Regulation M, Rule 103—NASDAQ Passive Market Making
This rule provides a way for market makers in NASDAQ securities to transact in covered securities during the restricted period without violating Rule 101. This is done through passive market making.
A passive market maker is an underwriter on a public offering (syndicate member) that is permitted to trade shares of the issue in the secondary market if certain conditions are met. The rule is subject to several requirements and limitations.
- • Price limitation. A passive market maker’s bids and purchases for the security may not exceed the highest independent bid at the time of the transaction. If all independent bids for the security fall to a price below the passive market maker’s bid, the market maker must promptly lower its bid accordingly.
- • Purchase limitation. On each day of the restricted period, a passive market maker’s net purchases are limited to the greater of 30% of the security’s ADTV or 200 shares.
- • Bid identification. A passive market maker must designate its bid as a passive market making bid.
- • Reporting to FINRA. A passive market maker is required to notify FINRA in advance of its intent to engage in passive market making, and it must submit information regarding any passive market making purchases.
Passive market making is only allowed in NASDAQ securities on