On January 25, 2010, the Securities and Exchange Commission proposed amendments to Rule 10b-18 under the Securities Exchange Act of 1934 (the “Exchange Act”), which provides an issuer and certain others with a nonexclusive “safe harbor” from liability for manipulation1 when they repurchase the issuer’s common stock in the market in accordance with the Rule’s manner, timing, price, and volume conditions.2 Rule 10b-18 was originally adopted in 1982, and the proposed amendments are intended to clarify and modernize the safe harbor provisions in light of market developments.

The SEC’s proposed revisions are quite timely (or extremely late, depending on your viewpoint). The downturn in issuer repurchases during the financial crisis should begin to ease as issuers consider repurchasing their undervalued stock. Modernizing Rule 10b-18 may also result in greater transparency as issuers may decide to conduct repurchases within the safe harbor, rather than continue the recent market trend of indirect repurchases through the use of derivatives or repurchases that rely on formula pricing methodologies. The proposed revisions may also address concerns raised regarding the timing of issuer repurchase programs similar to the timing concerns raised in the stock option backdating and charitable donation inquiries.3

The SEC proposes the following significant revisions4 to Rule 10b-18....