Rule 10b - 18
What Is Rule 10b - 18?
Rule 10B-18 is a Securities and Exchange Commission (SEC) rule that is planned to reduce liability for companies (and their affiliated purchasers) when the company repurchases shares of the company's common stock. Rule 10B-18 is viewed as a safe harbor provision. A safe harbor is a legal provision to reduce or take out legal or regulatory liability in certain circumstances as long as certain conditions are met. If the company abides by the four conditions of Rule 10B-18 when it is repurchasing the shares, the SEC won't consider the transactions in violation of hostile to fraud provisions of the Securities Exchange Act of 1934.
Understanding Rule 10b - 18
Rule 10B-18 gives information about the way, timing, price, and volume of repurchases by an issuer. While compliance with the rule is voluntary, if an issuer needs to reduce or dispose of their regulatory liability, they must satisfy every one of the four conditions daily. Any other way, repurchases won't fall under the safe harbor for that day.
The SEC founded Rule 10B-18 out of 1982. It was planned to assist with making a way for a company's board of directors to approve the repurchase of a certain number of the company's shares. In 2003, the SEC amended the rule, adding extra requirements for companies. Companies must now uncover more point by point information in regards to share repurchases on extra SEC filings, including Form 10-Q, Form 10-K, and Form 20-F.
There are four conditions that must for met for a company (or its affiliates) to reduce liability while repurchasing shares of the company's stock. First, the issuer or affiliate must purchase all shares from a single broker or deal during a single day. Second, there are certain requirements for the timing of the purchase. An issuer with a average daily trading volume (ADTV) that is under $1 million every day or that has a public float value below $150 million can't trade inside the last 30 minutes of trading. Companies with higher average trading volume or public float value can trade until the last 10 minutes. Third, the issuer must repurchase at a price that doesn't surpass the highest independent bid or the last transaction price quoted. Finally, the issuer can't purchase more than 25% of the average daily volume.
As well as meeting these four requirements, companies are likewise required to unveil certain information quarterly on Form 10-Q, and every year on Form 10-K. The company must give a table appearance multi month-by-month statistics. These statistics include:
- The total number of shares purchased
- The average price paid per share
- The total number of shares purchased under publicly-reported repurchase programs
- The maximum number of shares (or maximum dollar amount) it can repurchase under these projects
Despite the fact that Rule 10B-18 gives a safe harbor to companies as long as they abide by the rule's expectations, the company must likewise report all repurchases in compliance with the different regulations. This safe harbor provision isn't accessible if the company made repurchases to dodge federal securities laws.
Features
- As well as following the conditions spread out in the rule, a company must likewise report-quarterly and every year more point by point information with respect to share repurchases on extra SEC filings, including Form 10-Q, Form 10-K, and Form 20-F, to be in compliance.
- Rule 10B-18 is viewed as a safe harbor provision; it isn't mandatory that a company follows the conditions of the rule, however to reduce their liability, companies might comply by its guidance in regards to the way, timing, price, and volume of repurchases.
- Rule 10B-18 is a Securities and Exchange Commission (SEC) rule that is planned to reduce liability for companies (and their affiliated purchasers) when the company repurchases shares of the company's common stock.
