The maximum amount of money to be spent, or the maximum number of shares to be acquired. GETTING A WRITTEN AGREEMENT from the broker that the program will follow SEC Rule 10b is a good idea. It should specify that:. The company and affiliated purchasers may work with only one broker or dealer on any single day. The company may not buy on the opening trade on the NASDAQ National Market or during the last half hour of scheduled trading. The company's purchase or bid price may not exceed the highest current independent bid quote or last independent sale price, whichever is higher.

The company must stay within trading volume restrictions unless it is doing a block trade.

Stock Buybacks: The Rules

CHECK THE BROKER'S EXECUTION of the purchases. Make sure you obtained a good price. I s your company planning to buy back publicly held stock?

If so, it's not alone. But CPAs and other financial executives who administer repurchase programs can't just pick up the phone and place an order with a broker to buy treasury stock, especially if they know that the company's earnings will soar or that it will soon announce a strategic decision apt to be popular on Wall Street.

They are insiders, and as such, face tough insider information rules. Here's how to execute a buyback program at a good price with the SEC's blessing. Goldschmid, general counsel at the SEC, says that stock repurchases made by company managers with material inside information can disturb "the integrity of the markets. What is inside information exactly? That's not easy to pin down—ask your company's corporate counsel.

But if the information hasn't been disclosed publicly and you think the stock might move if it were, it probably qualifies. Financial executives routinely have early access to such information. To level the playing field, securities law requires publicly traded companies to disclose any material information about operations. What makes information "material"? If a company acts on such information before it is released to the public, however—exercising a distinct advantage over other investors—it violates U.

Goldschmid, general counsel of the SEC in Washington, D.

Rule 10b

That applies whether the insider purchases stock for his own account or for the company. That creates a kind of unfairness that is traditionally considered fraudulent. Share-price manipulation has concerned regulators since the "Securities Exchange Act of attempted to prevent manipulation of the market by issuers, officers and directors," says Susan M. Barnard, a securities-law attorney with Sullivan and Worcester, LLP, Boston.

Companies that violate insider-trading laws risk incurring a range of costly penalties. Goldschmid points out that the potential remedies run from criminal sanctions, which include prison terms of up to 10 years, to triple-disgorgement penalties, in which the SEC seeks three times the amount of money made by the misuse of inside information.

Other shareholders also have standing to sue a violator. There are several reasons why companies have been buying back their stock at record rates. First, Wall Street loves stock repurchases. A stock repurchase reduces the number of shares outstanding. Accordingly, earnings divided by shares outstanding—earnings-per-share—go up. That increases the value of the stock for the remaining shareholders. Share repurchases are, in effect, an investment in the company's own stock. At least in theory, management only repurchases stock if it expects to enhance shareholder value more that way than by using the cash for capital spending, acquisitions or dividend distributions—the latter of which would trigger taxes for the dividend recipients.

One of the most conspicuous reasons for the growth of such programs is to help offset the dilutive effects of generous stock compensation packages for employees, including stock options and stock contributions to k programs.

Earnings are "diluted" when the number of shares outstanding increases, reducing per-share earnings. As successful companies issue new shares to reward their employees, the other shareholders' per-share earnings are, inevitably, diluted. Duffy, CPA and chief financial officer at HS Resources, Inc. Even if a board of directors authorizes the immediate launch of a buyback program, the rules covering the timing of purchases around major developments within the company may cause the CFO to delay implementing it.

To address potential insider trading, many companies inform their brokers that they may be required to suspend on short notice purchases authorized as part of an ongoing repurchase program. In fact, many companies apply the same "blackout period"—forbidding all trades—to corporate repurchases as they do for insider stock purchases by individuals.

For example, a company may decide not to trade during a period that extends from 10 days before through two days after any earnings release. Assuming no pending developments prevent a buyback and the company's legal counsel gives its blessing, the next step for the executive administering the program is to get board authorization for it. After the board makes its decision, the company should issue a press release detailing the program.

Things start to get tricky at this stage because of the extensive regulations governing corporate share repurchases. The safest course of action for CPAs or others administering a buyback is to follow the guidelines found in the act's Rule 10b—Purchases of Certain Equity Securities by the Issuer and Others.

Technically, Rule 10b provides a safe harbor only for repurchases of common stock. In practice, it is often used as a guideline for repurchases of other securities as well. Even though compliance with Rule 10b isn't mandatory, it does reduce the potential for error in executing a buyback. Barnard, a securities-law attorney at Sullivan and Worcester, LLP, says that CPAs in business and industry should ensure that their company has an insider trading policy and that it adheres to it.

Donegan says, "The rule exchange rates thb to zar actually fairly restrictive.

It is designed so the company can't make multiple trades through multiple brokers and try to pump up the stock's price. CPAs should be especially cautious about permitting a company to announce or engage in a buyback program if that company has used or is considering using the pooling-of-interests method to account for a merger. In many cases, switching from the pooling of interests method to the purchase method could be devastating to the combined company's bottom line.

The rules restricting the use of the pooling method are quite confining. Even if no shares have been repurchased at the time of the merger, if the SEC determines that the companies had an "intention" to buy back a significant number of shares once the combination has been consummated, the commission may disallow the use of the pooling method. The SEC does optional output parameter c# some modest repurchases as part of a qualified systematic pattern in place before the earn huge money from forex in india, but that can be difficult to prove.

The SEC staff clarified its position on this issue in March in How to get money from cash4phones Accounting Bulletin no. Highlights of the bulletin include:. Any buyback, or announcement of a planned buyback, within six months following the pooling, will be presumed to have been planned at the date of the combination—"tainted"—and may cause the SEC to disallow pooling treatment for the merger.

In addition to the multiple broker, price and time restrictions, complex guidelines cap the allowable trading volume. The volume restriction in the safe harbor allows an exception for block purchases.

That can increase a program's flexibility significantly. To qualify as a block, the stock purchase must have at least one of the following characteristics:. That would not be good for the other investors. CPAs should ensure that their company has "a firm, and regularly adhered to, insider trading policy about which employees, officers and directors signal the latest binary options others have been informed, and about which they are regularly updated and reminded," Barnard says.

The corporate repurchase program should conform to that insider trading policy. At most companies, that means that employees must clear purchases of the company's stock in advance how to calculate the premium of a call option the legal department. Accordingly, any executive with potential inside information should inform the legal department that it should veto any repurchases.

Rule 10b is complex. Accordingly, the company's brokerage firm should have the legal and trading expertise needed to corporate stock repurchase rules within the safe harbor boundaries without sacrificing execution—the ability forex dealers dwarka get a good price for stock purchased for the treasury.

According to the CPAs, CFOs and attorneys interviewed for this article, most brokerage firms know the rules and have no problem complying with them. Roy Liljebeck, CFO of Airborne Freight Corp. The company, which recently completed a 2-million-share repurchase and has board authorization to buy another 2 million shares, trades on the New York Stock Exchange and works with multiple brokers, giving some business to each.

Liljebeck rotates the buyback assignments among the brokerage firms that issue research reports on his company. Execution quality is his primary concern. To track it he checks the prices each broker gets for him against a list of all block trades over 5, shares. The NYSE provides him with that list each trading day.

That would be a problem. Good execution would be on the low end. Many brokerage firms, corporate stock repurchase rules the larger organizations, have separate departments in place for Rule 10b trading and compliance. Robert Leonard is the managing director in charge of Salomon Smith Barney's seven-member Special Equity Transactions Group, which executes the company's legally sensitive equity trades, including repurchases.

According to Leonard, it's easy to comply with the regulations. That may be true for most sophisticated companies that have repurchased their own shares on many occasions.

But there have been a lot of IPOs lately, and the first repurchase can be daunting. That's a good reason for a company to use a well-established broker if it can. It has a group that specializes in these transactions," says HS Resources' Duffy. However, we do require an indemnification under the stock repurchase agreement that protects us against any trading violations under 10b Dutro, CPA, is the CFO of KLLM Transport Services, Inc.

That company's stock is thinly traded, so he has little choice—he used the company's market maker as the broker for a buyback. Smaller companies that do not trade on an exchange face a narrower selection of brokers than larger, exchange-traded firms do.

The board of KLLM Transport Services, Inc. Dutro, CPA and CFO of the company, did not need an extensive search for a brokerage firm. Only a couple were willing to trade the stock at all.

Our stock is thinly traded and there aren't many market makers, which makes the selection process simpler for us than for many other public companies.

That involves assuming some risk. In return, a market maker gets to keep the small spread between the bid and asked prices. If the CFO, CPA or other supervisor of the repurchase program has doubts about a broker's Rule 10b competence, the company's legal counsel should be asked to bring him or her up to speed, or the company should use another broker.

The company should establish a procedure for reviewing the broker's performance, routinely checking for compliance with all 10b guidelines. CPAs are good candidates for setting up such control procedures. Donegan reports a case where a month after the repurchase was completed the company's CFO spotted trades that exceeded volume limits.

The trading excess was small and did not cause any problems with the SEC, but the brokerage firm had been ignorant of the limits and had not followed Rule 10b guidelines.

SEC eases stock buyback rules - MarketWatch

Since Rule 10b is a safe harbor guideline and does not carry the force of law, such violations do not have to be reported to the SEC. Nonetheless, no company would want to find itself outside the safe harbor. Leonard thinks it is a good idea to have a formal agreement between a company and its brokers. We list the names of the people responsible on our end and at the company, and ask them to sign the letter if it meets their understanding.

Companies should seek a formal agreement with their broker for any repurchase program. Most brokerage firms have a standard one that covers the highlights of Rule 10b and specifies who, on each side, will be responsible for what. The Special Equity Transactions Group at Salomon Smith Barney has a standard agreement that includes the following clauses:.

The Company's desired price, together with considerations that could affect what an acceptable price would be. To comply with Rule 10b guidelines, companies need to aggregate corporate stock purchases with those of any "affiliated purchasers. As a general rule, "affiliated purchasers" include directors and senior officers who participate in the buyback decision. Repurchase plan administrators are not required to include purchases from the company made under a stock option or incentive compensation plan, or purchases made in the market by agents such as retirement and dividend reinvestment plan trustees.

To prevent problems, companies should require members of the affiliated group to notify the company whenever they plan to buy the company's stock. In spite of the complex repurchase rules, the sources interviewed for this article have seen very few instances of noncompliance. By providing adequate disclosure and retaining competent brokers, most firms seem to have no unusual difficulty staying within the law. So it's a combination of corporate timing, legal availability and proper execution. Sometimes it means you don't get to buy shares you'd like to buy, but that's part of the discipline.

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This quick guide walks you through the process of adding the Journal of Accountancy as a favorite news source in the News app from Apple. Toggle search Toggle navigation. All articles IFRS Internal control Private company reporting SEC compliance and reporting U. The Rules Toeing the line on the inside track. The rationale for the program.

The time period covered. It should specify that: ED McCARTHY is a freelance writer and author specializing in finance and technology living in Warwick, Rhode Island.

His e-mail address is edmccarthy1 yahoo. Highlights of the bulletin include: The Special Equity Transactions Group at Salomon Smith Barney has a standard agreement that includes the following clauses: Review of Rule10b transaction restrictions. List of company's authorized designees who can instruct broker. List of brokerage firm contacts responsible for trades. Commission rate per share. Trade settlement time typically three business days after trade date.

Salomon Smith Barney's Special Equity Transactions Group. SPONSORED REPORT Gearing up for the new FASB lease accounting standard Management accountants in the United States face significant challenges as companies prepare for the far-reaching change. CHECKLIST Being responsive to clients CPAs and their firms have daily pressures and hectic schedules, but being responsive is crucial to client satisfaction.

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