Ch 2 Deck 9 Flashcards
a purchase by a broker-dealer of a customer’s securities, with an agreement that the customer will purchase securities in a fixed-price offering from the broker-dealer
“taken in trade”
Rule 2730 is part of a group of rules which prohibits the selling of shares
in a fixed price offering at a reduced price
Rule 2730 prevents a FINRA member who is participating in a fixed price offering
“from arranging the purchase of shares taken in trade from a customer as payment for securities purchased by the customer in the offering unless the securities taken in trade are purchased at a price no higher than their fair market price.”
Taken in trade transactions must be recorded and the records kept
24 months
put into place to try to deter unfair manipulation of the price of stock in an offering—before, during or after a public offering
Regulation M
Regulation M is mostly aimed at
follow on offerings
Regulation M puts restrictions on those
in a position to unfairly manipulate price syndicate members market makers issuers affiliates of the issuers
What Regulation M tier is not easily manipulated
Tier 1
What Regulation M tier includes actively traded securities
Tier 1
Regulation M Tier 1 Public Float
more than $150M
Regulation M Tier 1 ADTV
$1M Average Daily Trading Volume
Regulation M Tier 1 restricted period
None
medium traded securities are Regulation M tier
2
Regulation M Tier 2 ADTV
$100,000
Regulation M Tier 2 public float
more than $25M
Regulation M Tier 2 restricted period
1 day prior to pricing until the person’s participation in the distribution comes to an end
Regulation M Tier 3 securities are those which do not meet
the requirements for Tier 1 or Tier 2
Regulation M Tier 3 restricted period
5 days prior to pricing until pricing until the person’s participation in the distribution comes to an end.
During the Regulation M restricted period
issuers, issuers’ affiliates, and syndicate members who are not market makers, cannot bid for or purchase securities
A passive market maker is one who is both
- an underwriter on a public offering
2. one who bids on shares of the offering in the secondary market
passive market making is only allowed on
the NASDAQ market
If a syndicate member would like to engage in passive market making they need to
notify FINRA at least one day prior to the restricted period.
A passive market making quote cannot be higher than
the highest independent bid.
In passive market making an independent bid is
a bid made by a market maker not involved in the underwriting
Quote restrictions on passive market makers is to prevent
passive makers from competing with any other bidders.
Regulation M 102 applies to
issuers and issuer affiliates
Regulation M 101 applies to
market makers, syndicate members, selling group members, broker dealers helping with sale of the distribution investment bankers, underwriters
Regulation M bars restricted persons from
bidding for or purchasing securities during the restricted period
Calculate public float by
totaling value of common stock not owned by affiliates
Pricing usually occurs
right before the offering date
Regulation M Rule 103 covers
passive market making
in passive market making, quotes must be identified
as a passive market maker bid
passive market making can only be done on
firm commitment bids
