the Italian Civil Code and in Legislative Decree No. 58 of 1998 (the ‘Italian Financial Act') and its implementing regulations), are designed to ensure, on one hand, the integrity of the share capital, and, on the other hand, the equal treatment of shareholders and adequate disclosure to the market. 

At the same time, European laws governing the mere execution of share buybacks (contained in Articles 5 and 13 of Regulation (EU) No. 596/2014 (“MAR”) and Commission Delegated Regulation (EU) 2016/1052 (the “Delegated Regulation”)) are not mandatorily applicable to Italian issuers and are aimed at granting a “safe-harbour” regime from market abuses to the share buyback carried out in compliance with such rules.

The Italian regulatory framework

Under Italian law, share buybacks are subject to the following main corporate and securities law requirements:

• Shareholders authorization: in accordance with the Italian Civil Code, share buybacks must be authorized in advance by a shareholders’ meeting of the company following a reasoned and detailed proposal of the board of directors which is publicly made available at least 21 days before the date set for the shareholders’ meeting.  
• Cap on purchased shares: pursuant to the Italian Civil Code, an Italian issuer cannot acquire shares representing more than 20% of its share capital.  For this purpose, any shares held by controlled subsidiaries are counted in the 20% limit.
• Financial resources and reserves: the Italian Civil Code allows share buybacks only if the company has distributable profits or available reserves sufficient to fully cover the purchase price of the shares. Moreover, an amount equal to the funds used for the buyback must be reserved in its equity capital as a special non-distributable reserve. This is to ensure that the capital cannot be indirectly reduced by the repurchase without proper accounting segregation.
• Rights of treasury shares: under the Italian Civil Code, any shares acquired in the context of the share buyback (so called, treasury shares) are neutralized (sterilizzate) with respect to corporate rights, they carry no voting rights and no rights to dividends for as long as they are held by the company.
• Equal Treatment and means of acquisition: pursuant to Article 132 of Legislative Decree No. 58 of 24 February 1998 (the “Italian Consolidated Financial Act” or “TUF”), any share buyback by a listed company must respect the principle of equal treatment of shareholders. This means all shareholders should have an equal opportunity to participate in the transaction on equivalent terms. In order to implement this proviorders; (cle 144-bis of Resolution No. 11971 of 14 May 1999, as subsequently amended (the “Issuers’ Regulation”) requires that a share buyback can be carried out, inter alia, through one of the following means: (i) a public tender or exchange offer addressed to all shareholders without distinction; (ii) purchases executed on the trading venue market, in such a manner as to exclude any direct matching of buy and sell orders; (iii) transactions in derivative instruments traded on regulated markets, provided that the underlying shares are physically delivered; and (iv) the allotment to all shareholders of a put option proportional to their shareholding.

The use of multiple methods is permitted, provided that each method is expressly authorized in the shareholders’ resolution and implemented in accordance with the procedural requirements established by Consob.

The EU regulatory framework

As stated above, share buybacks of own shares may fall within the rules on prohibition against market manipulation, illegal insider trading and unlawful disclosure of inside information. European laws governing share buybacks set forth into MAR provide two types of defences to govern market abuses, that is the “safe harbour” regime and the “Accepted Market Practices”.

• Safe harbour regime: MAR Article 5 provides a so-called “safe harbour” regime that is a full exemption from all market abuse offences (i.e. informational and operational market manipulation, insider trading and unlawful disclosure of inside information) provided that the conditions set forth in this article are met. In order for a share buyback to fall within the scope of the safe harbour regime, the sole purpose of the buyback must be to reduce the issuer’s capital, to meet obligations arising from debt financial instruments that are exchangeable into equity instruments or to meet obligations arising from share option programmes or allocations of shares to employees or to members of the administrative, management or supervisory bodies of the issuer or an associate company¹.

  Share buybacks carried out outside of the safe harbour regime are not automatically deemed in breach of the market abuse regime. As MAR Recital 12 clarifies, when a share buyback falls outside the safe harbour it can be subject to a case-by-case assessment by the competent authority, which will evaluate the specific facts and circumstances under the general market abuse rules. In other words, the loss of the safe harbour regime means that the issuer must be ready to defend the share buyback against potential claims of market abuse, rather than benefiting from an upfront exemption.

• Accepted Market Practices: the second type of defence against market abuses relates to accepted market practices (“AMPs”) which apply only to certain types of operational market manipulation, known as trade-based manipulation, provided for in MAR Article 12, paragraph (1)(a) and require prior authorisation by the national supervisory authorities. Unlike the safe harbour regime, in the case of AMPs the conditions are established by the national competent authority (NCA), in this case Consob.

As regards Italy, Consob has approved one AMP that allows issuers to benefit from the AMP regime in share buybacks carried out for the purpose of sustaining market liquidity (the “AMP No. 1”)².

Procedural Steps and Disclosure Obligations of a Share Buyback Programme

Set forth below are reported the key procedural and disclosure steps required in the context of a share buyback programme, both within and outside the “safe harbour” regime³. 

Initial corporate authorisation 

Prior to the commencement of any share buybacks, the board of directors of the issuer must obtain an authorisation by its ordinary shareholders meeting. 

Such authorisation, which is valid a period of up to 18 months from the date of the shareholders’ meeting, requires the preparation of a detailed illustrative report by the board of directors of the issuer which is then made available to the public at least 21 days before date of the meeting. The report must specify the following minimum information: (i) the purpose(s) of the share buyback, (ii) the type of shares and the maximum number to be purchased, (iii) the existing number of treasury shares owned by the issuer and its subsidiaries, (iv) the duration of the authorization (which cannot exceed 18 months), (v) the minimum and maximum purchase prices of the share buyback or the criteria on the basis of which the prices referred to will be determined, (vi) the procedures through which the issuer intends to repurchase the shares, and (vii) in cases where the share buyback will reduce the share capital through the cancellation of treasury shares, an indication of the reserves that can be used to cover the cancellation of the shares.

In general, Italian issuers request authorisation to purchase their own shares for a variety of purposes, which are sometimes not mutually exclusive. By way of example, common purposes are: a) to enable a reduction in share capital, b) to provide shares for the conversion of convertible debt instruments, c) to have shares available to be subsequently provided to satisfy management incentive plans, d) to provide liquidity to the market, e) to establish a so-called “securities portfolio”, useful for any future extraordinary financial transactions, such as a share exchange, f) use excess liquidity, and g) remunerate shareholders in ways other than dividend distribution. Note that the purposes referred to in points (a), (b) and (c) are protected by MAR Article 5 and by the Delegated Regulation, while the purpose referred to in point (d) is protected in Italy by AMP No. 1.

Pre-trade disclosure

Prior to the start a share buyback, the issuer must issue a press release containing the key information relating to the share buyback programme.

In the event of a MAR Article 5 compliant share buyback, the issuer must publish information about the buyback programme in accordance with the requirements in Article 2 of the Delegated Regulation. This includes information about the purpose of the programme, the maximum pecuniary amount allocated to the programme, the maximum number of shares to be acquired and the duration of the programme.

The Italian stock exchange imposes certain additional disclosure elements in the buyback announcement. Notably, Borsa Italiana’s market rules require the issuer’s public announcement to state: (i) the specific methods through which the buybacks will be executed; (ii) whether the issuer intends to rely on the Article 5 MAR safe harbour and/or on an Accepted Market Practice; and (iii) the current number of treasury shares held by the company (expressed also as a percentage of its share capital).

Any subsequent changes to the parameters initially announced (e.g. an increase in the buyback size or an extension of the duration) are required to be promptly announced to the market.

Conditions for the trading

• Mandate to an intermediary: to minimise the market abuse risks, the issuer should delegate the task of coordinating and executing the purchases of own shares to an independent intermediary (which guarantees professionalism in the management of transactions and record keeping). In such event, the mandate between the issuer and the appointed intermediary is formalised in a written contract and disclosed in the launch press release. The intermediary provides the issuer with information on the transactions carried out only at the end of each trading session in which the transactions take place. The appointed intermediary often trades under the riskless principal model, whereby the intermediary formally acts as the counterparty of sellers on the trading venue (purchasing the financial instruments “on its own account”) and then transfers them (off-market) to the issuer. In this case, the transfer of the securities to the issuer’s account should take place at the same price as the transactions carried out on the market by the intermediary in its own name but in the interest of the issuer.
• To avoid the risk of insider trading and market manipulation and in compliance with the requirements set forth under the Delegated Act, the mandate to the intermediary should be executed at a time when the issuer has no inside information and is outside of the closed period referred to in MAR Article 19, paragraph 11 (so called, black-out period). Further, the mandate should be given with fixed parameters without further input from the issuer. By removing the issuer’s discretion during the execution phase, the programme insulates the issuer from any inference that trades were influenced by material non-public information or were timed for manipulative advantage.
• Trading conditions: to benefit from the safe harbour regime, Article 3 of the Delegated Regulation sets out the conditions for how the trading of shares shall be carried out under a buyback programme. 

Article 3 paragraph 1(a) of the Delegated Act provides important requirements that must be met in buyback transactions: 

• The buyback transactions must be carried out by the issuer on a trading venue where the shares are admitted to trading or traded.
• Orders shall not be placed during an auction phase and orders placed before the start of the auction phase cannot be modified during that phase.
• Buybacks of shares cannot be purchased at a price higher than the higher of the price of the last independent trade and the highest current independent purchase bid on the trading venue where the purchase is carried out, including when the shares are traded on different trading venues.
• Purchases cannot exceed on any trading day more than 25 % of the average daily volume of the shares on the trading venue on which the purchase is carried out. The Delegated Act sets out two alternatives for how the calculation of the average daily volume is to be made and states that this shall be based on the average daily volume traded during either of the following periods: a) the average daily volume preceding the month of the disclosure of the buy-back programme, such a fixed volume shall be referred to in the buy-back programme and apply for the duration of that programme. b) the average daily volume in the 20 trading days preceding the date of purchase, where there is no reference to such fixed volume as set out in (a) in the buy-back programme. 

• Lastly, the Delegated Regulation provides that an issuer, for the duration of the buy-back programme, must not engage in the following activities: a) sell its own shares, b) trade during a black-out period, and c) trade while delaying disclosure of inside information. However, these restrictions do not apply if the buyback programme follows “a time schedule programme”⁴ or it is managed independently by an authorised intermediary. 

  The above restrictions can be waived if the issuer is an investment firm or credit institution that has effective internal controls to prevent unlawful disclosure of inside information.

  Contrary to European legislation, Italian laws do not provide specific trading restrictions. Nevertheless, in the event of a share buyback falling outside the “safe harbour” regime it is good practice to track as much as possible the trading restrictions imposed by the Delegate Regulation.

Ongoing disclosure

Throughout the execution of the program, the issuer must periodically disclose details of the transactions. 

In the event of MAR Article 5 share buybacks, the issuer must ensure public disclosure, including disclosure to Consob and Euronext Milan, of the information on the transactions no later than by the end of the seventh trading day following the date of execution of such transactions. 

To comply with this requirement, the issuer must publish a press release with the details of the purchase on its website and store the same press release on the relevant official appointed mechanism. The same press release must also be available to the public for at least five years. The public announcement must contain information about the transactions relating to the buyback programme in an aggregated form (i.e. the aggregated volume and the weighted average price per day and per trading venue)⁵. 

For share buybacks outside the “safe harbour” regime, Italian law requires the issuer to publish the daily summary of buyback transactions on a monthly basis and only if the value of purchases of shares made during the month exceeds Euro 100,000.

Post-trade disclosure 

Although not mandatory, upon completion of the share buyback programme, the issuer should consider publishing a closing announcement no later than seven trading days after the final purchase, confirming the programme’s completion and the total number of shares acquired, and aggregate amount spent.

Purchases and sales of own shares, including rights to such shares, are subject to the duty to disclose significant shareholdings set out under Article 117-bis of the Consob Issuers’ Regulation. As such, the issuer shall have to notify Consob and the market the crossing of relevant thresholds (i.e. 3%, 5%, 10% and 15% of voting share capital). 

Risk Management and Organizational Profiles of the Issuers

To address the market abuse risks, it is advisable that issuers implement robust internal governance and control measures to ensure market integrity. 

In practice, issuers should clearly identify the specific market abuse risks that may arise from their buyback activity and take steps in advance to mitigate them through appropriate organizational decisions. Key actions include establishing internal controls, maintaining transparent disclosure practices, and considering mechanisms like delegation or predetermined trading schedules to reduce the opportunity for abusive practices.

Many of the necessary safeguards against illegal insider trading, market manipulation and unlawful disclosure of inside information can be embedded in the issuer’s internal processes and structure. Key measures include:

• Insider Information Segregation: ensuring that individuals executing the buyback trades are functionally segregated from those who possess sensitive inside information about the issuer. If complete segregation is not feasible (especially in smaller organizations), the issuer should enforce strict protocols: trading personnel should be educated about the legal prohibitions on trading while in possession of inside information, and supervisory controls must be in place to prevent any misuse of non-public information.
• Choice of execution method: deciding whether share repurchases will be executed internally by the issuer or delegated to an external intermediary. For internal execution, the issuer should impose strict documentation standards, internal oversight, and operational controls to ensure every trade is defensible and auditable after the fact. This includes keeping a detailed log of the decision process for each trade, and oversight by a compliance function or by the board. For outsourced execution, the buyback should be entrusted to a qualified financial intermediary acting independently. This way, the execution is insulated from the issuer’s day-to-day knowledge and decisions, reducing the risk of manipulative intent.
• Prudent trading protocols: adhering to conservative trading practices during the buyback programme to avoid disrupting the market: (i) limit the size of each buy order relative to the stock’s typical trading volume, so as not to unduly impact the price; (ii) avoid persistent or unilateral buying patterns (e.g., purchasing shares at the same time every day or in a continuous streak that could signal artificial support); (iii) refrain from aggressive price tactics; and (iv) not trading during particularly sensitive periods.
• Comprehensive Record-Keeping: maintaining full and auditable records of all buyback-related activities. This includes preserving trade confirmations, order execution data (times, prices, volumes), and the rationale for the timing and size of orders. All records should be retained for at least five years (in line with MAR requirements).

_{1 Notably, if an issuer initially represents that a share buyback is for a legitimate purpose but then fails to adhere to that purpose in practice, the benefit of the safe harbour regime can be retroactively withdrawn, whether or not the transactions is completed. Conversely, if shares repurchased under one legitimate purpose are ultimately reallocated to another legitimate purpose (both falling within Article 5 paragraph 2 MAR), the safe harbour protection is not lost.
2 See resolution No. 16839 of 19 March 2009.
3 The below steps do not consider the requirements for the AMP No. 1, which set forth certain specific procedures to be implemented before and during the buyback programme.
4 A time-scheduled buyback programme is a buyback programme where the dates and volume of shares to be traded during the time period of the programme are set out at the time of the public disclosure of the buy-back programme.
5 Recently enacted Regulation (EU) 2024/2809 have simplified certain buyback reporting obligations at the EU level. Under the amended rules (which became effective in late 2024), issuers are no longer required to notify all competent authorities of each trading venue where their shares are listed. Instead, reports of buyback transactions can now be submitted only to the national competent authority of the market considered the issuer’s most relevant market in terms of liquidity. Moreover, issuers are permitted to disclose buyback transactions to the public in an aggregated form (e.g. total volume and average price per day per venue), rather than on a trade-by-trade basis. The more detailed information should instead be kept by the issuer and delivered to Consob in the event of request by the authority.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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