[Federal Register Volume 68, Number 221 (Monday, November 17, 2003)]
[Rules and Regulations]
[Pages 64952-64976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28593]



[[Page 64951]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 228, et al.



Purchases of Certain Equity Securities by the Issuer and Others; Direct 
Final Rule

  Federal Register / Vol. 68, No. 221 / Monday, November 17, 2003 / 
Rules and Regulations  

[[Page 64952]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 228, 229, 240, 249, 270, and 274

[Release Nos. 33-8335; 34-48766; IC-26252; File No. S7-50-02]
RIN 3235-AH37


Purchases of Certain Equity Securities by the Issuer and Others

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to Rule 10b-18 under the Securities 
Exchange Act of 1934 (Exchange Act), which 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 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, we also are adopting amendments to a number of 
regulations and forms to 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: Effective Date: December 17, 2003, except Sec. Sec.  270.23c-
1(a)(11) and 274.201 are effective July 15, 2004.
    Compliance Dates: The following compliance dates apply to the 
amendments that require periodic disclosure of all issuer repurchases. 
The repurchase disclosure required by new Item 2(e) of Forms 10-Q and 
10-QSB and new Item 5(c) of Forms 10-K and 10-KSB must appear in 
reports filed on these forms for periods ending on or after March 15, 
2004. The disclosure required by new Item 16E of Form 20-F must appear 
in Form 20-F reports filed for fiscal years ending on or after December 
15, 2004.
    The repurchase disclosure required by new Item 8 and Item 10(a)(3) 
of Form N-CSR must appear in reports filed on this form by registered 
closed-end management investment companies for periods ending on or 
after June 15, 2004. A registered closed-end management investment 
company need not file reports on Form N-23C-1 with respect to any 
repurchases during any calendar month following June 2004.

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 disclosure amendments, Sean 
Harrison, Special Counsel, Office of Rulemaking, 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 and Exchange 
Commission, 450 Fifth Street, NW, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to Rule 10b-18 
under the Exchange Act [17 CFR 240.10b-18], Regulations S-K and S-B [17 
CFR 229.703 and 228.703], 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], 
and 20-F [17 CFR 249.220f], Form N-CSR under the Exchange Act and the 
Investment Company Act of 1940 (Investment Company Act) [17 CFR 249.331 
and 274.128], and Rule 23c-1 [17 CFR 270.23c-1], and Form N-23C-1 [17 
CFR 274.201] under the Investment Company Act.

I. Introduction

    On December 10, 2002, we proposed amendments to Rule 10b-18, 
Regulations S-K and S-B, Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F, and N-
CSR,\1\ which would:
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    \1\ Securities Exchange Act Release No. 46980 (December 10, 
2002), 67 FR 77594 (December 18, 2002) (Proposing Release).
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    [sbull] Modify the definition of a ``Rule 10b-18 purchase'' to 
incorporate the current ``Rule 10b-18 bid'' definition;
    [sbull] Clarify the scope of the exclusion for purchases effected 
``pursuant to a merger, acquisition, or similar transaction involving a 
recapitalization'';
    [sbull] Modify the timing condition by applying an average daily 
trading volume (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 does not exceed the highest 
independent bid or the last independent transaction price, whichever is 
higher;
    [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] Apply an alternative volume condition (applicable only 
during the trading session immediately following a market-wide trading 
suspension), which would increase the 25% volume limitation to 100%; 
and
    [sbull] Amend Regulations S-K and S-B, and Forms 10-Q, 10-QSB, 10-
K, 10-KSB, and 20-F under the Exchange Act, and 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.
    We received letters from 43 commenters in response to the Proposing 
Release.\2\ The commenters expressed strong support for the proposed 
amendments to update and simplify the language of Rule 10b-18, to 
expand the safe harbor to allow issuers \3\ whose securities are less 
susceptible to manipulation to stay in the market longer, and to 
repurchase a greater amount of shares during periods of severe market 
decline. Most of the commenters also supported the proposal to require 
periodic disclosure of issuer repurchases. However, commenters 
generally opposed the proposal to eliminate the ``block exception'' 
from the Rule's volume condition, as well as the proposal to exclude 
from the safe harbor repurchases made following the announcement of a 
merger, acquisition, or similar transaction involving a 
recapitalization, until completion of the transaction (the ``merger 
exclusion'').
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    \2\ Comment letters were received from, among others, 21 
issuers, eight professional associations, five law firms, three 
broker-dealers, and two asset/investment management companies. The 
comment letters and a summary of comments prepared by the Division 
of Market Regulation have been placed in Public File No. S7-50-02, 
which are available for public inspection in the Commission's Public 
Reference Room and at http://www.sec.gov.
    \3\ The safe harbor is also available for ``affiliated 
purchasers'' of the issuer. In this Release, the term ``issuer'' 
includes affiliated purchasers.
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    After considering the comments received, and upon thorough 
examination of current market practices and the purposes underlying the 
safe harbor, we are adopting the amendments substantially as proposed, 
but with some modifications to clarify provisions or to address 
commenters' concerns (particularly with respect to the ``block 
exception'' and the ``merger exclusion''), as discussed below. In 
response to comments received, we also are adopting an amendment that 
will extend the safe harbor for certain issuer repurchases effected 
during after-hours trading sessions.

[[Page 64953]]

II. Overview of Current Rule 10b-18

A. Rule 10b-18 as a ``Safe Harbor''

    In 1982, the Commission adopted Rule 10b-18,\4\ which provides that 
an issuer will not be deemed to have violated Sections 9(a)(2) and 
10(b) of the Exchange Act, and Rule 10b-5 under the Exchange Act, 
solely by reason of the manner, timing, price, or volume of its 
repurchases, if the issuer repurchases its common stock in the market 
in accordance with the safe harbor conditions.\5\ 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.
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    \4\ Securities Exchange Act Release No. 19244 (November 17, 
1982), 47 FR 53333, 53334 (November 26, 1982) (1982 Adopting 
Release). Since 1967, the Commission has considered on several 
occasions the issue of whether to regulate an issuer's market 
purchases 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 (December 6, 1973), 38 FR 
34341 (December 13, 1973); and 17222 (October 17, 1980), 45 FR 70890 
(October 27, 1980) (1980 Proposing Release).
    \5\ However, some repurchase activity that meets the safe harbor 
conditions may still violate the anti-fraud and anti-manipulation 
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 4, at 47 FR 53333. Thus, regardless of whether an 
issuer's repurchases technically satisfy the conditions of the Rule, 
the safe harbor is not available if the repurchases are fraudulent 
or manipulative, when viewed in the totality of the facts and 
circumstances surrounding the repurchases (i.e., facts and 
circumstances in addition to the volume, price, time, and manner of 
the repurchases).
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    Although the safe harbor conditions are intended to offer issuers 
guidance 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 bids or 
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.
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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 repurchasing securities other than common stock.
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B. Scope of the Current Rule

    Rule 10b-18 applies to bids for and purchases of an issuer's common 
stock by or for an issuer.\7\ Purchases of any other type of security 
are not covered--even if related to the common stock (e.g., preferred 
stock, warrants, rights, convertible debt securities, options, or 
security futures products).\8\ Because Rule 10-18 is not intended to 
apply in contexts where the issuer has a heightened incentive to 
manipulate the market price of its securities, the safe harbor excludes 
issuer bids and purchases made during certain corporate events, for 
example, during 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 that the 
repurchases are made within the limitations of the Rule.
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    \7\ 17 CFR 240.10b-18(a)(3) and (4).
    \8\ The safe harbor also is not available for issuers 
repurchasing their stock using forward contracts or accelerated 
share repurchase programs. Nor is the safe harbor available for an 
issuer's put writing, call purchasing, or purchases of stock upon 
exercise of such puts and calls.
    \9\ 17 CFR 240.10b-18(a)(3)(i)-(vii).
    \10\ See supra note 5.
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C. Conditions of the Current 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 or dealer if the issuer 
does not solicit the transactions. An issuer must evaluate whether a 
transaction is ``solicited'' by or on behalf of the issuer, depending 
on the facts and circumstances of each case.\13\
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    \12\ 1980 Proposing Release, supra note 4, 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 of an issuer. 
See 1982 Adopting Release, supra note 4, 47 FR at 53337.
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    Moreover, where an issuer engages a single coordinating broker or 
dealer to make its Rule 10b-18 purchases, the broker or dealer can make 
(consistent with the single broker or dealer condition) appropriate and 
customary arrangements with other brokers or dealers, including 
exchange specialists, or ``two-dollar'' brokers on exchange floors to 
execute repurchases.\14\
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    \14\ See 1980 Proposing Release, supra note 4, 45 FR at 70898. 
See also Letter regarding Optimark System (February 10, 2000) 
(stating that, consistent with the Rule's single broker or dealer 
condition, an issuer could utilize one or more clearing brokers 
solely for purposes of clearing and settling executed Rule 10b-18 
purchases).
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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. Currently, 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

[[Page 64954]]

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) currently provides that an issuer's 
purchase may not be the opening transaction reported to the 
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). These limitations apply regardless of a 
security's trading characteristics (e.g., liquidity or daily trading 
volume). 17 CFR 240.10b-18(b)(2)(i)-(iii). 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. ``Other'' securities (i.e., 
securities that do not meet the definition of ``reported 
securities'' under the current Rule, such as OTC Bulletin Board 
(``OTCBB'') and Pink Sheet securities) do not have timing 
restrictions under the safe harbor. 17 CFR 240.10b-18 (b)(2).
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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,'' (as defined 
under the current Rule) 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 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\ 17 CFR 240.10b-18(b)(3).
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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 4, 45 FR 70890.
    \19\ A market can be manipulated even in the absence of price 
leadership. Following the market closely with purchases 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 1980 Proposing Release, supra note 4, 45 FR 
70890; 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 manipulation).
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    Under the current volume condition, an issuer may effect daily 
purchases in an amount up to 25% of the ADTV in its shares (the ``25% 
volume limitation'').\20\ However, the current 25% volume limitation 
does not include an issuer's block purchases. Moreover, an issuer's 
block purchases are not included in determining a security's four-week 
ADTV under the Rule.\21\ The current 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'' under the current Rule. 17 
CFR 240.10b-18(b)(4). For ``other securities'' under the current 
Rule (e.g., 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. 17 CFR 240.10b-18(b)(4). Trading 
volume is currently defined 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).
    \22\ 17 CFR 240.10b-18(a)(14).
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    The definition also 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, 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\

III. Amendments to Rule 10b-18

A. Amendments Concerning the Scope of the Safe Harbor

1. Preliminary Notes to Rule 10b-18
    We are adopting the two preliminary notes to Rule 10b-18 as 
proposed. The first note explains that, as a safe harbor, compliance 
with Rule 10b-18 is voluntary. However, to come within the safe harbor, 
an issuer's repurchases must satisfy (on a daily basis) each of the 
Rule's four conditions. Failure to meet any one of the four conditions 
removes all of the issuer's repurchases from the safe harbor for that 
day. Because we are adopting this sentence as part of the preliminary 
notes to the Rule, we have decided that it is unnecessary to also 
include this sentence in paragraph (d), as we had originally proposed. 
The note also states that the safe harbor is not available for 
repurchases that, although made in technical compliance with the Rule, 
are part of a plan or scheme to evade the federal securities laws.\24\
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    \23\ 17 CFR 240.10b-18(a)(14).
    \24\ See Adopted Preliminary Notes to Rule 10b-18. See also 1982 
Adopting Release, supra note 4 and text accompanying supra note 5. 
While an issuer will not be deemed to have violated Sections 9(a)(2) 
or 10(b) of the Exchange Act, or Exchange Act Rule 10b-5 solely by 
reason of the manner, timing, price, or volume of such repurchases 
if they are made in compliance with the safe harbor conditions, the 
safe harbor is not available if the repurchases are fraudulent or 
manipulative, when viewed in the totality of the facts and 
circumstances surrounding the repurchases (i.e., facts and 
circumstances in addition to the volume, price, time, and manner of 
the repurchases).
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    The second note states that, regardless of whether the repurchases 
are effected in accordance with Rule 10b-18, reporting issuers must 
comply with the new disclosure provisions, i.e., Item 703 of 
Regulations S-K and S-B and Item 15(e) of Form 20-F (regarding foreign 
private issuers), and closed-end management investment companies that 
are registered under the Investment Company Act (``closed-end funds'') 
must comply with Item 8 of Form N-CSR.
2. Eligible Securities
    While not making any substantive changes to the scope of the Rule, 
we are adopting the proposed amendment to merge the current definition 
of ``Rule 10b-18 bid'' \25\ into the definition of ``Rule 10b-18 
purchase'' and to clarify that the safe harbor is available for 
repurchases of all common equity 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). 
Thus, as adopted, ``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.\26\
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    \25\ ``Rule 10b-18 bid'' is currently defined as a bid for 
securities that, if accepted, or a limit order that, if executed, 
would result in a Rule 10b-18 purchase. See 17 CFR 240.10b-18(a)(4).
    \26\ Amended Rule 10b-18(a)(13).
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3. Availability of Rule 10b-18 Once a Merger, Acquisition, or Similar 
Transactions Involving a Recapitalization Is Announced
    We proposed to amend the definition of ``Rule 10b-18 purchase'' to 
clarify that the current exception for purchases effected ``pursuant to 
a merger, acquisition, or similar transaction

[[Page 64955]]

involving a recapitalization'' includes purchases effected during the 
period from the time of public announcement \27\ of the merger, 
acquisition, or similar transaction involving a recapitalization, until 
the completion of such transaction.\28\ Once a merger or acquisition is 
announced, an issuer has considerable incentive to support or raise the 
market price of its stock in order to facilitate the merger or 
acquisition. For example, in a recent contested takeover, several news 
articles suggested that the banks repurchased their respective 
securities in order to boost their stock price to enhance the value of 
their competing merger proposals.\29\
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    \27\ ``Public announcement'' is any oral or written 
communication by any participant that is reasonably designed to, or 
has the effect of, informing the public or security holders in 
general about the business combination transaction. See 17 CFR 
230.165(f).
    \28\ This includes 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. See 
Proposing Release, supra note 1.
    \29\ See, e.g., Jeffrey N. Gordon, ``Reviewing the New Merger 
Accounting Regime,'' New York Law Journal, at 1 (July 19, 2001) 
(stating that in the contest between First Union and SunTrust for 
Wachovia, all three banks have engaged in share buybacks in ways 
that affected the comparative deal prices). See also Liz Moyer, 
``SEC Rule May Hinder SunTrust: Buyback to Boost Stock Price Could 
be a Violation,'' American Banker, at 1 (June 28, 2001).
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    Some of the commenters, however, argued that the proposed amendment 
would drastically expand the scope of the current exclusion and that 
Regulation M's restricted periods \30\ and other federal and state laws 
adequately address any manipulative concerns.\31\ These commenters also 
argued that, because regulatory approvals for mergers may take several 
months, the proposed merger exclusion would keep issuers out of the 
market far longer than necessary.\32\ Other commenters argued that the 
proposed amendment should not apply to all cash mergers; after the 
shareholder vote in a merger; after the exchange ratio is fixed; or 
after the valuation period expires.\33\
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    \30\ See note 36, infra.
    \31\ See, e.g., comment letters from Committee on Federal 
Regulation of Securities, Section of Business Law of the American 
Bar Association (Fed. Reg. Committee) and Merrill Lynch, Pierce, 
Fenner & Smith, Incorporated (Merrill).
    \32\ See comment letters from Citigroup; Committee on 
Corporation Law of the Association of the Bar of the City of New 
York (Corp. Law Committee); Fed. Reg. Committee; Intel Corporation 
(Intel); Merrill; Sullivan & Cromwell, LLP (Sullivan); Valero Energy 
Corporation (Valero); Wachtell, Lipton, Rosen & Katz (Wachtell); 
Wal-Mart Stores, Incorporated (Wal-Mart); and Wells Fargo (Wells).
    \33\ See, e.g., comment letters from Cardinal Health; Dell 
Computer Corporation (Dell); Intel; Morgan Stanley; Sullivan; 
Valero; Wachtell; Wal-Mart; and Wells.
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    After considering the comments, and in view of the fact that we are 
limiting the amount that can be repurchased within the safe harbor (as 
discussed below and in Section III.B.6 of this Release), we have 
determined that it is not necessary to exclude from the safe harbor all 
issuer repurchase activity following the announcement of a merger, 
acquisition, or similar transaction involving a recapitalization. 
Instead, as adopted in 10b-18(a)(13)(iv), the merger exclusion applies 
to purchases that are effected during the period from the time of 
public announcement of a merger, acquisition, or similar transaction 
involving a recapitalization, until the earlier of the completion of 
such transaction or the completion of the vote by target shareholders 
(including 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),\34\ with the following 
exceptions.
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    \34\ This includes during the period following the vote by 
target security holders but before an election period. However, the 
safe harbor would be available after a shareholder vote is completed 
in instances where the only pending issue is regulatory approval or 
other action that could not influence the market price of the 
issuer's security.
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    The exclusion does not extend to transactions in which the 
consideration is solely cash and there is no valuation period (i.e., 
where the issuer has little or no incentive to manipulate the market 
price of its securities).\35\ We also recognize that some issuers may 
desire to carry out ordinary repurchases (i.e., purchases not made in 
connection with or relating to the merger or other covered transaction) 
during what could be an extended period of time until completion of the 
transaction. Thus, we are modifying the proposed merger exclusion to 
allow ordinary Rule 10b-18 purchases to be effected after the 
announcement of a merger or covered transaction (subject to Regulation 
M's restricted period \36\ and any other applicable restrictions) so 
long as the total amount of the issuer's Rule 10b-18 purchases effected 
on any single day does not exceed the lesser of 25% of the security's 
four-week ADTV or the issuer's average daily Rule 10b-18 purchases 
during the three full calendar months preceding the date of the 
announcement of the merger or other covered transaction.\37\ Moreover, 
the issuer may effect block purchases pursuant to paragraph (b)(4) of 
the Rule (subject to Regulation M's restricted period and any other 
applicable restrictions) provided that the issuer does not exceed the 
average size and frequency of block purchases effected pursuant to 
paragraph (b)(4) of the Rule during the three full calendar months 
preceding the date of the announcement of such transaction.\38\
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    \35\ Amended Rule 10b-18 (a)(13)(iv)(A).
    \36\ In the case of a distribution involving a merger, 
acquisition, or exchange offer, Regulation M's restricted period 
begins on the day the proxy solicitation or offering materials are 
first disseminated to security holders, and ends upon the completion 
of the distribution (i.e., the time of the shareholder vote or the 
expiration of the exchange offer), and includes any post-vote 
valuation or election period. 17 CFR 242.100. In addition, Rule 14e-
5 under the Exchange Act prohibits purchases or arrangements to 
purchase securities that are the subject of an exchange offer, or a 
security immediately convertible into or exchangeable for those 
securities, from the time of public announcement until the 
expiration of the exchange offer. 17 CFR 240.14e-5.
    While not making any substantive changes, we are shortening the 
language in subsection (a)(13)(i) (regarding purchases made during a 
Rule 102 of Regulation M restricted period) to read simply: 
``effected during the applicable restricted period of a distribution 
that is subject to Section 242.102 of this chapter.''
    \37\ Amended Rule 10b-18 (a)(13)(iv)(B)(1). This latter 
calculation is different from ADTV, as defined in Amended Rule 10b-
18 (a)(1).
    \38\ Amended Rule 10b-18 (a)(13)(iv)(B)(2). For example, if the 
daily average amount of the issuer's Rule 10b-18 purchases over the 
course of the three full calendar months prior to the merger 
announcement was 10,000 shares per day, and 25% of the security's 
four-week ADTV is 20,000 shares per day, then the issuer could 
purchase up to 10,000 shares per day during the post-announcement 
period. Accordingly, if the issuer did not make any Rule 10b-18 
purchases during this three-month period, it would not be permitted 
to make any Rule 10b-18 purchases during the post-announcement 
period.
    In addition, if the issuer made block purchases within the safe 
harbor (pursuant to paragraph (b)(4) of the amended Rule) over the 
course of the three full calendar months prior to the announcement 
of a merger or other covered transaction, then the issuer may make 
block purchases within the safe harbor with the same average size 
and frequency during the post-announcement period. For example, if a 
thinly traded issuer purchased three blocks over the course of the 
three full calendar months prior to a merger announcement (an 
average of one block per month) and the average block size was 7,800 
shares, then the issuer could purchase a block no larger than 7,800 
shares each month during the post-announcement period (subject to 
other applicable restrictions). If the issuer did not make any block 
purchases under the amended block exception during the three-month 
period, the issuer could not utilize the amended block exception 
during the post-announcement period.
    Issuers are reminded that the safe harbor is not available for 
repurchases that, although made in technical compliance with the 
Rule, are fraudulent or manipulative, when viewed in the totality of 
the facts and circumstances surrounding the repurchases. See Adopted 
Preliminary Notes to Rule 10b-18. See also 1982 Adopting Release, 
supra note 4, and text accompanying supra notes 5 and 24.
---------------------------------------------------------------------------

    We believe that limiting the amount an issuer may repurchase 
following the announcement of a merger or other covered transaction 
will safeguard against the heightened potential for manipulative abuse 
during this sensitive

[[Page 64956]]

period--without us having to exclude all issuer repurchase activity 
from the safe harbor. The revised language strikes a balance between 
safeguarding against the heightened potential for manipulative abuse 
and the need for issuers to have the safe harbor available for routine 
repurchase activity. We believe this approach will foster market 
integrity while providing issuers with the ability to make purchases in 
the ordinary course and the flexibility to purchase outside the safe 
harbor if they choose to do so.\39\
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    \39\ For example, an issuer is free to repurchase its 
securities, although not in reliance on the safe harbor, between the 
time of the announcement of a merger or other covered transaction 
and beginning of the Regulation M restricted period tied to the 
proxy mailing. As with any non-safe harbor repurchase, there is no 
presumption of manipulation. Moreover, repurchases by independent 
agents for plans also can continue throughout this period (as these 
repurchases would not be attributable to the issuer).
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    We received other comments suggesting further changes that we have 
not incorporated into the amended Rule because we continue to believe 
that issuers may have an incentive to manipulate in the situations 
raised by commenters. For example, some commenters suggested the safe 
harbor should be available for transactions that the issuer deems 
immaterial. They also expressed concern that, in addition to lengthy 
regulatory delays, multiple, overlapping transactions would similarly 
preclude an issuer from relying on the safe harbor for extensive time 
periods.
    Materiality is judged from the perspective of a reasonable 
investor, not a subjective issuer.\40\ Under this standard, the 
transaction may be material regardless of whether the issuer deems it 
material. We also recognize that, under the merger exclusion language, 
an issuer conducting multiple acquisitions may experience a long time 
period in which the safe harbor is unavailable. While this time period 
may be long, the issuer may have a heightened incentive to manipulate 
the price of its stock.\41\ Accordingly, with the exception of the 
repurchases made pursuant to the merger exclusion (as described above) 
or during an all-cash transaction, we do not believe that it is 
appropriate to make the safe harbor available after announcement of a 
merger or other covered transaction, even in situations where the 
period of unavailability is longer than average.
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    \40\ See, e.g., TSC Industries, Inc. v. Northway, Inc., 426 U.S. 
438, 449 (1976).
    \41\ During that time, for example, the issuer may try to 
maintain or increase its stock price in order to defend against a 
hostile bidder.
---------------------------------------------------------------------------

    In summary, Rule 10b-18 is intended to protect issuer repurchases 
from manipulation charges when the issuer has no special incentive to 
interfere with the ordinary forces of supply and demand affecting its 
stock price. Therefore, it is not appropriate for the safe harbor to be 
available when the issuer has a heightened incentive to manipulate its 
share price. As discussed above, in these circumstances, issuers have 
the flexibility to purchase outside the safe harbor (unless constrained 
by other provisions of law) without any presumption that they are 
engaged in manipulation. While issuers argue that they are reluctant to 
repurchase outside the safe harbor, we do not find that argument 
sufficiently persuasive to make the safe harbor available where there 
is the heightened potential for issuer manipulation.
4. Repurchases Effected Outside the United States
    In the Proposing Release, we sought comment as to whether the Rule 
10b-18 safe harbor should apply to issuer repurchases effected in 
markets outside of the United States. While the safe harbor currently 
applies only to issuer repurchases effected in the United States, a few 
commenters suggested that we amend Rule 10b-18 to apply to non-U.S. 
markets.\42\ One commenter urged us to extend the safe harbor to bids 
and purchases in non-U.S. markets, with the price, volume, timing, and 
manner conditions modified so as to apply on a market-by-market basis 
in order to address certain practical problems associated with shares 
traded in multiple markets around the world.\43\ Another commenter, 
however, stated that issuers are presently comfortable accessing 
liquidity outside the United States without having to extend the safe 
harbor.\44\
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    \42\ See comment letters from Cleary, Gottlieb, Steen & Hamilton 
(Cleary); Fed. Reg. Committee; and Sullivan.
    \43\ See comment letter from Fed. Reg. Committee.
    \44\ See comment letter from Merrill.
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    After considering the comments, we have determined not to extend 
the safe harbor to issuer repurchases effected outside of the United 
States. The safe harbor was crafted based on the manner in which the 
securities markets operate in United States. We do not believe 
currently that a workable rule could be created for universal 
application both inside and outside the United States, without 
unnecessarily complicating or undermining the utility of the safe 
harbor. Nor is there currently a practical way for us to adequately 
monitor the impact of an issuer's repurchase activity outside the 
United States. Moreover, many of the non-U.S. markets have their own 
rules and disclosure requirements regarding issuer repurchase activity, 
some of which also provide a safe harbor, which should provide issuers 
with sufficient guidance and protection when repurchasing their 
securities outside the United States. Finally, there is no presumption 
that purchases made without benefit of the safe harbor are 
manipulative.
5. Purchases by or for Affiliated Purchasers
    The safe harbor applies to Rule 10b-18 purchases made by or for an 
``affiliated purchaser'' of the issuer. An ``affiliated purchaser'' of 
the issuer is currently defined as a person acting in concert \45\ with 
the issuer for the purpose of acquiring the issuer's securities, or any 
affiliate \46\ that, directly or indirectly, controls the issuer's Rule 
10b-18 purchases, whose purchases are controlled by, or are under 
common control with, those of the issuer.\47\ The term ``affiliated 
purchaser,'' however, does not include a broker, dealer, or other 
person solely by his effecting Rule 10b-18 purchases on behalf of the 
issuer (or for the issuer's account), or an officer or director of the 
issuer solely by his participation in the decision to authorize the 
issuer to effect Rule 10b-18 purchases.
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    \45\ 17 CFR 240.10b-18(a)(2)(i). The ``acting in concert'' 
standard currently 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 4, 45 FR at 70895.
    \46\ ``Affiliate'' is currently 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).
    \47\ 17 CFR 240.10b-18(a)(2)(i) and (ii).
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    We believe the current definition of ``affiliated purchaser'' has 
proved to be a workable one, and that an expanded, more complex 
definition, would unnecessarily complicate the Rule. Therefore, we are 
not revising the definition of ``affiliated purchaser'' at this time, 
except to add the words ``directly or indirectly'' to the ``acting in 
concert'' language in subparagraph (a)(3)(i) of the Rule in order to 
make it consistent with the ``acting in concert'' language in 
Regulation M.\48\
---------------------------------------------------------------------------

    \48\ See 17 CFR 242.100.
---------------------------------------------------------------------------

B. Amendments to the Purchasing Conditions

1. Manner of Rule 10b-18 Purchases
    While we did not propose making any substantive changes to the 
``single broker or dealer'' condition, several commenters asked us to 
clarify the application of the single broker or dealer

[[Page 64957]]

condition to issuer repurchases effected through electronic 
communication networks (ECNs) or other alternative trading systems 
(ATSs) (which are registered as broker-dealers).\49\ We believe that, 
consistent with the Rule's single broker or dealer condition, issuers 
can effect repurchases through an ECN (or other ATS) directly. Issuers, 
however, cannot use both an ECN (or other ATS) directly and a non-ECN 
(or other non-ATS) broker-dealer on any single day, as this could 
create the perception of widespread demand. If the issuer chooses to 
use a non-ECN (or other non-ATS) broker-dealer to conduct all its 
repurchase activity on a particular day, however, that broker-dealer 
can access ECN (or other ATS) liquidity on behalf of the issuer on that 
day.\50\ In this regard, the ECN (or other ATS) would simply be acting 
in its capacity as an execution venue or market center.
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    \49\ See Regulation ATS, 17 CFR 242.300.
    \50\ See amended Rule 10b-18(b)(1)(iii).
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2. Time of Purchases
    We are adopting the proposed amendments that add 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.\51\ Commenters expressed overwhelming 
support for expanding the safe harbor's timing condition to allow 
issuers whose securities are more liquid and, thus, less susceptible to 
manipulation to stay in the market longer. As adopted, limitations on 
purchases at the close would vary (i.e., either 10 or 30 minutes before 
the scheduled close of trading) depending on the security's ADTV value 
and public float value. The timing modifications are designed to 
reflect the relative liquidity of the security and, therefore, the 
likelihood of an issuer that is active in the market affecting the 
closing price.\52\ As such, the modifications recognize that the 
current Rule's last half-hour restriction (i.e., that limits an issuer 
from repurchasing its securities during the 30 minutes before the 
scheduled close of trading) 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 modifications 
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.
---------------------------------------------------------------------------

    \51\ See amended Rule 10b-18(b)(2). See also Proposing Release, 
supra note 1.
    \52\ One concern we are addressing 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 4, 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 Release No. 
36556 (December 6, 1995), 60 SEC Docket 2589; Myron S. Levin, 
Securities Exchange Act Release No. 31124 (September 1, 1992); 
S.E.C. v. John G. Broumas, Civil Action No. 91-2449 (D.D.C.), 
Litigation Release No. 12999 (September 27, 1991).
---------------------------------------------------------------------------

    As adopted, 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),\53\ may not bid for or purchase their securities 
during the last ten minutes before the scheduled close of the primary 
trading session (i.e., 9:30 a.m.-4 p.m. price discovery session) in the 
principal market for the security, and during the last ten minutes 
before the scheduled close of the primary trading session in the market 
where the purchase is made.\54\ These modifications allow issuers of 
more actively traded securities, which are considered to be less 
susceptible to manipulation, to stay in the market longer.
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    \53\ Amended Rule 10b-18(b)(2)(ii). The timing amendment 
incorporates 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). We selected $150 million for the public float 
value test because 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, are considered to 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 
(January 3, 1997). Moreover, the public float value test is intended 
in part to exclude issuers from the ``actively-traded securities'' 
category 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.
    \54\ Amended Rule 10b-18(b)(2)(ii). This means that an issuer 
may not purchase in any market during the specified periods.
---------------------------------------------------------------------------

    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) may not bid for or purchase their securities during the 
last 30 minutes before the scheduled close of the primary trading 
session in the principal market for the security, and during the last 
30 minutes before the scheduled close of the primary trading session in 
the market where the purchase is made.\55\
---------------------------------------------------------------------------

    \55\ Amended Rule 10b-18(b)(2)(iii).
---------------------------------------------------------------------------

    We had proposed to explicitly exclude Rule 10b-18 purchases ``after 
the termination of the period in which last sale prices are reported in 
the consolidated system'' in order to emphasize that the safe harbor 
applies only to reported, open market purchases.\56\ However, since the 
period ``after termination'' necessarily would be outside the safe 
harbor, we believe the proposed amendment is unnecessary and, 
therefore, we are not adding this language to the timing condition.
---------------------------------------------------------------------------

    \56\ See Proposing Release, supra note 1.
---------------------------------------------------------------------------

    In the Proposing Release, we also sought comment as to whether the 
Rule's timing condition should 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 transaction. Only one commenter favored 
this proposal. However, because the opening transaction continues to 
set the tone for that day's trading session, the safe harbor will 
continue to preclude an issuer from being the opening (regular way) 
purchase reported in the consolidated system.\57\
---------------------------------------------------------------------------

    \57\ Amended Rule 10b-18(b)(2)(i). For purposes of Rule 10b-18's 
timing and price conditions, Amended Rule 10b-18(a)(6) defines 
``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 common equity securities pursuant to an effective 
transaction reporting plan (as defined in 17 CFR 240.11Aa3-1) or a 
national market system plan (as defined in 17 CFR 240.11Aa3-2).''
---------------------------------------------------------------------------

3. Price of Purchases

    We are adopting the proposed amendment to apply a uniform price 
condition that limits all issuers to purchasing their securities at a 
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.\58\ For those securities that are

[[Page 64958]]

not quoted or reported in the consolidated system, the issuer will need 
to look to the highest independent bid or the last independent 
transaction price, whichever is higher, that is displayed and 
disseminated on any national securities exchange or on any inter-dealer 
quotation system, as defined in Exchange Act Rule 15c2-11(e)(2),\59\ 
that displays at least two independent priced quotations for the 
security.\60\ For all other securities, the issuer will need to look to 
the highest independent bid obtained from three independent 
dealers.\61\ The amendments simplify and update the Rule by replacing 
the outdated definitions and price provisions (that depended 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) with a uniform price condition 
(i.e., a two-prong--``highest independent bid'' or ``last independent 
transaction price''--price test), which applies to all securities, 
regardless of where they are traded. All of the commenters supported 
the proposal to apply a uniform price condition that retains both the 
``highest independent bid'' and the ``last independent transaction 
price'' alternatives.
---------------------------------------------------------------------------

    \58\ Amended Rule 10b-18(b)(3). The previous price limitations 
under Rule 10b-18 varied depending on the market for the security. 
To further simplify the Rule, the uniform price condition 
incorporates the proposed definitions of ``highest independent bid'' 
and ``last independent transaction price'' into the uniform price 
condition (i.e., rather than separately defining these terms).
    \59\ 17 CFR 240.15c2-11(e)(2).
    \60\ Amended Rule 10b-18(b)(3)(ii).
    \61\ Amended Rule 10b-18(b)(3)(iii).
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4. Passive Pricing Systems
    In the Proposing Release, we also sought comment as to whether Rule 
10b-18's price condition should apply where the issuer has no control, 
directly or indirectly, over the price at which a Rule 10b-18 purchase 
will be effected, for example, ``passive'' (independently-derived) 
pricing, such as the VWAP. Several commenters favored excepting VWAP 
transactions from the Rule's pricing condition. One commenter 
specifically urged the Commission to except VWAP transactions from the 
pricing condition because VWAP matches do not influence price or 
provide price discovery.\62\
---------------------------------------------------------------------------

    \62\ See, e.g., comment letters from Vie Financial Group (dated 
March 3, 2003 and June 26, 2003).
---------------------------------------------------------------------------

    After considering the comments, we believe that excepting VWAP 
transactions from the Rule's pricing condition is premature at this 
time. However, we will continue to consider the commenters' 
recommendations, as well as current market practices involving VWAP 
transactions, in considering whether any future changes to the Rule are 
appropriate.
5. Riskless Principal Transactions
    In the Proposing Release, we sought specific comment regarding the 
application of Rule 10b-18 to riskless principal transactions. 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.
    We believe that the safe harbor should apply to riskless principal 
trades that are analogous to agency trades effected on behalf of the 
issuer. Thus, the safe harbor should apply only to those riskless 
principal transactions where both legs are effected at the same price 
and only one leg is reported to the market (e.g., transactions that 
would qualify for trade reporting under the NASD riskless principal 
trade-reporting rules, which require that only the first leg of the 
transaction be reported, and not the offsetting sale to the issuer), 
provided that this first leg of the transaction meets all the 
conditions of Rule 10b-18.\63\ Accordingly, we have amended the ``Rule 
10b-18 purchase'' definition to clarify that purchases for the issuer 
include riskless principal transactions.\64\ Paragraph (a)(12) of the 
Rule defines ``riskless principal transaction'' as a transaction in 
which a broker or dealer, after having received an order from the 
issuer to buy its security, buys the security as principal and then 
sells the security (to the issuer) to satisfy the issuer's buy 
order.\65\ Under this definition, the issuer's purchase must be 
effected at the same price per-share at which the broker or dealer 
bought the shares to satisfy the issuer's buy order, exclusive of any 
explicitly disclosed markup or markdown, commission equivalent, or 
other fee. Moreover, only the first leg of the transaction (i.e., when 
the broker or dealer purchases the shares in the open market), rather 
than the second leg (i.e., when the broker or dealer sells the shares 
to the issuer) is reported under the rules of a self-regulatory 
organization or under the Act.\66\ In addition, for purposes of this 
definition, a broker or dealer must have written policies and 
procedures in place to assure that, at a minimum, the issuer's order 
was received prior to the offsetting transaction; the offsetting 
transaction is allocated to a riskless principal account or the 
issuer's account within 60 seconds of the execution; and the broker or 
dealer has supervisory systems in place to produce records that enable 
the broker or dealer to accurately and readily reconstruct, in a time-
sequenced manner, all orders effected on a riskless principal 
basis.\67\
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    \63\ See NASD Rules 4632(d)(3)(B), 4642(d)(3)(B), and 
6620(d)(3)(B). 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 issuer). In order to qualify for 
riskless principal trade reporting, the trades must be executed at 
the ``same price'' (exclusive of an explicitly disclosed markup or 
markdown, commission equivalent, or other fee). See also 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). See also Securities Exchange Act 
Release No. 44291 (May 18, 2001), 66 FR 27760; Securities Exchange 
Act Release No. 33743 (March 9, 1994), 59 FR 12767-01 (March 17, 
1994); and Securities Exchange Act Release No. 45194 (December 17, 
2001), 67 FR 6 (January 2, 2002).
    \64\ Amended Rule 10b-18(a)(13).
    \65\ Amended Rule 10b-18(a)(12).
    \66\ Id.
    \67\ We believe that these conditions will allow for 
surveillance of these transactions by linking the definition to 
specific incoming orders and executions, and by requiring brokers 
and dealers to establish procedures for handling such transactions. 
Moreover, requiring that the orders be received prior to the 
offsetting transaction and the allocation of the offsetting 
transaction to the issuer's account within 60 seconds will help 
prevent issuers (and brokers or dealers) from taking advantage of 
the safe harbor by retroactively claiming that a non-riskless 
principal transaction was done on a riskless principal basis. The 
requirement that an offsetting transaction be allocated to either a 
riskless principal or customer account within 60 seconds is a 
condition that is consistent with previously stated Nasdaq policy 
regarding the handling of mixed capacity trades and compliance with 
the Manning Interpretation. See NASD Notice to Members 01-85, at 
Question 7 and Notice to Members 95-67, at Question 5.
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6. Volume of Purchases
a. Treatment of ``Block Purchases'' Under the Current Rule
    Under the current volume condition, an issuer's block purchases are 
not subject to the Rule's 25% volume limitation, nor are the shares 
purchased by the issuer in block transactions included when calculating 
a security's four week ADTV.\68\ This means that, under the current 
Rule, an issuer can purchase an unlimited amount of its securities if 
purchased in block size.
---------------------------------------------------------------------------

    \68\ 17 CFR 240.10b-18(a)(14) and (b)(4). See also Section 
II.C.4, supra.
---------------------------------------------------------------------------

b. Proposal To Eliminate the ``Block Exception''
    Under the proposed amendments, to qualify for the safe harbor, an 
issuer would have to include its block purchases in its 25% volume 
limitation. However, the issuer also could include its block purchases 
in calculating its

[[Page 64959]]

security's four-week ADTV.\69\ To accommodate issuers of thinly traded 
securities, we also proposed 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.
---------------------------------------------------------------------------

    \69\ See Proposing Release, supra note 1, which defined ADTV as 
the average daily trading volume (including block-size 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. We are adopting this definition of 
ADTV, except that shares purchased as part of the amended block 
exception in paragraph (b)(4) under the Rule are not to be included 
in a security's four-week ADTV. Rule 10b-18 also will continue to 
include only U.S. market trading volume data in calculating a 
security's ADTV.
    See also Letter from Charles J. Plohn, Jr., Managing Director, 
Merrill Lynch, Pierce, Fenner, & Smith, Inc. to Larry E. Bergmann, 
Associate Director, Division of Market Regulation, Securities and 
Exchange Commission (June 3, 1991), which notes that the utility of 
effecting purchases in blocks is largely diminished by the inability 
to include such block purchases in calculating a security's four-
week ADTV and 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.
---------------------------------------------------------------------------

c. Comment Letters
    Twenty-six of the 43 comment letters we received discussed the 
treatment of block purchases, all of which opposed our proposal to 
eliminate the block exception. Most of the support for retaining the 
block exception came from companies with moderate or low average daily 
trading volumes. These issuers say that they rely heavily on the block 
transactions to implement their repurchase programs and argue that 
eliminating the block exception would cause their repurchase programs 
to take much longer to complete.\70\ Other commenters opposed 
eliminating the block exception due to their claims of an absence of 
evidence that block transactions are manipulative, adversely affect 
share prices, or are otherwise abusive.\71\ Some commenters argued that 
the block exception should be retained because it stabilizes markets in 
periods of severe market decline.\72\
---------------------------------------------------------------------------

    \70\ See, e.g., comment letters from America's Community 
Bankers; First Virginia Banks, Inc.; and Securities Industry 
Association (SIA).
    \71\ See, e.g., comment letters from Fed. Reg. Committee; 
Merrill; and Sullivan.
    \72\ The concern about eliminating the block exception during 
times of severe market distress is addressed by the amended Rule's 
alternative volume condition, which allows issuers to repurchase as 
much as 100% of their ADTV (up from 25%) during the trading session 
immediately following a market-wide trading suspension. The 
Commission also may use its emergency exemptive authority under 
Exchange Act Sections 12(k) and 36, 15 U.S.C. 78l (k) and 78mm(a). 
This would allow issuers to supply liquidity during the rare times 
of severe market volatility, such as the post-September 11, 2001 
market. See note 93, infra.
---------------------------------------------------------------------------

    As alternatives to eliminating the block exception, several 
commenters suggested raising the amount of shares in a block to the 
NYSE definition (i.e., 10,000 shares or more).\73\ Other commenters 
suggested limiting the number of ``block'' purchases that can occur on 
a single day. For example, one commenter suggested allowing issuers to 
make one single block purchase per day (i.e., on condition that the 
issuer does not make any other purchases for that day).\74\ Another 
commenter suggested limiting either all issuers or only mid-
capitalization issuers to 20 block purchases in a day.\75\ Other 
commenters suggested raising the volume limits, especially for small 
capitalization companies with limited liquidity, from 25% to 35% (or 
even 100%) of a security's ADTV.\76\
---------------------------------------------------------------------------

    \73\ See, e.g., comment letters from Fed. Reg. Committee; 
Merrill; Morgan; and Sullivan. However, raising the amount of shares 
in a block to 10,000 shares or more would do little to address the 
concerns of smaller issuers whose securities are thinly traded. 
Moreover, block-sized trades are likely to be relatively rare for 
small issuers, because they generally do not have institutional 
holders. For larger issuers, blocks of 10,000 shares have become 
commonplace in today's market. In fact, blocks of 10,000 or more 
shares are nearly half of overall trading on the NYSE and Nasdaq. 
See NYSE Fact Book--2002 Data.
    \74\ See comment letter from Bank Mutual Corporation.
    \75\ See, e.g., comment letter from LNR Property Corporation 
(LNR).
    \76\ See, e.g., comment letter from Morgan Stanley.
---------------------------------------------------------------------------

    We believe eliminating the current block exception is essential if 
we are to maintain a limit on the amount of repurchase activity that is 
protected under the safe harbor.\77\ Block transactions today represent 
one-half of all market activity; accordingly, these transactions are 
not the exception, and they have a substantial impact on market 
prices.\78\ Issuers also may attempt to take advantage of the block 
exception to facilitate corporate transactions. For example, in 
contested takeovers, bidders might purchase significant blocks of their 
securities to boost their share price in order to enhance the value of 
their competing merger proposals. Moreover, during the late 1990s, it 
was reported that many companies were spending more than half their net 
income on massive buyback programs that were intended to boost share 
prices--often supporting their share price at levels far above where 
they would otherwise trade.\79\
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    \77\ See, e.g., The October 1987 Market Break: A Report by the 
Division of Market Regulation, U.S. Securities and Exchange 
Commission (February 1988) at p. 6:11 (noting that, while issuer 
repurchases provided an important source of liquidity after the 1987 
market break, the treatment of blocks under the Rule may effectively 
negate the volume restriction for many securities).
    \78\ See, e.g., Steve Thel, ``$850,000 in Six Minutes--The 
Mechanics of Securities Manipulation,'' 79 Cornell Law Review 219, 
at 226-227, n. 39 (January 1994) (finding that large blocks move 
price more often and to a greater degree than the analysis of 
trading data indicates). See also Robert W. Holthausen, et al., 
``The Effect of Large Block Transactions on Security Prices,'' 19 
Journal of Financial Economics 237 (1987).
    \79\ See, e.g., The Buyback Boomerang, Business Week (September 
23, 2002).
---------------------------------------------------------------------------

    These situations illustrate that the potential for manipulative 
abuse can be exacerbated by the block exception. Moreover, extending a 
safe harbor for issuer repurchases without any effective limit on the 
amount of repurchase activity undermines the original objectives of the 
Rule. For example, the current block exception may allow companies to 
engage in undisclosed stabilization and market domination, or the 
exception may be used by companies to engage in aggressive buybacks in 
order to enhance exchange ratios for their common stock. These 
activities can mislead investors about the integrity of the securities 
trading market as an independent pricing mechanism.
    The predicate assumption of the commenters--that significant abuse 
must exist before any revisions to the safe harbor are warranted--may 
be appropriate for a prohibitive rule, but it is not necessary when the 
Commission is determining whether a safe harbor is warranted. We 
believe that safe harbors should facilitate only those activities that 
clearly present no cause for regulatory concern. In the case of the 
block exception, there is cause for regulatory concern.
d. Adopted Amendments to the Volume Condition
    After carefully considering the comments received, and upon 
thorough examination of current market practices and the underlying 
purposes of the safe harbor, we are adopting the proposed amendments 
relating to the volume condition's treatment of block purchases, with 
some modifications in response to comments received. Under the amended 
volume condition, to qualify for the safe harbor, an issuer's total 
volume of Rule 10b-18 purchases effected on any single day must not 
exceed 25% of the ADTV in its security, which includes any block-size 
purchases by or on behalf of the issuer for that day. Issuers, however, 
can include their block-size purchases when calculating its security's 
four-week ADTV.
    In view of commenters' concerns that eliminating the block 
exception would negatively affect issuers with moderate or low average 
daily trading volumes

[[Page 64960]]

that rely heavily on block purchases to implement their repurchase 
programs,\80\ we have decided to allow issuers to make (within the safe 
harbor) one block purchase per week, provided that the issuer does not 
make any other Rule 10b-18 purchases on that day. Thus, alternatively, 
once each week the issuer may purchase one block of its common stock in 
lieu of purchasing under the 25% volume limitation for that day.\81\ 
However, shares purchased by the issuer relying on this amended block 
exception may not be included when calculating a security's four-week 
ADTV under the Rule. This amended block exception is intended to 
provide issuers with moderate or low ADTV greater flexibility in 
carrying out their repurchase programs.\82\ However, this amended block 
exception 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.\83\
---------------------------------------------------------------------------

    \80\ These commenters claim that they are unable to effect 
repurchases within the safe harbor's parameters or maintain 
effective and efficient repurchase programs without the block 
exception. See, e.g., comment letters from Morgan; National 
Association of Real Estate Investment Trusts (NAREIT); SIA; Skadden, 
Arps, Meagher & Flom, LLP (Skadden); and Sullivan.
    \81\ For purposes of the amended block exception, we are 
retaining the current ``block'' definition. See Amended Rule 10b-
18(a)(5).
    We carefully considered whether to allow issuers to effect one 
block purchase per day (rather than per week). However, commenters 
noted that even one block purchase for a thinly traded issuer could 
be greater than 25% of its ADTV on a particular day. Rule 10b-18's 
conditions are intended to minimize the market impact of an issuer's 
repurchases, thereby allowing the market to establish a security's 
price based on independent market forces without undue influence by 
the issuer. Allowing small, thinly traded issuers to use the block 
exception each trading day so that they might enjoy safe harbor 
protection for purchasing more than 25% of their ADTV for each of 
these days is inconsistent with the purpose of the Rule, investor 
protection and market integrity. If there is no true volume 
limitation, that condition is meaningless and safe harbor protection 
is inappropriate. We stress, however, that there is no presumption 
of manipulation if the issuer decides to purchase a block outside 
the safe harbor.
    \82\ Of course, the issuer may repurchase under its 25% volume 
limitation on the other days of that week. Allowing one block 
purchase per week should also help certain thinly traded regulated 
issuers that are limited under relevant law in the number of shares 
they can issue (and are, therefore, dependent upon repurchasing to 
fund benefit programs), to purchase within the safe harbor. See, 
e.g., comment letter from Bank Mutual.
    \83\ This block exception 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. Amended Rule 10b-
18(a)(5). Because commenters generally believed that the proposed 
500-share alternative volume limit was too low, and because we are 
already providing issuers with greater flexibility by allowing them 
to effect one block purchase per week (as discussed above), we have 
decided not to adopt this proposal.
---------------------------------------------------------------------------

    We also wish to reiterate that Rule 10b-18 is not the exclusive 
means by which issuers and their affiliated purchasers may effect 
purchases of the issuer's stock without manipulating the market. In 
fact, the Commission has long recognized that there may be 
circumstances under which an issuer could effect repurchases outside 
the volume limitation without raising manipulative concerns, and indeed 
that failure to satisfy the conditions of the safe harbor does not give 
rise to any presumption that the activity is manipulative.\84\
---------------------------------------------------------------------------

    \84\ See 1982 Adopting Release, supra note 4.
---------------------------------------------------------------------------

IV. 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.\85\ The Division of Market Regulation 
(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.\86\ Specifically, the Division interpreted Rule 
10b-18's ``one-half hour before the scheduled close of trading'' 
language to refer to an exchange's primary (or regular) trading session 
(i.e., 9:30 a.m.-4 p.m. price discovery session), rather than OHT 
sessions.
---------------------------------------------------------------------------

    \85\ 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 p.m. closing prices.
    \86\ See Letter Regarding Operation of OHT Session 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).
---------------------------------------------------------------------------

    In the Proposing Release, we asked whether the safe harbor should 
be available to other issuer repurchases effected during after-hours 
trading and, if so, how should the safe harbor conditions apply to each 
separate trading session in one day. One commenter suggested that the 
safe harbor be available as long as the consolidated reporting system 
is open, so that the safe harbor would be available up to 30 minutes 
prior to the close of the consolidated tape with a price limit that is 
no higher than the closing price of the regular trading session 
(subject to bids or sales subsequently reported to the tape by other 
markets).\87\ Two other commenters favored extending the safe harbor to 
after-hours trading sessions and made specific suggestions as to how 
the conditions should apply to this second trading session.\88\ Other 
commenters simply requested clarification with respect to whether the 
safe harbor is available in the after-hours OTC session and, if so, 
whether the timing condition would apply in the after-hours OTC 
session.
---------------------------------------------------------------------------

    \87\ See comment letters from Merrill and T. Rowe Price 
Associates, Incorporated (T. Rowe).
    \88\ See comment letters from Fed. Reg. Committee and Sullivan.
---------------------------------------------------------------------------

    After considering the comments, we have decided to extend the safe 
harbor to issuer repurchases effected after-hours (while the 
consolidated system is still open) and that are effected at prices that 
do not exceed the lower of the closing price of the primary trading 
session in the principal market for the security and any lower bids or 
sale prices subsequently reported in the consolidated system by other 
markets.\89\ This amendment will allow issuers to provide a source of 
liquidity, while still providing investor protection. Such purchases, 
of course, would still need to comply with the other three conditions 
of the safe harbor, with the following modifications. We are modifying 
the Rule to permit the issuer to use a broker or dealer for its after-
hours Rule 10b-18 purchases different from the broker or dealer that it 
used during normal trading hours, because it may be impractical for an 
issuer to use the same broker-dealer in both a primary trading session 
and an after-hours trading session in one day.\90\ The amended Rule, 
however, precludes the issuer from effecting a Rule 10b-18 purchase as 
the opening transaction of the after-hours trading session (because the

[[Page 64961]]

opening transaction may be considered to be a significant indicator of 
the direction of trading and the strength of demand in the after-hours 
trading session), but permits the issuer to repurchase until the 
termination of the period in which last sale prices are reported in the 
consolidated system. The Rule's volume calculation would carry over 
from the regular trading session.
---------------------------------------------------------------------------

    \89\ For example, in the case of a security that is traded in 
the NYSE OHT session (e.g., Crossing Session I) and other markets 
(e.g., the Pacific Stock Exchange (or in the third market)), if the 
highest current independent bid or the last independent sale price 
reported in the consolidated system is lower than the NYSE closing 
price, the safe harbor would not be available for closing-price 
single-sided orders entered during Crossing Session I. See Amended 
Rule 10b-18 (b)(2)(iv).
    For many market centers, including the NYSE and the Nasdaq Stock 
Market, primary (or regular) trading sessions currently run from 
9:30 a.m. to 4 p.m. Eastern Time. For securities that do not have a 
principal market, the issuer would need to look to the closing price 
of the primary trading session in the listing market for the 
security.
    \90\ These amendments address the proposals raised in the Guzman 
& Company's Petition for Rulemaking (filed on May 21, 1999), which 
is publicly available in File No. 4-424 in the Commission's Public 
Reference Room. The Guzman petition requested that the Commission 
amend Rule 10b-18's timing and pricing conditions to permit an 
issuer to effect repurchases during after-hours trading sessions so 
long as the purchases are effected 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 requested that 
the Rule be amended to permit an issuer to utilize a different 
broker or dealer for after-hours Rule 10b-18 purchases than is used 
during normal trading hours.
---------------------------------------------------------------------------

V. Rule 10b-18 Alternative Conditions

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

    In view of the extreme market volatility that would trigger a 
circuit breaker and the desirability of facilitating liquidity in that 
context, we are adopting our proposed amendment to modify the safe 
harbor alternative conditions (which are applicable only during the 
trading session immediately following a market-wide trading 
suspension), by increasing the 25% volume limitation to 100% of a 
security's ADTV.\91\ The amendment would permit issuers to purchase 
more securities within the safe harbor during these rare, but critical 
periods of severe market decline.\92\ All the commenters expressed 
strong support for the increased alternative volume limit, citing 
reasons such as enhanced liquidity and issuer flexibility. In addition, 
we will continue to view market situations other than market-wide 
trading suspensions, on a case-by-case basis, relying on our emergency 
and exemptive authority in Sections 12(k)(2) and 36 of the Exchange 
Act, as we did following the reopening of the markets after September 
11, 2001.\93\
---------------------------------------------------------------------------

    \91\ Amended Rule 10b-18(c)(2). See also text accompanying note 
93, 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. The Rule 
defines a ``market-wide trading suspension'' as a market-wide 
trading halt of 30 minutes or more that is 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 declared by the Commission pursuant to its 
authority under Section 12(k) of the Act (15 U.S.C. 78l (k). See 
Amended Rule 10b-18(a)(7). For example, the alternative volume 
condition would apply in the trading session following a trading 
halt pursuant to NYSE Exchange Rule 80B or Market Closing Policy of 
the NASD. The Commission approved the NASD's market closing policy 
statements, codified in IM-4120-3. Securities Exchange Act Release 
No. 39846 (April 9, 1998), 63 FR 18477 (April 15, 1998) (Circuit 
Breaker Approval Order). See also 17 CFR 240.10b-18(c); Securities 
Exchange Act Release No. 41905 (September 23, 1999), 64 FR 52428 
(September 29, 1999) (modifying 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).
    \92\ At such times, an issuer would still also have to comply 
with the manner, price, and alternative timing conditions in Rule 
10b-18 to satisfy the requirements of the safe harbor. See generally 
The October 1987 Market Break, supra note 77 at pp. 6:1-6:15 (noting 
the increase in trading volume and the positive impact of issuer 
repurchases following the October 1987 market break).
    \93\ 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), 66 FR 48494 
(September 20, 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), 66 
FR 49438 (September 27, 2001). On September 28, 2001, the Commission 
used its exemptive authority under Section 36 of the Exchange Act to 
temporarily modify certain conditions of Rule 10b-18 for issuers 
that repurchased their own common stock during the period October 1-
12, 2001. Securities Exchange Act Release No. 44874 (September 28, 
2001), 66 FR 51076 (October 5, 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.
---------------------------------------------------------------------------

B. NYSE Petition for Rulemaking

    In the Proposing Release, we sought comment as to whether Rule 10b-
18's ``alternative conditions'' should 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.\94\ Only one commenter asked that we adopt 
the rules suggested by the NYSE in its petition concerning ``special 
purchases'' by independent trustees during periods of volatility. In 
contrast to the rare occurrence of a market-wide trading suspension (as 
discussed above), we are concerned about the likely frequency and 
market impact of such ``special purchases,'' as well as the feasibility 
of monitoring a program that involves market declines in individual 
stock prices. In addition, because the petition calls for the purchases 
to be made by an ``independent trustee,'' we believe such purchases may 
not even be attributable to the issuer in order for the safe harbor to 
apply. Thus, we have determined not to implement the proposals set 
forth in the NYSE's petition for rulemaking.
---------------------------------------------------------------------------

    \94\ The NYSE's Petition for Rulemaking seeks an amendment to 
Rule 10b-18 to make the 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. The 
petition is publicly available in File No. 4-446 in the Commission's 
Public Reference Room.
---------------------------------------------------------------------------

VI. Disclosure

    To enhance the transparency of issuer repurchases, we proposed that 
Regulations S-K and S-B, and Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F 
(for foreign private issuers), and N-CSR (for closed-end funds) be 
amended to require periodic disclosure of all issuer repurchases of 
equity securities. These disclosure requirements would be independent 
of the Rule 10b-18 safe harbor.
    Under the proposed amendments, issuers would be required to 
disclose, among other things, the total number of shares repurchased 
during the past quarter, the average price paid per share, the number 
of shares that were purchased as part of a publicly announced 
repurchase plan, and the maximum number (or approximate dollar value) 
of shares that may yet be purchased under the plans or programs.
    Most of the commenters expressed support for enhanced transparency 
through the proposed disclosure and agreed that issuer disclosure in 
periodic filings of repurchases of their equity securities would 
provide investors with useful information about the level, frequency 
and purpose of such activity by an issuer and its affiliates.\95\ One 
commenter especially applauded the fact that the proposed amendments 
call for increased transparency of issuer repurchases by requiring 
disclosure of all such repurchases, regardless of whether such 
repurchases fall within the Rule 10b-18 safe harbor.\96\ Another 
commenter stated that repurchase disclosures by issuers will ensure 
that all market participants are aware of the size and scope of the 
repurchase program.\97\ In addition, requiring issuers to provide 
disclosure with respect to proposed and actual repurchases would make 
information that can be relevant in making investment decisions 
available to the market.\98\
---------------------------------------------------------------------------

    \95\ See, e.g., comment letter from Cleary.
    \96\ See comment letter from NAREIT.
    \97\ See comment letter from WVS Financial Corporation (WVS).
    \98\ See comment letter from Investment Company Institute (ICI).
---------------------------------------------------------------------------

    However, commenters generally believed that disclosure of the 
broker-dealer's identity is an unnecessary disclosure of confidential 
business information that could provide an informational advantage to 
other market participants.\99\ Two commenters

[[Page 64962]]

suggested that the identity of the broker-dealer could be disclosed 
solely to the Commission, rather than to the public.\100\
---------------------------------------------------------------------------

    \99\ See comment letters from Cleary; Dell; Emerson; Fed. Reg. 
Committee; Professor David Ikenberry, University of Illinois 
(Ikenberry); Merrill; Morgan; SIA; Sullivan; T. Rowe; Valero; and 
WVS.
    \100\ See comment letters from SIA and WVS.
---------------------------------------------------------------------------

    After consideration of the above comments, and the concerns 
expressed about disclosure of the broker-dealer's identity, and in view 
of the fact that most of the commenters agreed that publicly available 
information about issuer repurchasing activity would be useful for 
investors, we are adopting the proposed tabular disclosure 
requirements, with one modification. Specifically, the final rules will 
not require issuers to disclose the identity of the broker-dealer(s) 
used to effect the purchases.\101\
---------------------------------------------------------------------------

    \101\ Of course, the Commission can request this information 
under a variety of circumstances. However, the submission to the 
Commission of the identity of the broker-dealer(s) would not be made 
public.
---------------------------------------------------------------------------

    As adopted, Regulations S-K and S-B, and Forms 10-Q, 10-QSB, 10-K, 
10-KSB, 20-F, and N-CSR are amended to require periodic disclosure of 
all issuer repurchases of shares or other units of any class of the 
issuer's ``equity securities''\102\ that are registered by the issuer 
pursuant to Section 12 of the Exchange Act.\103\ In particular, an 
issuer is required to disclose information concerning its repurchases 
in a new table in Forms 10-Q/10-QSB (new Item 2(e)), 10-K/10-KSB (new 
Item 5(c)), 20-F, and, for registered closed-end funds, Form N-CSR (new 
Item 8).\104\ The table in Forms 10-K/10-KSB, 10-Q/10-QSB, and N-CSR 
includes disclosure of all issuer repurchases of its Section 12 
registered equity securities (both open market and private 
transactions) for its last fiscal quarter (the fourth quarter, in the 
case of Forms 10-K/10K-SB), or in the case of closed-end funds, semi-
annual period, including the total number of shares (or units) 
purchased (reported on a monthly basis), the average price paid per 
share, the total 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.\105\ As stated above, the 
disclosure requirement is independent of the Rule 10b-18 safe harbor.
---------------------------------------------------------------------------

    \102\ For purposes of Item 703 of Regulations S-K and S-B, and 
Item 8 of Form N-CSR, 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.
    \103\ These new disclosure requirements supplement such 
disclosure obligations as issuers have always had under existing 
antifraud and other provisions of the federal securities laws. Thus, 
compliance with new Item 703 of Regulations S-K and S-B, new Item 
16E of Form 20-F or new Item 8 of Form N-CSR will not excuse an 
issuer from disclosure obligations arising under other provisions of 
the federal securities laws. See, e.g., 17 CFR 240.10b-5 and 17 CFR 
240.12b-20.
    \104\ See adopted Item 703 of Regulations S-K and S-B (17 CFR 
229.703 and 228.703), Item 2(e) of Forms 10-Q and 10-QSB, Item 5(c) 
of Forms 10-K and 10-KSB, Item 16(E) of Form 20-F, and Item 8 of 
Form N-CSR.
    \105\ Id.
---------------------------------------------------------------------------

    New Item 16E to Form 20-F requires the same tabular presentation of 
information (again, pursuant to the adopted amendments, the identity of 
the broker-dealer effecting the transactions will not be required in 
the table included in Form 20-F). However, a foreign private issuer 
that has securities registered under Section 12 of the Exchange Act is 
required to disclose on a yearly basis in its annual report on Form 20-
F its repurchases of its securities. The disclosure provided relates to 
the issuer's securities in ordinary share form, whether the issuer has 
repurchased the shares itself or depositary receipts that represent the 
shares. The price data and other data should be stated in the same 
currency used in the issuer's primary financial statements.
    One commenter noted that many foreign private issuers are subject 
to regulatory regimes in their home countries with respect to the 
repurchase of shares and suggested that these issuers be permitted to 
include disclosure in their Form 20-F annual reports that was based on 
home country disclosure requirements instead of our proposed disclosure 
requirements.\106\ We have not adopted this view because, under Item 
16E as adopted, investors will be afforded disclosure of the same type 
of information with respect to share repurchases whether the issuer in 
question is a foreign private issuer or a domestic issuer. In addition, 
it would not appear unduly burdensome for foreign private issuers to 
gather and disclose the type of summary information required under Item 
16E, nor are we aware that the disclosure of this information would 
conflict with any country's law. Lastly, to the extent a foreign 
private issuer files public reports pursuant to its home country 
requirements with respect to share repurchases, the issuer can file 
those reports under Form 6-K if the issuer deems those reports material 
to investors.
---------------------------------------------------------------------------

    \106\ See comment letter from Sullivan.
---------------------------------------------------------------------------

    The final rules also require 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, and (5) each plan or program that the issuer has determined to 
terminate prior to expiration or under which the issuer does not intend 
to make further purchases.
    We initially proposed to require additional footnote disclosure of 
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. Several commenters opposed the 
proposed disclosure of an issuer's intent to make future purchases 
under an announced plan or program. One commenter noted that a board's 
authorization of a purchase plan or program typically is general enough 
as to provide management with considerable flexibility to respond to 
market conditions in executing the plan.\107\ This commenter thought 
that requiring issuers to provide disclosure about their intent to make 
future purchases could be more misleading than helpful to investors.
---------------------------------------------------------------------------

    \107\ Id.
---------------------------------------------------------------------------

    Based on commenters' remarks, we have modified the footnote 
disclosure to instead require an issuer to disclose each plan or 
program under which the issuer does not intend to make further 
purchases. Because an issuer therefore will only have to provide this 
disclosure after it has made a determination to stop making purchases 
under a particular plan or program, there will be no need for the 
issuer to speculate about its future intent. The revision also will 
obviate the need for issuers to include boilerplate representations in 
their periodic reports indicating that they may continue to make 
purchases under announced plans or programs.
    The table also must 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 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.
    We believe information about how much common stock the issuer has 
repurchased is important to investors.\108\ Studies have shown that

[[Page 64963]]

the public announcement by an issuer of a repurchase program is often 
followed by a rise in the issuer's stock price.\109\ 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.\110\ Thus, disclosure of an issuer's actual 
repurchases will inform investors whether, and to what extent, the 
issuer had followed through on its original plan.\111\ Investors also 
will 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.\112\ Finally, investors also will be apprised of when an 
issuer repurchase plan has expired, has been terminated, or when the 
issuer has determined not to make further purchases under a repurchase 
plan.
---------------------------------------------------------------------------

    \108\ 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. See Proposed Rule 13e-2(d)(1). See 1980 Proposing 
Release, supra note 4, 45 FR at 70897. 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. See Proposed Rule 13e-2(d)(2). 
The Commission did not act on these proposals.
    \109\ 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.
    \110\ Id. 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.
    \111\ See, e.g., 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.
    \112\ 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., SEC Guidelines for Executing Open Market 
Repurchases,'' The Journal of Business, 2003, vol. 76, no. 2) 
(questioning the regulatory effectiveness of safe harbors without 
mandatory disclosure).
---------------------------------------------------------------------------

    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.\113\ The Commission's emergency action, which temporarily 
modified Rule 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 was 
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 will provide investors with 
important information regarding the company's purchasing activity. It 
also will 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.
---------------------------------------------------------------------------

    \113\ See text accompanying supra note 93.
---------------------------------------------------------------------------

    Closed-end funds will provide the required disclosure regarding 
their repurchases semi-annually on Form N-CSR. We believe that, as with 
other issuers, additional disclosure regarding repurchases by closed-
end funds will be useful to investors.\114\
---------------------------------------------------------------------------

    \114\ 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'').
---------------------------------------------------------------------------

    We are eliminating the current requirement for closed-end funds to 
disclose information regarding privately negotiated repurchases of 
their securities on Form N-23C-1. One commenter noted that the current 
requirement would be duplicative, in light of the new disclosure 
required on Form N-CSR, and we agree.\115\ Currently, closed-end funds 
are required to file Form N-23C-1 no later than the tenth day of the 
calendar month following the month in which the purchase occurs.\116\ 
Elimination of the requirement to file Form N-23C-1 will remove an 
unnecessary regulatory burden for closed-end funds and will apply a 
uniform disclosure requirement to closed-end funds and other 
issuers.\117\
---------------------------------------------------------------------------

    \115\ See comment letter from ICI.
    \116\ 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).
    \117\ Closed-end funds will continue to be required to respond 
to Item 86 of Form N-SAR, 17 CFR 249.330; 17 CFR 274.101, which 
requires disclosure of the aggregate number of shares and net 
consideration paid for all repurchases and redemptions of a closed-
end fund's common and preferred stock.
---------------------------------------------------------------------------

    We are also adopting a conforming technical amendment to Rule 23c-1 
under the Investment Company Act. Currently, Rule 23c-1(a)(11) requires 
a closed-end fund to file a copy of any written solicitation to 
purchase securities under the rule sent or given during the prior month 
by or on behalf of the fund to 10 or more persons together with Form N-
23C-1. Because we are eliminating Form N-23C-1, we are amending Rule 
23c-1 and Form N-CSR to require closed-end funds to use Form N-CSR to 
comply with the requirement to file such a solicitation.\118\

VII. Paperwork Reduction Act
---------------------------------------------------------------------------

    \118\ Item 10(a)(3) of Form N-CSR; Rule 23c-1(a)(11) under the 
Investment Company Act.
---------------------------------------------------------------------------

    The adopted amendments to Regulations S-K, S-B, Forms 10-Q, 10-QSB, 
10-K, 10-KSB, 20-F, and N-CSR contain collection of information 
requirements within the meaning of the Paperwork Reduction Act of 
1995.\119\ We published a notice requesting comment on the collection 
of information requirements in the Proposing Release, and submitted 
these requirements to the Office of Management and Budget (OMB) for 
review. OMB has approved these requests. There is no collection of 
information requirement within the meaning of the Paperwork Reduction 
Act for Rule 10b-18.
---------------------------------------------------------------------------

    \119\ 44 U.S.C. 3501.
---------------------------------------------------------------------------

    Compliance with the adopted amendments to Regulations S-K, S-B, 
Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F, and N-CSR will be mandatory. 
The Commission will not keep the information required by the amendments 
confidential.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, an information collection unless it displays a currently 
valid OMB

[[Page 64964]]

control number. The titles of the affected collections are ``Regulation 
S-K,'' ``Regulation S-B,'' ``Form 10-Q,'' ``Form 10-QSB,'' ``Form 10-
K,'' ``Form 10-KSB,'' ``Form 20-F,'' and ``Form N-CSR'' under OMB 
control numbers 3235-0071, 3235-0417, 3235-0070, 3235-0416, 3235-0063, 
3235-0420, 3235-0288, and 3235-0570 respectively.
    We believe that the amendments to Regulations S-K, S-B, Forms 10-Q, 
10-QSB, 10-K, 10-KSB, 20-F, and N-CSR are necessary to: (1) Facilitate 
the transparency of issuers' repurchases, (2) bolster investor 
confidence in the integrity of the securities trading markets, and (3) 
monitor and assess the level and market impact of issuers' repurchases. 
We estimate that 75% of the total burden of Forms 10-K, 10-KSB, 10-Q 
and 10-QSB is carried by the issuer, and therefore is reflected as an 
hourly burden. The remaining 25% of the total burden is attributed to 
outside costs.\120\ Based on the actual filings that we received in 
fiscal year 2002, we estimate that Form 10-K is filed by 8,484 
respondents, has a total annual burden of 13,970,929 hours and a cost 
of $1,396,396,000; Form 10-KSB is filed by 3,820 respondents, has a 
total annual burden of 4,716,969 hours and a cost of $470,993,000; Form 
10-Q is filed by 23,743 respondents, has a total annual burden of 
3,414,474 hours and a cost of $336,698,630; Form 10-QSB is filed by 
11,299 respondents, has a total annual burden of 1,540,119 hours and a 
cost of $151,752,130; and Form 20-F is filed by 1,194 respondents, has 
a total annual burden of 769,826 hours and a cost of $690,501,580.
---------------------------------------------------------------------------

    \120\ With respect to Form 20-F, however, 25% of the burden is 
reflected as an internal burden, 75% is reflected as an outside 
burden.
---------------------------------------------------------------------------

    Closed-end funds would be required to provide similar disclosure on 
new Item 8 of Form N-CSR.\121\ With respect to new Item 8 of Form N-
CSR, we estimate that 75% of the burden of preparation will be borne by 
the company internally, and 25% of the burden of preparation will be 
borne by outside professionals. Based on the actual filings that we 
received in fiscal year 2002, we estimate that Form N-CSR is filed by 
7,400 respondents, has a total annual burden of 142,498 hours and a 
cost of $881,000.
---------------------------------------------------------------------------

    \121\ 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 10th day of the month 
following the month in which the repurchase occurs. The information 
required on Form N-23C-1 is duplicative of the information required 
in new Item 8 of Form N-CSR. Therefore, we are eliminating Form N-
23C-1 and amending Rule 23c-1 under the Investment Company Act to 
remove the requirement to file Form N-23C-1 regarding privately 
negotiated repurchases. The PRA burden for Form N-23C-1 of 180 hours 
will be eliminated as a result of the elimination of this Form. The 
PRA burden for compliance with Rule 23c-1 will continue to be 
associated with other disclosure requirements of that rule, 
including the written confirmation, asset coverage disclosure, and 
six month notice requirements for paragraphs (a)(5), (a)(7), and 
(a)(10) of the rule, and will remain unchanged.
---------------------------------------------------------------------------

VIII. Cost-Benefit Analysis

    We are sensitive to the costs and benefits of our rules and we have 
considered the costs and benefits of our adopted amendments. To assist 
us in evaluating the costs and benefits, in the Proposing Release we 
encouraged commenters to discuss any costs or benefits that the 
modifications might impose. In particular, we requested comment on the 
potential costs for any modifications to information gathering, 
management, and record keeping systems or procedures as well as any 
potential benefits resulting from the proposals for issuers, investors, 
brokers, dealers, and other securities industry professionals, 
regulators, and others. Commenters were requested to provide analysis 
and data supporting their views on the costs and benefits associated 
with the proposed amendments.

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

    We believe the adopted amendments simplify and update Rule 10b-18 
in light of market developments since its adoption. First, the adopted 
amendments merge the definition of a ``Rule 10b-18 bid'' into the 
definition of a ``Rule 10b-18 purchase.'' Second, the adopted 
amendments clarify that the safe harbor is available for repurchases of 
common equity securities. Next, the adopted amendments clarify the 
scope of the merger exclusion. Fourth, the adopted amendments clarify 
the application of the single broker or dealer condition to repurchases 
effected through ECNs or other ATSs. Fifth, the adopted amendments 
modify the timing condition to allow issuers of highly liquid 
securities to rely on the safe harbor for a longer time period each 
day. Sixth, the adopted amendments simplify the pricing condition by 
applying a uniform price limit for all issuers. Additionally, the 
adopted amendments clarify the safe harbor's availability for certain 
riskless principal transactions. Further, the adopted amendments to the 
volume condition are revised (i) to eliminate the current block 
exception, (ii) to include block purchases in the 25% ADTV limit, (iii) 
to provide a volume limit of one block purchase per week in lieu of the 
25% ADTV limitation, and (iv) to increase the volume condition 
following a market-wide trading suspension to 100% of ADTV. Lastly, the 
adopted amendments extend the safe harbor to certain repurchases made 
during after-hours trading and allow the use of a different broker or 
dealer for those repurchases.
1. Benefits
    In order to assess the benefits of the proposed amendments to Rule 
10b-18, we sought comment regarding potential benefits as well as data 
and facts supporting commenters' views. We requested data and analysis 
on any effect the proposed amendments might have on liquidity.
    We believe the amendments we are adopting today (i) simplify and 
update Rule 10b-18 in light of market developments since its adoption; 
(ii) provide continued clarity as to the scope of the safe harbor for 
issuers and the brokers, or dealers that assist them with repurchasing; 
(iii) avoid what might otherwise be a substantial and unpredictable 
risk of liability under the anti-manipulation provisions of the 
Exchange Act; and (iv) allow the market to establish a security's price 
based on independent market forces without undue issuer influence by 
minimizing the impact of an issuer's safe harbor repurchases.
    The Commission expects that the Rule 10b-18 adopted amendments 
should benefit issuers, brokers, dealers, investors, and the 
marketplace in a number of ways. First, the adopted amendment to the 
definition of a ``Rule 10b-18 purchase'' to include a ``Rule 10b-18 
bid'' simplifies the definition making Rule 10b-18 easier for issuers 
and broker-dealers to use. Similarly, the clarification that the safe 
harbor is available for repurchases of common equity securities 
alleviates any ambiguity as to the scope of the Rule, thereby 
benefiting issuers and the brokers, or dealers they employ to effect 
Rule 10b-18 repurchases. The adopted amendments should further benefit 
issuers and broker-dealers by providing certainty regarding the use of 
ECNs and ATSs to effect safe harbor repurchases.
    Additionally, we expect the modified timing condition that allows 
issuers of highly liquid securities to effect safe harbor repurchases 
for a longer period of time each day should benefit brokers and dealers 
by allowing them to implement a repurchasing strategy over a longer 
period of time. We believe this amendment should benefit investors and 
the marketplace by maintaining a reasonable limit on the repurchases so 
that market prices are not unduly effected by an issuer's repurchases. 
Moreover, we anticipate that this

[[Page 64965]]

amendment may foster enhanced liquidity to the marketplace thereby 
benefiting investors, as issuers will be a source of buying power 
during this time. We believe investors should be further benefited by 
limiting the expanded timing condition to highly liquid issuers thereby 
minimizing the impact of repurchases by less liquid issuers near the 
close of trading.
    The adopted amendments also reflect our view that a uniform pricing 
condition should benefit brokers and dealers who effect repurchases for 
several issuers by making the price condition easier to apply to 
several issuers on a given day. Next, the adopted amendments make 
certain riskless principal transactions eligible for the safe harbor, 
benefiting issuers and broker-dealers who wish to execute Rule 10b-18 
repurchases in this manner. We believe that this amendment should 
similarly allow the markets to establish a security's price based on 
independent market forces without undue issuer influence, because the 
open market leg of the transaction must meet the conditions of Rule 
10b-18.
    We anticipate that the amendment to include block purchases in 
calculating the 25% ADTV should simplify an issuer's volume calculation 
because block purchases would no longer need to be subtracted. We also 
expect that the adopted amendments providing an alternative volume 
limit of one block per week should benefit small issuers who believed 
that a complete elimination of the block exception would make the safe 
harbor entirely unavailable to them. We anticipate that the one block 
per week limitation should place a reasonable limit on this activity 
while providing liquidity to investors. Moreover, the inclusion of 
block purchases in the 25% volume limitation will establish a 
reasonable limit on the amount of repurchasing activity that is safe 
harbor protected, which, in turn, prevents issuers from dominating the 
market for their common stock. Share prices that are established by 
independent market forces rather than an issuer's substantial 
repurchasing activity will promote investor confidence and market 
integrity. Next, we believe that the adopted amendment to the volume 
condition following a market-wide trading suspension should benefit 
issuers by increasing their Rule 10b-18 repurchasing flexibility. This 
adopted amendment should also benefit investors and the marketplace by 
providing enhanced liquidity. Moreover, the increased liquidity may 
reduce issuers' transaction costs.
    Lastly, we expect that the adopted amendments concerning after-
hours repurchases should benefit issuers by providing a longer time 
period throughout the day in which to effect Rule 10b-18 repurchases. 
We expect that this may provide additional liquidity for investors 
effecting after-hours transactions. Further, the adopted modification 
to the one broker or dealer condition for after-hours sessions should 
also provide additional Rule 10b-18 flexibility to issuers.
2. Costs
    Rule 10b-18 is an optional safe harbor rather than a prescriptive 
rule. As such, issuers are not required to comply with its conditions. 
Thus, any costs related to complying with the safe harbor and the 
adopted amendments are assumed voluntarily. We assume that issuers will 
rely on Rule 10b-18 only if the anticipated benefits from doing so 
exceed any anticipated costs. We believe that the adopted Rule 10b-18 
amendments should impose negligible costs, if any, on issuers, and 
should not compromise investor protection. As an aid in evaluating 
costs and reductions in costs, the Proposing Release sought comments 
concerning the public's views as well as any supporting information. 
Specifically, we requested comment as to whether the proposed 
amendments would impose greater costs on issuers than the current Rule. 
We received few comments regarding costs and those that we did receive 
concerned the treatment of blocks and mergers.
    The adopted amendments with respect to block purchases allow 
issuers to choose to purchase one block per week in lieu of the 25% 
ADTV limit. Rather than a complete elimination of the block exclusion, 
the amended volume condition allows issuers to elect between purchasing 
one block per week or purchasing within the 25% ADTV limit. We 
anticipate that large issuers will continue to rely on the 25% volume 
limitation as their liquidity levels will enable them to effect 
repurchases in an amount that equates with their needs without 
dominating the market for their common stock. We understand that some 
issuers of less liquid common stock may not have a sufficient ADTV to 
purchase even one 5,000-share block within the safe harbor using the 
25% limit. We anticipate that these issuers will rely on the one block 
per week exception. We further expect that this exception should 
mitigate the concerns of small issuers that the inability to purchase 
any blocks within the safe harbor would increase costs. In light of the 
comments we solicited in the Proposing Release, we expect that certain 
issuers will choose this block purchase alternative and we anticipate 
that this may reduce costs, as blocks may be less costly for issuers to 
acquire. Next, we anticipate that including block purchases in the ADTV 
calculation should reduce costs associated with the calculation because 
it will reduce the burden of, and the potential error associated with, 
subtracting block purchases.
    Additionally, the adopted amendments concerning the merger 
exclusion will permit for some post merger announcement repurchases to 
be eligible for the safe harbor. The Commission did not adopt a blanket 
prohibition with respect to safe harbor repurchasing post-merger 
announcement. Some commenters believed that such an amendment would 
reduce liquidity, and affect capital allocation strategies, among other 
things. Instead, the adopted amendments allow for certain post merger 
announcement repurchases while excluding those where there is a 
heightened incentive to manipulate. For example, certain repurchases 
that reflect an issuer's repurchases during the three-month period 
prior to a merger announcement are safe harbor eligible, subject to the 
25% ADTV limit. We expect that the allowance for certain safe harbor 
repurchasing post merger announcement should mitigate any adverse 
effect on issuer costs.

B. Costs and Benefits of the Adopted Disclosure Amendments

1. Benefits
    The amendments to Regulations S-K and S-B and Forms 10-K, 10-KSB, 
10-Q, 10-OSB, 20-F and N-CSR will provide several important benefits to 
investors and the securities markets as a whole. The new repurchase 
disclosure requirement may prevent undetected manipulation by deterring 
repurchase program announcements by issuers that do not intend to 
effect repurchases but would benefit from a post announcement increase 
in the price of their common stock. The disclosure requirement will 
increase market transparency by providing investors with information 
that otherwise has not been readily available. Issuers use their 
discretion in deciding whether and when to effect repurchases. 
Moreover, issuers may not repurchase all, or even any, of the shares 
they are authorized to repurchase. Before adoption of these rules, 
investors and market participants have not had ready access to 
information that would help them determine the amount of repurchasing 
effected by a registrant in any given time

[[Page 64966]]

period. This disclosure will provide more complete information to 
investors to assist them in better assessing an issuer, its activities, 
and its stock price.
    The amendments also will provide a uniform disclosure system 
concerning repurchases. This system should benefit investors and other 
market participants by providing repurchasing information in a 
consistent format 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).
    Furthermore, the amendments will shed light on currently 
undisclosed repurchases. Before adoption of these requirements, only 
certain repurchasing activity had to be disclosed, such as repurchases 
from company insiders and certain repurchases by closed-end funds. The 
final rules require comprehensive repurchasing disclosure. For example, 
the amendments 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 will provide investors and the 
marketplace with signaling information. An issuer's repurchases may 
signal information to investors such as an issuer's belief that its 
stock is undervalued. In the same way, the disclosure could signal 
information about market trends.
    Finally, the disclosure requirement will also provide information 
about an issuer's use of capital. When registering an offering, an 
issuer may state various uses of the offering proceeds, including 
repurchasing. The new periodic disclosure will provide follow-up 
information to such a registration statement disclosure. It is also a 
valuable way to confirm whether any of the offering proceeds were used 
for repurchases. All of these benefits will increase market efficiency.
2. Costs
    The final rules require issuers to disclose, with respect to their 
repurchases, the total number of shares (or units) repurchased, the 
average price per share, the number of shares (or units) that were 
repurchased pursuant to a publicly announced plan or program and the 
maximum number (or approximate dollar value) of shares (or units) that 
may yet be repurchased under the plans or programs. The final rules 
will increase costs for all reporting companies that make repurchases. 
However, these costs may be mitigated somewhat for many issuers that 
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.\122\ Although we are not changing our one hour 
burden estimate reflected in the Proposing Release, we also have 
slightly reduced the reporting burden by eliminating two proposed 
disclosure requirements: (1) that issuers disclose the identity of the 
broker used to effect the disclosed repurchases; and (2) that issuers 
identify in a footnote to the table 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.\123\
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    \122\ See for example, 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).
    \123\ In lieu of this disclosure, the final rules require the 
registrant to disclose each plan or program under which the issuer 
does not intend to make further purchases.
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    We estimate that it will take an issuer an average of approximately 
one hour per annual, semi-annual, or quarterly filing to prepare the 
required disclosure. The estimated cost per registrant of providing 
this disclosure per filing on Forms 10-Q, 10-QSB, 10-K, 10-KSB and N-
CSR is $169.\124\ The estimated cost per issuer of providing this 
disclosure per filing on Form 20-F is $256.\125\ The estimated total 
annual cost of providing this disclosure for all issuers is $879,870.
---------------------------------------------------------------------------

    \124\ This calculation is based on an estimate of \3/4\ burden 
hour of internal staff time and \1/4\ burden hour of third-party 
time and a cost of $125.00 per hour for internal staff and $300 per 
hour for services provided by third parties. The hourly cost 
estimate is based on consultations with several issuers and law 
firms and other persons who regularly assist issuers in preparing 
and filing periodic reports with the Commission.
    \125\ This calculation is based on an estimate of \3/4\ burden 
hour of third-party time and \1/4\ burden hour of internal staff 
time and a cost of $125.00 per hour for internal staff and $300 per 
hour for services provided by third parties. The hourly cost 
estimate is based on consultations with several issuers and law 
firms and other persons who regularly assist issuers in preparing 
and filing periodic reports with the Commission.
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IX. Consideration of Promotion of Efficiency, Competition, and Capital 
Formation

    Section 3(f) of the Exchange Act \126\ and Section 2(c) of the 
Investment Company Act \127\ require us, when engaging in rulemaking 
and where we are required to consider or determine whether an action is 
necessary or appropriate in the public interest, to consider, in 
addition to the protection of investors, whether the action will 
promote efficiency, competition, and capital formation. Section 
23(a)(2) of the Exchange Act \128\ requires the Commission in adopting 
rules under the Exchange Act, to consider the anticompetitive effects 
of any rules it adopts under the Exchange Act. Section 23(a)(2) 
prohibits us from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act. In the Proposing Release, we solicited comment on 
the proposals' effects on efficiency, competition, and capital 
formation. Additionally we requested, but did not receive, comments 
regarding the impact of the proposed amendments on the economy 
generally pursuant to the Small Business Regulatory Enforcement 
Fairness Act of 1996.\129\
---------------------------------------------------------------------------

    \126\ 15 U.S.C. 78c(f).
    \127\ 15 U.S.C. 80a-2(c).
    \128\ 15 U.S.C. 78w(a)(2).
    \129\ Pub. L. No. 104-121, tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

    We have considered the proposed amendments to Rule 10b-18 in light 
of the standards of Section 23(a)(2) of the Exchange Act and believe 
the adopted amendments should not impose any burden on competition not 
necessary or appropriate in furtherance of the Exchange Act. With one 
exception noted below, the amended safe harbor will apply equally to 
all issuers. Further, Rule 10b-18 is not the exclusive means by which 
issuers may effect purchases of their common stock. An issuer can 
purchase its common stock outside the safe harbor without raising a 
presumption of manipulation. The one area in which issuers may be 
treated differently is the adopted timing condition amendment. This 
amendment

[[Page 64967]]

allows issuers whose securities are actively traded to stay in the 
market for--a longer period of time--10 minutes instead of 30 minutes 
before the scheduled close of trading. The modified timing condition 
for actively traded issuers will not impose a significant burden on 
small issuers because small issuers can still make safe harbor 
purchases during a trading day or elect to make repurchases outside the 
safe harbor. They would be treated differently under the timing 
condition for only a 20-minute period. We believe that differing 
treatment for issuers that meet the actively traded test (ADTV and 
public float) and those that do not is necessary because issuer 
repurchases of less liquid securities would likely have a greater 
impact on the price of those securities. We do not believe that it 
would be appropriate or in furtherance of investor protection and 
market integrity to provide safe harbor eligibility for repurchases 
with a greater potential for undue issuer influence. We believe that 
allowing issuers of less liquid securities to remain in the market with 
the protection of the safe harbor between 30 and 10 minutes prior to 
the market close could compromise market integrity and erode investor 
confidence. We expect that the adopted timing amendment will benefit 
(1) the marketplace and investors by providing additional liquidity, 
and (2) traders by allowing them to implement a trading strategy for a 
longer period during the day. We believe that the amendment 
appropriately recognizes the minimal risk that large issuers' 
repurchases will unduly influence the market, thereby allowing the 
market to establish security prices based on independent market forces, 
and the difference in issuer treatment for 20 minutes a day does not 
create a significant anti-competitive burden on non-actively traded 
issuers. Further, we do not believe that the adopted safe harbor 
amendments should have a significant effect on competition because all 
issuers have the option of complying with the manner, volume, time, and 
price conditions.
    With respect to disclosure, the adopted amendments to Forms 10-K, 
10-KSB, 10-Q, 10-QSB, 20-F and N-CSR apply equally to all filers who 
announce that they intend to make repurchases. Thus, we do not believe 
that the amendments to these forms will have an anti-competitive 
effect.
    We believe that the Rule 10b-18 safe harbor, as amended, should 
improve market efficiency in the trading session following a market-
wide trading suspension by providing enhanced liquidity. We further 
believe the adopted amendments will improve market efficiency by 
providing greater clarity, uniformity, and simplification of the safe 
harbor conditions. An efficient market generally promotes capital 
formation.
    Moreover, the adopted disclosure amendments to Forms 10-K, 10-KSB, 
10-Q, 10-QSK, 20-F and N-CSR should enhance market efficiency by 
providing additional, readily accessible information to investors 
concerning issuer repurchase activity. Enhanced disclosure will allow 
investors to make better-informed investment decisions. We believe the 
increased transparency of issuer activity will improve market 
efficiency and bolster investor confidence in our securities markets. 
Informed investor decisions generally promote market efficiency and 
capital formation.

X. Final Regulatory Flexibility Analysis

    The Final Regulatory Flexibility Analysis (FRFA) has been prepared 
in accordance with the Regulatory Flexibility Act.\130\ This FRFA 
relates to adopted amendments regarding Rule 10b-18, Regulations S-K, 
S-B, Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F, N-CSR, and N-23C-1, and 
Rule 23c-1 under the Investment Company Act.
---------------------------------------------------------------------------

    \130\ 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Need for and Objectives of the Amendments

    The adopted Rule 10b-18 amendments fulfill several objectives 
including (1) simplifying and updating the Rule; (2) providing 
additional liquidity in times of market stress; (3) fostering investor 
confidence; and (4) providing a risk management tool to issuers. 
Moreover, the adopted amendments are consistent with the objective of 
minimizing the effects of an issuer's repurchases on the market price 
of an issuer's common stock thereby furthering our objective of 
fostering markets where investors, and particularly an issuer's 
shareholders, should be able to rely on a common stock price that is 
set by independent market forces and not influenced in a manipulative 
manner by the issuer.
    First, the amendments simplify and update the Rule in light of our 
experience with its operation and to reflect market developments since 
its adoption. The adopted amendments modify the definition of ``Rule 
10b-18 purchase'' to incorporate the current ``Rule 10b-18 bid'' 
definition, and to apply a uniform price condition among issuers. The 
safe harbor amendments also clarify the scope of the merger exclusion 
and modify the timing condition for actively traded issuers. Second, 
the amended volume condition provides increased liquidity to the 
markets by easing the volume condition in the trading session following 
a market-wide trading suspension, and provides an alternative volume 
condition allowing issuers to purchase one block or 25% of their ADTV 
on a given day. Third, the adopted amendments foster investor 
confidence in market integrity by maintaining reasonable limits on 
issuer repurchasing activity within the safe harbor, and facilitating 
pricing by independent market forces. Fourth, the adopted amendments 
provide increased clarity to issuers relying on the Rule to better 
manage the risk of potential liability associated with repurchases.
    The prime objective of the adopted disclosure amendments is to 
provide investors with useful, timely, and readily accessible 
information about issuer repurchases. The adopted amendments to 
Regulations S-K, S-B, Forms 10-Q, 10-QSB, 10-K, 10-KSB, 20-F and N-CSR 
provide investors and the marketplace with enhanced transparency 
concerning issuers' repurchases in order to better assess investment 
decisions and issuers generally. The increased transparency regarding 
repurchasing will promote enhanced evaluation of issuers, their 
repurchases and the effects of those repurchases on the issuers' stock 
prices and the market place. The adopted amendments also provide a 
means to monitor and assess the level and impact of issuers' 
repurchases.

B. Significant Issues Raised by Public Comments

    The Initial Regulatory Flexibility Analysis (IRFA) appeared in the 
Proposing Release. We requested comment on the IRFA, including the 
number of issuers conducting repurchase programs that are small 
entities, the impact the proposals would have on small entities, and 
how to quantify the impact. We received no comment letters regarding 
the IRFA.

C. Small Entities Subject to the Amendments

    Exchange Act Rule 0-10(a)\131\ defines an entity, other than an 
investment company, to be a ``small business'' or ``small 
organization'' if it has total assets of $5 million or less on the last 
day of its most recent fiscal year.\132\ In the

[[Page 64968]]

IRFA of the Proposing Release, we estimated that approximately 3 
issuers that conducted repurchases in 2000 had assets of less than $5 
million. Presently we estimate that approximately 4 issuers, other than 
investment companies, that conducted repurchases in 2002 had assets of 
less than $5 million.\133\ We estimate that approximately 7 closed-end 
funds are small entities that conducted repurchases in 2002. We sought 
comment on the number of issuers engaged in repurchases of their stock 
that are small entities. We also sought comment regarding the number of 
issuers that would make the proposed disclosures following open market 
and privately negotiated purchases each quarter and the number of those 
issuers that are small entities. No commenters responded with the 
requested data.
---------------------------------------------------------------------------

    \131\ 17 CFR 240.0-10(a).
    \132\ An investment company is a small entity if it, together 
with other investment companies in the same group of related 
investment companies, has net assets of $50 million or less as of 
the end of its most recent fiscal year. 17 CFR 270.0-10.
    \133\ The source of this data is Compustat.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The Rule 10b-18 adopted amendments will not impose any new 
reporting, record keeping, or other compliance requirements. The 
amendments to Regulations S-K, S-B, Forms 10-K, 10-KSB, 10-Q, 10-QSB, 
20-F and N-CSR add a new disclosure item for issuer purchases of equity 
securities. As stated in Section X. C above, approximately 11 issuers 
who conducted repurchase programs in 2002 were small entities. We 
believe no additional skills beyond those currently possessed by 
issuers (and broker-dealers) will be necessary to prepare the forms in 
accordance with the adopted disclosure amendments or to comply with the 
adopted Rule 10b-18 amendments.

E. Agency Action To Minimize the Effect on Small Entities

    As required by the Regulatory Flexibility Act, we have considered 
alternatives that would accomplish our stated objectives, while 
minimizing any significant adverse impact on small entities. In 
connection with the amendments, we considered the following 
alternatives:
    [sbull] The establishment of differing compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
    [sbull] The clarification, consolidation, or simplification of 
filing or posting requirements;
    [sbull] The use of performance rather than design standards; and
    [sbull] An exemption from coverage of the amendments, or any part 
of them, for small entities.
    With respect to the adopted Rule 10b-18 amendments, we believe that 
the establishment of different requirements for small entities, other 
than the timing amendment, is neither necessary nor practicable, 
because the safe harbor amendments provide a voluntary safe harbor. The 
adopted timing amendment allows issuers of more liquid securities to 
remain in the market effecting Rule 10b-18 repurchases for 20 minutes 
more per day than issuers of less actively traded securities. We did 
not believe it is appropriate to provide safe harbor eligibility near 
the close of trading for less liquid securities as such activity 
potentially could affect the closing price of security through undue 
issuer influence. Such activity could diminish investor confidence that 
common stock prices are set by independent market forces and erode 
market integrity.
    The Rule 10b-18 amendments should not adversely affect small 
entities because they do not impose any new reporting, record keeping 
or compliance requirements. Therefore, it is not feasible to further 
clarify, consolidate or simplify the safe harbor for small entities. 
Further, it does not seem necessary to develop separate requirements 
for small entities with respect to the adopted amendments to 
Regulations S-K, S-B, Forms 10-K, 10-KSB, 10-Q, 10-QSB, 20-F and N-CSR, 
because we think all issuers, including issuers that are small 
entities, already have this information readily available or would not 
meet objectives.

XI. Statutory Basis and Text of Adopted Amendments

    The Rule amendments are being adopted pursuant to Sections 2, 3, 
9(a)(6), 10(b), 12, 13(e), 15, 15(c), and 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 record keeping requirements, Securities, Small 
businesses.

17 CFR Parts 229 and 249

    Reporting and record keeping requirements, Securities.

17 CFR Part 240

    Brokers, Dealers, Issuers, Securities.

17 CFR Parts 270 and 274

    Investment companies, Reporting and record keeping requirements, 
Securities.


0
For the reasons set forth in the preamble, Title 17, Chapter II of the 
Code of Federal Regulations is amended as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

0
1. The general 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, 80b-11, 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *
0
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. 781).

[[Page 64969]]



                              Small Business Issuer Purchases of Equity Securities
----------------------------------------------------------------------------------------------------------------
                                                                                            (d)  Maximum number
                                                                   (c)  Total number of      (or  approximate
                          (a)  Total number   (b)  Average price     shares (or units)       dollar value) of
         Period             of shares (or     paid per share (or   purchased as part of   shares (or units) that
                           units) purchased          unit)          publicly announced     may yet be purchased
                                                                     plans or programs      under the plans or
                                                                                                 programs
----------------------------------------------------------------------------------------------------------------
Month 1
 (identify beginning
 and ending dates).
------------------------
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 (or units) 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 (or unit) (column (b));
    (3) The total number of shares (or units) purchased as part of 
publicly announced repurchase plans or programs (column (c)); and
    (4) The maximum number (or approximate dollar value) of shares (or 
units) that may yet be purchased under the plans or programs (column 
(d)).

Instructions to Paragraphs (b)(3) and (b)(4) 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 or unit 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; and
    e. Each plan or program the small business issuer has determined to 
terminate prior to expiration, or under which the small business issuer 
does not intend to make further purchases.

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

0
3. The general 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, 
78mm, 79e, 79j, 79n, 79t, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-
31(c), 80a-37, 80a-38(a), 80a-39, 80b-11, 7201 et seq.; and 18 
U.S.C. 1350, unless otherwise noted.
* * * * *
0
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. 
781).

[[Page 64970]]



                                      Issuer Purchases of Equity Securities
----------------------------------------------------------------------------------------------------------------
                                                                                            (d)  Maximum number
                                                                   (c)  Total number of   (or approximate dollar
                          (a)  Total number   (b)  Average price     shares (or units)     value) of shares (or
         Period             of shares (or     paid per share (or   purchased as part of   units) that may yet be
                           units) purchased          unit)          publicly announced      purchased under the
                                                                     plans or programs       plans or programs
----------------------------------------------------------------------------------------------------------------
 Month 1
 (identify beginning
 and ending dates).
------------------------
 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 (or units) purchased (column (a));

Instruction 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 (or unit) (column (b));
    (3) The total number of shares (or units) purchased as part of 
publicly announced repurchase plans or programs (column (c)); and
    (4) The maximum number (or approximate dollar value) of shares (or 
units) that may yet be purchased under the plans or programs (column 
(d)).

Instructions to Paragraphs (b)(3) and (b)(4) 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 or unit 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; and
    e. Each plan or program the issuer has determined to terminate 
prior to expiration, or under which the issuer does not intend to make 
further purchases.

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

0
5. The general authority citation for Part 240 parties revised 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, 80-20, 80-23, 80a-29, 80-37, 80b-3, 
80b-4, 80b-11, 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *

0
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 an issuer (and its affiliated 
purchasers) with a ``safe harbor'' from liability for manipulation 
under sections 9(a)(2) of the Act and Sec.  240.10b-5 under the Act 
solely by reason of the manner, timing, price, and volume of their 
repurchases when they repurchase 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, moreover, 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 report their repurchasing 
activity as required by 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 report their repurchasing activity as required by Item 
8 of Form N-CSR (17 CFR 249.331; 17 CFR 274.128).
    (a) Definitions. Unless otherwise provided, 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

[[Page 64971]]

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 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) Block means 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; Provided, however, That a block under 
paragraph (a)(5)(i), (ii), and (iii) shall not include any amount a 
broker or dealer, acting as principal, has accumulated for the purpose 
of sale or resale to the issuer or to any affiliated purchaser of the 
issuer if the issuer or such affiliated purchaser knows or has reason 
to know that such amount was accumulated for such purpose, nor shall it 
include any amount that a broker or dealer has sold short to the issuer 
or to any affiliated purchaser of the issuer if the issuer or such 
affiliated purchaser knows or has reason to know that the sale was a 
short sale.
    (6) 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) or a national market system plan 
(as defined in Sec.  240.11Aa3-2).
    (7) 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. 78l (k)).
    (8) Plan has the meaning contained in Sec.  242.100 of this 
chapter.
    (9) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the six full calendar months preceding the week in which the Rule 10b-
18 purchase is to be effected.
    (10) Public float value has the meaning contained in Sec.  242.100 
of this chapter.
    (11) 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.
    (12) Riskless principal transaction means a transaction in which a 
broker or dealer after having received an order from an issuer to buy 
its security, buys the security as principal in the market at the same 
price to satisfy the issuer's buy order. The issuer's buy order must be 
effected at the same price per-share at which the broker or dealer 
bought the shares to satisfy the issuer's buy order, exclusive of any 
explicitly disclosed markup or markdown, commission equivalent, or 
other fee. In addition, only the first leg of the transaction, when the 
broker or dealer buys the security in the market as principal, is 
reported under the rules of a self-regulatory organization or under the 
Act. For purposes of this section, the broker or dealer must have 
written policies and procedures in place to assure that, at a minimum, 
the issuer's buy order was received prior to the offsetting 
transaction; the offsetting transaction is allocated to a riskless 
principal account or the issuer's account within 60 seconds of the 
execution; and the broker or dealer has supervisory systems in place to 
produce records that enable the broker or dealer to accurately and 
readily reconstruct, in a time-sequenced manner, all orders effected on 
a riskless principal basis.
    (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 (including riskless principal 
transactions). However, it does not include any purchase of such 
security:
    (i) Effected during the applicable restricted period of a 
distribution that is subject to Sec.  242.102 of this chapter;
    (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 (as defined in Sec.  230.165(f)) of a merger, acquisition, 
or similar transaction involving a recapitalization, until the earlier 
of the completion of such transaction or the completion of the vote by 
target shareholders. This exclusion does not apply to Rule 10b-18 
purchases:
    (A) Effected during such transaction in which the consideration is 
solely cash and there is no valuation period; or
    (B) Where:
    (1) The total volume of Rule 10b-18 purchases effected on any 
single day does not exceed the lesser of 25% of the security's four-
week ADTV or the issuer's average daily Rule 10b-18 purchases during 
the three full calendar months preceding the date of the announcement 
of such transaction;
    (2) The issuer's block purchases effected pursuant to paragraph 
(b)(4) of this section do not exceed the average size and frequency of 
the issuer's block purchases effected pursuant to paragraph (b)(4) of 
this section during the three full calendar months preceding the date 
of the announcement of such transaction; and
    (3) Such purchases are not otherwise restricted or prohibited;
    (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

[[Page 64972]]

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 effected 
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);
    (ii) Where Rule 10b-18 purchases are effected 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; and
    (iii) Where Rule 10b-18 purchases are effected on behalf of the 
issuer by a broker-dealer that is not an electronic communication 
network (ECN) or other alternative trading system (ATS), that broker-
dealer can access ECN or other ATS liquidity in order to execute 
repurchases on behalf of the issuer (or any affiliated purchaser of the 
issuer) on that day.
    (2) Time of purchases. Rule 10b-18 purchases must not be:
    (i) The opening (regular way) purchase reported in the consolidated 
system;
    (ii) Effected during the 10 minutes before the scheduled close of 
the primary trading session in the principal market for the security, 
and the 10 minutes before the scheduled close of the primary trading 
session in the market where the purchase is effected, for a security 
that has an ADTV value of $1 million or more and a public float value 
of $150 million or more; and
    (iii) Effected during the 30 minutes before the scheduled close of 
the primary trading session in the principal market for the security, 
and the 30 minutes before the scheduled close of the primary trading 
session in the market where the purchase is effected, for all other 
securities;
    (iv) However, for purposes of this section, Rule 10b-18 purchases 
may be effected following the close of the primary trading session 
until the termination of the period in which last sale prices are 
reported in the consolidated system so long as such purchases are 
effected at prices that do not exceed the lower of the closing price of 
the primary trading session in the principal market for the security 
and any lower bids or sale prices subsequently reported in the 
consolidated system, and all of this section's conditions are met. 
However, for purposes of this section, the issuer may use one broker or 
dealer to effect Rule 10b-18 purchases during this period that may be 
different from the broker or dealer that it used during the primary 
trading session. However, the issuer's Rule 10b-18 purchase may not be 
the opening transaction of the session following the close of the 
primary trading session.
    (3) Price of purchases. Rule 10b-18 purchases must be effected at a 
purchase price that:
    (i) Does not exceed the highest independent bid or the last 
independent transaction price, whichever is higher, quoted or reported 
in the consolidated system at the time the Rule 10b-18 purchase is 
effected;
    (ii) For securities for 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, at 
the time the Rule 10b-18 purchase is effected; and
    (iii) For all other securities, Rule 10b-18 purchases must be 
effected at a price no higher than the highest independent bid obtained 
from three independent dealers.
    (4) Volume of purchases. The total volume of Rule 10b-18 purchases 
effected by or for the issuer and any affiliated purchasers effected on 
any single day must not exceed 25 percent of the ADTV for that 
security; However, once each week, in lieu of purchasing under the 25 
percent of ADTV limit for that day, the issuer or an affiliated 
purchaser of the issuer may effect one block purchase if:
    (i) No other Rule 10b-18 purchases are effected that day, and
    (ii) The block purchase is not included when calculating a 
security's four week ADTV under this section.
    (c) Alternative conditions. The conditions of paragraph (b) of this 
section shall apply in connection with Rule 10b-18 purchases effected 
during a trading session following the 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 on the day that the market-wide trading suspension is imposed; 
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. 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 under the Act, 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

0
7. The general authority citation for Part 249 and the sectional 
authority for Sec.  249.308 are revised to read as follows:

    Authority: 15 U.S.C. 78a, et seq., 15 U.S.C. 7201 et seq., and 
18 U.S.C. 1350, unless otherwise noted.
* * * * *
    Section 249.308 is also issued under 15 U.S.C. 80a-29 and 80a-37.
* * * * *

0
8. Amend Form 20-F, Part II (referenced in Sec.  249.220f) by adding 
new Item 16E 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 II
* * * * *
Item 16E 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 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. 781).

[[Page 64973]]



                                      Issuer Purchases of Equity Securities
----------------------------------------------------------------------------------------------------------------
                                                                                            (d)  Maximum number
                                                                   (c)  Total number of   (or approximate dollar
                          (a)  Total number   (b)  Average price     shares (or units)     value) of shares (or
         Period             of shares (or     paid per share (or   purchased as part of   units) that may yet be
                           units) purchased         units)          publicly announced      purchased under the
                                                                     plans or programs       plans or programs
----------------------------------------------------------------------------------------------------------------
Month 1
 (identify beginning
 and ending dates).
------------------------
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).
------------------------
Month 7
 (identify beginning
 and ending dates).
------------------------
Month 8
 (identify beginning
 and ending dates).
------------------------
Month 9
 (identify beginning
 and ending dates).
------------------------
Month 10
 (identify beginning
 and ending dates).
------------------------
Month 11
 (identify beginning
 and ending dates).
------------------------
Month 12
 (identify beginning
 and ending dates).
                        ----------------------
    Total..............
----------------------------------------------------------------------------------------------------------------


[[Page 64974]]

    (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 (or units) purchased (column (a)).

Instruction to Paragraph (b)(1) of Item 16E

    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 (or unit) (column (b)).
    (3) The number of shares (or units) purchased as part of a publicly 
announced repurchase plan or program (column (c)).
    (4) The maximum number (or approximate dollar value) of shares (or 
units) that may yet be purchased under the plans or programs (column 
(d)).

Instructions to Paragraphs (b)(3) and (b)(4) of Item 16E

    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 or unit 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; and
    e. Each plan or program the issuer has determined to terminate 
prior to expiration, or under which the issuer does not intend to make 
further purchases.

Instruction to Item 16E

    Disclose all purchases covered by this item, including purchases 
that do not satisfy the conditions of the safe harbor of Sec.  240.10b-
18. Price data and other data should be stated in the same currency 
used in the issuer's primary financial statements provided in Item 8 of 
this Form.
* * * * *

0
9. Amend Form 10-Q (referenced in Sec.  249.308a) by revising the 
caption for Item 2 in Part II and by adding paragraph (e) to read as 
follows:

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

Form 10-Q
* * * * *
Part II--Other Information
* * * * *
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of 
Equity Securities.
* * * * *
    (e) 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 covering repurchases made on 
a monthly basis. For example, if the quarter began on January 16 and 
ended on April 15, the chart would show repurchases for the months from 
January 16 through February 15, February 16 through March 15, and March 
16 through April 15.
* * * * *

0
10. Amend Form 10-QSB (referenced in Sec.  249.308b) by revising the 
caption for Item 2 in Part II and adding paragraph (e) to read 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. Changes in Securities and Small Business Issuer Purchases of 
Equity Securities.
* * * * *
    (e) 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 covering repurchases made on 
a monthly basis. For example, if the quarter began on January 16 and 
ended on April 15, the chart would show repurchases for the months from 
January 16 through February 15, February 16 through March 15, and March 
16 through April 15.
* * * * *

0
11. Amend Form 10-K (referenced in Sec.  249.310) by revising the 
caption for Item 5 in Part II 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 monthly basis. For 
example, if the fourth quarter began on January 16 and ended on April 
15, the chart would show repurchases for the months from January 16 
through February 15, February 16 through March 15, and March 16 through 
April 15.
* * * * *

0
12. Amend Form 10-KSB (referenced in Sec.  249.310b) by revising the 
caption 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 monthly basis. For 
example, if the fourth quarter began on January 16 and ended on April 
15, the chart would show repurchases for the months from January 16 
through February 15, February 16 through March 15, and March 16 through 
April 15.
* * * * *

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
13. The authority citation for Part 270 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, and 80a-
39, unless otherwise noted.
* * * * *

[[Page 64975]]


0
14. Section 270.23c-1 is amended by revising paragraph (a)(11) to read 
as follows:


Sec.  270.23c-1  Repurchases of securities by closed-end companies.

    (a) * * *
    (11) The issuer files with the Commission, as an exhibit to Form N-
CSR (Sec.  249.331 and Sec.  274.128), a copy of any written 
solicitation to purchase securities under this section sent or given 
during the period covered by the report by or on behalf of the issuer 
to 10 or more persons.
* * * * *

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

0
15. The authority citation for Part 274 continues to read, in part, 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.
* * * * *
0
16. Remove Sec.  274.201.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

0
17. Form N-CSR (referenced in Sec. Sec.  249.331 and 274.128) is 
amended by:
0
a. Adding text to Item 8; and
0
b. Adding new paragraph (a)(3) to Item 10.
    These additions read as follows:

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

Form N-CSR
* * * * *
Item 8. 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 Exchange Act (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 Exchange Act (15 U.S.C. 78l).

Instruction to paragraph (a)

    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 Exchange Act (17 CFR 240.10b-18), made in the period covered 
by the report. Provide disclosures covering repurchases made on a 
monthly basis. For example, if the reporting period began on January 16 
and ended on July 15, the chart would show repurchases for the months 
from January 16 through February 15, February 16 through March 15, 
March 16 through April 15, April 16 through May 15, May 16 through June 
15, and June 16 through July 15.

                                    Registrant Purchases of Equity Securities
----------------------------------------------------------------------------------------------------------------
                                                                                            (d)  Maximum number
                                                                   (c)  Total number of   (or approximate dollar
                          (a)  Total number   (b)  Average price     shares (or units)     value) of shares (or
         Period             of shares (or     paid per share (or   purchased as part of   units) that may yet be
                           units) purchased          unit)          publicly announced      purchased under the
                                                                     plans or programs       plans or programs
----------------------------------------------------------------------------------------------------------------
Month 1
 (identify beginning
 and ending dates).
------------------------
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:

[[Page 64976]]

    (1) The total number of shares (or units) purchased (column (a));

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).
    (2) The average price paid per share (or unit) (column (b));
    (3) The number of shares (or units) purchased as part of publicly 
announced repurchase plans or programs (column (c)); and
    (4) The maximum number (or approximate dollar value) of shares (or 
units) that may yet be purchased under the plans or programs (column 
(d)).

Instructions to Paragraphs (b)(3) and (b)(4).

    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 or unit 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; and
    e. Each plan or program the registrant has determined to terminate 
prior to expiration, or under which the registrant does not intend to 
make further purchases.
* * * * *
Item 10. Exhibits
    (a) * * *
    (3) Any written solicitation to purchase securities under Rule 23c-
1 under the Act (17 CFR 270.23c-1) sent or given during the period 
covered by the report by or on behalf of the registrant to 10 or more 
persons.
* * * * *

    By the Commission.

    Dated: November 10, 2003.
Margaret H. McFarland,
 Deputy Secretary.
[FR Doc. 03-28593 Filed 11-14-03; 8:45 am]
BILLING CODE 8010-01-P