6.1.7.4. Stabilizing Bids
A stabilizing bid is a bid or purchase from an offering’s underwriter, made in an effort to prevent or slow a decline in the offering’s price. Regulation M allows stabilizing bids under certain conditions. The most important of these are:
• Bid price. The rules for how high a stabilizing bid can go are complicated, but for most purposes the maximum stabilizing bid is either the offering price or last independent bid, whichever is lower.
• Priority. Any person making a stabilizing bid must grant priority to any independent bid at the same price, even if the bid is for a different number of shares.
• Single bid. Only one stabilizing bid is allowed in any one market at the same price at the same time. For example, only one market maker may enter a stabilizing bid on Nasdaq, though the bid may be carried over to another market such as the NYSE. A stabilizing bid may be increased or decreased, but not without first discontinuing the prior stabilizing price; nor can it be raised higher than the highest current independent bid.
• Firm commitment. Stabilizing bids are only allowed for firm commitment underwritings.
• Transparency and notification.
» The prospectus must disclose the possibility that stabilizing bids may be used.
» Prior notice must be given to the exchange or market where a stabilizing bid will be placed.
» When a stabilizing bid is placed, it must be identified as a stabilizing bid.
» Distribution participants have to keep each other informed about their stabilizing bids, including the name and class of any security being stabilized, the date and time of the first sta