The Securities and Exchange Commission published proposed amendments to NASD Rule 2790 to expand the exemption on offering IPO securities to restricted persons at the direction of the issuer. One of the proposals exempts IPOs sold entirely on a non-underwritten basis, where no broker-dealer solicits or sells any new issue securities in the offering, and where no broker-dealer has any involvement or influence, directly or indirectly, in the issuer’s allocation decisions with respect to any of the new issue securities in the offering. The other proposal will prohibit the allocation of issuer-directed securities to broker-dealers.

Generally, NASD Rule 2790 seeks to ensure that in the initial public offering process: (i) member firms make bona fide public offerings of securities at the offering price; (ii) member firms do not withhold securities in an initial public offering for their own benefit or use such securities to reward persons who are in a position to direct future business to member firms; and (iii) industry insiders, including member firms and their associated persons, do not take advantage of their insider position to purchase new issues for their own benefit at the expense of public customers.