this might help some, please note the 25% rule
merger negotiations or it knows the earnings but those earnings haven't been released, the company should not be out purchasing its stock."
To address potential insider trading, many companies inform their brokers that they may be required to suspend on short notice purchases authorizedau·thor·ize
tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es
1. To grant authority or power to.
2. To give permission for; sanction:
..... Click the link for more information. as part of an ongoing repurchase program. In fact, many companies apply the same "blackout period Blackout Period
1. A term that refers to a temporary period in which access is limited or denied.
2. A period of around 60 days during which employees of a company with a retirement or investment plan cannot modify their plans. "--forbidding all trades--to corporate repurchasesCorporate repurchase
Active buying by a corporation of its own stock in the marketplace. Reasons for repurchase include putting idle cash to use, raising EPS, creating support for a stock price, increasing internal control (shark repellant), or stock for ESOP or pension plans.
..... Click the link for more information. 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. That authorization should state both a dollar or share purchase limit and a time frame--for example; $5 million over one year, 3% of shares outstanding over the next six months or a half million shares before year-end. After the board makes its decision, the company should issue a press release detailing the program.
FOLLOW RULE 10b-18
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 guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. found in the 1934 act's Rule 10b-18--Purchases of Certain Equity Securities by the Issuer and Others. Technically, Rule 10b-18 provides a safe harbor Safe Harbor
1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated.
2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. only for repurchases of common stock. In practice, it is often used as a guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. for repurchases of other securities as well.
Even though compliance with Rule 10b-18 isn't mandatory, it does reduce the potential for error in executing a buyback. "If you comply with Rule 10b-18, you have a pretty good shot at defending yourself if anyone claims you were manipulating the market" Barnard points out. "If you don't comply, it doesn't mean that you have engaged in a securities law violation, but it doesn't give you the same level of comfort as if you had complied."
Donegan says, "The rule is 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." These are the rules under 10b-18:
* During any one day, a company--together with affiliated purchasers (such as individuals involved in the decision to buy in stock)--can purchase or make bids through only one broker or dealer. For instance, the CFO cannot buy stock for his own account through a different broker.
* Neither the company nor affiliated purchasers can do the opening trade on that market that day; they are also forbidden from trading during the last half hour before the market's close.
* The company and affiliated purchasers can't bid at or settle at a purchase price that exceeds the highest current independent bid quote or the last independent sales price, whichever is higher.
In addition to the multiple broker, price and time restrictions, complex guidelines cap the allowable trading volume.
* On any single trading dayIn Business, the trading day is the time span that a particular stock exchange is open. For example, the New York Stock Exchange is, as of 2006, open from 09:30AM to 4:00PM. Trading days never take place on weekends.
..... Click the link for more information., the company can't purchase more than the greater of either one round lot (100 shares) or the number of round lots that is closest to 25% of the company's stock's average daily trading volume in the four previous calendar weeks.
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:
* A price of $200,000 or more.
* At least 5,000 shares and a price of $50,000 or more.
* At least 20,000 shares and 150% of the stock's average daily trading volume (excluding block trades) for the preceding four calendar weeks.
"So if there is a big chunk of shares out there--and often these are privately negotiated trades that are not on the market--that trade isn't included in the volume restriction," Donegan says. "The idea is that there isn't the opportunity for market manipulation Market manipulation describes a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a stock. when the company is buying a large block back from one stockholder" In fact, if such a large block were to be thrown into the open market, it would probably cause a supply--demand imbalance, forcing the stock price down. 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 and others have been informed, and about which they are regularly updated and reminded" Barnard says. The corporate repurchase program should conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?"
fit, meet
coordinate - be co-ordinated; "These activities coordinate well" that insider trading policy. At most companies, that means that employees must clear purchases of the company's stock in advance through the legal department. Accordingly, any executive with potential inside information should inform the legal department that it should veto any repurchases.
