General Securities Sales Supervisor (Series10) Practice Exam

Which of the following is NOT a requirement of SEC Rule 10b-18 for issuers purchasing their own securities?

1. Purchases cannot affect the issue's opening or closing price

2. Daily purchases cannot exceed 25% of the issue's daily trading volume

3. Purchases outside the normal order flow are permitted

4. Purchases on any single day can be made through no more than 2 market makers

The correct answer is: Purchases on any single day can be made through no more than 2 market makers

SEC Rule 10b-18 outlines the safe harbor provisions for issuers who repurchase their own shares, providing certain conditions that must be met to avoid liability for market manipulation. The requirement that purchases on any single day can only be made through no more than two market makers is not part of this rule. The rule primarily focuses on limiting the impact of repurchases on the market, which is addressed in other requirements. For example, purchases cannot affect the opening or closing price, which ensures that the issuer's purchases do not unduly influence the market’s perception of the stock’s value on either end of the trading day. Additionally, the rule limits daily purchases to 25% of the issuer's daily trading volume to prevent significant market disruption, and it acknowledges that purchases outside the normal order flow are not permitted, emphasizing the requirement to maintain regular trading patterns. The criteria set forth in the rule aim to create a framework that allows issuers to buy back shares while minimizing the potential for market manipulation, thus ensuring fair investor participation without distorting market prices.