Issuers Repurchasing Their Own Securities

Issuers may repurchase their own shares in order to fund stock purchase plans, stock option plans or to retain control of the company. These are just a few of the legitimate reasons a company may repurchase its own shares. Certain restrictions are placed upon issuers who repurchase their own shares in order to ensure that they are not trying to manipulate their share price. SEC Rule 10b-18 sets guidelines for how an issuer or an affiliate may repurchase its own shares. SEC Rule 10b-18 states:

  • For NASDAQ GMS and listed securities (reported securities) the issuer may not buy on the opening print or within 30 minutes of the close of the market.
  • For actively traded issues with ADTV of greater than $1,000,000 and a public float of at least $150,000,000 the safe harbor will begin 10 minutes prior to the close.
  • For NASDAQ Capital market securities, purchases may not be made unless there is at least one independent bid.
  • The issuer may only enter orders through one broker dealer or market maker on a given trading day.
  • For reported or Capital market issues, the issuer may purchase the greater of 25% of the ADTV for the preceding four calendar weeks or one-round lot
  • For Non NASDAQ securities the issuer is limited to the greater of one round lot or an amount that does not exceed 1/20 of 1% of the outstanding shares for the preceding five days, exclusive of securities owned by affiliates.
  • For reported securities, the issuer may not enter a bid that is higher than the best independent bid or make a purchase at a price that is higher than the last independent sale, whichever is higher.
  • For Capital market securities, the purchase price or bid price may not be higher than the lowest independent offer.
  • For Non NASDAQ OTC equities the price may not be higher than the lowest independent offer obtained after a reasonable inquiry has been made.

Within these “safe harbor” guidelines the repurchasing of securities by issuers or affiliates will not be deemed manipulative. If the repurchase of securities by an issuer would cause the number of shareholders to fall below 300 or cause the securities to be delisted from an exchange or from the NASDAQ market, the issuer must file form 13e-3 with the SEC. Should the issuer engage in subsequent transactions that would materially affect the filing, the issuer must notify the SEC within 10 days after the transactions are executed.

TAKE NOTE!

Once per week issuers will be able to make block purchases that do not count towards its purchase limit of 25% of its ADTV so long as the issuer does not make any other purchases on that day. 

STOCKHOLDERS OWNING 5% OF AN ISSUER’S EQUITY SECURITIES

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