General Securities Sales Supervisor (Series10) Practice Exam

Who usually acts as the stabilizing market maker in new issues?

1. Issuer

2. Managing underwriter

3. Any member of the syndicate

4. Any member of the selling group

The correct answer is: Managing underwriter

The managing underwriter typically acts as the stabilizing market maker in new issues. This role involves supporting the price of the newly issued securities in the open market to prevent a significant decline immediately after the public offering. By doing so, the managing underwriter helps maintain market confidence and stabilizes the trading of the new issue. The managing underwriter has the responsibility of overseeing the entire underwriting process, coordinating the activities of the syndicate, and ensuring a successful distribution of securities. They are best positioned to carry out stabilizing transactions because they have access to information about the offering and understand market conditions, allowing them to respond effectively to price fluctuations. In contrast, while members of the syndicate may also engage in market making, it is the managing underwriter who centrally manages these activities. Members of the selling group, on the other hand, primarily focus on selling the securities rather than stabilizing their market price, making the managing underwriter the most appropriate choice for this role.