What is the 'Rule 10b-18'

The Rule 10B-18 is a Securities and Exchange Commission (SEC) rule that provides a "safe harbor" for companies and their affiliated purchasers when the company or affiliates repurchase the company's shares of common stock. This means they will not be deemed to have violated anti-fraud provisions of the Securities Exchange Act of 1934. The repurchases must fall within the four conditions of the rule.

BREAKING DOWN 'Rule 10b-18'

Rule 10B-18 covers the manner of purchases, the time of the repurchases, the prices paid and the volume of shares repurchased. Compliance with the rule is voluntary. However, in order to fall within the safe harbor, each of the four conditions must be satisfied daily. Otherwise, repurchases will not fall under the safe harbor for that particular day.

Origin of Rule 10B-18

The Securities and Exchange Commission (SEC) instituted the rule in 1982. This allowed a company's Board of Directors to authorize the repurchase of a certain amount of shares. Subsequently, the company could purchase shares as long as it adhered to those four conditions.

In 2003, the SEC amended the rule, requiring companies to disclose more detailed information on share repurchases on forms 10Q, 10-K, and 20-F.

The Four Conditions

  • Manner of purchase: The issuer or affiliate must purchase all shares from a single broker or deal during a single day.
  • Timing: An issuer with an average trading volume less than $1 million per day or a public float value below $150 million is unable to trade within the last 30 minutes of trading. Companies with higher average-trading-volume or public float value can trade up until the last 10 minutes.
  • Price: The issuer must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted.
  • Volume: The issuer can't purchase more than 25% of the average daily volume.

The SEC also specified more detailed disclosure requirements for repurchases. In each quarterly report on Form 10-Q and in the annual report on Form 10-K, the company must provide a table showing, on a month-by-month basis: the total number of shares purchased, the average price paid per share, the total number of shares purchased under publicly announced repurchase programs, and the maximum number of shares that may be repurchased under these programs (or maximum dollar amount if the limit is stated in those terms).

Even though the rule provides safe harbor, the repurchases must be reported in compliance with the various regulations. The safe harbor is not available if the repurchases were made in an effort to evade federal securities laws.

RELATED TERMS
  1. Share Purchase Rights

    A holder of share repurchase rights has the option to repurchase ...
  2. Retail Repurchase Agreement

    A retail repurchase agreement is an alternative to traditional ...
  3. Normal-Course Issuer Bid (NCIB)

    A normal-course issuer bid is a predominantly Canadian phrase ...
  4. Small Business Job Protection Act ...

    An act of legislation that increased the minimum wage, simplified ...
  5. Rule 144A

    Rule 144A is an SEC rule modifying a two-year holding period ...
  6. SEC Form N-23c-3

    SEC Form N-23c-3 is a form filed with the SEC by closed-end investment ...
Related Articles
  1. Investing

    The impact of share repurchases

    Share repurchases can have a significant positive impact on an investor’s portfolio and are a great way to build investor wealth over time.
  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. Taxes

    How A Company Files With The SEC

    Filing with the SEC is not as complicated as you might thing -- just be meticulous about following the steps.
  4. Investing

    The Share Buyback Report: The Telecom Sector (T, VZ)

    Examine telecommunications sector share repurchase data to identify which companies and catalysts drove buyback trends between 2006 and 2015.
  5. Investing

    SEC Filings: Forms You Need To Know

    The forms companies are required to file provide a clear view of their histories and progress.
  6. 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
  7. Investing

    Execs Profiting From Record Buybacks: SEC Official

    Insiders sold some $500,000 in stock daily in the 8 days following a buyback notice, a 400% surge.
  8. Investing

    1 Reason to Buy Two Harbors Investment

    If you're looking for a high-yield stock to add to your portfolio, then you might want to consider Two Harbors Investment (NYSE: TWO), a publicly traded real estate investment trust yielding ...
  9. Insights

    Understanding the SEC

    The SEC's triple mandate of investor protection, maintenance of orderly markets and facilitation of capital formation makes it a vital player in capital markets.
  10. Investing

    SEC Approves New Rules for Broker/Advisor Conduct

    The SEC made it official this week, proposing new regulation that would lower investor confusion and protect them from conflicts of interest.
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 are the disclosure requirements for a private placement?

    Learn about the SEC rules for disclosure requirements in private placement offerings, and understand what type of information ... Read Answer >>
Trading Center