8.12: Directed Shares and Issues

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Abstract

The NASD also supervises how stock in an IPO is allocated, a requirement that overlaps with the SEC's rules against manipulative practices.[1] Thus, the Interpretation with respect to Free-Riding and Withholding limits the practice of free riding, that is, allocating hot stock (stock in an issue which immediately goes to a premium) as a disguised extra benefit to the underwriter and its special friends.[2] A pattern of the same customers consistently participating in private placements immediately prior to a given underwriter's public offerings will be closely scrutinized. Moreover, the NASD imposes a standard of reasonableness on the amount of stock the issuer reserves for its friends: "issuer-directed securities."[3] Obviously, upon an IPO, it is good business to reserve stock for customers and others who can help the firm in the future. Since the NASD is interested, however, in bona fide public offerings, it insists that the amount of issuer-directed...

Sub-Topics

• 8.12.1: SEC Votes to Adopt Final Amendments to Rule 105 of Regulation M
• 8.12.2: Employee Share Incentives In Recent UK Biotech IPOs