Abstract:
In this paper we will discuss about the corrections made by the Securities and Exchange Commission (SEC) of US in 2004. The aim of that amendment is to prohibit some negative activities which were disturbing the process of IPO offering.
In 2004, the Securities and Exchange Commission offered some proposals to the US government to improve the Regulation M so that the allocation of IPOs could be managed in a proper way. Several market activities were there in the US market which had been humiliating the fairness and integrity of the IPO offering process for some time. By correcting some ares in the Regulation M the SEC would be able to keep track of the underwriters' activities.
Regulation M:
- The Regulation M had been espoused in 1996 and it administers the underwriters' activities. Moreover, it governs the activities of the security holders as well as issuers.
- Its duty is to annul those market activities which can influence IPO pricing negatively.
Corrections Proposed:
- The SEC wanted to increase the restricted period for the initial public offers. At that time the restricted period was 5 days.
- The SEC did not want to use the penalty bids. It occurs when any underwriter gets back a selling concession from a member of the syndicate if the initial buyer immediately sells the offering security.
- The Securities and Exchange Commission opted for syndicate covering bids to indicate that the underwriters are purchasing shares to cover their short position.
- The commission wanted to update the value of Average Daily Trading Volume (ADTV) as well as the thresholds of public float value.