NASD Board of Governors Votes to Improve Rule Proposal on Trading in Initial Public Offerings
Washington, DC—The National Association of Securities Dealers, Inc. (NASD®) Board of Governors approved amendments to a rule proposal, filed with the Securities and Exchange Commission (SEC) last year, which would change the way that the NASD regulates trading in equity offerings. After consideration of the comments received concerning the proposal, NASD Regulation, Inc. has changed both the scope of persons and the type of securities covered by the rule, and the treatment of issuer-directed share programs under the rule. These amendments will help the rule to better achieve its purpose, which is to protect the public interest, and also make the rule easier for firms to understand and apply.
To assure that public offerings are actually distributed to the investing public, the NASD has long prohibited the distribution of shares in "hot issues" to broker/dealers and certain people. Under the proposed amendments, the rule will be applied to all initial equity public offerings, and not just those that are "hot issues" as defined by last year’s proposal. Further, the proposed rule change exempts all secondary and convertible securities offerings. NASD Regulation believes that these changes will lessen the possibility of abuse in a public offering, by making it easier for members to determine whether they may sell and/or whether customers may purchase shares prior to an equity offering.
In response to comments received, the new proposal eliminates the five percent cap on a manager’s purchase of shares and permits a hedge fund manager to invest in new issues in proportion to his or her capital ownership of the fund. The proposal prohibits the manager from purchasing initial public offering securities for his or her personal account.
The proposed amendments also clarify restrictions on the sale of new issues to direct and/or indirect owners of a broker/dealer as contained in Form BD. For the first time, the proposed amendment will permit certain publicly traded affiliates of broker/dealers to purchase equities in an initial public offering, provided that such purchases are for the benefit of public shareholders.
NASD Regulation staff have also made changes with respect to the application of issuer-directed share programs, otherwise known as "friends and family" programs. The new proposal would exempt all sales that are specifically directed by an issuer, including to friends and family. However, sales directed by an issuer to broker/dealer personnel and/or certain members of the immediate family would continue to be prohibited by the rule.
Prior to becoming effective, the proposed amendments must be filed and approved by the Securities and Exchange Commission, generally after publication in the Federal Register and a public comment period.
Investors can obtain more information about NASD Regulation as well as information about any NASD-registered broker or brokerage firm by calling (800) 289-9999, or by sending an e-mail through NASD Regulation’s Web site, www.nasdr.com.
The National Association of Securities Dealers, Inc., is the largest securities-industry, self-regulatory organization in the United States. It is the parent organization of The Nasdaq Stock Market®, The American Stock Exchange®, NASD Regulation, Inc., and NASD Dispute Resolution, Inc. For more information about the NASD and its subsidiaries, please visit the following Web sites: www.nasd.com; www.nasdaq.com; the Nasdaq NewsroomSM at www.nasdaqnews.com; www.amex.com; www.nasdr.com; or www.nasdadr.com.