The NASD, the trade association and private sector regulator of the U.S. securities industry, today proposed new rules to regulate initial public offerings.

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; and
  • impose new notification requirements when underwriters waive lock-ups.

NASD also will request public comment on whether additional measures might enhance the pricing of IPO shares, including: 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; and, enhancing prospectus disclosure of the valuation information used to establish the IPO price range and final price.

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. In September 2003 NASD filed its first set of IPO rulemaking with the Securities and Exchange Commission; addressing illicit quid pro quo arrangements, spinning and other IPO allocation abuses.

“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, in a news release. “They will promote investor protection and a fair and open process for companies to raise capital in the public markets.”

News release
http://www.nasdr.com/news/pr2003/release_03_053.html