OPEN MARKET – 10B-18 RULE
Rule 10b-18 provides issuers with a “safe harbor” from liability under market manipulation rules when purchases are made in accordance with manner, timing, price and volume conditions. To fall within the safe harbor, the issuer’s repurchases must satisfy all four of the following conditions:
- Manner: Single broker per day
- Timing: Cannot trade on the open or during the last 10 minutes of the trading day
- Price: Cannot buy on an uptick
- Volume: Repurchases limited to 25% of the prior 4 full week ADTV, with a once per week block purchase exemption
If an “affiliated purchaser” of the issuer is also purchasing stock, this amount will be reduced from the 25% of ADTV limit allowed to the issuer.
Most issuers repurchase stock under 10b-18 while in open window periods and effect 10b5-1 purchases while in blackout.
More information on rule 10b-18 can be found here: https://www.sec.gov/divisions/marketreg/r10b18faq0504.htm
“BLACKOUT WINDOW” – 10B5-1 RULE
Issuers have the ability to repurchase stock during a blackout period provided that the issuer has entered into an agreement with a broker-dealer to purchase the stock, typically with a specified trading grid, prior to being in possession of any material, non public information. A company’s counsel typically determines when they are in a blackout period.
10b5-1 plans are used by issuers that need to retire a certain amount of shares on a quarterly basis, but are subject to company-imposed blackout periods, as the implementation of these plans allow for seamless transition from open period 10b-18 repurchases to 10b5-1 blackout repurchases.
10b5-1 plans can be amended provided that the company is not in possession of material, non public information at the time of the revision and can be cancelled at any time.
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