What Is Regulation M?
Regulation M, which was adopted in 1996, is designed to prevent market manipulation by participants in a securities offering by regulating certain activities. In general, Regulation M restricts distribution participants (underwriters, placement agents and their affiliates), issuers, selling security holders and their affiliates, from bidding for, purchasing, or attempting to induce other to bid for or purchase, certain securities during an applicable restricted period. Regulation M also prohibits any person that has sold short a security that is the subject of a registered offering from purchasing securities in the offering from an underwriter, or broker or dealer participating in the offering if the short sale took place during a specified period prior to the pricing of the registered offering.
Although a large part of Regulation M relates to underwriter and broker dealer conduct and due diligence obligations, it is helpful for issuers and selling security holders to understand the rules as pertains to them. Regulation M consists of six
SEC Filed Actions Against 19 Firms and One Individual Trader for Violation of Rule 105 of Regulation M
ABA Journal’s 10th Annual Blawg 100
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On September 16, 2014, the SEC filed actions against 19 firms and one individual trade for short selling violations in advance of public stock offerings in violation of Rule 105 of Regulation M. The SEC has actively enforced Regulation M since its enactment in 1996. Regulation M is designed to prevent stock manipulation during public offerings and Rule 105 particularly prohibits short selling of stock within five business days of participating in an offering for the same stock. That is, you cannot short stock and cover your short by buying the same stock from the underwriter in a public offering. Rule 105 prevents downward pressure on a company’s stock price during the offering process.
The SEC’s current investigation found that 19 firms and one individual trader charged in these latest cases engaged in short selling of particular stocks shortly before they bought shares from an underwriter, broker, or dealer participating in a follow-on
