Regulating IPO Allocations: Rule 2790 Replaces the Free-Riding and Withholding Interpretation

• Published in: The Investment Lawyer Vol. 11; no. 3; p. 3
• Main Authors: Newman, Bruce H, Green, Erica A
• Format: Trade Publication Article
• Language: English
• Published: Englewood Cliffs Aspen Publishers, Inc 01.03.2004
• Subjects: Associations; Compliance; Families & family life; Fiduciaries; Initial public offerings; Securities industry; Securities regulations; United States > US
• ISSN: 1075-4512

The National Association of Securities Dealers (NASD) recently proposed NASD Rule 2790, in an effort to focus and streamline its regulations regarding IPO allocations and distributions while preserving the overall intent to protect the integrity of the securities offering process. The Rule introduces two significant changes that will require many firms to re-design their current syndicate compliance systems and controls. First, firms must receive from each person or account, within 12 months prior to any allocation of an IPO to that account, a representation that the person or account is eligible as a nonrestricted person to receive new issue securities. Second, restricted persons will be allowed, for the first time, to hold an interest in a collective investment account (such as a private investment fund) that receives an IPO allocation, provided such restricted persons beneficially own no more than 10% of the account.