Chapter 9 Practice Question Answers
1. Answer: D. Rule 101 of Regulation M prohibits a participant in the distribution of a security from purchasing the security during the “restricted period.” “Actively traded securities”—securities with an average daily trading volume of at least $1 million issued by an entity with a minimum $150 million public float—are not subject to a restricted period, but Techrangutan’s shares do not fall into that category, so A is not correct. For a security with a public float of at least $25 million and an average daily trading volume of $100,000 or more, the restricted period begins one business day prior to the determination of the offering price (or at the time the person becomes a distribution participant, if later). Techrangutan does not fall into this category, so C is incorrect. For other securities, the restricted period begins five business days before the determination of the offering price, so D is correct. Answer choice B is not correct because Techrangutan’s shares are not “exempted securities,” a category that includes things like government securities.
2. Answer: D. The greenshoe option, or over-allotment option, allows underwriters to buy from the issuer more shares than the amount listed in the prospectus. The underwriters can use the option to cover a syndicate short position.
3. Answer: B. Choices A, C, and D all describe requirements imposed by Regulation M, Rule 104, for stabilizing bids made during the restricted period. There is no requirement that stabilizing bids be made in the “principal market” for the stock in question. (The price may not exceed the then-current stabilizing bid price in the principal market, however, even if the bid is made in another market.)
4. Answer: A. Regulation M, Rule 104, permits the syndicate to make stabilizing bids under certain circumstances. The syndicate manager will want to enter the bid at the highest allowable price to stabilize the issu