December 7, 1998
Jonathan G. Katz,
Security and Exchange Commission
450 Fifth Street, N.W.,
Washington, D.C. 20549
Re: File No. S7-27-98
Dear Mr. Katz:
I am writing about the Commissions proposal to amend Rule 10b-18 under the Securities Exchange Act of 1934. The proposal would amend the timing requirements of the Rule so that issuers could resume purchasing their own stock following a market-wide trading suspension, such as one caused by the "circuit breaker" rules of the various exchanges. The proposal also asks for comments on the Rule more generally, and notes that the Commission expects to consider broad revisions to the Rule in the near future.
We at AIG fully support your specific proposal to liberalize the timing requirements of Rule 10b-18 in times of market stress. It is precisely in periods of high volatility that greater market liquidity is needed, and it does not make sense to keep issuers out of the market during those periods.
We also strongly encourage the Commission to consider more general revisions to Rule 10b-18. As we have written to you in the past, we feel strongly that the
Commission should allow issuers greater flexibility in conducting stock repurchase programs. As the Commission has recognized, these programs are an important part of normal business practice and are undertaken for valid business reasons. The presence of issuers in the market is a significant benefit to shareholders and provides added liquidity and greater market stability.
We believe that the Commission could revise Rule 10b-18 to liberalize the safe harbor conditions in a number of ways without increasing the risk of manipulation. For instance, the volume and timing limits could be loosened substantially and perhaps eliminated altogether, at least for issuers in whose stock there is significant trading volume. The "one-broker/dealer" requirement also seems unnecessarily restrictive, at least for issuers whose securities are actively traded, and only impedes those issuers ability to obtain the best price for their purchase. If the Commission is reluctant to liberalize the requirements of the Rule "across-the-board", it should consider a tiering approach that permits greater flexibility for issuers with actively traded securities.
As you reconsider Rule 10b-18, we urge you to pay close attention to the interplay between Regulation M and the Rule. For some time now, we have been particularly troubled about the fact that, under Regulation M, the Rule 10b-18 safe harbor is not available to an acquiring issuer in a stock-for-stock merger during the proxy solicitation period. We believe it is unnecessary to keep issuers out of the market during the entire period, which can last for several weeks and even months, particularly if their stock is actively traded. Given the volatility that often affects an issuers stock price during a proxy period, due to short selling by speculators and other market participants, forcing an issuer out of the market can be particularly harmful to the interests of the investors. We believe issuer repurchases should be permitted throughout the proxy period. At the very least, the "black-out" period should be substantially shortened to the last day or two before the shareholders vote occurs. In other public offerings, even issuers whose shares are not actively traded are required under Regulation M to observe a restricted period of only one or five business days.
We strongly encourage the Commission to take a fresh look at Rule 10b-18. We thank you for the opportunity to present our views and would be pleased to have members of AIGs staff meet with members of the Commissions staff to examine these issues in greater depth and propose appropriate revisions to the Rule.
Florence A. Davis
Vice President & General Counsel