LNR Property Corporation
February 19, 2003
VIA ELECTRONIC DELIVERY
Mr. Jonathan G. Katz
Re: Proposed Rule - Rule 10b-18 and Purchases of Certain Equity Securities by the Issuer and Others - File No. S7-50-02
Dear Mr. Katz:
LNR Property Corporation is pleased to respond to the request for comments from the Securities and Exchange Commission (the "Commission") on its proposed rule: Rule 10b-18 and Purchases of Certain Equity Securities by the Issuer and Others, File No. S7-50-02, (December 10, 2002) (the "Release").
We are a real estate investment, finance and management company, which structures and makes real estate and real estate related investments. Our comments below relate, specifically, to the Commission's proposal to modify the volume condition's treatment of block purchases. We trade our securities within the parameters of the safe harbor rules and would like to continue to trade our securities within such parameters.
Under the current volume condition, an issuer may effect daily purchases in an amount up to 25% of the average daily trading volume (ADTV), excluding block purchases. Accordingly, block purchases are currently not included in either the volume limitation of in the calculation of the security's ADTV. The proposed amendment to Rule 10b-18 would eliminate this special treatment for block purchases.
The Commission cites the significant increase in the frequency of block purchases, the lack of limitation on the number of block purchases an issuer can make on a single day and the fact that issuers may attempt to take advantage of the block exception to facilitate corporate transactions as reasons underlying the proposed volume amendment to Rule 10b-18.
We respond to the Commission's concerns as follows:
1) It is undisputed that sales of shares are important to the overall financial strategy of issuers, so too is the right of issuers to repurchase their shares in block transactions. This is true especially for issuers whose stock is not actively traded. Without the block purchase exemption provided in the safe harbor, such issuers would feel it is impossible to have any effective share repurchase program.
2) Our company has made public our desire to repurchase shares and thus we are simply another purchaser in the market no different from any other institutional or other purchaser who is permitted without restriction to engage in block trades. Moreover, we are subject to the Commission's anti-fraud and anti-manipulation rules, which already effectively serve to protect investors from actions that may be misleading.
3) The intent of 10(b)9, 10(b)5 and 10(b) 18, taken together, is to prevent illusory levels of market activity. The authorization for our share repurchase program is fully disclosed, and therefore there is no deception in the marketplace. We think that informing the market that we are a buyer from time to time provides the market with the comfort that there is a source of liquidity in our shares which decreases the volatility of our shares.
4) Institutional investors normally invest in companies that engage in share repurchase programs. The limitations proposed may have an unintended chilling effect upon our shares in the marketplace since our repurchase activities would be restricted much differently than they are today.
5) Large blocks of our stock come up for sale infrequently. However, when this happens there may not be a sufficient level of demand in the market for our shares and we may believe the stock to be a great value for our shareholders. Under the proposed rule, we would be prohibited from repurchasing at the desired levels even though there are no other purchasers in the market and there is a willing seller. The unintended effect of the proposed rule would be to limit reasonable market transactions.
With regard to the fact that there is currently no limit on the number of block purchases an issuer can make in a single day, we suggest that the Commission limit the number of block purchases an issuer can make in a single day to say 20 blocks in any given day for all companies or at least for mid-cap types of companies where there may be a limited trading volume. With regard to the Commission's concern that issuers may attempt to take advantage of the block exception to facilitate corporate transactions, we believe issuers, such as ourselves, utilize the block purchase mechanism to avoid artificial depression of stock prices due to circumstances wholly unrelated to corporate performance.
The second question under item B. 5., Volume of Purchase in the Release asks, "Should we retain the current block transaction exception, but raise the amount of shares constituting a block (for example, use the NYSE's definition)?" We believe the Commission should retain the current block transaction exception and have the amount of shares constituting a block to conform with the definition of block trades, as defined by the respective exchanges, such as NYSE, NASD and AMEX.
In footnote 50 to the Release, the Commission refers to the definition of a "block" under Rule 10b-18 to be extremely small by current market standards. Therefore, we believe it would be harmonious for the Commission to not amend Rule 10b-18 to eliminate the special treatment for block purchases but, rather, amend Rule10b-18 for issuers to apply the definition of a "block" according to their respective stock exchange (e.g., NYSE, NASD, AMEX). This should, to a certain extent, alleviate the Commission's concerns (e.g., increased frequency of block purchases, facilitation of corporate transactions, etc.) and, at the same time, increase issuers' thresholds for block purchases. We believe such an amendment is consistent with aligning corporate governance and other corporate items among issuers, the Commission and the large stock exchanges.
Thank you for the opportunity to present our comments on the Release.