[15678]
February 21, 2003
TO: SEC RULES COMMITTEE No. 19-03
CLOSED-END INVESTMENT COMPANY COMMITTEE No. 12-03
RE: INSTITUTE COMMENT LETTER REGARDING REPURCHASES OF STOCK UNDER
RULE 10b-18
The Institute has prepared the attached comment letter on the Commission’s proposed
amendments to Rule 10b-18 under the Securities Exchange Act of 1934, the rule that provides
issuers with a safe harbor from liability for manipulation when they repurchase their common
stock in the market in accordance with the rule’s manner, timing, price, and volume conditions.∗
The letter is very similar to the draft previously circulated to you and is briefly
summarized below.
• Timing of Purchases. The letter supports permitting issuers of highly liquid
securities to repurchase their securities up to ten minutes (rather than the current
thirty minutes) before the close of trading. The letter states that the proposed
ten-minute standard (together with the other requirements of Rule 10b-18)
would adequately protect against an issuer affecting the closing price of its
securities. In addition, the letter states that it is important to continue to provide
issuers with such a bright-line standard to determine their eligibility for the safe
harbor.
• Volume of Purchases. The letter states the Institute’s concern that including block
purchases in Rule 10b-18 volume limitations would significantly limit the ability
of closed-end funds to repurchase their securities and recommends that closed-
end funds continue to be permitted to implement their repurchase programs
under Rule 10b-18 by effecting block purchases. In particular, the letter
recommends that, for closed-end funds, the Commission continue to exclude
block purchases from Rule 10b-18’s volume limitations. Alternatively, the letter
recommends that closed-end funds be permitted to purchase up to a daily
aggregate amount of 10,0000 shares. In addition, the letter recommends that the
Commission gather and analyze data on the effect of eliminating the block
∗ See Memorandum to SEC Rules Members No. 113-02, Closed-End Investment Company Members No. 68-02, dated
December 18, 2002.
2
exception for all issuers before determining to eliminate Rule 10b-18’s exception
for block purchases.
• Rule 10b-18 Alternative Conditions. The letter supports the proposed amendment
that would raise Rule 10b-18’s volume limitations in the case of severe market
declines from 25% of average daily trading volume (“ADTV”) to 100% of ADTV
for that security.
• Disclosure. The letter states the Institute’s belief that it is unnecessary and
inappropriate to require closed-end funds to provide information about
repurchases on three different forms -- Forms N-23C-1, N-SAR, and N-CSR. The
letter therefore recommends that the Commission eliminate Form N-23-C-1 and
no longer require closed-end funds to provide disclosure regarding repurchases
on Form N-SAR. The letter supports requiring funds to make disclosure
regarding repurchases on Form N-CSR semi-annually, as proposed. It states that
such disclosure will adequately inform the market with respect to the repurchase
activity of closed-end funds.
Dorothy M. Donohue
Associate Counsel
Attachment (in .pdf format)