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.
-
Investing
Wal-Mart's Share Repurchase Isn't All Good
Wal-Mart announced huge internal investments along with an aggressive share repurchase program that isn't as good as it initially sounds. -
Investing
The Top 6 Convertible Bond Funds for 2016
Take a look at convertible bond mutual funds that are well-positioned heading into 2016, and why investors might consider a convertible fund portfolio. -
Investing
Sinking Fund
A sinking fund is a way for companies to pay off part of their bond issue before it reaches maturity. By eliminating its debt gradually, the bond issuer is more likely to attract investors concerned ... -
Investing
Skyworks Announces $500 Million Stock Repurchase
Along with a Q1 earnings beat, Skyworks announces a newly approved stock repurchase plan. -
Insurance
The Share Buyback Report: The Financial Sector
Examine historical buyback data from the financial sector to determine which quarters and companies contributed the most to repurchase activity. -
Investing
The Issuance Procedure of High-Yield Bonds
The issuance of corporate high-yield bonds can have several advantages over equity. A closer look. -
Personal Finance
The Power of Major Credit Rating Agencies
The performance of major independent credit rating agencies is a controversial topic, particularly due to the strength of their influence. -
Investing
7 Low-Overhead ETFs for Your 401(k)
These 7 ETFs would make excellent long-term additions to your 401(k). -
Investing
Junk Bonds’ Performance After the Financial Crisis
How did higher-yielding bonds perform during and after the financial crisis of 2007-2009?