Scope of Section. This section permits broker-dealers to engage
in market making transactions in covered securities that are Nasdaq securities
without violating the provisions of Rule 101; Except
That this section shall not apply to any security for which a stabilizing bid
subject to Rule 104 is in effect, or during any at-the-market
offering or best efforts offering.
Conditions to be Met.
General limitations. A passive market maker must
effect all transactions in the capacity of a registered market maker on Nasdaq.
A passive market maker shall not bid for or purchase a covered security at a price
that exceeds the highest independent bid for the covered security at the time
of the transaction, except as permitted by paragraph (b)(3) of this section or
required by a rule promulgated by the Commission or the NASD governing the handling
of customer orders.
Purchase limitation. On each day of the restricted
period, a passive market maker's net purchases shall not exceed the greater of
its 30% ADTV limitation or 200 shares (together, "purchase limitation");
Provided, however, That a passive market maker may purchase all of the securities
that are part of a single order that, when executed, results in its purchase limitation
being equalled or exceeded. If a passive market maker's net purchases equal or
exceed its purchase limitation, it shall withdraw promptly its quotations from
Nasdaq. If a passive market maker withdraws its quotations pursuant to this paragraph,
it may not effect any bid or purchase in the covered security for the remainder
of that day, irrespective of any later sales during that day, unless otherwise
permitted by Rule 101.
Requirement to lower the bid. If all independent
bids for a covered security are reduced to a price below the passive market maker's
bid, the passive market maker must lower its bid promptly to a level not higher
than the then highest independent bid; Provided, however, That a passive market
maker may continue to bid and effect purchases at its bid at a price exceeding
the then highest independent bid until the passive market maker purchases an aggregate
amount of the covered security that equals or, through the purchase of all securities
that are part of a single order, exceeds the lesser of two times the minimum quotation
size for the security, as determined by NASD rules, or the passive market maker's
remaining purchasing capacity under paragraph (b)(2) of this section.
Limitation on displayed size. At all times, the
passive market maker's displayed bid size may not exceed the lesser of the minimum
quotation size for the covered security, or the passive market maker's remaining
purchasing capacity under paragraph (b)(2) of this section; Provided, however,
That a passive market maker whose purchasing capacity at any time is between one
and 99 shares may display a bid size of 100 shares.
Identification of a passive market making bid.
The bid displayed by a passive market maker shall be designated as such.
Notification and reporting to the NASD. A passive
market maker shall notify the NASD in advance of its intention to engage in passive
market making, and shall submit to the NASD information regarding passive market
making purchases, in such form as the NASD shall prescribe.
Prospectus disclosure. The prospectus for any registered
offering in which any passive market maker intends to effect transactions in any
covered security shall contain the information required in Items 502
and 508 of Regulation S-B, and Items 502,
and 508 of Regulation S-K.
Transactions at Prices Resulting from Unlawful Activity.
No transaction shall be made at a price that the passive market maker knows or
has reason to know is the result of activity that is fraudulent, manipulative,
or deceptive under the securities laws, or any rule or regulation thereunder.
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