SEC Loosens Restrictions on Issuer Repurchases; Insider Trading Considerations Continue to Apply

September 19, 2008

In an emergency order that became effective today, September 19, 2008, the SEC suspended the timing and volume restrictions of Rule 10b-18.  Rule 10b-18 is the rule that says that repurchases by a company will not be viewed as manipulative if they are effected in accordance with the conditions of the rule.  The SEC emergency order:

  • suspends the timing conditions of Rule 10b-18(b)(2)(i) – (iii).  These provisions typically restrict purchases that are the opening trade or that occur in the last 10 minutes (or for less actively traded companies, during the last 30 minutes) of the regular trading session.  Under the emergency order, repurchases can be made at any time during the day.
  • raises the volume condition of Rule 10b-18(b)(4).  This provision typically limits the number of shares purchased on any single day to 25% of the average daily trading volume (subject to an exception for block trades).  Average daily trading volume is calculated over the four calendar weeks preceding the week in which the purchase occurs.  Under the emergency order, the volume of permissible repurchases is now 100% of the average daily trading volume.
  • does not change the condition under Rule 10b-18(b)(1) that restricts a company to using a single brokerage firm on any given day to effect any solicited repurchases.
  • does not change the pricing conditions of Rule 10b-18(b)(3), which generally restrict purchases at a price above the last bid or transaction price.   

It is important to note that Rule 10b-18 and the SEC’s emergency order address only whether a company’s repurchases may be viewed as manipulative.  Rule 10b-18 and the SEC’s emergency order do not alleviate potential insider trading concerns.  Thus, companies should continue to assess whether they possess any material nonpublic information (that is, information that would be viewed by a reasonable investor as having significantly altered the "total mix" of information available) before they effect discretionary transactions in the open market.  For companies that are near the end of a fiscal quarter or fiscal year, it may in certain cases be possible for the companies to conclude, based on the market price of their stock and on information currently available to them regarding the fiscal period results, that they are able to engage in open market repurchases without insider trading concerns.  However, because of the difficulty in assessing the extent to which the market has anticipated a company’s financial results and the general difficulty in assessing materiality, other companies should consider whether to pre-announce results prior to effecting any discretionary repurchases, or to remain out of the market.    

A copy of the SEC’s emergency order is available at .  The order is effective as of September 19, 2008 and expires at the end of the day on Thursday, October 2, 2008, unless further extended by the SEC. 

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher’s Securities Regulation and Corporate Governance Practice Group is available to assist in addressing any questions you may have regarding these issues.

Please contact the Gibson Dunn attorney with whom you work, or any of the following:

John F. Olson (202-955-8522, [email protected]
Brian J. Lane (202-887-3646, [email protected]
Ronald O. Mueller (202-955-8671, [email protected]
James J. Moloney (949-451-4343, [email protected])
Amy L. Goodman (202-955-8653, [email protected])
K. Susan Grafton (202-887-3554, [email protected])
Michael J. Scanlon (202-887-3668 , [email protected]

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