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SEC proposes stricter rules for IPOs

The SEC Wednesday proposed stricter rules to halt underwriting practices that artificially boost demand for shares in initial public offerings.
/ Source: Reuters

The U.S. Securities and Exchange Commission Wednesday proposed stricter rules to halt underwriting practices that artificially boost demand for shares in initial public offerings.

The five SEC commissioners voted unanimously to seek public comment on whether to ban practices such as laddering, in which recipients of shares in IPOs would agree to buy more shares later in the market -- ensuring the price of a hot IPO stock would continue to rise after its market debut.

The SEC proposal stems from enforcement cases the agency has brought against top Wall Street firms for practices used during the late 1990s telecommunications and technology stock bubble.

"The price of an offering and the aftermarket trading price should be determined by investor demand," SEC Chairman William Donaldson told an open meeting of the SEC, "and should be free from manipulative influence or misconduct on the part of those who brought the offering to market and stand to profit the most from the transaction."

Laddering was involved in a settlement reached with regulators a year ago with J.P. Morgan Chase .

Under its proposal, the SEC is also seeking to restrict underwriters from demanding higher commissions from investors wanting to get in on a "hot" IPO -- when a new stock quickly trades at a premium after hitting the open market.