SEC Rule 102 of Regulation M

By applying a uniform five-business-day restricted period to issuers and selling securityholders — without the ADTV-based differentiation or actively-traded securities exception available to distribution participants under Rule 101 — Rule 102 reflects the Commission's judgment that the manipulation risk associated with issuer and selling securityholder market activity is more acute and warrants a stricter and more uniform prohibition.

Overview and Regulatory Purpose

The manipulation risk that Rule 102 addresses operates differently from the risk addressed by Rule 101. Under Rule 101, a distribution participant — an underwriter or broker-dealer — that purchases the security it is distributing creates artificial market demand that supports the offering price from the buy side of the market, misleading investors about genuine demand for the distributed security. 

Under Rule 102, an issuer that repurchases shares in the open market during the same period in which it is conducting a primary offering creates a more fundamental distortion: it is simultaneously increasing the supply of its shares through the distribution and reducing the float through market repurchases, using shareholders' own investment capital to finance buy-side activity that benefits the share price at which the company is raising new capital from those same investors.

Selling securityholders conducting secondary distributions present a parallel but somewhat different risk. A selling securityholder that simultaneously sells a large block of shares through an underwritten distribution and purchases the same shares in the open market can use the market purchases to offset the downward price pressure that a large distribution typically exerts — in effect subsidising the distribution's price by removing the very supply pressure that a transparent secondary distribution would otherwise produce. 

This artificial price support harms purchasers in the distribution who pay a price that does not reflect the genuine market equilibrium that would exist without the selling securityholder's concurrent purchasing activity.

Statutory Authority and Rulemaking History

Rule 102 derives its statutory authority from the same provisions that authorise Rule 101 — Sections 9(a)(2) and 10(b) of the Securities Exchange Act and Section 17(a) of the Securities Act — authorising the Commission to prescribe means reasonably designed to prevent manipulative conduct in connection with securities distributions. 

Rule 102 was adopted simultaneously with the remainder of Regulation M on January 3, 1997 — Securities Exchange Act Release No. 34-38067, 62 FR 544 — as part of the comprehensive overhaul of the offering anti-manipulation rules that replaced prior Rule 10b-6 and the pre-Regulation M framework.

The most significant amendments since adoption have been technical in character. 

The July 2013 amendment addressed the treatment of certain categories of offshore transaction. The June 20, 2023 amendment — 88 FR 39994 — removed references to credit ratings and replaced the prior investment-grade exception with the Credit Risk Exception based on probability of default analysis, mirroring the simultaneous amendment to Rule 101. 

The eCFR confirms June 20, 2023 as the date of the most recent amendment to Rule 102, with no subsequent changes through June 2026.

Key Provisions and Operative Requirements

Rule 102(a) establishes the core prohibition. In connection with a distribution of securities effected by or on behalf of an issuer or selling security holder, it is unlawful for such person — the issuer or selling securityholder — or any affiliated purchaser of such person, directly or indirectly, to bid for, purchase, or attempt to induce any person to bid for or purchase a covered security during the applicable restricted period. 

Where an affiliated purchaser of an issuer or selling securityholder is itself a distribution participant — meaning a broker-dealer or underwriter with an ongoing distribution role — that affiliated purchaser may comply with Rule 101 rather than Rule 102, since Rule 101 is the provision specifically calibrated to distribution participant market activity. 

This election prevents the anomalous result of applying Rule 102's stricter uniform restricted period to a firm that would otherwise qualify for Rule 101's actively-traded securities exception.

The restricted period applicable under Rule 102 is uniformly five business days before the pricing of the distribution through completion of the offering, regardless of the ADTV value or public float of the security being distributed. 

This flat five-business-day period — without the ADTV-based one-business-day option available to distribution participants under Rule 101 — reflects the Commission's determination that the manipulation risk associated with issuer and selling securityholder market activity does not diminish with the liquidity characteristics of the security being distributed in the same way that distribution participant risk does. 

An issuer of an actively-traded security with a large public float retains the conflict of interest inherent in simultaneously buying and distributing its own shares, and the actively-traded securities exception that eliminates the restricted period entirely for distribution participants under Rule 101 does not apply under Rule 102.

Rule 102(b) provides the excepted activities — the categories of transaction that are not prohibited by Rule 102(a) notwithstanding the issuer's or selling securityholder's status as the principal distributing party. These exceptions include: odd-lot transactions, or transactions to offset odd-lots in connection with an odd-lot tender offer under Rule 13e-4; exercises of securities, including the exercise of any option, warrant, right, or conversion privilege set forth in the instrument governing the security; offers to sell or the solicitation of offers to buy the securities being distributed — confirming that the distribution itself does not constitute a prohibited purchase; unsolicited purchases not effected through a broker-dealer, on a securities exchange, or through an interdealer quotation system or electronic communications network; transactions in Rule 144A securities; and purchases that comply with the Credit Risk Exception for qualifying investment-grade non-convertible debt, ABS, and preferred securities.

The limited exception structure of Rule 102 — which notably does not include Rule 101's actively-traded securities exception or Rule 101's de minimis exception permitting purchases up to 2% of ADTV per day — reflects the Commission's view that issuers and selling securityholders should be held to a stricter market conduct standard during distributions than distribution participants. 

The absence of a de minimis exception is particularly significant: a distribution participant under Rule 101 may make small purchases representing up to 2% of ADTV during the restricted period, but an issuer or selling securityholder conducting a distribution has no equivalent de minimis accommodation. 

Rule 102 provides an exemptive authority provision under Rule 102(e) — the Commission may grant exemptions from the rule's provisions, either unconditionally or on specified terms, upon written application or on its own motion — allowing issuers and selling securityholders to seek relief for specific transactions not otherwise accommodated by the rule's exception structure.

Scope of Application

Rule 102 applies to issuers distributing their own securities — whether through a primary offering, a shelf takedown, a rights offering, or any other distribution mechanism — and to selling securityholders conducting secondary distributions of securities they own. 

The rule applies regardless of whether the distribution is registered under the Securities Act or conducted pursuant to an exemption, since Regulation M's anti-manipulation framework applies to all distributions as defined in Rule 100 — offerings distinguished from ordinary trading transactions by their magnitude and the presence of special selling efforts.

The affiliated purchaser concept — encompassing entities controlling, controlled by, or under common control with the issuer or selling securityholder, and persons acting in concert with those principals in connection with the distribution — prevents issuers from routing prohibited purchases through affiliates or other related entities to circumvent the Rule 102 prohibition. 

An issuer that arranges for an affiliate to purchase the covered security during the restricted period while the issuer itself refrains from direct market activity has not complied with Rule 102 if the affiliate's purchases are coordinated with the distribution.

Issuers that maintain open Rule 10b5-1 trading plans governing periodic share repurchase programmes face a specific compliance challenge under Rule 102 during periods when they are simultaneously conducting distributions. 

A Rule 10b5-1 plan that pre-commits the issuer to periodic repurchases does not by itself constitute an exception to Rule 102's prohibition — the plan's mechanical execution during a restricted period can constitute a prohibited purchase unless the issuer has structured the plan to suspend automatically during any restricted period arising from a distribution.

Relationship to Related Rules and Regulations

Rule 102's relationship with Rule 101 is structural and complementary — the two rules together cover all parties with a significant interest in the outcome of a securities distribution, with Rule 101 governing distribution intermediaries and Rule 102 governing principals. 

The rule explicitly provides that where an affiliated purchaser of an issuer or selling securityholder is a distribution participant, that affiliate may elect Rule 101 compliance rather than Rule 102 compliance — a provision that acknowledges the practical reality that major issuers frequently have broker-dealer affiliates that may be participating in the distribution in an underwriting or market-making capacity.

Rule 10b-18's open-market repurchase safe harbour interacts with Rule 102 in a manner that demands careful planning by issuers that maintain ongoing repurchase programmes. 

The Rule 10b-18 safe harbour does not override Rule 102's restricted period prohibition — an issuer that conducts Rule 10b-18-compliant repurchases during the Rule 102 restricted period has not thereby satisfied Rule 102, since the Rule 10b-18 safe harbour addresses manipulation liability for the repurchases themselves, not the conflict of interest prohibition that Rule 102 imposes during distributions. Issuers that wish to maintain continuous repurchase activity through distributions must either obtain exemptive relief from Rule 102 or structure their repurchase programme to suspend automatically during restricted periods.

Amendment History and Regulatory Evolution

Rule 102's amendment history parallels Rule 101's — the two rules were amended simultaneously on each occasion since their 1997 adoption, reflecting their status as companion provisions whose exceptions and conditions are aligned through the same rulemaking process. 

The June 2023 amendment's replacement of the investment-grade credit rating exception with the Credit Risk Exception was the most significant substantive change to either rule since their original adoption and was required by the Dodd-Frank Act's directive to remove reliance on credit ratings from Commission rules.

The Commission's December 2023 proposed amendments to Regulation M — which proposed modifications to the ADTV thresholds for the restricted period definition and the actively-traded securities exception under Rules 101 and 102 — represented the most significant potential structural change to Rule 102 since its adoption. Those proposals, if adopted, would update the quantitative thresholds in the restricted period definition to reflect changes in market structure and trading volumes since 1997, when the current thresholds were originally calibrated. No final amendments had been adopted through June 2026.

Enforcement Context and SEC Action Patterns

Rule 102 enforcement has concentrated on issuers that have conducted open-market share repurchases during the restricted period of a concurrent or immediately preceding securities distribution — typically secondary offerings, shelf takedowns, or rights offerings in which the issuer is simultaneously the distributing party and the buyer of its own shares in the secondary market. 

These enforcement actions frequently arise in the context of concurrent repurchase and distribution activity that was not identified as a compliance problem until after the distribution was completed, reflecting inadequate coordination between the issuer's corporate development, treasury, and legal compliance functions.

The Commission has emphasised through enforcement actions and guidance that issuers must establish written supervisory procedures specifically addressing the interaction between their ongoing repurchase programmes and the Rule 102 restricted periods that arise in connection with any securities distribution — and that the failure to suspend repurchase programmes during restricted periods is a compliance failure regardless of the commercial rationale for the concurrent activity.

Examination Relevance and Key Takeaways

Rule 102 is examined at the Series 7 and Series 65 levels alongside Rule 101 as part of the complete Regulation M anti-manipulation framework. 

The primary examination distinction between the two rules is the restricted period structure: Rule 101 provides a one-business-day restricted period for more liquid securities and eliminates the period entirely for actively-traded securities, while Rule 102 applies a uniform five-business-day restricted period with no ADTV-based differentiation and no actively-traded securities exception. 

This distinction — reflecting the Commission's stricter standard for issuer and selling securityholder market activity relative to distribution participant activity — is consistently examined as the key structural difference between the two companion rules.

The absence of the de minimis exception under Rule 102 — which Rule 101 provides for distribution participant purchases up to 2% of ADTV per day — and the absence of the actively-traded securities exception are the two most commercially significant differences between the rules and the most frequently examined points of contrast at the Series 65 level.

The key points to retain are these. Rule 102 of Regulation M prohibits issuers and selling securityholders — and their affiliated purchasers — from bidding for or purchasing a covered security during the applicable restricted period of any distribution of that security.

The restricted period is uniformly five business days before pricing through completion of the distribution — no ADTV-based one-business-day option, no actively-traded securities exception, and no de minimis purchase accommodation.

Excepted activities include odd-lot transactions, exercises of securities, the distribution itself, unsolicited non-exchange purchases, Rule 144A transactions, and the Credit Risk Exception for qualifying investment-grade fixed income securities. Where an affiliated purchaser is itself a distribution participant, it may elect Rule 101 compliance instead.

Rule 10b-18's repurchase safe harbour does not override Rule 102's prohibited period — issuers with ongoing repurchase programmes must suspend those programmes during Rule 102 restricted periods or obtain exemptive relief. Rule 102 was last amended June 20, 2023 and no formal amendments were adopted through June 2026.