NASD Approves Rules to Reform IPO Process
Washington, DC – NASD proposed today new rules to regulate initial public offerings (IPOs). This proposal represents the second set of IPO reform measures proposed by NASD, and would implement many of the recommendations of the NYSE/NASD IPO Advisory Committee.
The new rules would:
- Require the lead underwriter to disclose indications of interest and final allocations to the issuer.
- Prohibit brokers from accepting a market order to purchase IPO shares for one trading day after an IPO.
- Impose procedures to ensure that reneged trades are not used to benefit favored clients of the underwriter.
- Require that any lock-up that applies to shares owned by the issuer's officers and directors also applies to shares they receive in "friends and family" programs.
- Impose new notification requirements when underwriters waive lock-ups.
"These proposals further address conflicts of interest in the IPO market, and are an important addition to the regulatory initiatives that address abusive and unethical practices that have occurred with IPOs," said NASD Chairman and CEO Robert Glauber. "They will promote investor protection and a fair and open process for companies to raise capital in the public markets."
NASD also will request public comment on whether additional measures might enhance the pricing of IPO shares. NASD will request comment on various approaches, including the following:
- Requiring that an independent broker opine that the initial IPO price range and final price are reasonable and that the prospectus discloses this information.
- Encouraging the use of an auction system, such as a Dutch auction system or similar system to, collect indications of interest to help establish the final IPO price.
- Enhancing prospectus disclosure of the valuation information used to establish the IPO price range and final price.
In September 2003 NASD filed its first set of IPO rulemaking with the Securities and Exchange Commission (SEC). Those earlier measures would address illicit quid pro quo arrangements, spinning and other IPO allocation abuses.
The NYSE/NASD IPO Advisory Committee was formed in October 2002 by the New York Stock Exchange and NASD at the request of the SEC. It issued its final report and recommendations in May of this year.
NASD intends to request public comment on the latest proposal. Details of the proposal will be made available in a Notice to Members.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.