DEFINITION of 'Normal-Course Issuer Bid (NCIB)'

A normal-course issuer bid is a Canadian term for a company repurchasing its own stock from the public in order to cancel it. In a normal-course issuer bid (NCIB), a company is allowed to repurchase between 5% and 10% of its shares depending on how the transaction is conducted. The issuer repurchases the shares gradually over a period of time, such as one year. This repurchasing strategy allows the company to buy only when its stock is favorably priced.

BREAKING DOWN 'Normal-Course Issuer Bid (NCIB)'

Companies must file a Notice of Intention to Make an NCIB with the stock exchanges they are listed on and receive approval from the exchange before proceeding with the repurchase. There are limits on the number of shares the company can repurchase in a single day.

In another type of issuer bid, a company will repurchase a set number of shares from all of its shareholders at a predetermined date and price. An issuer bid where a company repurchases all of its shares in this manner is a going private transaction.

Ways a Normal-Course Issue Bid Is Used

With a normal-course issuer bid, it is possible that the company might not repurchase the full volume of shares it announced with the bid. When such a bid is in place, it does let a company take action on repurchases as it sees fit during the period outlined in the terms.

As per other types of stock repurchase campaigns, a normal-course issuer bid is a mechanic that companies might use if they believe their publicly traded stock is undervalued. By bringing more shares back in-house, it reduces the stock that is available on the market. Fewer available shares, coupled with higher demand, may lead to the stock valuation increasing.

Once the value of shares rises to a desired level, the company might sell off part of its stake in order to gain cash assets, increase liquidity, and widen its base of investors. Through a normal-course issuer bid, a company can take advantage of discounts on the stock’s latest price.

Such a repurchase of stock could also be done to give pause to certain hostile takeover attempts. If the company reduces the volume of its shares available on the market, and regains more control over its stock, it can change the concentration and makeup of stock ownership. For example, reclaiming shares could give a company controlling interest that cannot be challenged by third parties. This can be the result of making the pool of shares available on the market too small to affect shareholder votes or the makeup of its board of directors.

RELATED TERMS
  1. Share Repurchase

    A share repurchase is a program by which a company buys back ...
  2. Rule 10b-18

    Rule 10b-18 is an SEC rule that protects companies and their ...
  3. Best Bid

    Best bid is the highest quoted bid for a particular security ...
  4. Direct Repurchase

    Direct repurchase is the buying of shares in a publicly-traded ...
  5. Issuer

    An issuer is a legal entity that develops, registers and sells ...
  6. Bid Rigging

    Bid rigging is an illegal practice in which competing parties ...
Related Articles
  1. Investing

    Skyworks Announces $500 Million Stock Repurchase

    Along with a Q1 earnings beat, Skyworks announces a newly approved stock repurchase plan.
  2. Investing

    Repurchase Agreement

    A repurchase agreement is the equivalent of a short-term collateralized loan. An owner of marketable securities sells those securities to a buyer for cash. As part of the deal, the seller agrees ...
  3. Investing

    What's Your Stock's Repurchase Premium?

    Take a closer look at your favorite stock's statement of equity; you never know what you're going to find
  4. Investing

    Stock Buyback/Repurchase

    A stock buyback, or repurchase, occurs when a company buys its own shares off the market and therefore reduces the amount of stock outstanding.
  5. Investing

    Breaking Down Stock Buybacks

    Learn about stock buybacks and how they affect financial ratios and stock value.
  6. Investing

    Qualcomm's $10B Share Buyback Plan Boosts Stock

    The chipmaker likely hopes its latest stock buyback program will help it to win over frustrated investors.
  7. Insights

    Twitter Stock Falls 16.28% in Pre-Market Trading After Report Says Google, Apple Won't Bid (TWTR, AAPL)

    Three potential suitors are said to be not interested in Twitter. This leaves only Microsoft and Salesforce from among the names suggested to be interested in the company.
RELATED FAQS
  1. How do share redemptions and repurchases differ?

    Share repurchases happen when a company purchases shares back from its shareholders. Redemption is when a company requires ... Read Answer >>
  2. What do the bid and ask prices represent on a stock quote?

    The bid and ask prices are stock market terms representing the supply, or the shareholder, and demand, or investor, for a ... Read Answer >>
  3. Repo agreements versus vs. reverse repo agreements

    Learn about repurchase agreements and reverse repurchase agreements, their risks and tax implications, and where the Federal ... Read Answer >>
  4. Who Are the Key Players in the Bond Market?

    The bond market can be broken down into three main groups: issuers, underwriters and purchasers. Learn what each set of players ... Read Answer >>
  5. Under what circumstances might an issuer redeem a callable bond?

    Understand why an interest rate drop usually compels bond issuers to redeem callable bonds and re-issue them at the new, ... Read Answer >>
Trading Center