The Securities and Exchange Commission has adopted amendments to Rule 10b-18 under the Securities Exchange Act of 1934, clarifying and modifying the conditions an issuer must meet in order to avail itself of the rule's safe harbor from anti-manipulation liability while conducting a share repurchase program. The amendments also require issuers, for the first time, to disclose detailed information regarding share repurchases in a prescribed tabular format in Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K or Form 20-F. The amendments to the conditions of Rule 10b-18 become effective December 17, 2003. The new disclosure obligations commence with the first periodic report required to be filed for a period ending on or after March 15, 2004. See SEC Release 33-8335 (November 10, 2003), which is available at http://www.sec.gov/rules/final/33-8335.htm.
The primary changes to the Rule 10b-18 safe harbor conditions to obtaining the safe harbor include:
- Expansion of the timing condition to allow issuers with greater liquidity and market value to stay in the market until 10 minutes prior to the close of trading.
- Extending the safe harbor to permit repurchases during after-hours trading.
- Clarification of the scope of the safe harbor for share repurchases occurring during a merger or acquisition transaction.
- Revision of the pricing conditions to apply a uniform price limit for all issuers.
- Inclusion of block purchases in calculating compliance with the volume conditions of the rule.
Issuer share repurchase programs require careful consideration of many legal factors in addition to Rule 10b-18 and the new disclosure requirements. We have updated our client memorandum “Regulation of Stock Repurchase Programs under the Federal Securities Laws” to reflect the latest changes.