On January 26, 2010, the SEC proposed amendments to Rule 10b-18 under the Securities Exchange Act of 1934. Rule 10b-18 provides issuers with a “safe harbor” from liability for manipulation when they repurchase their common stock in the market in accordance with the Rule’s manner, timing, price and volume conditions. The proposed amendments are intended to clarify and modernize the safe harbor provisions in light of market developments since Rule 10b-18’s adoption in 1982.
The amended rules would:
- modify the timing condition to preclude Rule 10b-18 purchases as the opening purchase in the principal market for the security and in the market where the purchase is effected (in addition to the current prohibition against effecting Rule 10b-18 purchases as the opening purchase reported in the consolidated system)
- relax the price condition for purchases of actively-traded securities which are made at a volume-weighted average price (VWAP) if certain conditions are met; actively-traded securities are generally securities that have an average daily trading volume of $1 million or more and a public float of $150 million or more
- limit the disqualification provision where an issuer’s repurchase order is entered in accordance with the Rule’s four conditions but is, immediately thereafter, executed outside of the price condition solely due to flickering quotes (i.e., rapidly changing quotes that may change multiple times in a single second); in these instances, only the noncompliant purchase, rather than all of the issuer’s other Rule 10b-18 purchases for that day, would be disqualified from the safe harbor
- modify the “merger exclusion” provision to extend the time in which the safe harbor is unavailable in connection with an acquisition by a special purpose acquisition company (SPAC) until the earlier of (i) the completion of the acquisition or (ii) the completion of the vote for the transaction by shareholders of both the SPAC and the target company
Comments on the proposed rules should be received on or before March 1, 2010.