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) who is permitted to trade shares of the issue in the secondary market, if certain conditions are met. The limitations and requirements for passive market making are as follows:
- • A passive market maker is prohibited from placing a higher bid than the highest independent bid.
- • The passive market maker may not exceed a certain purchase limitation, which is the greater of: (a) 30% of its average daily trading volume (ADTV), or (b) 200 shares.
- • If all independent bids are below the passive market maker’s bid, the market maker must lower its bid below the highest independent bid.
- • The passive market maker’s bid must be identified as a passive market making bid.
- • The passive market maker must notify Nasdaq of its intention to engage in passive market making one business day prior to the restricted period.
- • The prospectuses for the security must comply with all applicable regulations.
- • Passive market making must only be done on firm commitments.
- • Passive market making cannot occur if there is a stabilizing bid present
- • Passive market making can only occur if there is an independent market in the security, meaning that at least one market maker th