[Federal Register Volume 67, Number 243 (Wednesday, December 18, 2002)]
[Proposed Rules]
[Pages 77594-77617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31656]



[[Page 77593]]

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Part III





Securities and Exchange Commission





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17 CFR Parts 228, et al.



Rule 10b-18 and Purchases of Certain Equity Securities by the Issuer 
and Others; Proposed Rule

  Federal Register / Vol. 67, No. 243 / Wednesday, December 18, 2002 / 
Proposed Rules  

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 228, 229, 240, and 274

[Release Nos. 33-8160; 34-46980; IC-25845; File No. S7-50-02]
RIN 3235-AH37


Rule 10b-18 and Purchases of Certain Equity Securities by the 
Issuer and Others

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (Commission) is 
proposing amendments to its rule that 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 simplify and update the safe harbor provisions in light of 
market developments since the rule's adoption. To enhance the 
transparency of issuer repurchases, the Commission also is proposing 
amendments to a number of regulations and forms that would require 
disclosure of all issuer repurchases (open market and private 
transactions), regardless of whether the repurchases are effected in 
accordance with the safe harbor rule.

DATES: Comments must be received on or before February 18, 2003.

ADDRESSES: Persons wishing to submit written comments should send three 
copies to Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Comments 
also may be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. S7-
50-02. Comments submitted by e-mail should include this file number in 
the subject line. Comment letters received will be available for public 
inspection and copying in the Commission's Public Reference Room, 450 
Fifth Street, NW., Washington, DC 20549. Electronically submitted 
comment letters will be posted on the Commission's Internet web site 
(http://www.sec.gov). To help us process your comments more 
efficiently, comments should be sent by one method only. The Commission 
does not edit personal, identifying information, such as names or e-
mail addresses, from electronic submissions. Submit only the 
information you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: James Brigagliano, Assistant Director, 
Joan Collopy, Special Counsel, or Elizabeth Sandoe, Special Counsel, 
Office of Risk Management and Control, Division of Market Regulation, 
at (202) 942-0772, or, with respect to the proposed disclosure 
amendments, David Lee, Special Counsel, Office of Chief Counsel, 
Division of Corporation Finance, at (202) 942-2900, or, John Faust, 
Attorney Adviser, Office of Disclosure Regulation, Division of 
Investment Management, at (202) 942-0721, at the Securities Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is requesting public comment 
on proposed amendments to Rule 10b-18 (the safe harbor rule for issuer 
repurchases) [17 CFR 240.10b-18] under the Securities Exchange Act of 
1934 (Exchange Act). The Commission also is requesting comment on 
proposed disclosure amendments to Regulations S-K and S-B [17 CFR 
229.703 and 228.703] under the Exchange Act, Exchange Act Forms 10-Q 
[17 CFR 249.308a], 10-QSB [17 CFR 249.308b], 10-K [17 CFR 249.310], 10-
KSB [17 CFR 310b], 20-F [17 CFR 249.220f], and proposed Form N-CSR 
under the Exchange Act and the Investment Company Act of 1940 
(Investment Company Act) [17 CFR 249.331 and 274.128].

I. Introduction

    Issuers repurchase their securities for many legitimate business 
reasons.\1\ For example, issuers may repurchase their stock in order to 
have shares available for dividend reinvestment, stock option and 
employee stock ownership plans, or to reduce the outstanding capital 
stock following the cash sale of operating divisions or subsidiaries. 
Issuers may believe that a repurchase program is preferable to paying 
dividends as a way of returning capital to shareholders. Issuer 
repurchases also provide liquidity in the marketplace, which benefits 
all shareholders.
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    \1\ Securities Exchange Act Release No. 19244 (Nov. 17, 1982), 
47 FR 53333, 53334 (Nov. 26, 1982) (1982 Adopting Release). See also 
Clifford P. Stephens and Michael S. Weisbach, ``Actual Share 
Reacquisitions in Open-Market Repurchase Programs,'' Journal of 
Finance, February 1998 (observing that firms increase their 
repurchasing depending on the degree of perceived undervaluation of 
its stock and on expected cash flow).
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    At the same time, an issuer has a strong interest in the market 
performance of its securities. Among other things, its securities may 
be the consideration in an acquisition, or serve as collateral for 
financing. The market price also determines the price of offerings of 
additional securities. Therefore, at various times, the issuer may have 
an incentive to manipulate the price of its securities. One way to 
positively affect the price is to purchase the securities in the open 
market. Because repurchases of its securities could affect the market 
price of an issuer's stock, this may expose the issuer to claims that 
the repurchases were made in a manipulative manner even when they were 
done in a manner not intended to move market prices.
    Rule 10b-18 addresses this problem. In 1982, the Commission adopted 
Rule 10b-18,\2\ which provides issuers \3\ with a safe harbor from 
liability for manipulation under Sections 9(a)(2) and 10(b) of the 
Exchange Act, and Rule 10b-5 under the Exchange Act, when they 
repurchase their common stock in the market in accordance with the 
rule's manner, timing, price, and volume conditions.\4\ Rule 10b-18's 
safe harbor conditions are designed to minimize the market impact of 
the issuer's repurchases, thereby allowing the market to establish a 
security's price based on independent market forces without undue 
influence by the issuer.\5\
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    \2\ 1982 Adopting Release, supra note 1. Since 1967, the 
Commission has considered on several occasions the issue of whether 
to regulate an issuer's market repurchases of its own securities. 
The Commission first proposed Rule 10b-10 to govern issuer 
repurchases in connection with proposed legislation that became the 
Williams Act Amendments of 1968. Pub. L. No. 90-439, 82 Stat. 454 
(July 29, 1968), reprinted in Hearings on S. 510 before Senate 
Committee on Banking and Currency, 90th Cong., 1st Sess. 214-216 
(1967). The Commission then published for public comment proposed 
Rule 13e-2 in 1970, 1973, and 1980. Rule 13e-2, which was later 
withdrawn with the adoption of Rule 10b-18, would have been a 
prescriptive rule with mandatory disclosure requirements, 
substantive purchasing limitations, and general anti-fraud 
liability. Securities Exchange Act Release Nos. 8930 (July 13, 
1970), 35 FR 11410 (July 16, 1970); 10539 (Dec. 6, 1973), 38 FR 
34341 (Dec. 13, 1973); and 17222 (Oct. 17, 1980), 45 FR 70890 (Oct. 
27, 1980) (1980 Proposing Release).
    \3\ The safe harbor is also available for ``affiliated 
purchasers'' of the issuer. In this Release, the term ``issuer'' 
includes affiliated purchasers.
    \4\ In other words, an issuer will not be deemed to have 
violated Section 9(a)(2) of the Exchange Act or Rule 10b-5 under the 
Exchange Act, solely by reason of the timing, price, volume, or 
manner of its repurchases, if the repurchases are made within the 
limitations of the rule. However, some repurchase activity that 
meets the safe harbor conditions may still violate the anti-fraud 
provisions of the Exchange Act. For example, as the Commission noted 
in 1982 when adopting Rule 10b-18, ``Rule 10b-18 confers no immunity 
from possible Rule 10b-5 liability where the issuer engages in 
repurchases while in possession of favorable, material nonpublic 
information concerning its securities.'' 1982 Adopting Release, 
supra note 1, at 47 FR 53333.
    \5\ Id.
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    Although the safe harbor conditions are intended to offer issuers 
guidance

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when repurchasing their securities in the open market, Rule 10b-18 is 
not the exclusive means of making non-manipulative issuer repurchases. 
As the Rule states, there is no presumption that purchases outside of 
the safe harbor violate Sections 9(a)(2) or 10(b) of the Exchange Act 
or Rule 10b-5 under the Exchange Act.\6\ Given the widely varying 
characteristics in the market for the stock of different issuers, it is 
possible for issuer repurchases to be made outside of the safe harbor 
conditions and not be manipulative. Nevertheless, we understand that 
issuers generally are reluctant to undertake any repurchases without 
the certainty that their repurchases come within the Rule's safe 
harbor.
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    \6\ See 17 CFR 240.10b-18(d). Moreover, the safe harbor is not 
intended to define the appropriate limits to be observed by those 
persons not covered by the safe harbor nor the appropriate limits to 
be observed when purchasing securities other than common stock.
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    Based on our experience with the operation of Rule 10b-18 and to 
reflect market developments since the Rule's adoption, we propose to 
revise Rule 10b-18 as described below. Our proposals would allow 
issuers whose securities are less susceptible to manipulation to stay 
in the market longer and to repurchase a greater number of shares 
during periods of severe market decline. At the same time, our 
proposals to modify the volume and price provisions are intended to 
maintain reasonable limits on the safe harbor while furthering the 
objectives of the Rule. Moreover, the proposed amendments to 
Regulations S-K and S-B, Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F, and 
proposed Form N-CSR seek to enhance the transparency of issuer 
repurchases.\7\ Our proposals also are intended to continue to allow 
issuer repurchases (under conditions that are unlikely to create 
manipulative effects on the issuer's security's price or market 
activity) without imposing undue restrictions on the operation of 
issuer repurchases or undermining the economic benefit such purchases 
provide investors, issuers, and the marketplace.
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    \7\ Regulations S-K and S-B set forth the standard filing 
instructions for forms under the Securities Act and the Exchange 
Act. Forms 10-K (KSB) and 20-F are filed by issuers (small business 
issuers) and foreign private issuers respectively to satisfy annual 
reporting obligations and Form 10-Q (QSB) is filed by issuers (small 
business issuers) to satisfy quarterly reporting obligations. 
Proposed Form N-CSR would be used by registered management 
investment companies to file certified shareholder reports with the 
Commission under the Sarbanes-Oxley Act of 2002. See Investment 
Company Act Release No. 25723 (August 30, 2002) [67 FR 57298 
(September 9, 2002)]; Sarbanes-Oxley Act of 2002, Pub. L. No. 107-
204, 116 Stat. 745 (2002).
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II. Overview of Current Rule 10b-18

A. Scope of the Rule

    Rule 10b-18 applies to bids for and purchases of an issuer's common 
stock by or for an issuer.\8\ Purchases of any other type of security 
are not covered. Because Rule 10b-18 assumes normal market conditions, 
the definition of the term ``Rule 10b-18 purchase'' excludes issuer 
bids and purchases made during certain corporate events, for example, 
mergers, tender offers, and distributions that involve the issuer.\9\ 
The safe harbor also does not confer absolute protection from all 
liability for purchases (e.g., purchases that are part of a plan or 
scheme to evade the federal securities laws)--even if made in technical 
compliance with the Rule.\10\ Rather, the safe harbor provides only 
that certain, specific provisions of the securities laws will not be 
considered to have been violated solely by reason of the manner, 
timing, price, or volume of such repurchases, provided the repurchases 
are made within the limitations of the Rule.
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    \8\ 17 CFR 240.10b-18(a)(3).
    \9\ 17 CFR 240.10b-18(a)(3)(i)-(vii). Because these transactions 
involve valuation periods for the issuer's security, they also 
present a greater incentive for the issuer to manipulate its stock 
price. Moreover, most of these non-covered transactions are 
regulated under other rules (e.g., Exchange Act Rules 13e-1 and 13e-
4 concerning tender offers, and Rule 102 of Regulation M regarding 
purchases during a distribution of the issuer's stock).
    \10\ See note 4, supra.
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B. Conditions of the Rule

    Rule 10b-18 provides a safe harbor for purchases on a given day. To 
come within the safe harbor for that day, an issuer must satisfy the 
Rule's manner, timing, price, and volume conditions when purchasing its 
own common stock in the market.\11\ Failure to meet any one of the four 
conditions will disqualify the issuer's purchases from the safe harbor 
for that day.
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    \11\ 17 CFR 240.10b-18(b)(1)-(4).
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1. Manner of Purchase Condition
    The manner of purchase condition requires an issuer to use a single 
broker or dealer per day to bid for or purchase its common stock. This 
requirement is intended to avoid the appearance of widespread trading 
in a security that could result if the issuer uses many brokers or 
dealers to repurchase its stock.\12\ The ``single broker or dealer'' 
condition, however, applies only to Rule 10b-18 purchases that are 
``solicited'' by or on behalf of the issuer. Accordingly, the issuer 
may purchase shares from more than one broker-dealer if the issuer does 
not solicit the transactions. An issuer must evaluate whether a 
transaction is ``solicited'' by or on behalf of an issuer, depending on 
the facts and circumstances of each case.\13\
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    \12\ 1980 Proposing Release, supra note 2, 45 FR at 70891.
    \13\ Although Rule 10b-18 does not define ``solicitation,'' we 
would not consider the issuer's disclosure and announcement of a 
repurchase program alone as necessarily causing a subsequent 
purchase to be deemed ``solicited'' by or on behalf on an issuer. 
See 1982 Adopting Release, supra note 1, 47 FR at 53337.
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    Moreover, where an issuer engages a single coordinating broker-
dealer to make its Rule 10b-18 purchases, the broker-dealer can make 
(consistent with the single broker or dealer condition) appropriate and 
customary arrangements with other broker-dealers, including exchange 
specialists and ``two-dollar'' brokers on exchange floors, to execute 
repurchases.\14\
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    \14\ See 1980 Proposing Release, supra note 2, 45 FR at 70898.
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2. Timing Condition
    The timing condition restricts the periods during which the issuer 
may bid for or purchase its common stock. This condition excludes from 
the safe harbor purchases at the opening and during the last half hour 
of trading because market activity at such times is considered to be a 
significant indicator of the direction of trading, the strength of 
demand, and the current market value of the security.\15\ Therefore, 
where there is no independent opening transaction on a given trading 
day, the issuer is precluded from making purchases under the safe 
harbor for that day.
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    \15\ 17 CFR 240.10b-18(b)(2). The prohibition of Rule 10b-18 
bids and purchases near the close of trading is to prevent the 
issuer from creating or sustaining a high bid or transaction price 
at or near the close of trading.
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3. Price Condition
    The price condition specifies the highest price an issuer may bid 
or pay for its common stock.\16\ Rule 10b-18's current price 
limitations vary depending on whether the security is a reported, 
exchange-traded, Nasdaq, or other security, and whether the bid or 
purchase is effected on an exchange.\17\ The price condition is 
intended to prevent the issuer from leading the market for the security 
through its repurchases by limiting the issuer to bidding for or buying 
its security at a price that is no higher than the highest independent 
published bid or last independent transaction price. As such, the price 
condition uses an independent reference price that has not been set or

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influenced by the issuer but, instead, is based on independent market 
forces.
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    \16\ 17 CFR 240.10b-18(b)(3)
    \17\ Id.
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4. Volume Condition
    The volume condition limits the amount of securities an issuer may 
repurchase in the market in a single day. The volume condition is 
designed to prevent an issuer from dominating the market for its 
securities through substantial purchasing activity.\18\ An issuer 
dominating the market for its securities in this way can mislead 
investors about the integrity of the securities market as an 
independent pricing mechanism.\19\
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    \18\ 1980 Proposing Release, supra note 2, 45 FR 70890.
    \19\ Id. A market can be manipulated even in the absence of 
price leadership. Following the market closely with purcahses or 
bids essentially places a floor underneath the market at each 
independent purchase or bid. This may exhaust the available supply 
of securities that may be offered at that price, which ultimately 
forces others to raise their bids. See L. Loss and J. Seligman, 
Securities Regulation, 3d Edition, at 10-E-10 (1999); Kidder, 
Peabody & Co., 18 SEC 559, 570 (1945); Halsey, Stuart & Co., Inc., 
30 SEC 106, 129 (1949) (describing over-the-counter (``OTC'') 
manipulation).
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    Under the current volume condition, an issuer may effect daily 
purchases in an amount up to 25 percent of the average daily trading 
volume in its shares (the ``25% volume limitation'').\20\ However, the 
volume limitation does not include an issuer's block purchases. 
Moreover, an issuer's block purchases are not included in determining a 
security's average daily trading volume (ADTV).\21\ The Rule defines a 
``block'' as a quantity of stock that either: (i) Has a purchase price 
of $200,000 or more; or (ii) is at least 5,000 shares and has a 
purchase price of at least $50,000; or (iii) is at least 20 round lots 
of the security and totals 150 percent or more of the trading volume 
for that security or, in the event that trading volume data are 
unavailable, is at least 20 round lots of the security and totals at 
least one-tenth of one percent (.001) of the outstanding shares of the 
security, exclusive of any shares owned by any affiliate.\22\
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    \20\ This applies to reported securities, exchange-traded 
securities, and Nasdaq securities. 17 CFR 240.10b-18(b)(4). For any 
other security (e.g., OTC Bulletin Board (``OTCBB'') and Pink Sheet 
securities), volume of purchases on a single day may not exceed one 
round lot or, on that day plus the preceding five business days, 1/
20th of one percent (0.0005) of outstanding shares of the security. 
Id. Trading volume is defined generally as the average daily trading 
volume reported to the consolidated transaction reporting system or 
to the NASD for the security in the four calendar weeks preceding 
the week that the Rule 10b-18 purchase or bid is to be effected. 17 
CFR 240.10b-18(a)(11).
    \21\ 17 CFR 240.10b-18(b)(4). Although the rule's current volume 
condition does not apply to block purchases, an issuer must satisfy 
the other three conditions in order for the block purchases to come 
within the safe harbor.
    \22\ 17 CFR 240.10b-18(a)(14).
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    The definition further provides that a block does not include any 
amount a broker or dealer, acting for its own account, has accumulated 
for the purpose of selling to the issuer or affiliated purchaser, if 
the issuer knows or has reason to know that such amount was accumulated 
for such purpose. The definition also excludes any amount that a broker 
or dealer has sold short to the issuer, if the issuer knows or has 
reason to know that the sale was a short sale.\23\
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    \23\ Id.
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III. Proposed Amendments to Rule 10b-18

    In this release, we are proposing broad revisions to the safe 
harbor rule. In particular, we propose to:
    [sbull] Modify the definition of a ``Rule 10b-18 purchase'' to 
incorporate the current ``Rule 10b-18 bid'' definition and to clarify 
the scope of the safe harbor;
    [sbull] Modify the timing condition by applying an ADTV value and 
public float value test to determine when an issuer must be out of the 
market before the scheduled close of trading in order to qualify for 
the safe harbor;
    [sbull] Apply a uniform price condition that limits issuers to 
purchasing their securities at a price that is no higher than the 
highest independent bid \24\ or the last independent transaction 
price,\25\ whichever is higher, quoted or reported in the consolidated 
system;\26\
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    \24\ Proposed Rule 10b-18(a)(6) would define ``highest 
independent bid'' to mean ``the highest published bid for a regular 
way trade (other than a bid by or for the issuer or any affiliated 
purchaser of the issuer) at the time the Rule 10b-18 purchase is 
effected.''
    \25\ Proposed Rule 10b-18(a)(7) would define ``last independent 
transaction price'' as ``the price at which the last regular way 
trade (other than a trade by or for the issuer or any affiliated 
purchaser of the issuer) was reported at the time the Rule 10b-18 
purchase is effected.''
    \26\ For purposes of Rule 10b-18's timing and price conditions, 
proposed Rule 10b-18(a)(5) would define ``consolidated system'' to 
mean ``a consolidated transaction (or quotation) reporting system 
that collects and publicly disseminates on a current and continuous 
basis transaction (or quotation) information in equity securities 
pursuant to an effective transaction reporting plan (as defined in 
17 CFR 240.11Aa3-1), the rules of a national securities exchange, or 
the rules of a national securities association.''
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    [sbull] Modify the volume condition's treatment of block purchases 
by including block purchases in calculating a security's ADTV and the 
25% volume limitation;
    [sbull] Modify the volume condition by allowing issuers to purchase 
up to a daily aggregate amount of 500 shares, as an alternative to the 
25% volume limitation; and
    [sbull] Apply an alternative volume condition (applicable only in 
the trading session immediately following a market-wide trading 
suspension), which would increase the 25% volume limitation to 100%.
    In addition, we are proposing to amend Regulations S-K and S-B, and 
Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F under the Exchange Act, and 
proposed Form N-CSR under the Exchange Act and the Investment Company 
Act, to require disclosure of all issuer repurchases (open market and 
private transactions) of equity securities, regardless of whether the 
repurchases are effected in accordance with Rule 10b-18. New Item 703 
of Regulations S-K and S-B and new Item 15(e) would require issuers to 
disclose in their Forms 10-Q (10-QSB), 10-K (10-KSB), and 20-F the 
total number of shares (or units) purchased for the previous quarter, 
the average price paid per share, the identity of broker-dealer(s) used 
to effect the purchases (except in the case of Form 20-F), the number 
of shares (or units) purchased as part of a publicly announced plan or 
program, and the maximum number (or approximate dollar value) of shares 
(or units) that may yet be purchased under the plans or programs. New 
Item 6 of proposed Form N-CSR would require closed-end management 
investment companies that are registered under the Investment Company 
Act (``closed-end funds'') to provide similar disclosure.\27\
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    \27\ See Sections 4(3) and 5(a)(2) of the Investment Company Act 
[15 U.S.C. 80a-4(3) and 80a-5(a)(2)] (defining ``management 
company'' and ``closed-end company''). Section 23(c) of, and Rules 
23c-1, -2, and -3 under, the Investment Company Act also apply to 
closed-end fund repurchases of their own securities. Because the 
shares of closed-end funds frequently trade at a discount to net 
asset value (NAV), historically, closed-end funds have sometimes 
engaged in issuer repurchases in an attempt to reduce the discount.
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    We solicit comment on our approach and the specific proposals. We 
also encourage commenters to present data in support of their 
positions.

A. Amendments Concerning the Scope of the Safe Harbor

1. Eligible Securities
    Under the proposal, the safe harbor would continue to apply to bids 
for and purchases of an issuer's common stock by or for an issuer. 
Specifically, the proposal would amend the definition of a ``Rule 10b-
18 purchase'' to include any ``bid or limit order that would effect 
such purchase'' and to codify the staff's position that the safe harbor 
is available for repurchases of all common equity

[[Page 77597]]

securities (i.e., an issuer's common stock or an equivalent interest, 
including a unit of beneficial interest in a trust or limited 
partnership or a depository share).\28\ However, the Rule 10b-18 safe 
harbor would continue not to apply to any other type of security--even 
if related to the common stock (e.g., warrants, options, or security 
futures products that are physically-settled). The proposal would also 
amend the definition of a ``Rule 10b-18 purchase'' to make it clear 
that the exception for purchases effected pursuant to a merger includes 
purchases effected ``during the period from the time of public 
announcement of the merger, acquisition, or similar transaction, until 
the completion of such transaction.'' \29\ Once a merger or acquisition 
is announced, an issuer has considerable incentive to support or raise 
the price of its stock. Thus, the safe harbor should not apply to 
purchases made during this period.
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    \28\ Proposed Rule 10b-18(a)(13). Rule 10b-18 currently defines 
``Rule 10b-18 purchase'' as ``a purchase of common stock of an 
issuer by or for an issuer or any affiliated purchaser of the 
issuer.'' 17 CFR 240.10b-18(a)(3). The current rule separately 
defines ``Rule 10b-18 bid'' as a bid for securities that, if 
accepted, or a limit order that, if executed, would result in a Rule 
10b-18 purchase. 17 CFR 240.10b-18(a)(4). The definition of ``common 
equity'' for purposes of Rule 10b-18 is similar to that in Rule 405 
under the Securities Act.
    \29\ Proposed Rule 10b-18(a)(13)(iv). This would include during 
any period where the market price of a security will be a factor in 
determining the consideration to be paid pursuant to a merger, 
acquisition, or similar transaction.
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    Q. Should the safe harbor be made available to securities other 
than common equity, such as preferred stock, warrants, rights, 
convertible debt securities, options, or security futures products? If 
the safe harbor were to include such securities, what price, volume, 
and time of purchase conditions should apply? We seek specific comment 
concerning the potential for manipulative abuse that transactions in 
such securities may present.
    Q. Should the safe harbor continue to apply to less liquid, less 
transparent securities (e.g., OTCBB and Pink Sheet securities)? If so, 
should the price, volume, and time of purchase conditions be modified 
in order to minimize the risk of manipulation by an issuer making 
market repurchases in these less liquid, less transparent securities? 
If so, how? For example, should these securities be subject to a more 
restrictive volume limitation? Please provide specific examples.
    Q. Should the Rule require than an issuer have current financial 
disclosures as a prerequisite to receiving the protection of the safe 
harbor? For example, should it be available to companies that do not 
make public filings of financial information, or are not current in 
required filings?
    Q. Should the safe harbor apply to an issuer's repurchases of its 
common stock effected outside of the United States (e.g., on foreign 
exchanges)? If so, how should the safe harbor conditions apply to such 
purchases (e.g., should a security's ADTV include worldwide trading 
volume)?
    Q. Should the safe harbor only be available outside of the United 
States to foreign private issuers, or to foreign companies whose 
principal market is outside the United States? If so, are there certain 
conditions of Rule 10b-18 that should be modified or that should not 
apply at all with respect to purchases outside the United States and, 
if so, why?
    Q. Are there different conditions under Rule 10b-18 that should 
apply with respect to purchases outside the United States and, if so, 
why are those conditions more appropriate than the conditions currently 
proposed for Rule 10b-18?
    Q. Should the merger exception to the definition of a ``Rule 10b-18 
purchase'' include purchases effected after the time of the shareholder 
vote and/or the end of the valuation period? We seek specific comment 
concerning the potential for manipulative abuse that transactions 
during this period may present.
2. Purchases by or for Issuers and Affiliated Purchasers
    Under the Proposal, the safe harbor would continue to apply to Rule 
10b-18 purchases made by an ``affiliated purchaser'' of the issuer. The 
current Rule defines an affiliated purchaser of the issuer as a person 
acting, directly or indirectly, in concert \30\ with the issuer for the 
purpose of acquiring the issuer's securities, and any affiliate \31\ 
that, directly or indirectly, controls the issuer's Rule 10b-18 
purchases, or whose purchases are controlled by, or are under common 
control with, those of the issuer.\32\ Under the current Rule, the term 
``affiliated purchaser'' does not include a broker, dealer, or other 
person solely by his effecting Rule 10b-18 purchases on behalf of the 
issuer (and for its account), or an officer or director of the issuer 
solely by his participating in the decision to authorize the issuer to 
effect Rule 10b-18 purchases.
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    \30\ 17 CFR 240.10b-18(a)(2)(i). The ``acting in concert'' 
standard includes persons acting with the issuer in purchasing the 
issuer's securities, regardless of whether the purchases are made 
for the account of the issuer itself. 1980 Proposing Release, supra 
note 2, 45 FR at 70895, n. 30. The proposal would amend the language 
of the ``acting in concert'' standard to include the words 
``directly or indirectly'' in order to be consistent with the 
``acting in concert'' standard in Rule 100 of Regulation M (17 CFR 
242.100).
    \31\ ``Affiliate'' is defined to mean any person that directly 
or indirectly controls, is controlled by, or is under common control 
with, the issuer. 17 CFR 240.10b-18(a)(1).
    \32\ 17 CFR 240.10b-18(a)(2)(ii).
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    Q. Does the current definition of ``affiliated purchaser'' provide 
the proper scope or are there other persons that should be covered by 
or excluded from the safe harbor? For example, should the current 
definition of ``affiliated purchaser'' be revised to have the same 
meaning as contained in Sec.  242.100 of Regulation M under the 
Exchange Act?

B. Amendments to the Purchasing Conditions

1. Manner of Rule 10b-18 Purchases
    We are not proposing to amend the single broker or dealer 
condition. This condition would continue to require an issuer to use a 
single broker or dealer per day to bid for or purchase its common 
stock. Purchases by or on behalf of several affiliated purchasers of 
the issuer, or the issuer and at least one affiliated purchaser, would 
continue to be subject to the one broker or dealer condition (i.e., 
requiring the issuer and any of its affiliated purchasers to use the 
same broker-dealer on any single day in effecting Rule 10b-18 
purchases). The Proposal also would retain the exception for purchases 
that are not solicited by or made on behalf of the issuer (i.e., such 
purchases could continue to be made from or through several brokers or 
dealers on a single day).\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 240.10b-18(b)(1)(i). 1982 Adopting Release, supra 
note 1, 47 FR at 53337. See also discussion in Section II.B.1 and 
text accompanying note 13 supra.
---------------------------------------------------------------------------

    Q. The Commission seeks specific comment concerning whether the 
single broker or dealer condition needs to be amended in order to 
accommodate issuer repurchases effected through ATSs (i.e., which are 
registered as broker-dealers) or on electronic communication networks 
(ECNs)? If so, in what way should the condition be modified?
2. Time of Purchases
    We propose to modify Rule 10b-18's timing condition by using an 
ADTV value and public float value test to determine the time when an 
issuer must be out of the market before the scheduled close of trading 
in order to qualify for the safe harbor. Currently, an issuer's 
purchase may not be the opening transaction reported to the

[[Page 77598]]

consolidated system, nor may the issuer purchase during the last half 
hour before the scheduled close of trading in the principal market 
(including during the last half hour before the scheduled close of 
trading on the exchange on which the purchase is to be made) or the 
last half-hour before termination of the period in which last sale 
prices are reported to the consolidated system (whichever is 
applicable).\34\ These limitations apply regardless of a security's 
trading characteristics (e.g., liquidity or daily trading volume).\35\
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    \34\ Under the current version of Rule 10b-18(b)(2), ``other'' 
securities (i.e., securities that do not meet the definition of 
``reported securities'' under the rule) do not have timing 
restrictions under the safe harbor. At this time, we are not 
proposing to change this.
    \35\ 17 CFR 240.10b-18(b)(2)(i)-(iii).
---------------------------------------------------------------------------

    The proposed amendments would continue to limit an issuer from 
effecting a Rule 10b-18 purchase as the opening transaction for the 
day.\36\ However, limitations on purchases at the close would vary 
(i.e., either 10 to 30 minutes before the scheduled close of trading) 
depending on the security's ADTV value and public float value (as 
defined in 17 CFR 242.100). The timing modifications are designed to 
reflect the relative liquidity of the security and, therefore, the 
likelihood of an issuer affecting the closing price.\37\ As such, the 
proposed modifications recognize that the current Rule's last half-hour 
restriction may be unnecessarily long to prevent issuers of highly 
liquid securities from influencing market prices and volume near the 
close of trading. At the same time, the proposed modifications would 
continue to provide a clear standard whereby issuers and their 
affiliates would know when they must be out of the market in order to 
qualify for the safe harbor.\38\
---------------------------------------------------------------------------

    \36\ Specifically, proposed Rule 10b-18(b)(2) would prohibit a 
Rule 10b-18 purchase from being the first (opening) regular way 
purchase reported in the consolidated system.
    \37\ One concern is that the issuer may attempt to ``mark the 
close'' (i.e., determine the final transaction price reported in the 
market). See 1980 Proposing Release, supra note 2, 45 FR at 70899. 
The Commission has brought several marking the close cases. See, 
e.g., S.E.C. v. Schiffer, 1998 U.S. Dist. LEXIS 8579, Fed. Sec. L. 
Rep. (CCH) p. 90247 (S.D.N.Y. 1998) (issuer orchestrated over 
several months purchases effected at or shortly before the close of 
trading in order to increase the issuer's stock price); Thomas C. 
Kocherhans, Securities Exchange Act Rel. No. 36556 (Dec. 6, 1995), 
60 SEC Docket 2589; Myron S. Levin, Securities Exchange Act Rel. No. 
31124 (Sept. 1, 1992); S.E.C. v. John G. Broumas, Civil Action No. 
91-2449 (D.D.C.), Litigation Rel. No. 12999 (Sept. 27, 1991).
    \38\ See proposed Rule 10b-18(b)(2). This means that an issuer 
may not purchase in any market during the specified periods.
---------------------------------------------------------------------------

    The proposed modifications to the timing condition would work as 
follows: To qualify for the safe harbor, issuers of more liquid 
securities (i.e., those having an ADTV value of $1 million or more and 
a public float value of $150 million or more),\39\ could not bid for or 
purchase their securities during any of the following periods: (1) In 
the ten minutes before the scheduled close of the primary (regular) 
trading session in the principal market for the security, (2) the ten 
minutes before the scheduled close of the primary (regular) trading 
session in the market where the purchase is made, or (3) after the 
termination of the period in which last sale prices are reported in the 
consolidated system (i.e., after the consolidated tape stops running). 
Thus, the proposed modification would allow issuers of more actively 
traded securities, which are less susceptible to manipulation, to stay 
in the market longer.
---------------------------------------------------------------------------

    \39\ Proposed Rule 10b-18(b)(2)(ii)(A). The proposed timing 
amendment would incorporate Regulation M's standards and methods of 
calculating ADTV and public float value. Under Regulation M, issuers 
with a security that has an ADTV value of $1 million or more and a 
public float value of $150 million or more are excluded from Rule 
101 of Regulation M under its ``actively-traded securities'' 
exception. See 17 CFR 242.101(c)(1). The Commission selected $150 
million for the public float value test because it believes that the 
securities of issuers with a public float value at or above this 
threshold, and that also have an ADTV value of at least $1 million, 
have a sufficient market presence to make them less likely to be 
manipulated. See Securities Exchange Act Release No. 38067 (December 
20, 1996), 62 FR 520. Moreover, the public float value test is 
intended in part to exclude issuers from the ``actively-traded 
securities'' exception where a high trading volume level is an 
aberration. Id.
    In calculating the dollar value of ADTV, any reasonable and 
verifiable method may be used. For example, it may be derived from 
multiplying the number of shares by the price in each trade, or from 
multiplying each day's total volume of shares by the closing price 
on that day. Public float value (i.e., the aggregate market value of 
common equity securities held by non-affiliates of the issuer) is to 
be determined in the manner set forth on the front page of Form 10-
K, even if the issuer of such securities is not required to file 
Form 10-K. For reporting issuers, the public float value should be 
taken from the issuer's most recent Form 10-K or based upon more 
recent information made available by the issuer.
---------------------------------------------------------------------------

    Issuers of all other eligible securities (i.e., those having an 
ADTV value of less than $1 million or a public float value of less than 
$150 million) could not bid for or purchase their securities during any 
of the following periods: (1) The 30 minutes before the scheduled close 
of the primary (regular) trading session in the principal market for 
the security, (2) the 30 minutes before the scheduled close of the 
primary (regular) trading session in the market where the purchase is 
made, or (3) after the termination of the period in which last sale 
prices are reported in the consolidated system (i.e., after the 
consolidated tape stops running).\40\
---------------------------------------------------------------------------

    \40\ Proposed Rule 10-18(b)(2)(ii)(B) & (C).
---------------------------------------------------------------------------

    Q. Should eligibility for the modified timing limitation (i.e., 10 
minutes before the scheduled close of trading) be based on a security's 
ADTV and an issuer's public float? Do the proposed ADTV and public 
float levels need to be raised (or lowered)? Are there alternative 
tests we should consider?
    Q. Do the proposed timing limitations for issuer bids and purchases 
near the scheduled close of trading adequately protect against an 
issuer affecting the closing price?
    Q. Should the Rule's timing limitations be modified to allow 
issuers of more liquid securities (i.e., those having an ADTV value of 
$1 million or more and public float value of $150 million or more) to 
effect a Rule 10b-18 purchase as the opening (first) transaction?
3. Price of Purchases
    Rule 10b-18's current price limitations vary depending on the 
market for the security.\41\ We propose to apply a uniform price 
condition that limits issuers to purchasing their securities at a 
purchase price that does not exceed the highest independent bid or the 
last independent transaction price, whichever is higher, quoted or 
reported in the consolidated system (i.e., regardless of where the 
securities are traded).\42\ For securities that are not quoted or 
reported in the consolidated system, the proposed Rule provides that an 
issuer's Rule 10b-18 purchases must be effected at a purchase price 
that does not exceed the highest independent bid or the last 
independent transaction price, whichever is higher, displayed and 
disseminated on any national securities exchange or on any inter-dealer 
quotation system (as defined in Exchange Act Rule 15c2-11) that 
displays at least two priced quotations for the security. For all other 
securities, Rule 10b-18 purchases must be effected at a price no higher 
than the highest independent bid obtained from three dealers.
---------------------------------------------------------------------------

    \41\ 17 CFR 240.10b-18(b)(3).
    \42\ Proposed Rule 10b-18(b)(3). See also notes 24-26, supra. 
The proposed amendments would simplify and update the rule by 
removing the outdated definitions and price provisions that depend 
on whether the security is a ``reported security,'' ``exchange 
traded security,'' ``Nasdaq security,'' or ``other security'' and 
whether the bid or purchase is effected on an exchange.
---------------------------------------------------------------------------

    We are considering whether to eliminate the ``last independent 
transaction price'' alternative (i.e., and have only the ``bid test''). 
We are concerned that permitting purchases at

[[Page 77599]]

the last independent transaction price may allow issuers to create a 
floor for their security on the offer side of the market. Specifically, 
issuers could reach across the market to buy at the offer side, which 
could cause the price of their securities to move up to higher price 
levels--especially if done as block-size trades--or could allow issuers 
to purchase their stock at ``stale'' transaction prices (e.g., in a 
declining market where the bid has moved down). Such activities would 
undermine the objectives of Rule 10b-18 by allowing the issuer to 
influence the market, thereby making the market less reliable for 
investors.
    Q. We seek specific comment concerning whether the current ``last 
independent transaction price'' alternative should be eliminated.
    Q. Please provide specific examples of transactions where 
eliminating the ``last independent transaction price'' alternative 
would significantly limit an issuer's ability to purchase its 
securities within the safe harbor.
    Q. Has the conversion to decimal pricing, particularly where a one-
cent minimum price variation could result in frequent quote changes 
(so-called ``quote flickering''), made the Rule's ``bid test'' 
difficult to satisfy? Has decimal pricing similarly affected use of the 
``last independent transaction price'' alternative (e.g., if 
transaction rates substantially increase)? Please provide specific 
examples concerning the impact of decimalization with respect to the 
Rule's price condition, including specific suggestions to address these 
concerns.
    Q. Should Rule 10b-18's price condition be based on prices quoted 
or reported for the security in the ``consolidated system'' as we 
propose, or should the price condition be based solely on prices 
reported (or quoted) in the ``principal market'' for the security?
    Q. Should Rule 10b-18's price condition apply where the issuer or 
its affiliated purchaser has no control, directly or indirectly, over 
the price at which a Rule 10b-18 purchase will be effected, for 
example, automated trading systems that utilize ``passive'' 
(independently-derived) pricing, such as the volume weighted average 
price (VWAP) or the mid-point of the NBBO? Please provide specific 
examples of transactions where modifying the Rule's price condition 
would be appropriate. We also seek comment concerning the potential for 
manipulative abuse that permitting such transactions may present.
4. Riskless Principal Transactions
    Rule 10b-18 covers purchases of an issuer's common stock made by or 
for the issuer.\43\ We understand that some broker-dealers purchase 
shares through their market making desks when working an issuer order 
to repurchase shares. These shares are then sold in ``riskless 
principal'' transactions to the issuer.\44\
---------------------------------------------------------------------------

    \43\ See 17 CFR 240.10b-18(a)(3).
    \44\ A ``riskless principal'' purchase transaction is one in 
which the broker-dealer has a buyer for the shares before he 
purchases shares as principal from the seller, and contemporaneously 
resells the shares to the buyer.
---------------------------------------------------------------------------

    Riskless principal transactions raise the issue of how to apply the 
safe harbor to the two ``legs'' of the transaction: the broker-dealer's 
purchase in the market for its own account; and the issuer's purchase 
of the shares from the broker-dealer. The issuer and the broker-dealer 
(buying on behalf of the issuer), may seek to claim the protection of 
the safe harbor for both legs of the transaction.\45\ This appears to 
contemplate one transaction by which the issuer effects its purchase, 
and which will result in one reported trade.
---------------------------------------------------------------------------

    \45\ Under the NASD's trade-reporting rules, for certain 
riskless principal trades, the broker-dealer reports only one leg of 
the transaction (i.e., the first leg of the transaction when the 
broker-dealer purchases the shares in the open market, rather than 
the offsetting transaction to the buyer) to ACT. In order to qualify 
for riskless principal trade reporting, the trades must be executed 
at the ``same price'' (exclusive of a markup or markdown, commission 
equivalent, or other fee). See Securities Exchange Act Release No. 
41208 (March 24, 1999), 64 FR 15386 (March 31, 1999), NASD Notice to 
Members 99-65 (March 1999) and NASD Notice to Members 00-79 
(November 2000).
---------------------------------------------------------------------------

    Q. How should Rule 10b-18 apply to issuer purchases from a broker-
dealer engaged in a riskless principal transaction? If riskless 
principal trades should be eligible for the safe harbor, is it 
appropriate to limit the Rule's application to riskless principal 
trades where both legs are transacted at the same price and only one 
leg is reported to the market? \46\
---------------------------------------------------------------------------

    \46\ See NASD Rules 4632(d)(3)(B), 4642(d)(3)(B), and 
6620(d)(3)(B).
---------------------------------------------------------------------------

5. Volume of Purchases
    We propose to modify the volume condition's treatment of block 
purchases. Under the current volume condition, an issuer may effect 
daily purchases in an amount up to 25% of the ADTV in its shares. Block 
purchases by an issuer, however, are not subject to the 25% volume 
limitation, nor are the shares purchased by the issuer in block 
transactions included when calculating a security's ADTV. Because 
market conditions no longer appear to justify excluding block purchases 
from the volume limitation, the proposed amendments would eliminate the 
special treatment of block purchases. To qualify for the safe harbor, 
therefore, issuers would have to include block purchases in applying 
the 25% volume limitation. However, issuers would be able to include 
their block purchases in calculating the ADTV for the security, thereby 
increasing the amount of stock that some issuers would be able to 
purchase within the safe harbor.\47\
---------------------------------------------------------------------------

    \47\ Some issuers have noted that the utility of effecting 
purchases in blocks (and thereby avoiding the 25% volume limitation) 
is largely deiminished by the inability to include such block 
purchases in calculatiing a security's four weeks' trading volume. 
See, e.g., Letter regardinig Rule 10b-18: Interpretation of 
``Trading Volume'' (October 21, 1991). Issuers also have noted the 
practical difficulty and burden of recording all block purchases and 
subtracting them from the security's overall trading volume, to 
calculate trading volume under the Rule.
    We understand that the 25% volume limitation generally does not 
present a problem for the higher float issuers with large repurchase 
programs (i.e., these issuers do not have substantial need for the 
block exception). However, even with the availability of a block 
exception, the 25% volume limitation is problematic for issuers with 
lower float, because it is harder for smaller issuers to execute 
block trades.
---------------------------------------------------------------------------

    When Rule 10b-18 was adopted, block purchases were conducted less 
frequently than today. The Commission viewed the market impact of block 
purchases as being less than that of a series of smaller purchases 
that, in the aggregate, are equal in size to a block but are 
accomplished over a period of time and so could give the impression to 
the market of multiple investment decisions to buy and more likely 
affect the market price.\48\ As such, it appeared to be reasonable to 
exclude blocks from the volume limitation.
---------------------------------------------------------------------------

    \48\ See 1980 Proposing Release, supra note 2, 45 FR 17222.
---------------------------------------------------------------------------

    Since the Rule's adoption, however, the frequency of block 
purchases has significantly increased. Today, block purchases comprise 
a substantial portion of trades on the exchanges and Nasdaq.\49\ The 
size of a block purchase under Rule 10b-18 (e.g., 5,000 or more shares) 
is also substantially lower than that used by the exchanges or Nasdaq 
(e.g., 10,000 or more shares). This suggests that block purchases under 
Rule 10b-18 account for an even greater percentage of the overall 
trading in these markets.\50\ Moreover, because

[[Page 77600]]

there is no limit on the number of block purchases an issuer can make 
on a single day, the block exception essentially allows issuers to 
avoid any volume limitation simply by effecting their Rule 10b-18 
purchases in block size.\51\ Thus, the block exception may allow 
issuers to dominate the market for their securities in a way not 
originally contemplated by the safe harbor. This raises the possibility 
that investors could be misled about the integrity of the securities 
trading market as an independent pricing mechanism.\52\ As a result, 
the block exception essentially negates the volume limitation (and 
undermines its purpose) for many securities.\53\
---------------------------------------------------------------------------

    \49\ For example, block trades (which the NYSE defines as a 
trade of 10,000 shares or greater) accounted for approximately 50% 
of the total trading volume on the NYSE in 2001. See NYSE Factbook--
2001 Data, at p. 99.
    \50\ In contrast to Rule 10b-18's definition of ``block'' (which 
is defined as the purchase of: (a) a quantity of stock that has a 
purchase price of $200,000 or more; or (b) at least 5,000 shares of 
stock that has a purchase price of $50,000 or more), both the NYSE 
and the NASD define ``block'' purchases in terms of the following 
criteria: (a) the purchase of a quantity of stock that has a 
purchase price of $500,000 or more; or (b) the purchase of at least 
10,000 shares of stock with a purchase price of $200,000 or more. 
The AMEX defines a block as 10,000 or more shares. Moreover, we 
understand that the average size of a block purchase on the NYSE is 
24,735 shares. Thus, a purchase satisfying the definition of a 
``block'' under Rule 10b-18 is extremely small by current market 
standards.
    \51\ Under the current rule, an issuer may purchase up to the 
25% volume limitation, and, in addition, may purchase one or more 
blocks, as defined. See 1982 Adopting Release, supra note 1. See 
also L. Loss and J. Seligman, Securities Regulation, 3d Edition, at 
10-E-10 (1999) (noting that ``[g]iven the exception of blocks from 
the volume limitation, this [25% volume limitation] restriction can 
be illusory''). It is important to note that, under the current 
rule, the term ``block'' does not include any amount of securities 
that a broker or dealer, acting as principal, has accumulated for 
the purpose of selling to the issuer, if the issuer knows or has 
reason to know that such amount was accumulated for such purpose. 
Rule 10b-18(a)(14).
    \52\ Economic studies have shown that block trades effected in 
the normal course of trading can affect a security's price. See, 
e.g., Robert W. Holthausen, et al., ``Large-Block Transactions, the 
Speed of Response, and Temporary and Permanent Stock-price 
Effects,'' 26 Journal of Financial Economics 71-95 (1990) 
(presenting evidence of a permanent price effect that increases with 
block size, whether the block is ``buyer-initiated'' [i.e., blocks 
that trade on an uptick] or seller-initiated'' [i.e., blocks that 
trade on a downtick]); Jonathan R. Macey, et al., ``Symposium on the 
Regulation of Secondary Trading Markets: Program Trading, 
Volatility, Portfolio Insurance, and the Role of Specialists and 
Market Makers'' 74 Cornell L. Rev. 799, at 819 (July 1989) (stating 
that empirical evidence confirms that block transactions do affect 
stock prices); Robert W. Holthausen, et al., ``The Effect of Large 
Block Transactions on Security Prices: A Cross-Sectional Analysis,'' 
19 Journal of Financial Economics 237 (1987) (finding that for 
buyer-initiated transactions [i.e., blocks that trade on an uptick], 
a permanent price effect results that increases with block size).
    \53\ See, e.g., The October 1987 Market Break: A Report by the 
Division of Market Regulation, U.S. Securities and Exhange 
Commission (February 1988) (The October 1987 Market Break) at p. 
6:11 (noting that the treatment of blocks under the rule may 
effectively negate the volume restriction for many securities).
---------------------------------------------------------------------------

    Issuers also currently may attempt to take advantage of the block 
exception to facilitate corporate transactions. For example, in 
contested takeovers, bidders may purchase significant blocks of their 
securities, thus raising their share price and widening the spread 
between their offer and that of their competitors.\54\ Accordingly, we 
would propose that block size transactions be treated as any other 
purchase under the Rule.
---------------------------------------------------------------------------

    \54\ As discussed above, the proposal would also amend the 
definition of a ``Rule 10b-18 purchase'' to make it clear that the 
exclusion of purchases made ``pursuant to a merger, acquisition, or 
similar transaction involving a recapitalization'' under the current 
definition, includes purchases effected ``during the period from the 
time of public announcement of the merger * * * until the completion 
of such transaction.''
---------------------------------------------------------------------------

    The proposed amendments would continue to limit Rule 10b-18 
purchases to 25% of the ADTV for the security per day.\55\ However, in 
contrast to the Rule's current ADTV calculation (which is based on the 
average daily trading volume for the security for the four calendar 
weeks preceding the week in which the Rule 10b-18 bid or purchase is to 
be made, excluding issuer block purchases during that period), the 
proposed amendments would define ADTV as the average daily trading 
volume, including block purchases made by or on behalf of the issuer, 
reported for the security during the four calendar weeks preceding the 
week in which the Rule 10b-18 purchase is effected.\56\ Including 
issuer block-size purchases in the ADTV calculation would increase many 
issuers' volume limit. It also would substantially reduce the burden 
and potential error associated with issuers' having to subtract out 
their block-size purchases when calculating ADTV, as is required under 
the current Rule.
---------------------------------------------------------------------------

    \55\ Proposed Rule 10b-18(b)(4).
    \56\ Rule 10b-18 would continue to include only U.S. market 
trading volume data in calculating a security's ADTV.
---------------------------------------------------------------------------

    In addition, we would propose to modify the volume condition to 
allow issuers to purchase up to a daily aggregate amount of 500 shares, 
as an alternative to the 25% volume limitation. Thus, under the 
proposed amendments, an issuer's Rule 10b-18 purchases, on any single 
day, may not exceed the higher of 25 percent of the ADTV for that 
security or a daily aggregate amount of 500 shares.\57\ This would 
increase the amount that issuers of thinly traded securities could 
repurchase under the safe harbor.
---------------------------------------------------------------------------

    \57\ Proposed Rule 10b-18(b)(4).
---------------------------------------------------------------------------

    Q. Does the current four calendar-week period provide a sufficient 
length of time to measure a security's ADTV, or should an alternative 
period be used (for example, two full calendar months, or 60-day 
rolling period)?
    Q. Should we retain the current block transaction exception, but 
raise the amount of shares constituting a block (for example, use the 
NYSE's definition)?
    Q. We encourage commenters to submit data regarding what percentage 
of individual issuer repurchase trading volume over the past five years 
has been effected through block purchases. In particular, the 
Commission requests data and analysis on what effect eliminating the 
block exception would have had on such issuer's repurchasing activity 
during that period.
    Q. Is a volume limitation based on an ADTV calculation feasible 
with respect to Rule 10b-18 purchases of thinly traded securities? 
Should we raise (or lower) the volume limit for these securities? 
Should the proposed 500 shares alternative (to the 25% volume 
limitation) be increased (or decreased)? Please provide specific 
examples of where modifying the Rule's volume condition (with respect 
to these securities) would be appropriate. We also seek comment 
concerning the potential for manipulative abuse that such transactions 
may present.
    Q. Should the safe harbor be available for issuer repurchases 
involving security futures or option contracts (including the receipt 
or purchase for delivery of securities underlying such contracts)? 
Should the number of shares underlying an option or security futures 
contract (or other derivative security) entered into by an issuer count 
against an issuer's 25% daily volume limitation? What effect, if any, 
should taking delivery of common stock pursuant to a security futures 
contract or upon exercise of an option have regarding the Rule's other 
conditions (e.g., price, timing, and manner of purchase) with respect 
to the availability of the safe harbor for purchases effected in 
accordance with Rule 10b-18?

IV. After-Hours Trading

A. Applicability of the Safe Harbor During After-Hours Trading Sessions

    Since the adoption of Rule 10b-18, the opportunity for investors to 
trade securities after the markets' regular trading sessions (``after-
hours trading'') has increased. To date, the Division has interpreted 
Rule 10b-18 to be available to purchases effected during limited off-
hours trading (OHT) sessions at the primary market's closing price.\58\ 
Specifically, the Division interpreted Rule 10b-18's ``one-half hour 
before the scheduled close of trading'' language to

[[Page 77601]]

refer to an exchange's primary trading session (i.e., 9:30-4 p.m. price 
discovery auction session), rather than OHT trading sessions.\59\ As 
such, Rule 10b-18 safe harbor would be available for Rule 10b-18 
purchases effected during these limited OHT sessions (e.g., the NYSE's 
Crossing Session I), provided that all the Rule's conditions are 
satisfied.\60\
---------------------------------------------------------------------------

    \58\ For example, both the New York Stock Exchange, Inc. (NYSE) 
and the American Stock Exchange provide crossing sessions in which 
matching buy and sell orders can be executed at 5:00 p.m. at the 
exchanges' 4:00 p.m. closing prices.
    \59\ See Letter Regarding Operation of Off-Hours Trading (OHT) 
Sessions by the NYSE (June 13, 1991); Letter Regarding Operation of 
OHT Session by the AMEX (August 5, 1991); and Letter Regarding AMEX 
After-Hours Trading Facility (May 6, 1997) (the ``OHT Session 
letters''.
    \60\ Id.
---------------------------------------------------------------------------

    We are not proposing any amendments to Rule 10b-18 to address 
after-hours trading. Comment is requested about the need for rulemaking 
or guidance in this area.
    Q. Should the Rule 10b-18 safe harbor be available to issuer 
purchases effected in after-hours trading sessions?
    Q. Should the safe harbor be available only if the after-hours 
trades are reported on a ``real-time'' basis, e.g., to the consolidated 
tape?
    Q. Do issuer repurchases made in after-hours trading sessions 
present a greater potential for manipulation?
    Q. Should the safe harbor conditions be applied separately to each 
session or should they carry over from the regular trading session for 
that day? Should any of the present safe harbor conditions be further 
modified (e.g., should the volume in an issuer's security in an after-
hours trading session be included in calculating the issuer's volume 
limitation for that day)?

B. Guzman & Company Petition for Rulemaking

    On May 21, 1999, Guzman & Company, a registered broker-dealer, 
filed a petition for rulemaking, requesting that the Commission amend 
Rule 10b-18 to apply to after-hours trading.\61\ Specifically, Guzman & 
Company seeks the amendment of Rule 10b-18's timing and pricing 
conditions to permit an issuer or an affiliated purchaser of an issuer 
to effect purchases or make bids during ``after-hours'' trading 
sessions subject to the present conditions but with the additional 
proviso that trades and bids must be at prices lower than the last 
reported price on the primary exchange or market on which the security 
of the issuer is traded. The petition also seeks an amendment of the 
single broker or dealer condition to permit an issuer or an affiliated 
purchaser of an issuer to utilize a different broker or dealer for 
``after-hours'' Rule 10b-18 purchases or bids than is used for Rule 
10b-18 purchases or bids during normal trading hours.
---------------------------------------------------------------------------

    \61\ Guzman & Company's Petition for Rule-Making (filed on May 
21, 1999) is publicly available in File No. 4-424 in the 
Commission's Public Reference Room.
---------------------------------------------------------------------------

    Q. We seek specific comment concerning Guzman & Company's 
proposals.

V. Rule 10b-18 Alternative Conditions

A. Proposed Amendment to Rule 10b-18 Alternative Conditions

    On September 23, 1999, we adopted an amendment to the safe harbor 
conditions in order to facilitate liquidity in the trading session 
following a market-wide trading suspension, or circuit breaker.\62\ 
Specifically, we modified the timing condition to include in the safe 
harbor issuer purchases made at the reopening and during the last half-
hour prior to the scheduled close of trading or at the next day's 
opening if a market-wide trading suspension was in effect at the 
scheduled close of trading.\63\ During such trading session, all other 
Rule 10b-18 conditions apply to issuer purchases.
---------------------------------------------------------------------------

    \62\ Securities Exchange Act Release No. 41905 (September 23, 
1999), 64 FR 52428 (September 29, 1999).
    \63\ 17 CFR 240.10b-18(c).
---------------------------------------------------------------------------

    In view of the extreme market volatility that would trigger a 
circuit breaker and the desirability of facilitating liquidity in that 
context, we propose to further modify the safe harbor alternative 
conditions (which are applicable only in the trading session 
immediately after a market-wide trading suspension) by increasing the 
current 25% volume limitation to 100% of the ADTV for that 
security.\64\ The proposed volume modification would permit issuers to 
purchase more securities within the safe harbor during these rare 
periods of severe market decline.\65\
---------------------------------------------------------------------------

    \64\ Proposed Rule 10b-18(c)(5). See, e.g., Comment letters, on 
the 1999 amendment to Rule 10b-18, from Morgan Stanley & Co. 
(December 10, 1998) (urging us to eliminate the current volume 
limitation during the period following a market-wide trading 
suspension condition or, as an alternative, increase the current 25% 
volume limitation), and Intel Corporation (December 1, 1998) 
(suggesting we amend the present volume condition to permit 
additional issuer repurchases, based on either a higher or scaled 
percentage, following a severe market break). Both letters are 
available for public inspection in the Commission's Public Reference 
Room, Public File No. S7-27-98. See also text accompanying note 79, 
infra, regarding the Commission's emergency orders where the volume 
limitation was temporarily increased from 25% to 100% of a 
security's ADTV following the events of September 11, 2001.
    \65\ See generally The October 1987 Market Break, supra note 53, 
at pp. 6:1-6:15 (noting the increase in trading volume and the 
impact of issuer repurchases following the October 1987 market 
break).
---------------------------------------------------------------------------

    Q. Following a market-wide trading suspension, could sufficient 
liquidity be facilitated by increasing the volume limitation to 
something less than 100%? If so, what level is appropriate? Should the 
level be greater than 100%?
    Q. Should Rule 10b-18's ``alternative conditions'' be further 
modified during periods of severe market decline? For example, do Rule 
10b-18's pricing or manner conditions need to be modified during such 
periods or does the definition ``market-wide trading suspension'' need 
to be expanded to cover additional situations? If so, please provide 
specific suggestions.

B. NYSE Petition for Rulemaking

    On June 13, 2001, the NYSE filed a petition for rulemaking, which 
seeks an amendment to Rule 10b-18 to make the Rule 10b-18 ``safe 
harbor'' available to an issuer for a category of ``special purchases'' 
effected by an independent trustee during a period of unusual 
volatility in the issuer's stock.\66\ Specifically, the NYSE seeks the 
amendment of Rule 10b-18 to include in the Rule's safe harbor a new 
category of ``special purchases'' that:
---------------------------------------------------------------------------

    \66\ The NYSE's Petition for Rule-Making is publicly available 
in File No. 4-446 in the Commission's Public Reference Room.
---------------------------------------------------------------------------

    (i) Are effected by a trustee that is not in any control or 
affiliate relationship with the issuer, and, once instructed by the 
issuer to conduct the ``special purchase'' program, makes all decisions 
with respect to the program independent of any influence or control by 
the issuer (``independent trustee'');
    (ii) Are effected on a day when NYSE Rule 80B is put into effect, 
or, with respect to an individual stock, the price of such stock has 
declined by $2 or more (in the case of a security whose previous 
closing price on the NYSE was under $10), the lesser of twenty percent 
or $5 (in the case of a security whose previous closing price on the 
NYSE was between $10 and $99.99), or $10 (in the case of a security 
whose previous closing price on the NYSE was $100 or more); and
    (iii) Are limited in volume to no more than a quantity of stock 
having a market value that does not exceed one-half of one percent of 
the average market value of the issuer's stock during the four calendar 
weeks preceding the week in which the ``special purchase'' is made.
    The NYSE petitions that ``special purchases'' be subject to the 
price and single broker or dealer provisions of Rule 10b-18, but that 
such purchases should be allowed to be effected for the remainder of 
the trading day. The NYSE also asks that, if a regular Rule 10b-18 
program were being conducted by an issuer on a day that a ``special

[[Page 77602]]

purchase'' is to be effected, Rule 10b-18 be amended to provide that:
    (i) The regular Rule 10b-18 program must be cancelled before the 
``special purchase'' program can begin;
    (ii) The ``single broker or dealer'' requirement applies separately 
to the regular program and the ``special purchase'' program; and
    (iii) Any securities acquired in the regular Rule 10b-18 program 
would not be included in the new volume limitation applicable to the 
``special purchase'' program.\67\
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    \67\ With respect to resales of any securities acquired pursuant 
to a Rule 10b-18 ``special purchase,'' the NYSE petitions the 
Commission to exercise its exemptive authority to provide that such 
securities are not subject to re-registration under the Securities 
Act of 1933, and are not deemed to be ``restricted securities'' in 
any way, provided that such securities have been held by the 
independent trustee for a minimum of two weeks, and are sold by the 
independent trustee in a manner free of any influence or control by 
the issuer.
---------------------------------------------------------------------------

    Q. Should Rule 10b-18's ``alternative conditions'' apply where 
there is a significant decline in the market price of an individual 
stock (i.e., in the absence of a market-wide trading suspension), as 
suggested by the NYSE in its petition? If so, what conditions should 
apply to these purchases? Please provide specific examples of where 
modifying the Rule's ``alternative conditions'' would be appropriate.
    Q. We seek specific comment concerning the NYSE's petition for 
rulemaking, including the feasibility of monitoring compliance with 
such a program (i.e., especially in cases where there is a severe 
market decline in the price of an individual stock).

VI. Disclosure

    We propose that Regulations S-K and S-B, and Forms 10-Q, 10-QSB, 
10-K, 10-KSB, 20-F, and proposed Form N-CSR be amended to require 
periodic disclosure of all issuer repurchases of shares or other units 
of any class of the issuer's equity securities that is registered by 
the issuer pursuant to Section 12 of the Exchange Act.\68\ This 
disclosure requirement would be independent of the Rule 10b-18 safe 
harbor.
---------------------------------------------------------------------------

    \68\ For purposes of Item 703 of Regulations S-K and S-B, the 
term ``equity securities'' is defined in Section 3(a)(11) of the 
Exchange Act. For purposes of Form 20-F, the term ``equity 
securities'' is defined in General Instruction F to Form 20-F.
---------------------------------------------------------------------------

    Under the proposal, an issuer would be required to disclose 
information concerning its repurchases in a new table in its Forms 10-
Q/10-QSB (new Item 2(b)), 10-K/10-KSB (new Item 5(c)), 20-F (new Item 
15(e)), and, for registered closed-end funds, proposed Form N-CSR.\69\ 
The table in Forms 10-K/10-KSB, 10-Q/10-QSB, and proposed Form N-CSR 
would include disclosure of all issuer repurchases of its Section 12 
registered equity securities (both open market and private 
transactions) for that quarter (or, in the case of closed-end funds, 
semi-annual period), including the total number of shares (or units) 
purchased (reported on a rolling-month basis), the average price paid 
per share, the identity of any broker-dealer(s) used to effect the 
purchases, the number of shares (or units) purchased as part of a 
publicly announced repurchase plan or program, and the maximum number 
(or approximate dollar value) of shares (or units) that may yet be 
purchased under the plans or programs.\70\
---------------------------------------------------------------------------

    \69\ See proposed Item 703 of Regulations S-K and S-B (17 CFR 
229.703 and 228.703), Item 2(b) to Forms 10-Q and 10-QSB, Item 5(c) 
to Forms 10-K and 10-KSB, Item 15(e) to Form 20-F, and Item 6 to 
proposed Form N-CSR.
    \70\ Id.
---------------------------------------------------------------------------

    New Item 15(e) to Form 20-F would require the same tabular 
presentation of information, with the exception of the identity of the 
broker-dealer effecting the transactions, which would not be required 
in the table included in Form 20-F. Thus, a foreign private issuer that 
has securities registered under Section 12 of the Exchange Act would be 
required to disclose on a yearly basis in its annual report on Form 20-
F its repurchases of its securities. The disclosure provided should 
relate to the issuer's securities in ordinary share form, whether the 
issuer has repurchased the shares themselves or depositary receipts 
that represent the shares. The price data and other data should be 
based on the currency used in the issuer's primary financial 
statements.
    We also propose footnote disclosure of the principal terms of 
publicly announced repurchase plans or programs, including (1) the date 
of announcement, (2) the share or dollar amount approved, (3) the 
expiration date (if any) of the plans or programs, (4) each plan or 
program that has expired during the period covered by the table, (5) 
each plan or program that the issuer has determined to terminate prior 
to expiration, and (6) each plan or program that the issuer has not 
purchased under during the period covered by the table and whether the 
issuer still intends to purchase under that plan or program.
    The table also would have to include footnotes that briefly 
disclose the nature of the transaction for purchases made other than 
pursuant to a publicly announced repurchase plan or program. These 
would include, for example, open market and privately negotiated 
purchases, issuer tender offers, purchases made by the issuer upon 
another person's exercise of outstanding put rights, and in other 
transactions through which the company purchases its Section 12 
registered equity securities.
    In the past, we had proposed requiring issuers that intended to 
repurchase more than 2% of their stock in a twelve-month period to 
disclose specified information prior to effecting any repurchases.\71\ 
Issuers also would have been required to disclose this information to 
the exchange on which the stock was listed for trading or to the NASD 
if the stock was authorized for quotation on Nasdaq.\72\ After 
receiving comment, we determined that an issuer's obligation to 
disclose information concerning repurchases of its stock should depend 
on whether the information is material.\73\ Therefore, at the time we 
adopted Rule 10b-18, we considered the relevant provisions of the 
federal securities laws and existing policies and procedures of the 
various self-regulatory organizations as generally sufficient to 
provide investors and the market with adequate information about issuer 
repurchases.
---------------------------------------------------------------------------

    \71\ Proposed Rule 13e-2(d)(1). See 1980 Proposing Release, 
supra note 2, 45 FR at 70897.
    \72\ Proposed Rule 13e-2(d)(2).
    \73\ 1982 Adopting Release, supra note 1, 47 FR at 53335.
---------------------------------------------------------------------------

    Information about how much common stock the issuer has repurchased 
may be important to investors. Studies have shown that the public 
announcement by an issuer of a repurchase program is often followed by 
a rise in the issuer's stock price.\74\ Studies have also shown that 
some issuers publicly announce repurchase programs, but do not purchase 
any shares or purchase only a small portion of the publicly disclosed 
amount.\75\ Thus, disclosure of an issuer's actual repurchases would 
inform investors whether the issuer had followed through on its 
original plan.\76\ Investors

[[Page 77603]]

also would have information regarding an issuer's repurchase activity 
in order to assess its possible impact on the issuer's stock price, 
similar to periodic disclosure of issuer earnings and dividend 
payouts.\77\ Finally, investors should also be apprised when an issuer 
repurchase plan has expired, has been terminated, and where no 
repurchase activity has occurred for some period whether the issuer 
nevertheless intends to continue the repurchase program.\78\
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    \74\ See Comment, R. and Jarrell, G., ``The Relative Signaling 
Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-
Market Share Repurchases,'' Journal of Finance 46 (1991), pp. 1243-
71; Asquith, P. and Mullins, D., ``Signaling with Dividends, Stock 
Repurchases and Equity Issues,'' Financial Management 15 (1986), pp. 
27-44; Vermaelen, T., ``Common Stock Repurchases and Market 
Signaling,'' Journal of Financial Economics 9 (1981), pp. 139-83; 
and Dann, L., ``The Effects of Common Stock Repurchase on Security 
Holder's Returns,'' Journal of Financial Economics 9 (1981), pp. 
101-138.
    \75\ If an issuer announced a repurchase program, but had no 
intention to make purchases, it may violate the anti-fraud and anti-
manipulation provisions of the federal securities laws.
    \76\ See Stephens and Weisbach, supra note 1. See also 
Ikenberry, David, et al., ``Stock Repurchases in Canada: Performance 
and Strategic Trading,'' Journal of Finance, 55 (October 2000), pp. 
2373-97 (noting that the fraction of shares actually repurchased in 
connection with Canadian stock repurchase programs is surprisingly 
low, for example, at termination of the program, roughly a quarter 
of the firms did not repurchase any shares). Under Canadian law, 
issuers must report each month the number of shares they actually 
repurchase. Id.
    \77\ See, e.g., Grullon, G. and Ikenberry, D., ``What Do We Know 
About Stock Repurchases,'' Journal of Applied Corporate Finance 13 
(2000), pp. 31, 40-41 (discussing how corporations have been 
substituting repurchases for dividends, as economic equivalent means 
of returning excess capital to shareholders). Moreover, requiring 
such disclosure would be analogous to the requirement that corporate 
insiders disclose their own transactions involving the company's 
stock. See, e.g., id., at 48 (emphasizing the need to regulate 
consistently economically equivalent practices, the authors note 
that ``[a]lthough firms repurchasing stock are not required to 
disclose any of their trades, if management makes the same decision 
on a personal account, details about the trades must be promptly 
disclosed to the SEC and then made public in short order''). See 
also Cook, Douglas et al., ``Safe Harbor or Smoke Screen? SEC 
Guidelines for Executing Open Market Repurchases,'' (Working Paper) 
(May 1999, revised April 9, 2001) (forthcoming in The Journal of 
Business) (questioning the regulatory effectiveness of safe harbors 
without mandatory disclosure).
    \78\ Disclosure to this effect would be required in the proposed 
disclosure forms.
---------------------------------------------------------------------------

    The importance of requiring disclosure of issuer repurchases was 
made more apparent when the Commission temporarily afforded emergency 
relief regarding Rule 10b-18 following the September 11, 2001 attacks 
on the World Trade Center and the Pentagon.\79\ The Commission's 
emergency action (which temporarily eased Rule's 10b-18's timing and 
volume limitations) was designed to provide for potential additional 
liquidity in order to facilitate the reopening of the U.S. equities 
markets on September 17, 2001, and the continued orderly operation of 
the markets during the weeks following. However, because Rule 10b-18 
does not require disclosure, it is difficult to assess precisely how 
much of the purchasing activity was attributable to issuer repurchases 
and how much was attributable to non-issuer trading activity. Requiring 
issuers to disclose their repurchases in their periodic reports would 
provide investors with important information regarding the company's 
purchasing activity. It also would provide the Commission with useful 
information in assessing the level and market impact of issuer 
repurchases, as well as in responding to future market emergencies.
---------------------------------------------------------------------------

    \79\ On September 14, 2001, the Commission issued an ``Emergency 
Order Pursuant to Section 12(k)(2) of the Exchange Act Taking 
Temporary Action to Respond to Market Developments.'' Securities 
Exchange Act Release No. 44791 (September 14, 2001). This Emergency 
Order temporarily modified certain Commission rules and regulations 
governing issuer stock repurchases for an initial five-day period 
beginning September 17, 2001 and ending September 21, 2001. The 
Commission extended the period for an additional five days, ending 
on September 28. Securities Exchange Act Release No. 44827 
(September 21, 2001). On September 28, the Commission used an 
exemptive authority under Section 36 of the Exchange Act to 
temporarily modify certain conditions of Rule 10b-18 for issuers 
that repurchase their own common stock during the period October 1-
12, 2001. Securities Exchange Act Release No. 44874 (September 28, 
2001).
    In the event that there is another ``market emergency'' that 
does not fit within the meaning of a ``market-wide trading 
suspension'' (as defined under the rule), as was the case with the 
events following September 11, the Commission would have the same 
emergency and exemptive authority as above (i.e., under Sections 
12(k)(2) and 36(a)(1) of the Exchange Act) to modify the safe harbor 
conditions, as it deems necessary.
---------------------------------------------------------------------------

    We also are seeking comment on whether the Commission should 
require issuers to disclose information about their repurchase activity 
on a more frequent basis (e.g., on a monthly basis or within 10 days of 
the transaction). In cases, for example, in which an issuer makes 
repurchases only at the beginning of the quarter, a shareholder would 
not have any information about the issuer's repurchases activity until 
three or four months later when the issuer's Form 10-Q is filed. Thus, 
requiring issuers to disclose on a more-timely basis might be more 
helpful to investors than requiring disclosure on a quarterly basis, as 
is currently proposed. More frequent disclosure also would allow the 
Commission to monitor more effectively the level and market impact of 
an issuer's repurchase activity.
    Q. Does the proposed disclosure requirement in new Item 703 of 
Regulation S-K and Regulation S-B) provide useful information to the 
market? Is there other information in addition to that which we are 
proposing that would be useful to include in Item 703 (e.g., the 
company's intended use for the repurchased shares or the purpose for 
making the specific purchase, the date and price of each purchase, the 
source of funds for the repurchase, the average number of shares 
purchased per day--based on the number of days on which the issuer 
purchased shares--and the specific days the repurchases were made)?
    Q. Should we require the information to be disclosed in ``tabular'' 
format as we propose?
    Q. Should there be different treatment of purchases that exceed a 
specified threshold (number of shares, dollar amount, percentage of 
shares outstanding, etc.)? For example, should trade-by-trade 
information be provided for trades over a certain size? If so, what is 
an appropriate measure to trigger the more specific information?
    Q. Should there be different treatment of small or de minimis 
repurchases? For example, if the repurchases in a quarter are below a 
specified dollar or share threshold, should issuers be permitted to 
omit the specific information provided in Item 703 and instead make 
summary disclosure of the de minimis repurchases? Similarly, if 
repurchases fall below a specified threshold, should issuers be 
permitted to aggregate the disclosure for the quarter rather than 
disclose information on a monthly basis? If so, what would be an 
appropriate threshold? Should the threshold be a fixed share or dollar 
amount or should it vary depending on the company's public float, 
average daily trading volume, or other measure?
    Q. We propose brief footnote disclosure of the general nature of 
repurchases made outside of publicly announced repurchase plans or 
programs in order to provide investors with a more complete picture 
regarding an issuer's repurchase activity. Does such disclosure serve a 
useful purpose? Should we require more detailed information with 
respect to those transactions, such as date of purchase, price, terms 
of the transaction, and relationship of the seller to the company? If 
so, what additional details should Item 703 require with respect to 
those transactions? Should we require this disclosure for all 
repurchases made outside of publicly announced plans or programs or 
only for specified categories of transactions, such as privately 
negotiated transactions? Should we require additional disclosure with 
regard to repurchases made outside of publicly announced plans or 
programs for transactions that exceed a specified threshold in 
magnitude? If so, what is an appropriate threshold?
    Q. Our proposal would only require disclosure of issuer purchases 
of equity securities of a class registered by the issuer under Section 
12 of the Exchange Act. This would include disclosure of issuer 
purchases of securities convertible into the issuer's equity securities 
or options to purchase the issuer's equity securities if those 
convertible securities and options are themselves equity securities of 
a class

[[Page 77604]]

registered under Section 12 of the Exchange Act. Should this disclosure 
be limited to securities that are presently convertible into the 
issuer's equity securities and options that are in the money or should 
it cover all purchases of registered convertible securities and 
options? Should this disclosure encompass security futures products? 
Should we limit the disclosure requirement to common stock of a class 
registered under Section 12 and exclude convertible securities and 
options?
    Q. Should we require disclosure of equity securities as defined in 
Section 3(a)(11) of the Exchange Act, as we propose? Is this definition 
too narrow or too broad? Should we limit the disclosure requirement to 
equity securities listed on a national securities exchange or quoted on 
an inter-dealer quotation system?
    Q. We propose to require disclosure in the table of purchases on a 
rolling-month basis, beginning with the first day of the quarter 
covered by the report. For example, if the quarter begins on January 15 
and ends on April 15, the chart would show repurchases for the months 
from January 15 through February 14, February 15 through March 14, and 
March 15 through April 15. Is this an appropriate approach? If not, 
what approach should we take?
    Q. Should we require disclosure of the broker-dealer that effected 
the purchases as we propose? Should this information be reported solely 
for the Commission's use, and kept confidential at the issuer's 
request, or should it be publicly disclosed? What if any value is there 
in the public disclosure of this information? Is it unduly burdensome 
to companies to make this disclosure?
    Q. Should compliance with the proposed disclosure requirement be 
made a condition of using the safe harbor or should issuers be required 
to disclose their repurchases regardless of whether they rely on the 
safe harbor? If the latter, should Rule 10b-18 contain a specific 
disclosure requirement as a condition of the safe harbor, similar to 
other Commission regulations that link a safe harbor with disclosure 
(e.g., Regulation D with Form D and Rule 144 with Form 144)? What 
specific types of information would be useful to investors regarding an 
issuer's repurchase activity?
    Q. Would requiring specific disclosure as a condition of the safe 
harbor provide a useful way to monitor the operation of (or verify 
compliance with) the safe harbor? Would it provide useful information 
in assessing the level and market impact of issuer repurchases?
    Q. Is our proposal to require disclosure on a quarterly basis 
sufficient, or would more frequent disclosure (e.g., monthly or on a 
``real time'' basis) be more meaningful to investors? If so, how should 
the disclosure be made (e.g., issuing monthly press releases or 
reporting such purchases to the tape using a special trade indicator)? 
Please provide specific suggestions.
    Q. Should issuer repurchases be reported on Form 8-K or otherwise 
on a more current basis than proposed?
    Q. In addition to the proposed required quarterly disclosure of 
aggregate volume and average price information, should an issuer also 
be required to maintain (and provide to the Commission, upon request) 
separately retrievable written records concerning the trade details 
(trade-by-trade information) about the manner, timing, price, and 
volume of its repurchases?
    Q. Would disclosure regarding an issuer's transactions involving 
derivatives (e.g., short put-options, forward contracts, or synthetic 
forward contracts) written on the issuer's own stock provide useful 
information to the market?
    Q. If so, what additional details should Item 703 require with 
respect to put options and other derivative transactions?
    Q. If the information called for by Item 703 is disclosed elsewhere 
in filings made with the Commission, should the issuer be permitted to 
cross reference to the other disclosure rather than repeat the 
information in the table or should all information be provided in the 
table?
    Q. Should Item 703 require separate columnar disclosure only of 
repurchase programs or plans that have been publicly announced by the 
issuer, as we propose? Should we instead require separate columnar 
disclosure of all repurchase plans or programs that have been approved 
by the issuer's board of directors?
    Q. Should the Commission require issuers to disclose their plans 
before making any purchases? Would prospective disclosure of 
anticipated repurchases be useful to investors? If so, should this 
requirement apply to all repurchases or only to anticipated purchases 
above a prescribed dollar, share, or percentage threshold? Should any 
other criteria apply to the determination whether repurchases are 
required to be disclosed prospectively? Should this information be 
disclosed on Form 8-K or Form 10-Q?
    Q. Should the disclosure in the table under Item 703 be segregated 
to identify open market purchases (made within the safe harbor), 
privately negotiated transactions, purchases made pursuant to an issuer 
tender offer, or other specific types of transactions?
    Q. When an affiliated purchaser makes purchases should these 
purchases be disclosed separately in the table? Should we require 
disclosure of the identity of the purchaser and its relationship to the 
issuer? Should disclosure be required of any agreements or arrangements 
that exist between the purchaser and the issuer related to the 
purchase?
    Q. We propose to amend Form 20-F to require tabular disclosure of 
issuer repurchases by foreign private issuers. Should the new 
disclosure requirement apply to foreign private issuers as proposed? 
Some foreign jurisdictions already have requirements to disclose issuer 
repurchases of their securities. Should our disclosure requirement 
mirror the requirements in the issuer's home country?
    Q. Foreign private issuers file one prescribed periodic report per 
year on Form 20-F. Would this annual disclosure of an issuer's 
repurchase activity be useful to investors? Should the repurchases be 
broken out on a monthly basis as we propose? Alternatively, should they 
be aggregated on a quarterly basis or for the entire year?
    Q. Our proposal would require disclosure of repurchases of all 
shares of a company's equity securities of a class registered under 
Section 12 of the Exchange Act. Should we limit the disclosure 
requirement to exclude purchases made outside the United States? Would 
information about domestic repurchases, on its own, be meaningful to 
investors?
    Q. In our proposed amendment to Form 20-F, we propose to apply the 
definition of ``equity securities'' in General Instruction F to Form 
20-F. Is this an appropriate definition of the securities to which the 
disclosure requirement should apply? Should we use the statutory 
definition of equity securities as we do in proposed Item 703?
    Q. We propose to require companies filing Forms 10-K and 10-Q to 
disclose the identities of brokers executing the transactions, which 
would provide the Commission with access to information regarding an 
issuer's repurchase activity (i.e., in order to monitor more 
effectively the level and market impact of an issuer's repurchase 
activity). However, because we are not the primary regulators of 
private foreign issuers, we do not propose to require disclosure of the 
broker executing purchases for foreign private issuers

[[Page 77605]]

filing reports on Form 20-F. Should we require disclosure of the 
brokers that execute the purchases on behalf of foreign private 
issuers? Should we require disclosure of the brokers only when the 
purchases are made in reliance on Rule 10b-18?
    Q. We propose to require separate disclosure of repurchases 
pursuant to publicly announced programs. Would this separate disclosure 
be helpful to investors? Do foreign private issuers typically announce 
their programs? If not, should we remove this column from the table in 
proposed Item 15(e) of Form 20-F?
    Q. The securities of some foreign companies trade in the United 
States in the form of depositary receipts. Would it be useful to 
require disclosure of repurchases of the receipts and the shares 
separately?
    Q. The securities of many U.S. and foreign companies trade in 
markets outside the United States in currencies other than the U.S. 
dollar. What currency should issuers use in reporting their 
repurchases? Should foreign companies be given the flexibility to 
choose the appropriate currency to report their repurchases, based upon 
management's assessment of the most appropriate disclosure?
    Q. To the extent a foreign or a U.S. company repurchases securities 
outside the United States, should there be disclosure of the markets on 
which such repurchases took place? Would investors find it useful for 
issuers to disclose information as to the amount of securities 
repurchased in any particular market?
Closed-End Funds
    Closed-end funds would provide the required disclosure semi-
annually on proposed Form N-CSR. Currently, closed-end funds are 
required to disclose information regarding privately negotiated 
repurchases of their securities on Form N-23C-1 not later than the 
tenth day of the calendar month following the month in which the 
purchase occurs.\80\ This information includes the date of the 
transaction, identification of the security purchased, number of shares 
purchased, price per share, approximate asset value per share at the 
time of purchase, and name of the seller or the seller's broker. In 
addition, Form N-SAR, the semi-annual reporting form for registered 
investment companies, requires closed-end funds to disclose the 
aggregate number of shares and net consideration paid for all 
repurchases and redemptions of their common and preferred stock during 
the semi-annual reporting period.\81\
---------------------------------------------------------------------------

    \80\ Rule 23c-1(a)(11) under the Investment Company Act [17 CFR 
270.23c-1(a)(11)]; Form N-23C-1 [17 CFR 274.201]. Of 125 Form N-23C-
1 filings made during the year ending September 30, 2002, it appears 
that at least 37 of these filings were not required under Rule 23c-1 
(no repurchases occurred in the prior month or repurchases on the 
open market).
    \81\ Lines B and D of Item 86 of Form N-SAR [17 CFR 249.330; 17 
CFR 274.101]. Item 86 also requires disclosure of the aggregate 
number of shares and net consideration received for sales of a 
closed-end fund's common and preferred stock during the reporting 
period, as well as aggregate sale and repurchase and redemption 
information for debt securities.
---------------------------------------------------------------------------

    We believe that, as with other issuers, additional information 
regarding repurchase offers by closed-end funds would be useful to 
investors.\82\ We are not currently proposing to eliminate or amend the 
reporting requirements of Form N-23C-1, which apply on a transaction-
by-transaction basis only to privately negotiated repurchases, or the 
requirements of Form N-SAR, which provide the Commission with aggregate 
data on sales, repurchases, and redemptions of closed-end fund shares 
over a semi-annual period.
---------------------------------------------------------------------------

    \82\ See generally Thomas J. Herzfeld, Market Shakeout Leads to 
Unprecedented Number of Share Buyback Announcements, Investor's 
Guide to Closed-End Funds (Oct. 1998) (discussing actual buybacks 
after announcements and the use of buybacks to reduce closed-end 
fund discounts and noting that ``many funds maintain the 
authorization to repurchase their own shares in the open market, but 
only a handful buy back significant numbers of shares'').
---------------------------------------------------------------------------

    Q. Should closed-end funds be subject to the additional disclosure 
requirements that we are proposing, or are the disclosures that they 
are currently required to provide adequate? Is proposed Form N-CSR the 
appropriate location for closed-end funds to disclose additional 
information regarding their repurchases? Should we instead require 
closed-end funds to provide this information on Form N-23C-1 or Form N-
SAR?
    Q. Should we eliminate Form N-23C-1, and modify Rule 23c-1 to 
eliminate the requirement in paragraph (a)(11) that privately 
negotiated repurchases of closed-end fund shares be reported in the 
month following the transaction? How is the information on Form N-23C-1 
used by investors? Would the semi-annual disclosure that we are 
proposing adequately fulfill investors' needs for information regarding 
repurchases? Should we eliminate the line items in Item 86 of Form N-
SAR that require semi-annual disclosure by a closed-end fund regarding 
repurchases of its common and preferred stock?
    Q. How frequently should we require closed-end funds to disclose 
information regarding repurchases of equity securities? Should we 
require quarterly disclosure of repurchases by closed-end funds as we 
propose to do for operating companies? If disclosure should be made 
more frequently than semi-annually, how should more frequent disclosure 
be provided?

VII. General Request for Comment

    We request and encourage any interested person to comment generally 
on these proposals. In addition to the specific requests for comment, 
the Commission invites interested persons to submit written comments on 
all aspects of the proposed amendments. The Commission also requests 
commenters to address whether the proposed Rule 10b-18 amendments 
provide appropriate safe harbor conditions in light of market 
developments since Rule 10b-18's adoption in 1982. The Commission seeks 
comment on whether the safe harbor proposals raise any manipulation 
risks. Commenters may also discuss whether there are legal or policy 
reasons why the Commission should consider a different approach. For 
instance, should the Rule 10b-18 volume condition be further restrained 
or relaxed? Should the safe harbor's time of purchase condition be 
broader, narrower, or include different parameters? Additionally, the 
Commission seeks comment about whether the proposed disclosure 
amendments to Regulations S-K and S-B, Forms 10-K(KSB), 10-Q(QSB) and 
20-F, and proposed Form N-CSR provide meaningful and timely information 
to investors.
    The Commission encourages commenters to provide information 
regarding the advantages and disadvantages of each proposed amendment. 
The Commission invites commenters to provide views and data as to the 
costs and benefits associated with the proposed amendments. We also 
seek comment regarding other matters that may have an effect on the 
proposed amendments.

VIII. Paperwork Reduction Act

A. Collection of Information Under These Amendments

    Certain provisions of the proposed amendments contain ``collection 
of information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (PRA); \83\ the Commission has submitted 
information to the Office of Management and Budget (OMB) for review in 
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The Commission is 
revising the several currently approved collections of

[[Page 77606]]

information titled ``Regulation S-K,'' ``Regulation S-B,'' ``Form 10-
Q,'' ``Form 10-QSB,'' ``Form 10-K,'' ``Form 10-KSB'' and ``Form 20-F'' 
under OMB control numbers 3235-0071, 3235-0417, 3235-0070, 3235-0416, 
3235-0063, 3235-0420, and 3235-0288 respectively. The Commission also 
is revising the collection of information titled ``Form N-CSR'' under 
OMB control number 3235-0570. An agency may not conduct or sponsor, and 
a person is not required to respond to, a collection of information 
unless it displays a currently valid control number.
---------------------------------------------------------------------------

    \83\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

B. Need for and Proposed Use of the Collection of Information

    We believe that the proposed amendments to Regulations S-K, S-B, 
Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F, and proposed Form N-CSR are 
necessary (1) to facilitate the transparency of registrants' 
repurchases, (2) to bolster investor confidence in the integrity of the 
securities trading markets, and (3) to monitor and assess the level and 
market impact of registrants' repurchases.

C. Respondents

    The proposed amendments to Regulations S-K, S-B, and Forms 10-K, 
10-KSB, 10-Q, 10-QSB, 20-F, and proposed Form N-CSR would require 
disclosure of all repurchasing activity (e.g., open market purchases, 
tender offers, and other transactions). Approximately 708 issuers 
announced 796 new or expanded repurchase programs in 2000.\84\
---------------------------------------------------------------------------

    \84\ The data source is Securities Data Corp. For purposes of 
this paragraph and those that follow, we use repurchasing 
information from the year 2000 rather than 2001. Repurchasing 
information for the year 2001 is distorted in light of the issuer 
repurchases effected pursuant to the emergency and exemptive relief 
issued following September 11th. See note 79, supra. Repurchasing 
information for the year 2002 was not used because repurchasing data 
for the year would be incomplete since 12 calendar months have not 
yet elapsed. However, we note that 206 issuers announced 217 new or 
expanded repurchase programs during the period January 1, 2002 
through July 31, 2002. The data source is Securities Data Corp.
---------------------------------------------------------------------------

    The degree to which the proposed amendments will affect registrants 
and other issuers will vary from year to year. A registrant's decision 
to conduct open market or privately negotiated repurchases is a 
discretionary decision. These decisions are based on the entity's 
assessment of its current needs and other continually changing factors. 
Thus, the number of registrants who would make the proposed disclosures 
would vary from quarter to quarter and year to year.

D. Total Annual Reporting and Recordkeeping Burden

1. Proposed Amendments to Regulations S-K and S-B, and Forms 10-Q, 10-
QSB, 10-K, 10-KSB, 20-F, and N-CSR
    We estimate that the average amount of time it would take to 
prepare the tabular disclosure required by proposed new Item 703 of 
Regulations S-K, S-B, Form 20-F, and proposed Form N-CSR would be 
approximately one hour per annual, semi-annual, or quarterly report 
filing.\85\ To determine the average total number of hours each entity 
would spend completing Forms 10-K, 10-KSB, 10-Q, 10-QSB, 20-F, and Form 
N-CSR if we adopt the proposed disclosure, we added the one-hour 
increment to the current burden hours estimated for each form.
---------------------------------------------------------------------------

    \85\ The information required to be disclosed in proposed new 
Item 703 would be readily available to the company.
---------------------------------------------------------------------------

    With respect to Forms 10-K, 10-KSB, 10-Q and 10-QSB, we estimate 
that the company bears 75% of the burden of preparation internally and 
that 25% of the burden of preparation is borne by outside professionals 
retained by the company at an average cost of $300 per hour.\86\ With 
respect to Form 20-F, we estimate that 25% of the burden of preparation 
is borne by the company internally and that 75% of the burden of 
preparation is borne by outside professionals retained by the company 
at an average cost of $300 per hour.\87\ The portion of the burden 
borne by outside professionals is reflected as a cost, while the 
portion of the burden carried by the company internally is reflected in 
hours.
---------------------------------------------------------------------------

    \86\ The 75% internal/25% outside professional burden allocation 
is based on information that we have received from registrants 
indicating that most of the burden of preparing annual and quarterly 
reports is borne internally by the company. The $300 hourly cost 
estimate for outside professionals is based on consultations with 
several outside law firms and other persons who regularly assist 
companies in preparing and filing annual and quarterly reports with 
the Commission.
    \87\ We estimate that outside professionals carry the greater 
burden of preparation of Form 20-F because that Form requires the 
financial statements and schedules that must be included in the Form 
20-F filing to disclose an information content substantially similar 
to financial statements that comply with United States generally 
accepted accounting principles and Regulation S-X.
---------------------------------------------------------------------------

    Next, we base our estimates on the actual number of filings in the 
fiscal year 2002 (8,484 10-K filings, 3,820 10-KSB filings, 23,743 10-Q 
filings, 11,299 10-QSB filings, and 1,194 20-F filings). We also 
estimate, based on data indicating that approximately 708 companies 
announced repurchase programs in 2000, that approximately 1,000 would 
include the proposed repurchase disclosure in their filings.\88\ We 
further estimate that each of the 1,000 companies would include the 
proposed disclosure in each of its periodic reports filed during the 
fiscal year on the assumption that a typical open market repurchase 
program lasts two to three years.\89\ Because we do not have specific 
data indicating the number of repurchases conducted by type of issuer 
(e.g. large issuers, small business issuers, foreign private issuers), 
we estimate that the number of repurchases made by a given type of 
issuer was proportionate to the number of filings made by that type of 
issuer.
---------------------------------------------------------------------------

    \88\ We estimate that 1,000, rather than 708, issuers would 
include the proposed disclosure in their filings because the 708 
estimate includes only announced repurchase programs. We have no 
data regarding the number of unannounced repurchase programs 
conducted in 2000 but estimate the number to be 300 for purposes of 
the PRA burden analysis. We solicit comment on the accuracy of this 
estimate.
    \89\ See, Gustavo Grullon and David Ikenberry, ``What Do We Know 
About Stock Repurchases,'' Journal of Applied Corporate Finance, at 
p. 33 (2000).
---------------------------------------------------------------------------

    We estimate that an incremental burden of 472.5 hours (630 x 75) 
and an incremental cost of $47,250 (630 x .25 x $300) would be imposed 
on companies filing Form 10-K if we adopt the proposals. The estimated 
incremental burden for Form 10-KSB would be 210 hours (280 x .75) and 
the incremental cost would be approximately $21,000 (280 x .25 x $300). 
The estimated incremental burden for Form 10-Q would be 1,417.5 hours 
(1,890 x .75) and the incremental cost would be approximately $141,750 
(1,890 x .25 x $300). The estimated incremental burden for Form 10-QSB 
would be 630 hours (840 x .75) and the incremental cost would be 
approximately $63,000 (840 x .25 x $300). The estimated incremental 
burden for Form 20-F would be 22.5 hours (90 x .25) and the estimated 
cost would be approximately $20,250 (90 x.75 x $300).
    The table below illustrates the estimated incremental annual 
compliance burden in hours and in cost for annual and quarterly reports 
if we adopt the proposals.

[[Page 77607]]



                                          Incremental Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                 Incremental
                                   Annual          burden                             25%              $300
                                  responses    response hours/   75% company      professional     professional
                                                    form                                               cost
                                          (A)             (B)  (C)=(A)*(B)*.75  (D)=(A)*(B)*.25  (E)=(D)*300
------------------------------
10-K.........................             630               1  472.5..........  157.5..........  47,250
10-KSB.......................             280               1  210............  70.............  21,000
10-Q.........................           1,890               1  1,417.5........  472.5..........  141,750
10-QSB.......................             840               1  630............  210............  63,000
                               ..............  ..............  25% Company....  75%              $300 Prof. Cost
                                                                                 Professional.
Form 20-F....................              90               1  (C)=(A)*(B)*.25  (D)=(A)*(B)*.75  (E)=(D)*300
                                                                22.5.            67.5.            20,250
----------------------------------------------------------------------------------------------------------------

    Proposed new Item 703 of Regulations S-K and S-B, proposed new Item 
15(e) of Form 20-F, and proposed new Item 6 of proposed Form N-CSR 
would require disclosure of all issuer repurchases of shares (or other 
units) of any class of the issuer's equity securities that is 
registered under Section 12 of the Exchange Act. The issuer would have 
to present this disclosure in tabular format. Specifically, the issuer 
would have to disclose all repurchases of its registered equity 
securities (both open market and private transactions) for that 
quarter, including the total number of shares (or units) purchased 
(which would be reported on a rolling basis), the average price paid 
per share, the identity of the broker dealer(s) used to effect the 
purchases, the number of shares (or units) purchased as part of a 
publicly announced plan or program, and the maximum number (or 
approximate dollar value) of shares that may yet be purchased under the 
plans or programs. The table would also have to include footnotes that 
briefly disclose the nature of the transaction for purchases made other 
than pursuant to a publicly announced repurchase plan or program. These 
would include for example, open market and privately negotiated 
purchases, issuer tender offers, purchases made by the issuer upon 
another person's exercise of outstanding put rights, and in other 
transactions through which the company purchases its registered equity 
securities. We also propose footnote disclosure of the principal terms 
of publicly announced repurchase plans or programs, including the date 
of announcement, the share or dollar amount approved, and the 
expiration date (if any) of the plans or programs. Additionally, the 
proposed footnote disclosure would indicate for each plan or program 
during the period covered by the table, plan or program expirations, 
plan or program terminations, and if there has been no repurchasing but 
the issuer still intends to repurchase pursuant to the plan or program.
    Closed-end funds would be required to provide similar disclosure on 
new Item 6 of proposed Form N-CSR. With respect to proposed Form N-CSR, 
we estimate that 75% of the burden of preparation is carried by the 
company internally and 25% of the burden of preparation is born by 
outside professionals retained by the company at an average cost of 
$300 per hour. Of the 3,700 registered management investment companies 
required to file reports on proposed Form N-CSR, 630 of those companies 
are closed-end funds that would be required to comply with new Item 6, 
resulting in 1,260 filings per year (630 closed-end funds x 2 filings 
per year) by closed-end funds. We estimate that an incremental burden 
for proposed Form N-CSR would be 945 hours annually (1 hour x 1,260 
filings x .75) and the incremental costs would be approximately $94,500 
(1 hour x 1,260 filings x .25 x $300).
    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments to: (i) Evaluate whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information shall have practical 
utility; (ii) evaluate the accuracy of the Commission's estimate of the 
burden of the proposed collection of information; (iii) determine 
whether there are ways to enhance the quality, utility, and clarity of 
the information to be collected; and (iv) evaluate whether there are 
ways to minimize the burden of the collection of information on those 
who are to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons submitting comments on the collection of information 
requirements should direct them to the Office of Management and Budget, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
should also send a copy of their comments to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549-0609, with reference to File No. S7-50-02. 
Requests for materials submitted to OMB by the Commission with regard 
to this collection of information should be in writing, refer to File 
No. S7-50-02, and be submitted to the Securities and Exchange 
Commission, Records Management, Office of Filings and Information 
Services. OMB is required to make a decision concerning the collections 
of information between 30 and 60 days after publication. Consequently, 
a comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication.

IX. Costs and Benefits of the Proposed Amendments

    The Commission is considering the costs and the benefits of the 
proposed amendments to Regulations S-K, S-B, Forms 10-Q, 10-QSB, 10-K, 
10-KSB, 20-F, and N-CSR, and Rule 10b-18. The Commission encourages 
commenters to discuss any additional costs or benefits. In particular, 
the Commission requests comment on the potential costs for any 
modifications to information gathering, management, and recordkeeping 
systems or procedures, as well as any potential benefits resulting from 
the proposals for registrants, issuers, investors, broker-dealers, 
other securities industry professionals, regulators, and others. 
Commenters should provide analysis and data to support their views on 
the costs and benefits associated with the proposed amendments.

A. Costs and Benefits of the Proposed Amendments to Rule 10b-18

1. Costs
    As an aid in evaluating costs and reductions in costs associated 
with the proposed Rule 10b-18 modifications, the Commission requests 
the public's views and any supporting information. The Commission 
believes that the

[[Page 77608]]

proposed amendments would impose negligible costs, if any, on issuers 
and would not compromise investor protection. The Commission notes that 
any costs related to complying with the proposed amendments to Rule 
10b-18 are assumed voluntarily because the Rule provides an optional 
safe harbor. The Commission solicits comments as to whether the 
proposed amendments impose greater costs on issuers than the current 
Rule.
2. Benefits
    We believe that the proposed amendments to Rule 10b-18 would 
simplify, clarify, and update its provisions in light of market 
developments since its adoption in 1982. These proposed amendments 
provide clarity as to the scope of permissible market activity for 
issuers and the broker-dealers that assist them in their repurchasing. 
Many issuers might be reluctant to repurchase without the certainty 
that their activity comes within the safe harbor. If an issuer effects 
repurchases in compliance with Rule 10b-18, it will avoid what might 
otherwise be substantial and unpredictable risks of liability under the 
anti-manipulative provisions of the Exchange Act. If adopted, the 
amendments would continue to facilitate corporate goals, such as 
ensuring the availability of common stock to complete potential 
transactions, substituting share repurchases for dividend payments, and 
other corporate objectives.
    The inclusion of block purchases in the volume condition would 
establish a reasonable limit on the amount of repurchasing activity 
that is protected by the safe harbor, which, in turn, prevents issuers 
from dominating the market in their securities. Pricing established by 
independent market forces rather than by an issuer's substantial 
repurchasing activity would promote investor confidence and enhance the 
integrity of the securities markets. Additionally, eliminating the 
block exception would not impede an issuer's ability to repurchase 
within the safe harbor as there is no limit on the number of days over 
which repurchasing can be conducted. An issuer that reaches the 25% 
limit on one day has the option of repurchasing additional shares on a 
subsequent day. Also, the inclusion of block purchases in an issuer's 
trading volume creates a greater base figure on which the issuer would 
calculate its 25% volume. This would increase the amount of stock that 
some issuers can repurchase within the safe harbor to facilitate an 
issuer's goals such as having shares available for dividend 
reinvestment, stock options, or employee stock ownership plans. 
Further, eliminating the block exception simplifies an issuer's volume 
calculation because block purchases would no longer be subtracted from 
volume. The simplified calculation eases an issuer's burden and reduces 
the chance for errors in the volume calculation.
    The proposed option for an issuer to purchase either 25% of ADTV or 
a daily aggregate amount of 500 shares, whichever is higher, may 
provide thinly traded issuers with an increased amount of common stock 
that may be repurchased within the safe harbor. Moreover, the proposed 
alternative volume condition applicable following market-wide trading 
suspensions should provide an infusion of liquidity by allowing issuers 
to purchase up to 100% of ADTV. This proposed alternative should also 
prevent sell side order imbalances by reducing issuer reluctance to 
repurchase in response to order imbalances that may occur in severe 
market declines.
    Next, the proposed 10-minute timing modification would allow 
issuers whose securities are less susceptible to manipulation to remain 
in the market for a longer period and implement a trading strategy in 
an orderly manner throughout the day. This can also result in issuers 
providing additional liquidity to the market for more of the day. The 
safe harbor eases issuer reluctance to repurchase. Some issuers might 
be hesitant to repurchase without the certainty of the safe harbor 
protection. If these issuers repurchase, their safe harbor repurchases 
provide liquidity to the marketplace.
    Although the proposed 10-minute timing modification allows issuers 
less susceptible to manipulation to stay in the market for a longer 
time period, it retains a reasonable limit on issuer activity that may 
influence market prices at or near the close. Approximately 362 out of 
the 708 issuers that announced repurchase programs in 2000 had a public 
float that would satisfy the 10-minute timing modification.\90\
---------------------------------------------------------------------------

    \90\ Based on data from Compustat, we identified that 362 of the 
708 issuers of repurchase programs had a market value of $150 
million or greater. Market value is a proxy for public float.
---------------------------------------------------------------------------

    Lastly, the uniform price condition for all issuers makes use of 
the safe harbor easier for broker-dealers repurchasing for numerous 
issuers. This condition also prevents issuers from setting or 
influencing the price of their common stock.
    These benefits are difficult to quantify. The Commission encourages 
commenters to provide empirical data or other facts to support their 
views concerning these and any other benefits not mentioned here. In 
particular, the Commission requests data and analysis on what effect 
the proposed changes may have on market liquidity.

B. Costs and Benefits of the Proposed Amendments to Regulations S-K and 
S-B, Forms 10-Q, 10-QSB, 10-K, 10-KSB and 20-F, and Form N-CSR

1. Costs
    To assist the Commission in its evaluation of the costs that may 
result from the proposals, commenters are requested to provide views, 
analysis, and empirical data relating to any costs associated with 
these proposals and any costs, not already identified, should the 
amendments be adopted as proposed. The Commission expects that any 
costs would be reduced significantly as registrants become more 
familiar with the proposed disclosure.
    Registrants would be required to disclose, with respect to their 
repurchases, the total number of shares repurchased, the average price 
per share, the amount of shares that were repurchased pursuant to a 
publicly announced plan or program, the maximum number (or approximate 
dollar value) of shares (or units) that may yet be repurchased under 
the plans or programs, and in Item 703 and Form N-CSR disclosures the 
identity of the broker-dealer(s) used to make the repurchases. Many 
registrants currently collect and publish repurchase information 
concerning the number of shares repurchased, the total dollar amount 
paid for the repurchases or the average price paid per share, and/or 
the number of shares or dollar amount available for repurchase under a 
particular repurchase program.\91\ We

[[Page 77609]]

request comment as to whether registrants would incur new costs to 
establish systems to collect and publish repurchase information that 
they would need to satisfy the proposed disclosure requirements. If so, 
please provide data regarding the estimated costs that registrants 
would incur. As mentioned in section VIII.D.1., we estimate that the 
average amount of time it would take to prepare the proposed disclosure 
would be approximately one hour per annual, semi-annual, or quarterly 
filing. The incremental burden in terms of internal hours (not 
monetized) and external monetized costs for each form is explained in 
section VIII.D.1. above. We request specific comment as to whether the 
proposed repurchase disclosure could discourage share repurchases by 
registrants.
---------------------------------------------------------------------------

    \91\ See CGS Systems International, Inc. Reports First Quarter 
2002 Results, PR Newswire (April 29, 2002) (publishing the number of 
shares repurchased, the average price paid per share, and the 
remaining number of shares available for repurchase under the 
repurchase program); Republic Services, Inc. Reports First Quarter 
Earnings per Shares of $0.32, PR Newswire (April 29, 2002) 
(publishing the number of shares repurchased, the total dollar 
amount paid for the repurchases, and the dollar amount remaining 
under the repurchase program); Quotesmith.com 1Q Loss 14 Cents a 
Share, Dow Jones News Service (April 29, 2002) (publishing the 
number of shares repurchased and the average price paid per share); 
Gartner Reports Profitability Improvement for Fourth Consecutive 
Quarter, Business Wire (April 24, 2002) (publishing the number of 
shares repurchased and the average price paid per share); Datascope 
Third Quarter Results, PR Newswire (April 24, 2002) (publishing the 
number of shares repurchased and the total dollar amount paid); and 
DST Systems, Inc. Announces First Quarter 2002 Financial Results, PR 
Newswire (April 24, 2002) (publishing the number of shares 
repurchased, the average price paid per share, as well as the fact 
that the repurchasing was done through a private transaction).
---------------------------------------------------------------------------

2. Benefits
    The proposed disclosures may prevent undetected manipulation by 
deterring repurchase program announcements by registrants that do not 
intend to effect repurchases but would benefit from a post announcement 
increase in the price of their common stock. The proposed disclosure 
requirement would increase market efficiency due to improved 
information dissemination that otherwise has not been readily available 
to investors. Presently, investors and market participants have little 
way of knowing the amount of repurchasing effected by a registrant in 
any given time period. This disclosure would provide more complete 
information to investors in order to better assess an issuer, its 
activities, and its stock price. Registrants use their discretion in 
deciding whether and when to effect repurchases. Moreover, registrants 
may not repurchase all, or even any, of the shares they are authorized 
to repurchase. The proposed disclosure requirement should increase 
efficiency by providing investors with information regarding the 
company's stated repurchasing intentions and subsequent repurchases.
    The proposed amendments would provide a uniform disclosure system 
concerning repurchases. This proposed system would benefit investors 
and other market participants by providing repurchasing information in 
a readily accessible venue and in a timely manner. The amendments will 
also provide investors with useful information concerning the manner in 
which a company makes repurchases (e.g., through open market purchases, 
tender offers, in satisfaction of a company's obligations upon exercise 
of outstanding put options, or other transactions).
    If adopted, the proposed amendments would shed light on currently 
undisclosed repurchases. Presently, only certain repurchasing activity 
must be disclosed, such as repurchases from company insiders and 
certain repurchases by closed-end funds. This proposal would require 
comprehensive repurchasing disclosure. For example, the amendments 
would require disclosure of currently undisclosed activity, such as an 
issuer repurchasing its stock from put option holders who exercised 
options issued by the company.
    Additionally, the disclosure would provide investors and the 
marketplace with signaling information. A registrant's repurchases may 
signal information to investors such as a registrant's belief that its 
stock is undervalued. In the same way, the proposed disclosure could 
signal information about market trends.
    The proposed disclosure requirement would also provide information 
about a registrant's use of capital. When registering an offering, a 
registrant may state various uses of the offering proceeds, including 
repurchasing. The proposed disclosures would provide follow-up 
information to such a registration statement disclosure. It is also a 
valuable way to confirm if any or a portion of the offering proceeds 
were used for repurchases.
    The Commission does not have data to quantify the value of the 
benefits described above. The Commission seeks comments on how it may 
quantify these benefits and any other benefits, not already identified, 
which may result from the adoption of these proposed amendments.

X. Consideration of Impact on the Economy, Effect on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (SBREFA),\92\ the Commission requests information regarding 
the potential impact of the proposed amendments on the economy on an 
annual basis. With regard to any comments, we note that such comments 
are of greatest assistance if they are accompanied by supporting data 
and analysis of the issues addressed in those comments. Section 
23(a)(2) of the Exchange Act \93\ requires the Commission to consider 
the impact any new rule would have on competition. Further, the law 
requires that the Commission not adopt any rule that would impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \92\ Pub. L. No. 104-121, tit. II, 110 Stat. 857 (1996).
    \93\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission has considered the proposed rules in light of the 
standards cited in Section 23(a)(2) and believes preliminarily that, if 
adopted, they would not likely impose any significant burden on 
competition not necessary or appropriate in furtherance of the Exchange 
Act. Rule 10b-18 is a safe harbor rather than a mandatory rule and as 
such issuers choose whether or not to use it. Many issuers might be 
reluctant to repurchase without the safe harbor. Therefore, the safe 
harbor may provide increased liquidity to the marketplace from issuers 
that would not repurchase but for the safe harbor. Issuers also have 
the option to repurchase securities outside the Rule 10b-18 safe harbor 
conditions without raising a presumption of manipulation. Moreover, the 
proposed version of the Rule 10b-18 safe harbor, like the current Rule, 
would apply to all issuers. Thus, we do not believe the Rule 10b-18 
amendments would have a significant effect on competition because all 
issuers have the option of complying with the manner, volume, time and 
price conditions.
    Additionally, the proposed amendments to Forms 10-K, 10-KSB, 10-Q, 
10-QSB, 20-F, and proposed Form N-CSR would apply equally to all filers 
who make repurchases. Thus, we do not believe that these proposals will 
have a significant anti-competitive effect.
    We request comment on whether the proposed amendments, if adopted, 
would impose a burden on competition. Commenters are requested to 
provide empirical data and other factual support for their views if 
possible.
    Section 3(f) of the Exchange Act \94\ requires the Commission, when 
engaged in rulemaking that requires us to consider whether an action is 
necessary or appropriate in the public interest, to consider whether 
the action would promote efficiency, competition, and capital 
formation.
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments 
should improve market efficiency by providing greater clarity in terms 
of guidance and certainty to issuers (and broker-dealers that assist 
issuers with

[[Page 77610]]

their repurchase programs) as to the scope of non-manipulative market 
activity when repurchasing their stock. The proposed amendments would 
also enhance market liquidity following a market-wide trading 
suspension by helping to ensure a deep market and reducing sell side 
order imbalances. For many issuers, the proposed amendments may result 
in enhanced liquidity by allowing for repurchase activity within the 
safe harbor up to 10 minutes prior to the market close. Moreover, we 
believe the benefits of the proposed disclosure requirements would 
include increased market efficiency due to improved information and 
transparency concerning issuer repurchases. If adopted, the disclosures 
should bolster investor confidence in the markets and make repurchasing 
information readily accessible to investors. Additionally, the proposed 
amendments to Forms 10-K, 10-KSB, 10-Q, 10-QSB, 20-F, and N-CSR are 
intended to improve the amount of current information available to 
investors and the financial markets. We anticipate that the proposals 
should improve investors' ability to make informed investment decisions 
concerning registrants. Informed investor decisions generally promote 
market efficiency and capital formation.
    We request comment on whether the proposed amendments, if adopted, 
would promote efficiency, competition, and capital formation. 
Commenters are requested to provide empirical data and other factual 
support for their views if possible.

XI. Initial Regulatory Flexibility Analysis

    The Commission has prepared an Initial Regulatory Flexibility 
Analysis (IRFA) \95\ regarding the proposed amendments to Regulations 
S-K, S-B, Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F, N-CSR, and Rule 10b-
18.
---------------------------------------------------------------------------

    \95\ This analysis is required by the Regulatory Flexibility 
Act, 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Reasons for the Proposed Action

    Based on our experience with the operation of Rule 10b-18, and to 
reflect market developments since the Rule's adoption, we propose to 
revise Rule 10b-18's provisions. In addition, we propose to provide 
investors and the marketplace with important information concerning a 
registrant's repurchases (e.g., the total number of shares purchased, 
the average price per share, the identity of the broker-dealer for Item 
703 and proposed Form N-CSR disclosures, the number of shares purchased 
as part of a publicly announced plan or program, and the maximum number 
(or approximate dollar value) of shares (or units) that may yet be 
purchased under the plans or programs). We believe the increased 
transparency concerning registrants' repurchases will promote enhanced 
evaluation of registrants, their repurchases, and the effects of those 
repurchases on the registrants' common stock price and the market place 
generally.

B. Objectives

    The proposed Rule 10b-18 amendments are designed to fulfill several 
objectives. A prime objective of the proposed amendments is to foster 
investor confidence in the integrity of our securities markets. Second, 
the proposed amendments are designed to maintain reasonable limits on 
issuer repurchasing activity within the safe harbor. Third, the 
proposed amendments would facilitate pricing established by independent 
market forces. Next, the amendments would allow corporations to provide 
enhanced market liquidity following market wide trading suspensions. 
These proposals should ease market stress during periods of severe 
market decline and promote orderly markets throughout those times. 
Lastly, the Rule 10b-18 amendments should provide issuers with a tool 
to help manage the risks of liability under the anti-manipulation rules 
of the Exchange Act. The proposals are intended to update Rule 10b-18 
and provide greater clarity in terms of guidance and certainty to 
issuers and broker-dealers that assist issuers with their repurchase 
programs as to the scope of permissible market activity when 
repurchasing their stock.
    The central objective of the proposed disclosure amendments is to 
provide investors with useful, easy to access information about issuer 
repurchases. The proposed disclosure amendments are intended to 
increase market efficiency through improved disclosure. The proposals 
would provide investors with important information in order to better 
evaluate registrants. The proposed amendments would shed light on 
currently undisclosed registrant repurchases providing investors with 
useful information in order to better assess a registrant and its stock 
price. Moreover, the disclosures would prevent undetected manipulation 
by deterring repurchase announcements by registrants that have no 
intention of repurchasing. They would also provide a means to monitor 
the level and impact of registrants' repurchases.

C. Legal Basis

    The amendments to Rule 10b-18 are proposed pursuant to the 
authority set forth in Sections 9(a)(2) and 10(b) of the Exchange 
Act.\96\ The amendments to Regulations S-K, S-B, Forms 10-Q, 10-QSB, 
10-K, 10-KSB, 20-F, and N-CSR are proposed pursuant to the authority 
set forth in Sections 12, 13, 15(d), and 23(a) of the Exchange Act and 
Sections 8, 23, 24(a), 30,31, and 38 of the Investment Company Act.
---------------------------------------------------------------------------

    \96\ 15 U.S.C. 78i(a)(2), 78j(b).
---------------------------------------------------------------------------

D. Small Entities Subject to the Rule

    The proposed amendments may affect small entity issuers and 
affiliated purchasers that wish to avail themselves of the safe harbor 
provisions. Based on Exchange Act Rule 0-10(a), a small issuer is one 
that on the last day of its most recent fiscal year had total assets of 
$5,000,000 or less. We estimate that approximately 3 issuers that 
conducted repurchases in 2000 had assets of less than $5,000,000.\97\ 
The Commission seeks comment on the number of issuers that rely on Rule 
10b-18 when engaged in open market repurchases of its stock, and the 
number of such issuers that are small entities.
---------------------------------------------------------------------------

    \97\ The source of this data is Compusat.
---------------------------------------------------------------------------

    The Commission seeks comment on the number of registrants that 
would make the proposed disclosures following open market and privately 
negotiated purchases each quarter, and the number of those registrants 
that are small entities.

E. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed Rule 10b-18 amendments would not impose any new 
reporting, recordkeeping or other compliance requirements. The proposed 
amendments to Regulations S-K, S-B, Forms 10-K, 10-KSB, 10-Q, 10-QSB, 
20-F, and proposed Form N-CSR would add a new disclosure item for 
issuer purchases of equity securities. As stated in Section XI.D above, 
approximately 3 issuers who conducted repurchase programs in 2000 were 
small entities. We believe no additional professional skills beyond 
those currently possessed by issuers (and broker-dealers) would be 
necessary to prepare the forms in accordance with the proposed 
disclosure amendments or to comply with the proposed Rule 10b-18 
amendments.

F. Duplicative, Overlapping or Conflicting Federal Rules

    The Commission believes that there are no rules that duplicate, 
overlap, or

[[Page 77611]]

conflict with, the proposed amendments.

G. Significant Alternatives

    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objective, 
while minimizing any significant adverse impact on small issuers and 
broker-dealers. In connection with the proposals, the Commission 
considered the following alternatives: (a) The establishment of 
differing compliance or reporting requirements or timetables that take 
into account the resources available to small entities; (b) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for small entities; (c) the use 
of performance rather than design standards; and (d) an exemption from 
coverage of the proposed amendments, or any part thereof, for small 
entities.
    With respect to the proposed Rule 10b-18 amendments, the Commission 
believes that the establishment of different requirements for small 
entities is neither necessary nor practicable, because the proposal 
provides a voluntary safe harbor from liability for manipulation under 
the Exchange Act. The Commission believes that the majority of issuers 
effecting repurchase programs are not small entities.
    With respect to the proposed amendments to Regulations S-K, S-B, 
Forms 10-K, 10-KSB, 10-Q, 10-QSB, 20-F, and proposed Form N-CSR, the 
Commission believes that any affect on small entities would be minimal. 
Therefore, it is not feasible to further clarify, consolidate or 
simplify the proposals for small entities.

H. Solicitation of Comments

    The Commission encourages written comments on matters discussed in 
the IRFA. In particular, the Commission requests comments on (i) the 
number of issuers conducting repurchase programs and the number of such 
issuers that are small entities; (ii) the nature of any impact the 
proposed amendments would have on small entities and empirical data 
supporting the extent of the impact; and (iii) how to quantify the 
number of small entities that would be affected by and/or how to 
quantify the impact of the proposed amendments. Such comments will be 
considered in the preparation of the Final Regulatory Flexibility 
Analysis, if the proposed amendments are adopted, and will be placed in 
the same public file as comments on the proposed amendments themselves. 
As discussed above, for purposes of the SBREFA, the Commission is also 
requesting information regarding the potential impact of the proposed 
amendments on the economy on an annual basis. Commentators should 
provide empirical data to support their views.
    Persons wishing to submit written comments should send three copies 
to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549-0609. Comments also may be 
submitted electronically at the following e-mail address: [email protected]. All comment letters should refer to File No. S7-50-
02. Comments submitted by e-mail should include this file number in the 
subject line. Comment letters will be available for public inspection 
and copying in the Commission's Public Reference Room, 450 Fifth 
Street, NW., Washington, DC 20549. Electronically submitted letters 
also will be posted on the Commission's Internet web site (http://www.sec.gov).

XII. Statutory Basis and Text of Proposed Amendment

    The Rule amendments are being proposed pursuant to Sections 2, 3, 
9(a)(6), 10(b), 12, 13(e), 15, 15(c), 23(a) of the Exchange Act, 15 
U.S.C. 78b, 78c, 78i(a)(6), 78j(b), 78m(e), 78o(c), 78o(d) and 78w(a), 
and Sections 8, 23, 24(a), 30, 31, and 38 of the Investment Company 
Act, 15 U.S.C. 80a-8, 80a-23, 80a-24(a), 80a-29, 80a-30, and 80a-37.

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small 
businesses.

17 CFR Part 229

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 240

    Brokers, Dealers, Issuers, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    For the reasons set forth in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

    1. The authority citation for Part 228 is revised to read as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 
77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-29, 
80a-30, 80a-37 and 80b-11.
    Section 228.307 is also issued under secs. 3(a), 302 and 404, 
Pub. L. No. 107-204, 116 Stat. 745.
    Section 228.309 is also issued under secs. 3(a) and 407, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 228.406 is also issued under secs. 3(a) and 406, Pub. L. 
No. 107-204, 116 Stat. 745.

    2. Section 228.703 is added to read as follows:


Sec.  228.703  (Item 703) Purchases of equity securities by the small 
business issuer and affiliated purchasers.

    (a) In the following tabular format, provide the information 
specified in paragraph (b) of this Item with respect to any purchase 
made by or on behalf of the small business issuer or any ``affiliated 
purchaser,'' as defined in Sec.  240.10b-18(a)(3) of this chapter, of 
shares or other units of any class of the small business issuer's 
equity securities that is registered by the small business issuer 
pursuant to section 12 of the Exchange Act (15 U.S.C. 78l).

                                                          Issuer Purchases of Equity Securities
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               (e) Maximum number (or
                               (a) Total number of                         (c) Identity of      (d) Number of shares (or    approximate dollar value) of
            Period              shares (or units)    (b) Average price     broker-dealer(s)    units) purchased as part of   shares (or units) that may
                                    purchased          paid per share       used to effect     publicly announced plans or   yet be purchased under the
                                                                              purchases                 programs                  plans or programs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Month 1
(Identify beginning and
 ending dates)
------------------------------

[[Page 77612]]

 
Month 2
(Identify beginning and
 ending dates)
------------------------------
Month 3
(Identify beginning and
 ending dates)
                              ----------------------
    Total
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (b) The table shall include the following information for each 
class or series of securities for each month included in the period 
covered by the report:
    (1) The total number of shares purchased (column (a));

Instruction to Paragraph (b)(1) of Item 703

    Include in this column all small business issuer repurchases, 
including those made pursuant to publicly announced plans or 
programs and those not made pursuant to publicly announced plans or 
programs. Briefly disclose, by footnote to the table, the number of 
shares purchased other than through a publicly announced plan or 
program and the nature of the transaction. (e.g., whether the 
purchases were made in open-market transactions, tender offers, in 
satisfaction of the company's obligations upon exercise of 
outstanding put options issued by the company, or other 
transactions.)

    (2) The average price paid per share (column (b));
    (3) The identity of any broker-dealer(s) that effected the 
purchases (column (c));
    (4) The number of shares purchased as part of a publicly announced 
repurchase plan or program (column (d)); and
    (5) The maximum number (or approximate dollar value) of shares (or 
units) that may yet be purchased under the plans or programs (column 
(e)).

Instruction to Paragraphs (b)(4) and (b)(5) of Item 703

    (1) In the table, disclose this information in the aggregate for 
all plans or programs publicly announced.
    (2) By footnote to the table, indicate:
    (a) The date each plan or program was announced;
    (b) The dollar amount (or share amount) approved;
    (c) The expiration date (if any) of each plan or program;
    (d) Each plan or program that has expired during the period 
covered by the table:
    (e) Each plan or program the small business issuer has 
determined to terminate prior to expiration; and
    (f) Each plan or program the small business issuer has not 
purchased under during the period covered by the table and whether 
the small business issuer still intends to purchase under that plan 
or program.

Instruction to Item 703

    Disclose all purchases covered by this Item, including purchases 
that do not satisfy the conditions of the safe harbor of Sec.  
240.10b-18 of this chapter.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

    3. The authority citation to Part 229 is revised to read as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 
78ll(d), 78mm, 79e, 79n, 79t, 80a-8, 80a-29, 80a-30, 80a-31, 80a-37, 
80a-38(a), 80b-11, unless otherwise noted.
    Section 229.307 is also issued under secs. 3(a), 302 and 404, 
Pub. L. No. 107-204, 116 Stat. 745.
    Section 229.309 is also issued under secs. 3(a) and 407, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 229.406 is also issued under secs. 3(a) and 406, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 229.601 is also issued under secs. 3(a) and 406, Pub. L. 
No. 107-204, 116 Stat. 745.

    4. Section 229.703 is added to read as follows:


Sec.  229.703 (Item 703)  Purchases of equity securities by the issuer 
and affiliated purchasers.

    (a) In the following tabular format, provide the information 
specified in paragraph (b) of this Item with respect to any purchase 
made by or on behalf of the issuer or any ``affiliated purchaser,'' as 
defined in Sec.  240.10b-18(a)(3) of this chapter, of shares or other 
units of any class of the issuer's equity securities that is registered 
by the issuer pursuant to section 12 of the Exchange Act (15 U.S.C. 
78l).

                                                          Issuer Purchases of Equity Securities
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               (e) Maximum number (or
                               (a) Total number of                         (c) Identity of      (d) Number of shares (or    approximate dollar value) of
            Period              shares (or units)    (b) Average price     broker-dealer(s)    units) purchased as part of   shares (or units) that may
                                    purchased          paid per share       used to effect     publicly announced plans or   yet be purchased under the
                                                                              purchases                 programs                  plans or programs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Month 1
(Identify beginning and
 ending dates)
------------------------------

[[Page 77613]]

 
Month 2
(Identify beginning and
 ending dates)
------------------------------
Month 3
(Identify beginning and
 ending dates)
                              ----------------------
    Total
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (b) The table shall include the following information for each 
class or series of securities for each month included in the period 
covered by the report:
    (1) The total number of shares purchased (column (a));

Instructions to Paragraph (b)(1) of Item 703

    Include in this column all issuer repurchases, including those 
made pursuant to publicly announced plans or programs and those not 
made pursuant to publicly announced plans or programs. Briefly 
disclose, by footnote to the table, the number of shares purchased 
other than through a publicly announced plan or program and the 
nature of the transaction. (e.g., whether the purchases were made in 
open-market transactions, tender offers, in satisfaction of the 
company's obligations upon exercise of outstanding put options 
issued by the company, or other transactions).

    (2) The average price paid per share (column (b));
    (3) The identity of any broker-dealer(s) that effected the 
purchases (column (c));
    (4) The number of shares purchased as part of a publicly announced 
repurchase plan or program (column (d)); and
    (5) The maximum number (or approximate dollar value) of shares (or 
units) that may yet be purchased under the plans or programs (column 
(e)).

Instructions to Paragraphs (b)(4) and (b)(5) of Item 703

    (1) In the table, disclose this information in the aggregate for 
all plans or programs publicly announced.
    (2) By footnote to the table, indicate:
    (a) The date each plan or program was announced;
    (b) The dollar amount (or share amount) approved;
    (c) The expiration date (if any) of each plan or program;
    (d) Each plan or program that has expired during the period 
covered by the table;
    (e) Each plan or program the issuer has determined to terminate 
prior to expiration; and
    (f) Each plan or program the issuer has not purchased under 
during the period covered by the table and whether the issuer still 
intends to purchase under that plan or program.

Instruction to Item 703

    Disclose all purchases covered by this item, including purchases 
that do not satisfy the conditions of the safe harbor of Sec.  
240.10b-18 of this chapter.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    5. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
    6. Section 240.10b-18 is revised to read as follows:


Sec.  240.10b-18  Purchases of certain equity securities by the issuer 
and others.

Preliminary Notes to Sec.  240.10b-18

    1. Section 240.10b-18 provides issuers (and their affiliated 
purchasers) with a ``safe harbor'' from liability for manipulation 
under the Act when they repurchase shares of the issuer's common 
stock in the market in accordance with the section's manner, timing, 
price, and volume conditions. As a safe harbor, compliance with 
Sec.  240.10b-18 is voluntary. To come within the safe harbor, 
however, an issuer's repurchases must satisfy (on a daily basis) 
each of the section's four conditions. Failure to meet any one of 
the four conditions will remove all of the issuer's repurchases from 
the safe harbor for that day. The safe harbor, however, is not 
available for repurchases that, although made in technical 
compliance with the section, are part of a plan or scheme to evade 
the federal securities laws.
    2. Regardless of whether the repurchases are effected in 
accordance with Sec.  240.10b-18, reporting issuers must comply with 
Item 703 of Regulations S-K and S-B (17 CFR 229.703 and 228.703) and 
Item 15(e) of Form 20-F (17 CFR 249.220f) (regarding foreign private 
issuers), and closed-end management investment companies that are 
registered under the Investment Company Act of 1940 must comply with 
Item 6 of Form N-CSR (17 CFR 249.331; 17 CFR 274.128). Items 703, 
15(e), and 6 require issuers to disclose, on Forms 10-Q/10-QSB, 10-
K/10-KSB, 20-F, and Form N-CSR, all repurchases (open market and 
private transactions) of their equity securities during the previous 
quarter, including the total number of shares (or units) purchased 
(sorted by month), the average price paid per share, the identity of 
broker-dealer(s) used to effect the purchases (except in the case of 
Form 20-F), the number of shares (or units) purchased as part of a 
publicly announced repurchase plan or program, and the maximum 
number (or approximate dollar value) of shares (or units) that may 
yet be purchased under the plans or programs.

    (a) Definitions. Unless the context otherwise requires, all terms 
used in this section shall have the same meaning as in the Act. In 
addition, the following definitions shall apply:
    (1) ADTV means the average daily trading volume reported for the 
security during the four calendar weeks preceding the week in which the 
Rule 10b-18 purchase is to be effected.
    (2) Affiliate means any person that directly or indirectly 
controls, is controlled by, or is under common control with, the 
issuer.
    (3) Affiliated purchaser means:
    (i) A person acting, directly or indirectly, in concert with the 
issuer for the purpose of acquiring the issuer's securities; or
    (ii) An affiliate who, directly or indirectly, controls the 
issuer's purchases of such securities, whose purchases are controlled 
by the issuer, or whose purchases are under common control with those 
of the issuer; Provided, however, that ``affiliated purchaser'' shall 
not include a broker, dealer, or other person solely by reason of such 
broker, dealer, or other person

[[Page 77614]]

effecting rule 10b-18 purchases on behalf of the issuer or for its 
account, and shall not include an officer or director of the issuer 
solely by reason of that officer or director's participation in the 
decision to authorize Rule 10b-18 purchases by or on behalf of the 
issuer.
    (4) Agent independent of the issuer has the meaning contained in 
Sec.  242.100 of this chapter.
    (5) Consolidated system means a consolidated transaction (or 
quotation) reporting system that collects and publicly disseminates on 
a current and continuous basis transaction (or quotation) information 
in common equity securities pursuant to an effective transaction 
reporting plan (as defined in Sec.  240.11Aa3-1 of this chapter), the 
rules of a national securities exchange, or the rules of a national 
securities association.
    (6) Highest independent bid means the highest published bid for a 
regular way trade (other than a bid by or for the issuer or any 
affiliated purchaser of the issuer) at the time the Rule 10b-18 
purchase is effected.
    (7) Last independent transaction price means the price at which the 
last regular way trade (other than a trade by or for the issuer or any 
affiliated purchaser of the issuer) was reported at the time the Rule 
10b-18 purchase is effected.
    (8) Market-wide trading suspension means a market-wide trading halt 
of 30 minutes or more that is:
    (i) Imposed pursuant to the rules of a national securities exchange 
or a national securities association in response to a market-wide 
decline during a single trading session; or
    (ii) Declared by the Commission pursuant to its authority under 
section 12(k) of the Act (15 U.S.C. 78(k)).
    (9) Plan has the meaning contained in Sec.  242.100 of this 
chapter.
    (10) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the 6 full calendar months preceding the week in which the Rule 10b-18 
purchase is to be effected.
    (11) Public float value has the meaning contained in Sec.  242.100 
of this chapter.
    (12) Purchase price means the price paid per share as reported 
(exclusive of any commission paid to a broker acting as agent, or 
commission equivalent, mark-up, or differential paid to a dealer).
    (13) Rule 10b-18 purchase means a purchase (or any bid or limit 
order that would effect such purchase) of an issuer's common stock (or 
an equivalent interest, including a unit of beneficial interest in a 
trust or limited partnership or a depository share) by or for the 
issuer or any affiliated purchaser. However, it does not include any 
purchase of such security:
    (i) Effected during the restricted period (as specified in Sec.  
242.102 of this chapter) when the issuer or any affiliated purchaser is 
distributing (as defined in Sec.  242.100 of this chapter) the issuer's 
common stock or any other security for which the common stock is a 
reference security;
    (ii) Effected by or for an issuer plan by an agent independent of 
the issuer;
    (iii) Effected as a fractional share purchase (a fractional 
interest in a security) evidenced by a script certificate, order form, 
or similar document;
    (iv) Effected during the period from the time of public 
announcement of a merger, acquisition, or similar transaction involving 
a recapitalization, until the completion of such transaction;
    (v) Effected pursuant to Sec.  240.13e-1;
    (vi) Effected pursuant to a tender offer that is subject to Sec.  
240.13e-4 or specifically excepted from Sec.  240.13e-4; or
    (vii) Effected pursuant to a tender offer that is subject to 
section 14(d) of the Act (15 U.S.C. 78n(d)) and the rules and 
regulations thereunder.
    (b) Conditions to be met. Rule 10b-18 purchases shall not be deemed 
to have violated the anti-manipulation provisions of sections 9(a)(2) 
or 10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or Sec.  240.10b-5 
under the Act, solely by reason of the time, price, or amount of the 
Rule 10b-18 purchases, or the number of brokers or dealers used in 
connection with such purchases, if the issuer or affiliated purchaser 
of the issuer effects the Rule 10b-18 purchases according to each of 
the following conditions:
    (1) One broker or dealer. Rule 10b-18 purchases must be made from 
or through only one broker or dealer on any single day; Provided, 
however, that:
    (i) The ``one broker or dealer'' condition shall not apply to Rule 
10b-18 purchases that are not solicited by or on behalf of the issuer 
or its affiliated purchaser(s); and
    (ii) Where Rule 10b-18 purchases are made by or on behalf of more 
than one affiliated purchaser of the issuer (or the issuer and one or 
more of its affiliated purchasers) on a single day, the issuer and all 
affiliated purchasers must use the same broker or dealer.
    (2) Time of purchases. (i) Rule 10b-18 purchases must not be the 
first (opening regular way purchase reported in the consolidated 
system; and
    (ii) Rule 10b-18 purchases of an issuer's security that has an ADTV 
value of $1 million or more and a public float value of $150 million or 
more must not be effected during any of the following periods:
    (A) The 10 minutes before the scheduled close of the primary 
trading session in the principal market for the security;
    (B) The 10 minutes before the scheduled close of the primary 
trading session in the market where the purchase is made; or
    (C) After the termination of the period in which last sale prices 
are reported in the consolidated system; and
    (iii) Rule 10b-18 purchases of an issuer's security that does not 
meet the criteria described in paragraph (b)(2)(ii) of this section 
must not be effected during any of the following periods:
    (A) The 30 minutes before the scheduled close of the primary 
trading session in the principal market for the security;
    (B) The 30 minutes before the scheduled close of the primary 
trading session in the market where the purchase is made, or
    (C) After the termination of the period in which last sale prices 
are reported in the consolidated system.
    (3) Price of purchases. (i) Rule 10b-18 purchases must be effected 
at a purchase price that does not exceed the highest independent bid or 
the last independent transaction price, whichever is higher, quoted or 
reported in the consolidated system; and
    (ii) For securities as to which bids and transaction prices are not 
quoted or reported in the consolidated system, Rule 10b-18 purchases 
must be effected at a purchase price that does not exceed the highest 
independent bid or the last independent transaction price, whichever is 
higher, displayed and disseminated on any national securities exchange 
or on any inter-dealer quotation system (as defined in Sec.  240.15c2-
11) that displays at least two priced quotations for the security. For 
all other securities, Rule 10b-18 purchases must be effected at a price 
no higher than the highest independent bid obtained from three dealers.
    (4) Volume of purchases. The total volume of Rule 10b-18 purchases 
(combining all Rule 10b-18 purchases by or for the issuer or any 
affiliated purchaser of the issuer for that day) effected on any single 
day must not exceed the higher of 25 percent of the ADTV for that 
security or 500 shares.
    (c) Alternative conditions. The conditions of paragraph (b) of this 
section shall apply in connection with a Rule 10b-18 purchase effected 
during a trading session following the

[[Page 77615]]

imposition of a market-wide trading suspension, except:
    (1) That the time of purchases condition in paragraph (b)(2) of 
this section shall not apply, either:
    (i) From the reopening of trading until the scheduled close of 
trading; or
    (ii) At the opening of trading on the next trading day until the 
scheduled close of trading that day, if a market-wide trading 
suspension was in effect at the close of trading on the preceding day; 
and
    (2) The volume of purchases condition in paragraph (b)(4) of this 
section is modified so that the amount of Rule 10b-18 purchases must 
not exceed 100 percent of the ADTV for that security.
    (d) Other purchases. Failure to meet any one of the Rule's 
conditions with respect to any Rule 10b-18 purchase will remove from 
the safe harbor all other Rule 10b-18 purchases for that day. However, 
no presumption shall arise that an issuer or an affiliated purchaser 
has violated the anti-manipulation provisions of sections 9(a)(2) or 
10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or Sec.  240.10b-5, 
if the Rule 10b-18 purchases of such issuer or affiliated purchaser do 
not meet the conditions specified in paragraph (b) or (c) of this 
section.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    7. The authority citation for part 249 is revised to read as 
follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.
    Section 249.220f is also issued under 15 U.S.C. 78m, 78w(a), and 
secs. 3(a), 302, 404 and 407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.240f is also issued under secs. 3(a), 302, 404 and 
407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.308 is also issued under 15 U.S.C. 80a-29 and secs. 
3(a), 302 and 404, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.308a is also issued under secs. 3(a), 302 and 404, 
Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.308b is also issued under secs. 3(a), 302 and 404, 
Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.310 is also issued under secs. 3(a), 302, 404 and 
407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.310b is also issued under secs. 3(a), 302, 404 and 
407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.326(T) is also issued under 15 U.S.C. 78m(f)(1).
    Section 249.330 is also issued under secs. 3(a), 302, 406, and 
407, Pub. L. No. 107-204, 116 Stat. 745.
    Section 249.331 is also issued under secs. 3(a), 302, 406, and 
407, Pub. L. No. 107-204, 116 Stat. 745.

    8. Amend Form 20-F, part I (referenced in Sec.  249.220f) by adding 
Item 15(e) to read as follows:

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 20-F

* * * * *

Part I

* * * * *

Item 15(e) Purchases of Equity Securities by the Issuer and 
Affiliated Purchasers

    (1) In the following tabular format, provide the information 
specified in paragraph (2) of this Item with respect to any purchase 
made by or on behalf of the issuer or any ``affiliated purchaser,'' 
as defined in Sec.  240.10b-18(a)(3), of shares or other units of 
any class of the issuer's equity securities that is registered by 
the issuer pursuant to section 12 of the Exchange Act (15 U.S.C. 
78l).

                                      Issuer Purchases of Equity Securities
----------------------------------------------------------------------------------------------------------------
                                                                                        (d) Maximum number (or
                  (a) Total number                         (c) Number of shares (or    approximate dollar value)
     Period         of shares (or     (b) Average price   units)  purchased as part    of shares (or units that
                  units)  purchased    paid per share      of a publicly  announced   may yet be purchased under
                                                               plan or program           the plans or programs
----------------------------------------------------------------------------------------------------------------
Month 1
----------------
Month 2
----------------
Month 3
                ---------------------
    Total
----------------------------------------------------------------------------------------------------------------

    (2) The table shall include the following information for each 
class or series of securities for each month included in the period 
covered by the report:
    (A) The total number of shares purchased (column (a)).
    (B) The average price paid per share (column (b)).
    (C) The number of shares purchased as part of a publicly 
announced repurchase plan or program (column (c)).
    (D) The maximum number (or approximate dollar value) of shares 
(or units) that may yet be purchased under the plans or programs 
(column (d)).

Instruction to Item 15(e)

    Disclose all purchases covered by this item, including purchases 
that do not satisfy the conditions of the safe harbor of Sec.  
240.10b-18.

Instruction to Paragraph (2)(A) of Item 15(e)

    Including in this column all issuer repurchases, including those 
made pursuant to publicly announced plans or programs and those not 
made pursuant to publicly announced plans or programs. Briefly 
disclose, by footnote to the table, the number of shares purchased 
other than through a publicly announced plan or program and the 
nature of the transaction (e.g., whether the purchases were made in 
open-market transactions, tender offers, in satisfaction of the 
company's obligations upon exercise of outstanding put options 
issued by the company, or other transactions).

Instruction to Paragraphs (2)(C) and (2)(D) of Item 15(e)

    1 In the table, disclose this information in the aggregate for 
all plans or programs publicly announced.
    2 By footnote to the table, indicate:
    (a) The date each plan or program was announced;
    (b) The dollar amount (or share amount) approved;
    (c) The expiration date (if any) of each plan or program;
    (d) Each plan or program that has expired during the period 
covered by the table;
    (e) Each plan or program the issuer has determined to terminate 
prior to expiration; and
    (f) Each plan or program the issuer has not purchased under 
during the period covered by the table and whether the issuer still 
intends to purchase under that plan or program.
* * * * *

    9. Amend Form 10-Q (referenced in Sec.  249.308a) by:
    a. Revising the heading for Item 2 in Part II;
    b. Designating the existing paragraph in Item 2 as paragraph (a); 
and
    c. Adding paragraph (b).
    The addition and revision reads as follows:

    Note: The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.


[[Page 77616]]



Form 10-Q

* * * * *

Part II--Other Information

* * * * *

Item 2. Use of Proceeds and Issuer Purchases of Equity Securities.

* * * * *
    (b) Furnish the information required by Item 703 of Regulation 
S-K (Sec.  229.703 of this chapter) for any repurchase made in the 
quarter covered by the report. Provide disclosures on a rolling-
monthly basis. For example, if the quarter began on January 15 and 
ended on April 15, the charge would show repurchases for the months 
from January 15 through February 14, February 15 through March 14, 
and March 15 through April 15.
* * * * *

    10. Amend Form 10-QSB (referenced in Sec.  249.308b) by:
    a. Revising the heading for Item 2 in Part II;
    b. Designating the existing paragraph in Item 2 as paragraph (a); 
and
    c. Adding paragraph (b).
    The revision and addition reads as follows.


    Note: The text of Form 10-QSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-QSB

* * * * *

Part II--Other Information

* * * * *

Item 2. Use of Proceeds and Small Business Issuer Purchases of 
Equity Securities

* * * * *
    (b) Furnish the information required by Item 703 of Regulation 
S-B (Sec.  228.703 of this chapter) for any repurchase made in the 
quarter covered by the report. Provide disclosures on a rolling-
monthly basis. For example, if the quarter began on January 15 and 
ended on April 15, the charge would show repurchases for the months 
from January 15 through February 14, February 15 through March 14, 
and March 15 through April 15.
* * * * *
    11. Amend Form 10-K (referenced in Sec.  249.310) by revising the 
heading for Item 5 in Part II by revising the caption and by adding 
paragraph (c) to read as follows:

    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-K

* * * * *

Part II

* * * * *

Item 5. Market for Registrant's Common Equity, Related Stockholder 
Matters and Issuer Purchases of Equity Securities

* * * * *
    (c) Furnish the information required by Item 703 of Regulation 
S-K (Sec.  229.703 of this chapter) for any repurchase made in a 
month within the fourth quarter of the fiscal year covered by the 
report. Provide disclosures covering repurchases made on a rolling-
monthly basis. For example, if the fourth quarter began on January 
15 and ended on April 15, the chart would show repurchases for the 
months from January 15 through February 14, February 15 through 
March 14, and March 15 through April 15.
* * * * *

    12. Amend Form 10-KSB (referenced in Sec.  249.310b) by revising 
the heading for Item 5 in Part II and by adding paragraph (c) to read 
as follows:


    Note: The text of Form 10-KSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-KSB

* * * * *

Part II

* * * * *

Item 5. Market for Common Equity, Related Stockholder Matters and 
Small Business Issuer Purchases of Equity Securities

* * * * *
    (c) Furnish the information required by Item 703 of Regulation 
S-B (Sec.  228.703 of this chapter) for any repurchase made in a 
month within the fourth quarter of the fiscal year covered by the 
report. Provide disclosures covering repurchases made on a rolling-
monthly basis. For example, if the fourth quarter began on January 
15 and ended on April 15, the chart would show repurchases for the 
months from January 15 through February 14, February 15 through 
March 14, and March 15 through April 15.
* * * * *

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

    13. The authority citation for part 274 is amended by adding the 
following citations to read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise 
noted.
    Section 274.101 is also issued under secs. 3(a), 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 274.128 is also issued under secs. 3(a), 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    14. Form N-CSR (referenced in Sec. Sec.  249.331 and 274.128) is 
amended by:
    a. Redesignating Items 6 and 7 as Items 7 and 8;
    b. Removing ``Item 7(b)'' from General Instruction D and in its 
place adding ``Item 7(b)'';
    c. Removing ``Item 6(a)'' from Instruction to Item 3(a) and 
Instruction 1 to Item 4 and in its place adding ``Item 8(a)''; and
    d. Adding a new Item 6 to read as follows:

    Note: The text of Form N-CSR does not, and its amendment will 
not, appear in the Code of Federal Regulations.

Form N-CSR

* * * * *

Item 6. Purchases of Equity Securities by Closed-End Management 
Investment Company and Affiliated Purchasers

    (a) If the registrant is a closed-end management investment 
company, in the following tabular format, provide the information 
specified in paragraph (b) of this Item with respect to any purchase 
made by or on behalf of the registrant or any ``affiliated 
purchaser,'' as defined in Rule 10b-18(a)(3) under the Securities 
Exchange Act of 1934 (17 CFR 240.10b-18(a)(3)), of shares or other 
units of any class of the registrant's equity securities that is 
registered by the registrant pursuant to section 12 of the 
Securities Exchange Act of 1934 (15 U.S.C. 781).

                                                        Registrant Purchases of Equity Securities
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               (e) Maximum number (or
                               (a) Total number of                         (c) Identity of      (d) Number of shares (or     approximate dollare value)
            Period              shares (or units)    (b) Average price     broker-dealer(s)    units) purchased as part of    of shares (or units) that
                                    purchased       per share (or unit)     used to effect     publicly announced plans or   may yet be purchased under
                                                                              purchases                 programs               the plans or  programs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Month 1
(Identify beginning and
 ending dates)
------------------------------

[[Page 77617]]

 
Month 2
(Identify beginning and
 ending dates)
------------------------------
Month 3
(Identify beginning and
 ending dates)
------------------------------
Month 4
(Identify beginning and
 ending dates)
------------------------------
Month 5
(Identify beginning and
 ending dates)
------------------------------
Month 6
(Identify beginning and
 ending dates)
                              ----------------------
    Total
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (b) The table shall include the following information for each 
class or series of securities for each month included in the period 
covered by the report.
    (1) The total number of shares purchased (column (a)).
    (2) The average price paid per share (column (b)).
    (3) The identity of any broker-dealer(s) that effected the 
purchases (column (c)).
    (4) The number of shares purchased as part of a publicly 
announced repurchase plan or program (column (d)).
    (5) The maximum number (or approximate dollar value) of shares 
(or units) that may yet be purchased under the plans or programs 
(column (e)).

General Instruction

    Disclose all purchases covered by this Item, including purchases 
that do not satisfy the conditions of the safe harbor of Rule 10b-18 
under the Securities Exchange Act of 1934 (17 CFR 240.10b-18), made 
in the period covered by the report.
    Instruction to paragraph (b)(1). Include in this column all 
repurchases by the registrant, including those made pursuant to 
publicly announced plans or programs and those not made pursuant to 
publicly announced plans or programs. Briefly disclose, by footnote 
to the table, the number of shares purchased other than through a 
publicly announced plan or program and the nature of the transaction 
(e.g., whether the purchases were made in open-market transactions, 
tender offers, in satisfaction of the registrant's obligations upon 
exercise of outstanding put options issued by the registrant, or 
other transactions.)

Instruction to Paragraphs (b)(4) and (b)(5)

    1 In the table, disclose this information in the aggregate for 
all plans or programs publicly announced.
    2 By footnote to the table, indicate:
    a. The date each plan or program was announced;
    b. The dollar amount (or share amount) approved;
    c. The expiration date (if any) of each plan or program;
    d. Each plan or program that has expired during the period 
covered by the table;
    e. Each plan or program the registrant has determined to 
terminate prior to expiration; and
    f. Each plan or program the registrant has not purchased under 
during the period covered by the table and whether the registrant 
still intends to purchase under that plan or program.
* * * * *

    Dated: December 10, 2002.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-31656 Filed 12-17-02; 8:45 am]
BILLING CODE 8010-01-P