Series 79 practice questionmediumStabilization
Under Regulation M, at what price may the lead underwriter enter stabilizing bids in the aftermarket?
- AAt any price above the offering price to support positive performance
- BOnly at the previous day's closing price
- CAt exactly 10% below the offering price
- DAt or below the public offering price✓ Correct answer
Explanation
Why D — At or below the public offering price
Regulation M, Rule 104 permits stabilizing bids at or below the public offering price. Stabilization is an exception to the general prohibition on market manipulation, specifically permitted to prevent or slow a decline in the market price of a security during a distribution. The stabilizing bid cannot exceed the offering price because the purpose is to support the price, not to drive it above the offering level. The underwriter must provide prior notice to the market and the exchange before entering stabilizing bids.
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