SEC Approves Procedure
For Initial Public Offerings
By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
New IPO-trading rules went into place Tuesday on the Nasdaq Stock Market
after they were approved by the Securities and Exchange Commission.
The rules on initial-public offerings, introduced late last year, attempt to
diminish the volatility and dramatic spikes seen in some recent opening-day
trading. Internet stocks in particular raised concern among traders and
regulators after shares of some new Web companies tripled or more in their
first minutes of trading.
"This rule will go a long way toward alleviating some of the problems" with
IPOs on Nasdaq, said Bernard Madoff, chairman of the brokerage firm
bearing his name. Under the previous rule, there was not enough time, he
added.
Under the new rules, Nasdaq officials will monitor price quotes from dealers
for 15 minutes before trading begins, an increase from the previous
five-minute period. After the first 15 minutes, Nasdaq will be able to delay
the opening of trading for an additional 15 minutes if a stock is "locked" or
"crossed." This unnatural condition occurs when traders are willing to pay
more than the best advertised selling price for a stock. At the end of 30
minutes, the IPO will start trading, even if the stock is still crossed or locked.
Traders and some investors will be able to use the added time to gauge more
accurately what the price of a new stock should be. The trading rules are
designed to provide immediate relief, while longer-term solutions are
examined, Nasdaq officials and traders said.
"Nasdaq continues to explore longer-term options to address the issue of the
volatility of Internet stocks," said S. William Broka, senior vice president at
Nasdaq. "But because the situation is so dynamic, we felt it would be better
not to wait for long-term solutions, and thus, established this temporary
measure."
Nasdaq officials also plan to look into improving communications channels
between stock dealers in IPOs. This could be difficult to accomplish quickly,
however, since it will probably require the blessing of both the SEC and the
Department of Justice. Several years back, a Justice Department investigation
of collusion between Nasdaq dealers led to the dealers' paying a billion-dollar
settlement to investors. Any increased communication between dealers will
need to be proposed and explained to the Justice Department and the SEC, a
process that will likely take months, says Mr. Madoff.
Tuesday's Market Activity
A surge in technology stocks pushed the Nasdaq Composite index to a new
high Tuesday, its ninth such record of the year.
The Russell 2000, a measure of
small-stock performance, rose 3.22,
or 0.76%, to 425.33, erasing a
four-session losing streak. But small
stocks generally didn't share in the
rally that raised other major averages.
The Nasdaq Composite rallied 64.10,
or 2.7%, to 2433.41, topping the
previous record close of 2415.49, set
on Jan. 20. Tuesday's gain was the
eighth largest one-day advance ever
on Nasdaq.
Shares of Ventana Medical, Tucson,
Ariz., shed 1 13/16, or 9.2%, to 17
7/8. The company, which makes equipment used to analyze tissue on
microscopic slides, said fourth-quarter net income will fall below expectations
of 13 cents a share. Ventana cited higher-than-expected expenses associated
with two acquisitions made during the quarter.
NewsEdge rallied 2 5/16, or 22%, to 12 5/16. International Business Machines
said it will integrate NewsEdge's customized-news service into its internal
Web-based news service. NewsEdge, Burlington, Mass., provides real-time
news and data.
Burlington Industries, Greensboro, N.C., fell 15/16, or 9.7%, to 8 3/4 on the
New York Stock Exchange. The company said apparel sales in the second
quarter will be well below estimates, and said it will cut U.S. capacity by
25%. The company also posted first-quarter net income of 14 cents a share,
which met Wall Street's expectations.
Shares of Remedy Corp. surged 6 3/16, or 37%, to 22 15/16. Late Monday,
the company posted fourth-quarter operating net of 26 cents a diluted share,
compared with Wall Street's consensus estimate of 24 cents. On Tuesday, a
handful of brokerage firms raised their investment rating on the company, a
Mountain View, Calif., software concern.
K-Tel International opened a custom CD store at its online music store,
helping the shares up 7/8, or 8%, to 11 7/8. The offering will let users create
custom CDs from the company's 4,000-title library of masters. K-Tel is a
Minneapolis music marketer.
Strong first-quarter earnings from Action Performance sent its shares up 5
3/4, or 16%, to 42 3/8, with the stock hitting a new 52-week high of 43 5/8
intraday. The Phoenix motorsports-licensing company earned 29 cents a
diluted share in the quarter, compared with 22 cents a year earlier and two
cents ahead of expectations. The company also called its outlook for 1999
"incredibly positive."
Imaging Technologies, San Diego, said it plans to roll out advertising and
promotional efforts for its Deal Seekers.com e-commerce Web site in the next
90 days. Shares of the laser-printing technologies company soared 2 7/8, or
230%, to 4 1/8. Volume, which averages about 170,000 shares a day, rocketed
to 34.5 million shares.
Banyan Systems' fourth-quarter net income fell to four cents a share from 13
cents in the year-earlier period. Shares of the Westboro, Mass., maker of
computer-network software fell 2 5/8, or 17%, to 12 3/4.
Inmark Enterprises improved 9/16, or 6.8%, to 8 13/16 after Janney
Montgomery Scott started coverage with a buy rating. Inmark, Greenvale,
N.Y., is a marketing and sales-promotion company.
A downgrade from Prudential Securities sent shares of VDI Media down 1
1/8, or 14%, to 6 7/8. Prudential lowered its rating on the Hollywood, Calif.,
company to "accumulate" from "strong buy."
Quorum Health shed 2 15/32, or 21%, to 9 1/16. The Nashville operator of
acute-care hospitals earned five cents a share from operations in its second
quarter, 15 cents below Wall Street's consensus estimate. The company said it
expects fiscal 1999 operating net of 80 cents to 90 cents a share, compared
with $1.32 in fiscal 1998. The stock hit a 52-week low of 8 3/8 intraday.
The technology sector -- more specifically large technology companies -- has
led the overall market, a trend that was evident Tuesday. Microsoft, Intel,
Dell, and Cisco, among many others, all moved solidly higher, providing the
momentum for Tuesday's gains.
The Philadelphia Semiconductor index added 4.38%, and the Nasdaq
computer index jumped 4.44%.
Meanwhile, the Internet sector, which many analysts had started to question,
moved up sharply. The American Stock Exchange Internet index rose 4.11%.
Small-cap observers agree that the continued strong performance of larger
issues should help lift smaller companies. But before the sector gets attention,
a sell-off in larger stocks might be necessary.
"Small caps have a better earnings growth picture and are a better value, but
the big-cap stocks are still attracting a larger share of the money," said Mark
Minervini, chief investment strategist at Quantech Research. "But once the big
caps get so overdone, money managers are going to lighten up, and that
money is going to have to rotate into smaller stocks."
--Thomas Granahan |
