The SEC today issued an emergency order to temporarily ease the restrictions on the ability of issuers to repurchase their securities. This change is intended to give issuers more flexibility to buy back their securities and, thereby, help restore liquidity to the securities markets. The SEC's emergency order is effective at 12:01 a.m. EDT on September 19, 2008 and terminates at 11:59 p.m. on October 2, 2008 unless further extended by the SEC.
Rule 10b-18 adopted under the Exchange Act provides an issuer with a "safe harbor" for repurchases of the issuer's securities in accordance with the conditions of the rule. These conditions relate to the manner, timing, price and volume of the issuer's repurchases. The order temporarily suspends the timing condition and modifies the volume condition of Rule 10b-18.
In general, the emergency order temporarily suspends the requirement that a purchase must not be the opening purchase or be effected in the last 10 minutes of the regular trading session (or the last 30 minutes for a security with an "average daily trading volume," or "ADTV," of less than $1 million or a "public float value" of less than $150 million). Under the order, a purchase may be made at any time during the trading session. Today's order also modifies the volume condition so that the volume of purchases by the issuer (or any affiliated purchaser) in a single day must not exceed 100% of the ADTV for that security, easing the requirement under Rule 10b-18 that such purchases not exceed 25% of the ADTV for that security (subject to an exception for block trades). The ADTV is computed over the four calendar weeks before the week in which the Rule 10b-18 purchases are made.
The order does not modify the manner or price conditions of Rule 10b-18 which:
- require solicited purchases to be effected through only one broker or dealer on a single day; and
- require purchases to be effected at a purchase price that does not exceed the last bid price or the last transaction price.
Neither Rule 10b-18 nor today's emergency order confers immunity for liability under Rule 10b-5 where the issuer engages in the repurchases while in possession of material, non-public information, or where the purchases are part of a plan or scheme to evade the federal securities laws. Therefore, before engaging in a repurchase program, an issuer must consider whether it possesses information that a reasonable investor would consider to significantly alter the "total mix" of information publicly available. In particular, if an issuer is contemplating a purchase near the end of a fiscal quarter or year, it should consider whether to provide guidance as to its anticipated results.