Rule 10b-6

DEFINITION of 'Rule 10b-6'

A rule set forth by the Securities and Exchange Commission (SEC) that prohibits the purchase of stock by an issuer when the stock has not completed distribution. Rule 10b-6 is designed to prevent issuers from tampering with the market by bidding for shares before they are publicly available. This rule creates an even playing field between investors, brokers, dealers, issuers and underwriters for newly issued shares.

BREAKING DOWN 'Rule 10b-6'

The rule prevents broker dealers and underwriters who may be privy to information about a new issue from investing before the general public can. The SEC provides an exception to Rule 10b-6 in Rule 10b-6a, which permits passive market-making transactions to take place.

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