December 29, 2004

SEC Proposes Changes to IPO Allocations and Distributions

Here is the SEC proposing release putting out for comment the separate proposals of the NYSE and NASD regarding the allocation and distribution of shares in IPOs. Comments are due 21 days from publication in the Federal Register.

The proposed rule changes respond to several of the recommendations of the NYSE/NASD IPO Advisory Committee, which issued a report with 20 recommendations in May 2003. Topics covered include: Quid Pro Quo Allocations; Spinning; Flipping; and IPO Pricing and Trading Practices – book-running lead manager reports to the issuer’s pricing committee; lock-up agreements; application of returned shares to offset the existing syndicate short position or if no short position exists, to unfilled customer’s orders at the public offering price; and Market Orders.

The NYSE and NASD proposals generally appear to be substantively consistent, with some language and format differences and differences in the Definitions Sections – and they should be read in conjunction with the SEC’s proposed amendments to Regulation M regarding IPOs and other public offerings. The SEC has specifically asked for comments on any differences between its Regulation M proposals and the NYSE and NASD proposals, particularly regarding penalty bids and quid pro quo allocations, which may present compliance or interpretive issues. Thanks to Mike Holliday for all of this analysis!

Environmental Disclosure

We have created a new Environmental Disclosure Practice Area, an area that is likely to become increasingly important as the recent success of social shareholder proposals illustrates how this is becoming a more crucial agenda item for investors – and other entities like the GAO push the SEC to upgrade its disclosure requirements in this area.