February 12, 2003
VIA E-MAIL: email@example.com
Mr. Jonathan C. Katz, Secretary
Re: File No. S7-50-02--Rule 10b-18 and Purchases of Certain Equity Securities by the Issuer and Others
Dear Mr. Katz:
We are submitting this letter in response to the request of the Securities and Exchange Commission for comments on the Commission's proposed changes to Rule 10b-18. Citigroup supports the Commission's efforts to simplify and update the safe harbor provisions of this rule and to enhance the transparency of reporting of issuer share repurchases. We appreciate the opportunity to comment on the proposed changes to Rule 10b-18 and we would like to focus on two issues.
Definition of "Rule 10b-18 purchase"
We are concerned that the proposed amendment to Rule 10b-18 to exclude purchases made "during the period from the time of public announcement of [a] merger, acquisition, or similar transaction, until the completion of such transaction" is overly restrictive, particularly to companies in regulated industries where approvals can delay the completion of a transaction for months. We believe that the current restrictions on stock repurchases during M&A transactions provide sufficient protection from possible market manipulation.* Extending the time as proposed would needlessly reduce liquidity in the market and actively discourage issuers from repurchasing their stock for long periods of time. We also feel that the proposed rule, which would exclude all purchases made during any M&A transaction, without regard to whether there is a public distribution of the company's stock, is unnecessary.
Under a publicly announced stock buyback program, Citigroup actively repurchases its stock on a regular basis throughout the year. This program provides an important source of liquidity to Citigroup investors. Citigroup also actively participates in the M&A market and oftentimes uses company stock as a source of acquisition currency. For example, in the last three years Citigroup has completed five transactions using Citigroup stock for all or part of the purchase price. During these transactions, Citigroup could not repurchase its stock for a total of 15 weeks under Regulation M. By comparison, if the proposed rule had been in effect for the last three years, Citigroup would have been precluded from buying its stock for a total of 85 weeks due to these transactions. One transaction alone would have taken Citigroup out of the market for 25 weeks due to the lengthy regulatory approval process. We do not believe the proposed rule would enhance existing protections for the shareholders of an M&A target, but it would reduce market liquidity to the detriment of Citigroup shareholders.
Volume of Purchases - Block Purchases
We strongly urge the Commission to maintain the current block purchase exemption in Rule 10b-18. Citigroup regularly uses block purchases to execute its stock buyback program without affecting the price of Citigroup stock and these purchases are particularly important when Citigroup's stock is experiencing high volatility. If block purchases are included in the Rule 10b-18 volume limitations, Citigroup would not be able to execute its stock buyback program efficiently and provide sufficient liquidity to the market at the most important times. While we recognize that the Commission is proposing to increase the volume limitation from 25% to 100% on the day that trading commences after a market-wide trading suspension, that proposal does not afford issuers the flexibility to provide necessary market liquidity in instances of high volatility absent a trading suspension.
* * *
We would be happy to discuss any questions the Commission may have with respect to this letter.
cc: Michael S. Helfer
Todd S. Thomson