An Analysis of Sec Guidelines for Executing Open Market Repurchases

Abstract

Rule 10b-18 is the only guidance the SEC provides for open market stock repurchases. Fashioned as a safe harbor without disclosure, 10b-18 conformity is unverifiable with public data. We use privately disclosed data to document claimed and actual compliance. While the level of compliance is relatively high, only 2 of 54 firms in our sample consistently comply for all repurchases. Even firms that publicly declared compliance violate the safe harbor's bounds. We document that violations of the safe harbor are more likely to occur following price declines. Our investigation questions the regulatory effectiveness of safe harbors without mandatory disclosure.

Keywords: Repurchases, safe harbors, disclosure

JEL Classification: G00, G38, G35