Regulation M – and specifically Rule 105 – has long posed operational challenges for funds active in the equity syndicate market. As deal flow accelerates and buy-side long/short strategies grow more dynamic, compliance teams are facing mounting pressure to match the speed and complexity of the market.

Regulatory enforcement of Rule 105 can be particularly unforgiving. As a strict liability rule, intent is irrelevant: even inadvertent violations often result in fines, public disclosure and reputational damage. Monitoring for market activity that could invite risk of noncompliance is a critical priority.

CMG’s Real-Time Feed equips firms with visibility and precision to manage Regulation M compliance risk, avoid operational missteps and confidently capitalize on market opportunities. Below, we dive into what Rule 105 specifically entails and how timely insight into market events can help eliminate operational inefficiencies.

Regulation M Rule 105 at a Glance: What Firms Need to Know

Rule 105 of Regulation M prohibits investors from purchasing shares in a firm-commitment public offering if they previously sold the issuer’s securities short during the restricted period – typically the five business days leading up to the offering’s pricing. The rule is designed to prevent manipulative short selling that could artificially depress prices ahead of an equity raise.

Rule 105 applies to SEC-registered follow-ons, secondary offerings and convertible deals conducted on a firm-commitment basis. IPOs, private placements and best-efforts transactions generally fall outside its scope.

There are a few narrowly defined exceptions to the rule, including bona fide purchases, independently managed accounts and affiliated funds within a larger complex that operate independently. To better understand these exceptions and how they are applied, you can read more in the SEC’s detailed guidance here. Even with these exceptions, achieving real-time compliance with Rule 105 remains challenging – especially in volatile, fast-moving markets where offerings can launch overnight or pre-market open.

Regulation M Best Practices for Investors

Standard best practices to address Rule 105 compliance include:

• Pre-Trade Check – Before initiating a short sale, assess whether the issuer has a pending or rumored offering.
• Pre-Allocation Check – Prior to participating in an offering, review shorting activity over the past five business days to determine eligibility.
• Internal Controls – Maintain a dynamic “restricted” list and automate freeze protocols tied to deal activity.
• Training and Awareness – Reinforce Rule 105 guidance across internal trading and compliance teams through regular education and clear standard operating procedures.

While Regulation M only applies to the U.S., the previously stated best practices might be considered for other jurisdictions that have market manipulation rules that apply to the pre-offering period.

Bottom line: to operate confidently in real time, firms need tools that surface actionable offering intelligence the moment it becomes relevant.

CMG’s Real-Time Feed: Built for Rule 105 Compliance

Traditional compliance workflows often fall short when it comes to Rule 105 – static calendars, delayed notices and manual reconciliation processes simply can’t keep up with today’s accelerated deal timelines. Firms that short a name midday may find themselves ineligible for an offering that launches just hours later, often without warning. In these scenarios, information lag can be costly, either by exposing the firm to regulatory risk or by excluding them from desirable allocations due to overly cautious internal restrictions.

CMG’s Real-Time Feed (RTF) is the ideal solution to this problem. Delivered via GraphQLsubscriptions, the RTF generates an update the moment a relevant offering is launched or modified. Each update includes rich metadata with a unique isFirstLaunch flag that clearly indicates when an offering goes live for the first time. These structured updates enable clients to automate critical compliance workflows: flagging restricted securities, updating internal lists and notifying relevant stakeholders within seconds.

For example, say a trader shorts a stock at 2:00 pm ET and an overnight follow-on offering is launched at 4:01 pm ET. The RTF triggers an update that is shared with the compliance team, which in turn reviews eligibility, blocks participation or intervenes as necessary in real time. Without this signal, the violation might go undetected until it’s too late.

Rather than relying on static lists or polling APIs, CMG clients can subscribe directly to the events that matter most – filtering by geography, issuer type or deal structure. The result is a seamless flow of high-signal market intelligence tailored to each firm’s specific Regulation M compliance and trading needs.

Key RTF capabilities and features include:

• Real-Time Data Delivery – Low latency. Provides immediate access to data updates, reducing latency compared to batch or periodic REST API calls.
• Subscription Model – Reduce the noise. Receive only relevant updates by subscribing to specific data events or fields (e.g., region, exchange or offering type).
• Flexible Delivery – Designed to integrate with existing workflows. Access data via intuitive dashboards or integrate it directly into OMS/EMS environments using standard APIs.

By embedding CMG’s real-time capabilities into operational workflows, firms can shift from reactive enforcement to proactive control, aligning compliance with the pace of the market.

A Smarter Path to Regulation M Readiness

Whether you’re a long/short equity fund, an active syndicate participant or a compliance officer tasked with keeping your firm compliant, Regulation M compliance is too important to neglect. And with regulatory pressure growing and deal windows shrinking, even the most diligent teams benefit from tools that help them stay ahead.

CMG’s Real-Time Feed empowers firms to monitor, evaluate and respond to offering activity without missing a beat – minimizing risk and maximizing confidence in investment opportunities.

Ready to address the compliance gap? Contact the CMG team to learn how RTF integrates seamlessly into your Rule 105 workflow.

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All materials have been prepared for general information purposes only to permit you to learn more about Capital Markets Gateway and our services. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.