What is the 'Rule 10b-18' BREAKING DOWN 'Rule

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BREAKING DOWN 'Rule 10b-18'
Rule 10B-18 covers the manner of purchases, the time of the repurchases, the prices paid and the volume of shares repurchased. Compliance with the rule is voluntary. However, in order to fall within the safe harbor, each of the four conditions must be satisfied daily . Otherwise, repurchases will not fall under the safe harbor for that particular day.


The Four Conditions

Manner of purchase: The issuer or affiliate must purchase all shares from a single broker or deal during a single day.

Timing: An issuer with an average trading volume less than $1 million per day or a public float value below $150 million is unable to trade within the last 30 minutes of trading. Companies with higher average-trading-volume or public float value can trade up until the last 10 minutes.

Price: The issuer must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted.
Volume: The issuer can't purchase more than 25% of the average daily volume.


The SEC also specified more detailed disclosure requirements for repurchases.

In each quarterly report on Form 10-Q and in the annual report on Form 10-K, the company must provide a table showing, on a month-by-month basis: the total number of shares purchased, the average price paid per share, the total number of shares purchased under publicly announced repurchase programs, and the maximum number of shares that may be repurchased under these programs (or maximum dollar amount if the limit is stated in those terms).

Even though the rule provides safe harbor, the repurchases must be reported in compliance with the various regulations. The safe harbor is not available if the repurchases were made in an effort to evade federal securities laws.

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