Series 79 practice questionmediumStabilization
Under Regulation M, what is the primary purpose of stabilization bids in an IPO?
- ATo prevent or slow a decline in the security's market price post-offering✓ Correct answer
- BTo increase the price above the offering price in aftermarket trading
- CTo guarantee profits for the underwriters
- DTo allocate shares among institutional investors
Explanation
Why A — To prevent or slow a decline in the security's market price post-offering
Stabilization aims to prevent or slow a post-offering price decline, but cannot lift the price above the offering price. The trap is assuming stabilization creates profits or impacts allocation, which are not its regulatory objectives.
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