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Review of Finance Advance Access first published online on March 13, 2007
This version published online on April 26, 2007
Review of Finance, doi:10.1093/rof/rfm006
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Copyright © The Author 2007. Published by Oxford University Press on behalf of the European Finance Association.

Repurchasing Shares on a Second Trading Line*

Dennis Y. Chung1, Dusan Isakov2 and Christophe Pérignon1

1 Simon Fraser University
2 University of Fribourg

This paper studies a unique buyback method allowing firms to reacquire their own shares on a separate trading line where only the firm is allowed to buy shares. This share repurchase method is called the Second Trading Line and has been extensively used by Swiss companies since 1997. This type of repurchase is unique for two reasons. First, unlike open market programs, the repurchasing company does not trade anonymously. Second, all transactions made by the repurchasing firm are publicly available in real time to every market participant. This is a case of instantaneous disclosure which contrasts sharply with other markets characterized by delayed or no disclosure. We document that the daily repurchase decision is statistically associated with short-term price changes and the release of firm-specific news. We also find that repurchases on the second trading line have a beneficial impact on the liquidity of repurchasing firms. Exchanges and regulators may consider the second trading line an attractive share reacquisition mechanism because of its transparency and positive liquidity effects.

JEL Classification: G14, G35

* We thank the SWX Swiss Exchange and Thomas Schaeren for providing the repurchase data and Jorge Cruz for capable research assistance. We thank an anonymous referee, Nihat Aktas, George Blazenko, Paul Brockman, Francois Derrien, Pierre-André Dumont, Thierry Foucault, Thomas Gilbert, Michael King, Michael Lemmon, William McNally, Roni Michaely, Marco Pagano (the Editor), Amir Rubin, Daniel Smith, Chris Veld, Theo Vermaelen, seminar participants at University of Basel and University of Lausanne (Brown Bag), and participants at the 2005 Northern Finance Association meeting, 2005 French Finance Association meeting, 3rd Corporate Finance Day K.U. Leuven, 9th Conference of the Swiss Society for Financial Research, and 2006 European Financial Management Association meeting for helpful comments and suggestions. We are grateful to several officers from the Swiss Tax Authorities and Swiss Takeover Board, as well as portfolio managers from major Swiss banks, for providing background information on second trading lines. We remain responsible for all errors and omissions.


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A. M. Buffa and G. Nicodano
Should Insider Trading be Prohibited when Share Repurchases are Allowed?
Review of Finance, May 6, 2008; (2008) rfn009v1.
[Abstract] [Full Text] [PDF]


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