Voluntary Initiative Regarding Allocations of Securities in "Hot" Initial Public Offerings to Corporate Executives and Directors
Each Participating Firm is committed to restoring investor confidence in the IPO allocation process. Accordingly, each Participating Firm (which, for purposes of this Voluntary Initiative, includes the Participating Firm's U.S. broker-dealer affiliates) represents and promises to the Securities and Exchange Commission, the NASD, the New York Stock Exchange, the Office of the New York Attorney General, and the North American Securities Administrators Association, that it will establish, implement and maintain policies and procedures reasonably designed to ensure that:
1. The Participating Firm will not allocate securities in a "hot" IPO to an account of an executive officer or director of a U.S. public company or a public company for which a U.S. market is the principal equity trading market.
a) An "IPO" is the initial public offering of an issuer's equity securities, which offering is registered under the Securities Act of 1933 and as a result of which the issuer becomes a "public company" as defined below.
c) A "public company" is any company that is registered under Section 12 of the Securities Exchange Act of 1934 or files periodic reports pursuant to Section 15(d) thereof.
d) A company's "principal equity trading market" is a U.S. market if, in the second preceding quarter, more than 50% of worldwide trading in the company's common stock and equivalents (such as ordinary shares or common stock or ordinary shares represented by American Depositary Receipts) takes place in the U.S. Trading volume, for these purposes, shall be measured by publicly reported share volume.
e) In determining whether someone is an executive officer or director of a particular company, the Participating Firm may use any reasonable means or combination of reasonable means, which may include, among other things, such company's most recent proxy statement filed with the Securities and Exchange Commission (or, for a company that has not filed a proxy statement, such company's most recent annual report filed with the Commission), third-party information or data services that list executive officers and directors of public companies, and/or representations made by account holders.
f) An "account of an executive officer or director" is any brokerage account in the name of the executive officer or director, and any brokerage account beneficially owned in whole or principal part by the executive or director or by his or her "immediate family members."
g) A person's "immediate family members" are the person's spouse or minor child having the same last name or living at the same address as such person.
2. In connection with any IPO transaction in which the Participating Firm is seeking to become the lead or co-lead managing underwriter, the Participating Firm will take reasonable steps, prior to the award of the formal mandate, to notify the company in writing (through the company's chief legal officer or, if there is no chief legal officer, through the chief executive officer, chief financial officer or chief operating officer) that the Participating Firm may have allocated hot IPOs to the company's executive officers and directors and/or their immediate family members, and that the company's board of directors may wish to obtain information from such executive officers or directors concerning such allocations in connection with its consideration of the Participating Firm as an underwriter.
3. The Participating Firm will not allocate securities in an IPO in exchange for or for the purpose of obtaining investment banking business.
4. The Participating Firm will not permit investment banking personnel (which, for these purposes, shall not include members of the Participating Firm's equity capital markets group or any employee of the issuer or its affiliates) to have input into the Participating Firm's allocation of securities in an IPO to a brokerage account in the name of, or beneficially owned in whole or principal part by, a specific individual (i.e., non-institutional) customer or limited number of specific individual (i.e., non-institutional) customers; provided, however, that the foregoing will not prevent investment banking personnel from (i) conveying allocation requests made in writing by the issuer or other sellers, or (ii) participating in discussions with the issuer or its affiliates, other sellers or other Participating Firm personnel regarding the general plan of distribution (e.g., the percentage of an offering that should be given to retail vs. institutional customers, geographical allocation of a global offering, etc.).
5. This Voluntary Initiative does not apply to allocations of securities that are directed, in writing, by the issuer or its affiliates, selling shareholders or a separately organized investment adviser (including, for these purposes, a separately identifiable department or division that is (a) principally engaged in the provision of investment advice as governed by the Investment Advisers Act of 1940, and (b) is not subject to affiliate restrictions pursuant to Rule 100(b)(3) of Regulation M under the Securities Exchange Act of 1934); provided, however, that with respect to this and the other Items of this Voluntary Initiative, the Participating Firm will not knowingly do indirectly what it has agreed not to do directly.
6. This Voluntary Initiative shall be effective six months from the date hereof, and shall expire at the earlier of (i) five years from such effective date; or (ii) the effective date of any rule that would place restrictions on the ability of investment banking firms to allocate securities in "hot" IPOs to executive officers and directors of public companies.