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NASD Proposed More IPO Purchase Restrictions

 Free-riding and Withholding Interpretation being replaced?

By John M. Baker, Esq.


NASD Regulation posted the second amendment to its SEC rule filing on proposed Rule 2790, Restrictions on the Purchase and Sale of Initial Equity Public Offerings.

Proposed Rule 2790 is intended to replace the existing Free-Riding and Withholding Interpretation, IM-2110-1. The changes made in this amendment were approved by the NASD Board of Governors in mid-August; the amendment is dated October 10, 2000.

The amendment responds to public comment on the original NASD filing, which was described in my prior post, http://www.egroups.com/message/fundlaw/46

The thrust of Rule 2790 is to protect the public offering process by requiring that hot issues not be directed to industry insiders. The biggest change in the proposed rule is in the hot issues that are protected: Now the proposed rule applies to virtually all initial public offerings of equity securities, whether or not the issue trades at a premium. The rule does not apply to secondary offerings, debt offerings, closed-end fund offerings, or certain other specialized offerings.

The amended filing also changes the “restricted persons” who cannot purchase in IPOs. “Restricted persons” are basically broker-dealers, their affiliates and fiduciaries (including the managing underwriter’s attorneys), and portfolio managers. “Portfolio managers” have been redefined to focus on persons who have authority to buy or sell securities for a bank, S&L, insurance company, investment company, investment adviser, or investment partnership or other collective investment vehicle. This definition is narrower than in the prior filing, and the amendment also gives portfolio managers flexibility to invest through the investment vehicle he or she manages, or in issuer-directed securities.

The NASD Regulation filings for Rule 2790 are available online at http://www.nasdr.com/filings/rf99_60.htm


Copyright 2000, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, http://www.egroups.com/group/fundlaw. To subscribe to FundLaw, send a blank e-mail to fundlaw-subscribe@egroups.com


Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.


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Categories: Corp Finance
Tags: IPO