SEC Rule 10b-18

Rule 10b-18 does not provide any immunity from insider trading liability under Rule 10b-5, does not limit the issuer's disclosure obligations regarding repurchase activity, and does not shield repurchases that are made in technical compliance with the rule's conditions but are part of a plan or scheme to evade the federal securities laws.

Overview and Regulatory Purpose

The tension between corporate share repurchases and the Exchange Act's anti-manipulation framework is structural and longstanding. Section 9(a)(2) of the Exchange Act prohibits transactions that raise or maintain the price of a security for the purpose of inducing others to purchase it. 

An issuer that repurchases its own shares in the open market is, in a mechanical sense, purchasing securities in a manner that could support the market price of those securities — potentially satisfying the literal conditions of Section 9(a)(2) even where the repurchase serves legitimate corporate purposes such as returning capital to shareholders, offsetting equity compensation dilution, or signalling management's belief that the shares are undervalued.

Prior to the adoption of Rule 10b-18, this structural tension created significant legal uncertainty for issuers contemplating repurchase programmes, as no clear regulatory framework defined the boundary between lawful repurchases and manipulative price support. Some issuers avoided repurchases entirely due to manipulation concerns; others proceeded without clear guidance on how to structure their programmes to minimise liability exposure. The Commission adopted the original Rule 10b-18 in 1982 to resolve this uncertainty by establishing a defined set of purchasing conditions within which issuer repurchases would not be characterised as manipulation solely by reason of the manner, timing, price, and volume of the activity. The 1982 rule was comprehensively revised and updated in 2003, and the 2003 version — as amended in 2005 — constitutes the current operative framework.

The regulatory purpose of Rule 10b-18 is not to immunise all issuer repurchases from all liability, but to provide a reliable safe harbour within which issuers can plan and execute repurchase programmes with confidence that the repurchase activity itself will not be characterised as manipulation. This limited purpose reflects the Commission's view that share repurchases — when conducted within defined parameters that prevent concentrated market impact, price distortion, and artificial volume — are a legitimate mechanism for capital allocation that should not be chilled by manipulation risk.

Statutory Authority and Rulemaking History

Rule 10b-18 derives its statutory authority from Section 23(a) of the Securities Exchange Act of 1934, which grants the Commission broad rulemaking authority to prescribe rules and regulations as necessary or appropriate to carry out the provisions of the Act, and from the anti-manipulation provisions of Sections 9 and 10(b) under whose framework issuer repurchases are assessed. The rule was originally adopted in Securities Exchange Act Release No. 19244, November 17, 1982, establishing the first safe harbour framework for issuer repurchases. The original 1982 framework was amended in 1983 and 1996 before being comprehensively revised in the 2003 rulemaking — Securities Exchange Act Release No. 48766, November 17, 2003, published at 68 FR 64970 — which updated the rule's conditions to reflect changes in market structure, trading practices, and quotation systems that had occurred in the two decades following the original adoption.

The 2003 rulemaking made material changes to all four of the rule's conditions: expanding the manner condition's single-broker requirement to apply to solicited purchases while excluding unsolicited purchases; modifying the timing condition to differentiate between liquid and illiquid securities in the restriction on purchases near the close of trading; simplifying the price condition by replacing the multiple prior-regime price standards with a single highest-independent-bid or last-transaction-price standard applicable across all market structures; and modifying the volume condition to include block purchases in both the ADTV calculation and the 25% daily limit while retaining the one-block-per-week exception. The 2005 amendment — Securities Exchange Act Release No. 52056, June 29, 2005, published at 70 FR 37618 — extended the safe harbour to purchases effected in after-hours trading sessions on the same terms as regular-session purchases. The eCFR confirms June 29, 2005 as the date of the most recent formal amendment to Rule 10b-18's operative text, with no subsequent changes through June 2026.

Key Provisions and Operative Requirements

Rule 10b-18(b) establishes the four conditions that issuer repurchases must satisfy, on a daily basis, to qualify for the safe harbour. Failure to satisfy any one condition on a given day removes all of the issuer's repurchases from the safe harbour for that entire day — there is no partial safe harbour for a day on which any condition is violated.

The first condition is the manner condition. Rule 10b-18(b)(1) requires that all Rule 10b-18 purchases on a given day be made through a single broker or dealer. This condition prevents issuers from simultaneously using multiple brokers to accumulate shares through coordinated buying that could distort market conditions or give the appearance of greater market demand than actually exists from independent buyers. The single-broker condition applies only to solicited purchases — transactions actively solicited by or on behalf of the issuer — and does not restrict the issuer from having multiple brokers execute unsolicited transactions on its behalf. An issuer that maintains repurchase programmes with multiple brokers may satisfy the single-broker condition by channelling all solicited repurchases for a given day through one designated broker.

The second condition is the timing condition. Rule 10b-18(b)(2) prohibits purchases at the opening transaction of the day and restricts purchases near the close of trading. Purchases at the opening transaction are excluded from the safe harbour because market activity at the open is a significant indicator of the direction of trading and the strength of demand, and issuer purchasing at the open has a heightened potential to distort the price-setting function of the opening. Near the close, Rule 10b-18(b)(2) prohibits purchases during the 10 minutes before the scheduled close of the primary trading session for securities with an ADTV value of $1 million or more and a public float of $150 million or more — the liquid security category — and during the 30 minutes before the scheduled close for all other securities. The differential timing restriction reflects the Commission's determination that the closing price of a liquid security is less susceptible to issuer manipulation than the closing price of an illiquid security, and that a shorter exclusion period is therefore appropriate to avoid unnecessarily restricting repurchase activity in securities where the market is resilient to temporary purchasing pressure.

The third condition is the price condition. Rule 10b-18(b)(3) provides that no Rule 10b-18 purchase shall be effected at a price that exceeds the highest independent bid or the last transaction price, whichever is higher, quoted or reported in the consolidated system at the time the purchase is effected. The highest independent bid standard ensures that issuer purchases do not artificially elevate the market price above the level that independent market participants are willing to pay — by limiting the issuer to the highest price that a genuine third-party buyer would accept, the condition prevents issuer repurchases from constituting a source of artificial price support above the market's independently determined clearing level.

The fourth condition is the volume condition. Rule 10b-18(b)(4) provides that an issuer's total volume of Rule 10b-18 purchases on any single day shall not exceed 25% of the ADTV for the security, calculated over the four calendar weeks preceding the week in which the purchase is made. This 25% volume cap ensures that issuer repurchases do not dominate the daily trading volume in the security to a degree that would give the issuer effective control over the security's price on any given day. A block purchase exception is available once per week: on one day per week, the issuer may make a single block purchase — a purchase of at least 5,000 shares or a minimum dollar amount — without regard to the 25% daily volume limit, provided it makes no other Rule 10b-18 purchases on that day. Block purchases count toward the ADTV calculation and toward the 25% daily limit on all other days.

Rule 10b-18(c) specifies the circumstances in which the safe harbour is not available regardless of whether the issuer's repurchases otherwise satisfy all four conditions. The safe harbour is unavailable during the period from the announcement of a merger, acquisition, or similar transaction involving a recapitalization through the completion of that transaction, with a limited exception permitting repurchases during that period at the same rate as the issuer's average daily repurchases under Rule 10b-18 during the three months preceding the announcement. The safe harbour is also unavailable for repurchases that, although made in technical compliance with the conditions, are part of a plan or scheme to evade the federal securities laws — a catch-all anti-evasion provision that prevents the rule from becoming a mechanism for manipulative repurchase activity that is structured to satisfy the conditions' letter while circumventing their purpose.

Scope of Application

Rule 10b-18 applies to issuer repurchases of common stock — defined as any security meeting the common equity definition of Exchange Act Rule 12b-2 — in the open market. The safe harbour does not extend to repurchases of preferred stock, convertible securities, or other equity instruments. It also does not extend to structured repurchase mechanisms that operate outside the open market — forward contracts, accelerated share repurchase programmes, put writing, call purchasing, or purchases of stock upon exercise of employee stock options are all excluded from Rule 10b-18's safe harbour and must be assessed under the general anti-manipulation framework without the rule's protection.

Affiliated purchasers — as defined in Rule 10b-18(a)(3) as persons acting in concert with the issuer or who have a control relationship with the issuer — are subject to the same Rule 10b-18 conditions as the issuer itself. The volume condition, in particular, applies to the combined purchases of the issuer and all its affiliated purchasers on any given day, preventing issuers from exceeding the 25% ADTV cap by routing repurchases through affiliated entities while reporting the issuer's direct purchases as individually compliant.

The safe harbour's protection is limited to manipulation liability under Sections 9(a)(2) and Rule 10b-5 arising solely from the manner, timing, price, and volume of the repurchases. Rule 10b-18 explicitly does not provide any protection from insider trading liability under Rule 10b-5 where a repurchase is made while the issuer or its agents possess material nonpublic information about the company. Issuers conducting repurchases while in possession of MNPI remain fully exposed to Rule 10b-5 insider trading liability regardless of whether the repurchases comply with all four Rule 10b-18 conditions. The interaction between Rule 10b-18 and Rule 10b5-1 is therefore commercially significant: many issuers structure their repurchase programmes as Rule 10b5-1 plans in addition to complying with Rule 10b-18, securing both the manipulation safe harbour of the former and the insider trading affirmative defence of the latter.

Relationship to Related Rules and Regulations

Rule 10b-18's relationship with Rule 10b5-1 is foundational to the practical structure of corporate repurchase programmes. Issuers that adopt Rule 10b5-1 plans governing their repurchase activity can benefit from both rules simultaneously — the Rule 10b5-1 affirmative defence protects against insider trading liability, while Rule 10b-18 protects against manipulation liability arising from the manner, timing, price, and volume of the repurchases executed pursuant to that plan. The 2022 Rule 10b5-1 amendments did not disturb this dual-safe harbour structure, and the December 2022 adopting release confirmed that the issuer's Rule 10b5-1 plan exception from the cooling-off period conditions applicable to natural persons means that issuers may commence repurchase activity under a Rule 10b5-1 plan immediately upon adoption, without waiting for any cooling-off period.

The share repurchase disclosure modernisation rules adopted May 3, 2023 added Exhibit 26 to the Securities Act and Exchange Act forms and enhanced Item 703 of Regulation S-K's quarterly repurchase disclosure requirements. These disclosure obligations apply regardless of whether the issuer's repurchases comply with Rule 10b-18 — they are mandatory disclosure requirements, not conditions of the safe harbour. The new requirements include tabular quarterly disclosure of total shares purchased, average price per share, shares purchased as part of a publicly announced programme, maximum remaining purchases authorised under the programme, and — most significantly — separate identification of shares purchased that are intended to qualify for the Rule 10b-18 safe harbour and shares purchased pursuant to a Rule 10b5-1 plan. Issuers must also include a checkbox disclosing whether any officer or director purchased or sold shares of the repurchase programme's subject class within four business days before or after the announcement of the repurchase plan or any increase thereto.

Rule 10b-18 connects to the 1% Excise Tax on Corporate Stock Buybacks imposed by the Inflation Reduction Act of 2022, effective for repurchases occurring on or after January 1, 2023. The excise tax applies to the fair market value of stock repurchased by applicable corporations — broadly, publicly traded domestic corporations — during the taxable year, reduced by the fair market value of stock issued by the corporation during the same year. The tax is administered by the IRS rather than the Commission and applies to all corporate stock repurchases regardless of whether they comply with Rule 10b-18's safe harbour conditions, creating an independent tax cost layer for corporate repurchase programmes that does not interact with the rule's manipulation safe harbour.

Amendment History and Regulatory Evolution

Rule 10b-18's operative framework has been stable since the 2003 comprehensive revision and the 2005 after-hours trading amendment, with no changes to the rule's four conditions since June 2005. The May 3, 2023 share repurchase disclosure modernisation rulemaking amended the disclosure infrastructure surrounding Rule 10b-18 — updating Item 703 of Regulation S-K and adding Exhibit 26 — but did not amend the rule's safe harbour conditions.

A proposal published alongside the May 2023 disclosure rules included proposed amendments to Rule 10b-18's timing condition — replacing the two-tier 10-minute and 30-minute close-restriction windows with a three-tier structure calibrated to a security's ADTV and public float. That proposal remains pending without formal adoption or withdrawal as of June 2026. The Commission's regulatory agenda under Chair Atkins has not identified Rule 10b-18 timing condition amendments as a near-term priority, and the proposed timing changes have attracted relatively limited attention given the October 2024 Fifth Circuit decision in Chamber of Commerce v. SEC that vacated related aspects of the May 2023 disclosure rulemaking. The vacated disclosure rules were primarily the enhanced narrative disclosure requirements and certain quarterly Form SR requirements; the Item 703 tabular disclosure requirements and the Exhibit 26 programme disclosure requirements were not vacated and remain in effect. No further rulemaking addressing the vacated components had been proposed through June 2026.

Enforcement Context and SEC Action Patterns

Rule 10b-18 enforcement is less common than enforcement under the rule's companion anti-manipulation provisions because the safe harbour's conditions, where satisfied, provide a complete defence against manipulation liability solely arising from the repurchase activity. Where enforcement arises, it typically involves one of three categories: repurchases conducted in technical compliance with the rule's conditions that are nonetheless found to be part of a plan or scheme to evade the federal securities laws — triggering the rule's anti-evasion exclusion; repurchases that violate one or more of the four conditions, removing the safe harbour and exposing the activity to manipulation analysis under the general Exchange Act framework; or repurchases conducted while the issuer possesses MNPI — for which Rule 10b-18 provides no protection from Rule 10b-5 liability.

The Commission's Division of Enforcement has brought manipulation actions against issuers that used repurchase activity to artificially support the market price of their securities at critical junctures — prior to earnings announcements, concurrent with insider sales, or in connection with convertible bond anti-dilution provisions — where the repurchase pattern and timing indicated a manipulative intent rather than a legitimate capital return objective. In those cases, the Commission has assessed whether the repurchases satisfied the four conditions of Rule 10b-18 as a threshold matter, and where they did not, has proceeded on the manipulation theory without the safe harbour's limiting effect.

The Division of Corporation Finance reviews compliance with Item 703 and Exhibit 26 disclosure requirements in its review of Form 10-K and Form 10-Q filings, issuing comment letters where repurchase disclosure is incomplete, the Rule 10b-18 versus Rule 10b5-1 categorisation of purchases is not separately identified, or the officer and director trading checkbox is omitted or inaccurately completed.

Examination Relevance and Key Takeaways

Rule 10b-18 is examined at the Series 7 and Series 65 levels in the context of market manipulation rules and the mechanisms through which issuers may lawfully conduct share repurchase programmes. Candidates should understand the voluntary character of the safe harbour — compliance is not required, but non-compliant repurchases face manipulation liability assessment without the rule's protection — and the four conditions that must all be satisfied daily for the safe harbour to apply: single broker or dealer per day; no opening transaction and no purchase within 10 minutes of close for liquid securities or 30 minutes for others; no purchase above the highest independent bid or last transaction price; and daily volume not exceeding 25% of ADTV with a one-block-per-week exception.

The critical limitation that Rule 10b-18 does not protect against insider trading liability under Rule 10b-5 — and that issuers conducting repurchases while aware of MNPI remain fully exposed to insider trading liability regardless of safe harbour compliance — is a consistently examined concept and the primary reason issuers combine Rule 10b-18 compliance with Rule 10b5-1 plan adoption.

The key points to retain are these. Rule 10b-18 provides a voluntary manipulation safe harbour for issuer open-market repurchases of common stock when conducted in compliance with four daily conditions: single broker or dealer per day; no opening transaction and no purchase within 10 or 30 minutes of close depending on the security's liquidity; no purchase price above the highest independent bid or last transaction price; and daily volume not exceeding 25% of ADTV with a one-block-per-week exception. The safe harbour covers manipulation liability under Sections 9(a)(2) and Rule 10b-5 arising solely from the manner, timing, price, and volume of repurchases — it does not protect against insider trading liability where repurchases are made while the issuer possesses MNPI. Accelerated share repurchase programmes, forward contracts, put writing, call purchasing, and option exercise purchases are excluded from the safe harbour. The anti-evasion exclusion prevents technical compliance from protecting repurchases that are part of a scheme to evade the securities laws. The safe harbour is unavailable during announced merger and acquisition periods except for repurchases at the pre-announcement average daily rate. Item 703 and Exhibit 26 disclosure requirements for repurchase activity apply independently of Rule 10b-18 compliance. Rule 10b-18 was last formally amended June 29, 2005 and no amendments to the rule's operative four conditions have been finalised through June 2026.