Normal-Course Issuer Bid (NCIB)

Key takeaways

An NCIB is a Canadian stock buyback program through which a public company repurchases its own shares for cancellation.
Companies can generally repurchase between about 5% and 10% of their shares, depending on how the transaction is conducted.
NCIBs require advance approval from the stock exchanges and are executed gradually over a set period (often up to one year).
Common objectives include addressing perceived undervaluation, supporting the share price, raising cash later by reselling, increasing liquidity, or defending against a takeover.

What is an NCIB?

A Normal-Course Issuer Bid (NCIB) is a regulated process used by companies listed in Canada to buy back their own publicly traded shares. The repurchased shares are typically cancelled, reducing the number of shares outstanding. Companies must file a Notice of Intention with the exchanges where they are listed and obtain approval before repurchases begin.

How it works

Filing and approval: The issuer files a Notice of Intention to Make an NCIB with the relevant exchange(s). Approval is required before repurchases commence.
Timeframe and pacing: Repurchases are carried out gradually over the approved period (commonly up to one year). This allows the company to buy back shares opportunistically when prices are favorable.
Daily and overall limits: Exchanges set limits on how many shares can be bought back in a single day and over the program’s life. Aggregate limits commonly fall between about 5% and 10% of outstanding shares, depending on the method used.
Alternative approved bids: A company can also arrange an approved issuer bid that repurchases a fixed number of shares from shareholders at a predetermined price and date.

Why companies use NCIBs

Correct perceived undervaluation: Management may believe the market is undervaluing the stock and repurchase shares to take advantage of the lower price.
Support or increase share price: Reducing the share supply while buying in the market can help raise the share price.
Raise cash or increase liquidity later: After repurchases reduce supply and support prices, the company may resell part of its stake to generate cash or broaden the shareholder base.
Defend against hostile takeovers: By reducing the number of freely tradable shares, a company can increase ownership concentration and make it harder for a third party to accumulate enough shares to gain control.
Going private: If a company repurchases all outstanding public shares through a buyback, the transaction effectively takes the company private.

Effects and considerations

Ownership concentration: Significant repurchases can change the distribution of share ownership and may consolidate control among remaining holders or the issuer itself.
Market signal: An NCIB can signal management’s confidence in the company’s prospects, but investors may interpret buybacks differently depending on context (e.g., capital allocation priorities).
Regulatory and disclosure requirements: Issuers must comply with exchange rules, filing requirements, and any limits imposed by securities regulators.

Conclusion

An NCIB is a structured, exchange-approved mechanism for Canadian-listed companies to repurchase their shares over time. When used thoughtfully, it can address undervaluation, support share prices, improve liquidity, or strengthen defenses against takeovers. Companies must follow regulatory limits and disclosure rules and weigh buybacks against other uses of capital.