Small Business Securities Bulletin: Proposed Revisions to Rule 10b-18 Regarding Issuer Repurchases
A periodic bulletin keeping small businesses informed about current developments in securities law and related matters
On January 26, 2010 the SEC released proposed amendments to Rule 10b-18 under the Exchange Act. Rule 10b-18 provides a safe harbor from liability for manipulation under Sections 9(a)(2) and 10(b) of the Exchange Act when companies repurchase their own securities in accordance with the Rule's manner, timing, price and volume conditions.
Currently, companies wishing to utilize the safe harbor may not make the opening (regular way) purchase in the consolidated system, but can make the opening purchase in both the principal market for the security and in the market where the purchase is effected, as long as a purchase has been reported in the consolidated system. The amendment would extent the opening purchase prohibition to both the principal market for the security and the market in which the purchase is made.
With respect to price, Rule 10b-18 provides that a company repurchasing its own securities may not buy the security at a price that is higher that the highest independent bid or last independent transaction price, whichever is higher, quoted or reported in the consolidated system. The amendment would allow repurchases based on volume-weighted average prices, which are often priced without reference to quoted prices, providing certain conditions are met, including that the security is "actively traded" as defined in SEC Regulation M.
The proposed amendments would also provide that the safe harbor is unavailable for a special purpose acquisition company (SPAC) acquisition until completion of the required vote by the SPAC stockholders. The Rule 10b-18 proposing release is available at http://www.sec.gov/rules/proposed/2010/34-61414.pdf.
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