A Tuesday June 28th Financial Times article entitled “Accelerated Buy-Backs Make a Comeback” indicated that companies were using excess cash to buy back their own stock. Rather than the traditional buy back process (where a broker buys back the company’s stock .. on behalf of the company), the company is accelerating the buy back. What does that mean? They are asking their broker to short the entire amount immediately, meaning the broker borrows the shares from others , sells them to the company, then later buys shares to return them to the original holder.

The accounting apparently has been in flux since 2007. The article indicated that companies often accounted for the repayment to the broker as a balance sheet adjustment and not as a potential liability marked to market.

To me, this seems like a great teaching case. Is it a derivative or not?