Distributions: purchase of own shares: quoted shares
Shares which are either:
- in the official list of the Stock Exchange,
- dealt in on the Unlisted Securities Market or Alternative Investment Market,
will normally pass through the hands of a market maker in those shares.
The market maker acts as principal. Where such a company purchases its own shares there are two stages in the sale,
- the shareholder sells to the market maker,
- the market maker sells to the company.
A broker may act as agent of the shareholder and the company. This is not an absolute requirement as a market maker may deal directly with the shareholder and the company.
Exceptionally, the shareholder and the company may not pass the shares through the hands of a market maker. Instead, they may use a broker to execute the transaction. This is an ‘agency cross’. In these circumstances the shareholder has sold the shares directly to the company. As a result, the distribution provisions will apply, unless either:
- the shareholder is a dealer in relation to the shares (see CTM17630),
- the transaction is an exempt purchase of own shares within CTA10/S1033.
However, usually the company will use a market maker. The shareholder will sell the shares to the market maker, rather than back to the company. Hence, the shareholder does not receive a distribution. As the market maker is a dealer, a purchase of its own shares by a company from a market maker gives rise to a trading receipt in the market maker’s hands (see CTM17630).