Chairman Pitt Seeks Review of Initial Public Offering Process


Washington, D.C., August 22, 2002 -- As part of an ongoing effort to bolster investor confidence, Chairman Harvey L. Pitt of the Securities and Exchange Commission has asked the National Association of Securities Dealers and the New York Stock Exchange to review the initial public offering (IPO) process, including IPO allocation practices and the roles of issuers and underwriters in the price setting and offering process.

Chairman Pitt's letter to these self-regulatory organizations notes:

"[In the 1990s], hot IPOs were heavily oversubscribed, and many investors were frustrated in their attempts to participate in the IPOs. Participation in these IPOs became immensely valuable for both underwriters and customers, inducing aggressive conduct to gain this business. As a result, serious questions arose about the price setting process and the allocation practices of the underwriters of some of these offerings. For example, to obtain IPO allocations, some investors paid excessive commissions, or may have been induced to purchase shares in the aftermarket, distorting the market for these securities. In other cases, hot IPO shares may have been allocated to individuals for the purpose of obtaining investment banking business."

The Chairman also noted that the Commission and the SROs continue to investigate possible violations of existing rules and commended the SROs for considering additional rulemaking. He also asked the SROs to undertake a broader review of the IPO process to determine if the additional rulemaking being contemplated will be sufficient to strengthen the integrity of the offering process and to better protect investors.

Pitt specifically requested that the NASD and NYSE jointly convene a high-level group of business and academic leaders to conduct this broader review, and suggested that this committee should consist of distinguished representatives of issuers, underwriters, investors, academics and other market participants.

Last modified: 8/22/2002