General Securities Sales Supervisor (Series10) Practice Exam

What is the time limitation regarding stabilizing bids entered by market makers?

1. A Stabilizing bids can only be maintained for 5 consecutive business days

2. B Stabilizing bids can only be maintained for 30 calendar days

3. C Stabilizing bids can only be maintained for 45 calendar days

4. D There is no time limitation on stabilizing bids

The correct answer is: D There is no time limitation on stabilizing bids

Stabilizing bids are a critical aspect of the underwriting process used by market makers to support the price of a new issue and prevent volatility during the transition to the public market. The ability of market makers to enter stabilizing bids is guided by specific regulations. There is no explicit time limitation placed on how long stabilizing bids can be maintained. This provides market makers the flexibility to ensure that the price remains orderly without being constrained by a fixed timeframe. The purpose of stabilizing bids is to counteract excess downward pressure on the price of a security after its initial offering, which allows for a more stable market environment for both the issuer and investors. Other possible options that suggest limitations of 5, 30, or 45 days introduce notions that are not consistent with regulatory guidelines governing stabilizing activities. Such limitations would unnecessarily restrict the market makers' ability to provide ongoing support, thereby undermining the effectiveness of stabilizing mechanisms intended to protect the integrity of the market for a new security. The absence of a time limitation recognizes the need for market responsiveness and adaptability, ensuring that stabilizing bids can continue for as long as necessary to achieve their intended purpose.