Prophylactic rule

A prophylactic rule prohibits conduct that could lead to harm without requiring proof of harm or of intent. The SEC describes Rule 105 this way: a breach is the prohibited sequence of trades, not a finding that the trader meant to distort a price.

manipulation techniques · updated 2026-09-20

Where does prophylactic rule come up?

This term is used in the following manipulation techniques, each explained in full on its own page.

• Rule 105 offering shorts — Rule 105 offering shorts are short sales of a stock in the restricted period before a follow-on offering is priced, followed by a purchase of that stock in the offering, which Regulation M Rule 105 prohibits whatever the trader intended.

Enforcement actions involving these techniques

See also

• Rule 105 — Rule 105 of Regulation M, 17 C.F.R. § 242.105, makes it unlawful to sell a stock short in a defined restricted period before a reg…
• Artificial price — An artificial price is one that does not reflect the genuine forces of supply and demand. Proving artificiality is a required elem…

Terms that refer here

Rule 105

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