The Isolated Offering, Vol 10, Issue 2
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The Isolated Offering
A Newsletter of The Lebrecht Group, APLC
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| February 17, 2010 |
Volume 10, Number 2
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| In This Issue
UPDATE: Issuer Purchases of Their Own Common Stock in the Open Market
Smaller Reporting Company Alliance Created to Service Needs of Smaller Reporting Companies Equity Lines Emerge as Attractive Financing Alternative for Public Companies Rule 3(a)(10) Fairness Hearings: An Overview What if One of my Service Providers is Under SEC Investigation? Planning on Going Public in Less Than Ideal Economic Times? – Consider an IFIPO
View LinkedIn Profile for Brian A. Lebrecht, Esq. Contact Us http://www.thelebrechtgroup.com 9900 Research Drive 406 W. South Jordan Parkway
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UPDATE: Issuer Purchases of Their Own Common Stock in the Open MarketIn October 2006, I wrote an article outlining the parameters under which a company can purchase its own stock in the open market. That article can be read here. On January 25, 2010, the Securities and Exchange Commission proposed amendments to Rule 10b-18. The SEC’s Proposing Release can be read here. The intent of the amendments is to update the rule responsive to modern market developments. As of the date of this article, the Proposal is open for public comment, and comments can be read here. The comment period is scheduled to end on March 1, 2010. There are four basic conditions that must be satisfied in order for an issuer to repurchase its own stock pursuant to the safe harbor of Rule 10b-18. The conditions are set forth below, each followed by the proposed update, if any. 1. One broker or dealer. Purchases must be effected from or through only one broker or dealer on any single day. If there is more than one affiliated purchaser of the issuer purchasing on a single day, they must all use the same broker or dealer. It should be noted that the “single broker or dealer” condition only applies to purchases that are “solicited” by or on behalf of an issuer. Therefore, purchases may be made by more than one broker or dealer as long as the transactions are not solicited, which is determined on a case-by-case basis. 2. Time of purchases. The purchases must not be:
Proposed Amendment. The proposed amendment to Rule 10b-18 would update the prohibition on being the opening purchase of the day to include not only the opening purchase in the consolidated trading system, but would be expanded to prohibit being the opening purchase in the principal market for the security, and in the market where the purchase is effected. With many securities now trading in more than one market, and trading via electronic orders, the Commission feels it necessary to expand its limitations. 3. Price of purchases. The purchase price paid by the company cannot exceed the highest independent bid price, or the last independent transaction price, whichever is higher, quoted at the time the purchase is effected. This is potentially the most difficult of the conditions to meet. Typically, a buyer will buy at the ask, which is in fact higher than the bid price, while a seller will sell at the bid price. A company buying its own stock cannot buy at the ask price unless that is also the last transaction price, which effectively means that the company cannot buy its own stock if the immediately preceding transaction was a sell transaction by another shareholder. The company cannot support its own stock price in this manner, which is consistent with the intention of Rule 10b-18 to prevent manipulation in the market. Proposed Amendment. Issuers want to be able to purchase at the VWAP price (volume-weighted average price). The proposed amendment to Rule 10b-18 allows issuers to purchase at the VWAP (volume-weighted average price) price if the following criteria are met: |
