Ch 2 Deck 10

Question 1

If there are no other independent market makers in the security, passive market making

Answer 1

is not allowed

Question 2

in passive market making, quotes must be identified as

Answer 2

a passive market maker bid

Question 3

Passive market making can only be made on

Answer 3

firm commitment offerings

Question 4

A passive market maker’s net purchases may not exceed

Answer 4

the greater of 30% of the security’s ADTV (average daily trading value) or 200 shares of the security.

Question 5

When a new company’s share price is trading at a price lower than the IPO price, the syndicate manager may put in a

Answer 5

stabilization bid to try to stop the price from falling further.

Question 6

a bid that is used to try to keep the price of a new stock stable.


Answer 6

Stabilization bid

Question 7

Stabilization bids are permitted by

Answer 7

one member of the syndicate—usually the syndicate manager.

Question 8

With stabilization bids, the market price rarely

Answer 8

goes below the syndicate bid

Question 9

Stabilization is only allowed for

Answer 9

firm commitment offerings.


Question 10

If stabilization is an option in an offering

Answer 10

A notice of the possibility of stabilization must appear in the prospectus.

Question 11

How many stabilizing bids are allowed?

Answer 11

Only one stabilizing bid is allowed at one time, in only one market.


Question 12

Stabilizing bids are not allowed on

Answer 12

the NYSE and an OTC market


Question 13

Stabilizing bids are allowed on

Answer 13

NASDAQ

Question 14

To stabilize the issue, The syndicate manager will want to enter the bid at

Answer 14

the highest possible price

Question 15

Stabilizing bids cannot be higher than

Answer 15

the lower of the IPO price or the highest current independent bid.


Question 16

Stabilizing bids can be

Answer 16

increased and reduced

Question 17

a bid for shares of an IPO that comes with restrictions from the underwriter.

Answer 17

penalty bid

Question 18

In a penalty bid, the broker agrees that his clients will

Answer 18

hold the stock for a certain amount of time or the underwriter will impose a financial penalty on the broker.


Question 19

Those who enter a stabilizing bid must provide

Answer 19

prior notice to the market (e.g., NASDAQ) where the bid is entered.

Question 20

syndicate covering transactions and penalty bids must be preceded by written notification to

Answer 20

the self-regulatory organization (e.g., FINRA) that has authority over the market where the stabilizing activity will take place.


Question 21

after imposing a penalty bid, written notification is required

Answer 21

to SRO (e.g. FINRA) within one business day

Question 22

Stabilization records must be kept

Answer 22

up to 3 years

Question 23

Official deadline at which a stabilization must end

Answer 23

none

Question 24

Under Uniform Practice Code, stabilization may not last more than

Answer 24

90 days

Question 25

syndicate disbands and all syndicate accounts must be settled after

Answer 25

90 days

Question 26

Rule 105 prevents any person from purchasing securities in a public offering

Answer 26

if they shorted the stock during the restricted period

Question 27

Rule 105 restrictions on short selling were designed to prevent old strategy of

Answer 27

1. shorting stock (selling borrowed stock) before public offering to drop price 2. buying at lower price 3. pocketing difference