Guess you better go educate this WSJ writer
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SEC Eases Access to IPOs
Through Online Brokers
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
In another bow to the growing power of online investors on Wall Street, the U.S. Securities and Exchange Commission has made it easier for some investors to get shares of initial public offerings via the Internet.
This week, the SEC effectively loosened some of the restrictions surrounding the online distribution of IPOs by allowing Wit Capital Group Inc., a New York online investment-banking concern, to start collecting final customer confirmations for IPO orders as many as 48 hours before a deal is declared officially "effective" by the SEC. Before, Wit had to frantically reconfirm orders with perhaps thousands of customers in just a few hours the night before a stock made its debut.
The action came in the form of a "no action" letter to Wit from the SEC, meaning the SEC won't bring enforcement action against the company for proceeding with its plans. The ruling technically applies only to Wit, but it should affect practices at other online securities firms that dole out IPOs, experts said.
The old rules, written in the pre-Internet age, were "an unfair burden to the investor," said Ronald Readmond, Wit's vice chairman. Since Wit fills orders on a first-come, first-served basis, customers who initially had said they were interested in a particular deal via e-mail had to go through a time-consuming process: They had to figure out exactly when the deal was being priced and then sit at home with their computers at night, waiting for an e-mail asking them to reconfirm or withdraw their order.
Now, customers will have a full two days to take action, Mr. Readmond said.
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Russ Ramsey, president of online investment bank Friedman, Billings, Ramsey Group Inc., called the SEC's letter "a major move forward." His company, which has so far distributed two deals to online investors, intends to use the 48-hour procedure. The old rules "very much limited how much you could do," he said.
But have online brokers been following the prescribed IPO procedures anyway?
Technically, securities firms can't sell IPO shares until after the SEC has deemed a registration statement effective. So firms typically reconfirm the sale with each customer after the effectiveness ruling, usually the night before IPO day. That is easy with institutional customers. But, at E*Trade Group Inc., for instance, which offers chunks of IPOs to small investors, officials don't feel they need to contact customers again right before an IPO.
E*Trade on its site says that while a customer can change or cancel an initial "indication of interest" up until a stock deal is priced, it simply converts initial indications into "firm orders to participate," depending on availability. Kathy Levinson, E*Trade's president, said "the issue isn't black and white. ... We continue to work with our legal counsel and regulators about how to best interpret it."
While not speaking about any specific companies, Michael McAlevey, the SEC's deputy director of corporate finance, said, "We know that there are other people out there who have procedures contrary to the practices in that letter. ... We're not saying all that is illegitimate, but we do expect to hear from people to test our tolerance on practices."
The development is the latest in the hot online IPO market. Earlier this year, W.R. Hambrecht & Co. was formed to offer an unusual twist: distributing IPO shares online through a so-called open-auction system. |
