Regulation M and Direct Stock Purchase Plans

NEW YORK | March 1, 2015

Regulation M, which replaced the Exchange Act Rules 10b-6, 10b-6A, 10b-7, 10-8, and 10b-21 in 1997, is designed to prevent market manipulation by individuals with an interest in the outcome of a security offering. To accomplish its purpose, Regulation M prohibits underwriters, issuers, selling security holders and other participants from engaging in certain trading activities that could artificially raise the price of a security or create a false appearance of active trading in the market. Rule 102, which governs issuers, selling shareholders, and their related parties, prohibits such covered persons from bidding for, purchasing or attempting to induce any person to bid for or purchase a covered security during the applicable restricted period, subject to certain exceptions.

One important exception covers bids, purchases, or inducements to bid or purchase that are made under certain plans, including bonus, profit-sharing, pension, retirement, thrift, savings, incentive, stock purchase, stock option, stock ownership, stock appreciation, dividend reinvestment or similar plans, as long as the distribution is made either:

  • Solely to employees or security holders of an issuer or its subsidiaries or a trustee acting on behalf of these persons; or
  • To persons other than employees or security holders, if bids for or purchases of securities under the plan are effected solely by an agent independent of the issuer and the securities are from a source other than the issuer or an affiliated purchaser of the issuer (e.g., on the open market).

For more information relating to Regulation M, visit https://www.sec.gov/rules/final/34-38067.txt.