The NASD’s board is proposing new rules governing the initial allocations of securities.

The proposed rules will prohibit the allocation of IPO shares in exchange for excessive compensation relative to the service provided by the underwriter. They will prohibit
“laddering” which is the solicitation of after-market orders for the allocation of IPO shares. The rules will also prohibit “spinning” which is allocating IPO shares to an
executive officer of a company on the condition that they send the company’s investment banking business to the brokerage firm.

These new rules are the result of a NASD review of current industry practices. “These proposed rules will clearly identify unacceptable conduct associated with IPO allocation and distribution,” says Robert Glauber, chairman and CEO of NASD.

“IPO shares cannot be allocated in a manner that puts an investment bank’s interests above those of its customers. It is critical that investors have confidence in the integrity of the IPO process.”

The proposed rules will be made available for public comment prior to being submitted to the SEC for approval.