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| 2003
News and Press Releases |
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HEADLINE:
Reconsidering Initial Public Offerings
By: Floyd Norris
NYTimes.com. November 25, 2003
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EXCERPT: NASD is considering whether to require underwriters to justify the prices they set for initial public offerings. Yesterday the organization proposed a series of rules involving parts of the process for new offerings. One rule is aimed at keeping retail investors from accidentally paying inflated prices for hot new offerings once trading begins. NASD stopped short of proposing disclosure of valuation information, but it asked for comment on three possible changes. One idea is to require that all prospectuses for new offerings include an opinion from an independent broker saying that the price is reasonable. Another proposal would require that the prospectus disclose more information to show the valuation process that was employed to set the price. That could include such information as the company's estimate of its earnings over the next year. Such information is often given to institutional investors at the road show promoting an offering, but is not shared with the public. An idea that goes in a completely different direction is to encourage the use of Dutch auctions, in which investors indicate how many shares they want at different prices, and the offering is priced to sell all the shares at the highest amount the company can get. None of those ideas were formally proposed by NASD, but it asked for comment on all of them for 45 days. NASD's formal proposals dealt with smaller topics of possible abuse, generally seeking to give the company whose shares are being sold more involvement in the pricing process and to ensure that underwriters do not receive a windfall from mistakes in the allocation process. The proposals are the latest efforts to alter a process that came under severe criticism after the hot market for new issues in the late 1990's led to prices that rose to great heights, only to collapse after the bubble burst. NASD previously decided to adopt rules to ban spinning - the practice of giving allocations of hot offerings to favored executives in return for gaining underwriting business from their companies. Those rules are awaiting approval by the Securities and Exchange Commission. "These proposals further address conflicts of interest in the I.P.O. market, and are an important addition to the regulatory initiatives that address abusive and unethical practices that have occurred with I.P.O.'s," said Robert Glauber, the chief executive of NASD. "They will promote investor protection and a fair and open process for companies to raise capital in the public markets."
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