Under the 49th: U.S. regulatory update

Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution. Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs. Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion […]

By Philip Porado | August 15, 2005 | Last updated on August 15, 2005

4 min read

Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.

Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.

Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Philip Porado

Share

Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.
The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.
The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

They’ve taken appropriate precautions to protect customer information;
They’re properly training employees on the use of available technology and the steps needed to ensure customer records and information are kept confidential; and
They need to conduct audits to detect potential systems vulnerabilities and ensure customer records are protected from unauthorized access.
NASD said policies must be geared toward those who have regular access to customer information. In addition to its data protection memo, NASD issued a second notice advising members perform due diligence on companies with whom they enter into outsourcing agreements. Many registered broker-dealers are not self-clearing and outsourcing provisions contained in NASD rules were primarily designed to allow them to contract clearing and related back-office services. Those arrangements didn’t concern NASD since their activities were overseen by state and federal securities regulators.

But over the past few years, firms have begun using non-regulated companies for some outsourced activities – such as data storage. NASD’s notice asserts the work product of those contractors has to be available to SRO examiners, as well as state and SEC inspectors, in the same way data produced in-house must be turned over upon request.

“The member has a continuing responsibility to oversee, supervise, and monitor the service provider’s performance of covered activities,” the notice says. “This requires the member to have in place specific policies and procedures that will monitor the service providers’ compliance with the terms of any agreements and assess [its] continued fitness and ability to perform the covered activities being outsourced.”

The self regulator reminded firms they are under no circumstances permitted to outsource activities requiring registration, except in cases where they contract services with another registered broker/dealer. Firms also aren’t permitted to outsource compliance or supervisory functions. This does not mean the firm can’t contract a compliance software company to develop in-house systems, but it does require the firm to ensure such systems are compatible with the dealer’s business model.

To read NASD’s notice on confidential information, please click here.

To read NASD’s notice on outsourcing, please click here.

Securities Exchange Commission

In the wake of several enforcement actions against firms that violated its Regulation M, which governs allocation of shares in initial public offerings (IPOs), the SEC issued guidance to remind firms which activities are prohibited during restricted periods. They include:

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Existing policies and procedures adequately address these technologies;
They’ve taken appropriate precautions to protect customer information;
They’re properly training employees on the use of available technology and the steps needed to ensure customer records and information are kept confidential; and
They need to conduct audits to detect potential systems vulnerabilities and ensure customer records are protected from unauthorized access.
NASD said policies must be geared toward those who have regular access to customer information. In addition to its data protection memo, NASD issued a second notice advising members perform due diligence on companies with whom they enter into outsourcing agreements. Many registered broker-dealers are not self-clearing and outsourcing provisions contained in NASD rules were primarily designed to allow them to contract clearing and related back-office services. Those arrangements didn’t concern NASD since their activities were overseen by state and federal securities regulators.

But over the past few years, firms have begun using non-regulated companies for some outsourced activities – such as data storage. NASD’s notice asserts the work product of those contractors has to be available to SRO examiners, as well as state and SEC inspectors, in the same way data produced in-house must be turned over upon request.

“The member has a continuing responsibility to oversee, supervise, and monitor the service provider’s performance of covered activities,” the notice says. “This requires the member to have in place specific policies and procedures that will monitor the service providers’ compliance with the terms of any agreements and assess [its] continued fitness and ability to perform the covered activities being outsourced.”

The self regulator reminded firms they are under no circumstances permitted to outsource activities requiring registration, except in cases where they contract services with another registered broker/dealer. Firms also aren’t permitted to outsource compliance or supervisory functions. This does not mean the firm can’t contract a compliance software company to develop in-house systems, but it does require the firm to ensure such systems are compatible with the dealer’s business model.

To read NASD’s notice on confidential information, please click here.

To read NASD’s notice on outsourcing, please click here.

Securities Exchange Commission

In the wake of several enforcement actions against firms that violated its Regulation M, which governs allocation of shares in initial public offerings (IPOs), the SEC issued guidance to remind firms which activities are prohibited during restricted periods. They include:

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Existing policies and procedures adequately address these technologies;
They’ve taken appropriate precautions to protect customer information;
They’re properly training employees on the use of available technology and the steps needed to ensure customer records and information are kept confidential; and
They need to conduct audits to detect potential systems vulnerabilities and ensure customer records are protected from unauthorized access.

NASD said policies must be geared toward those who have regular access to customer information. In addition to its data protection memo, NASD issued a second notice advising members perform due diligence on companies with whom they enter into outsourcing agreements. Many registered broker-dealers are not self-clearing and outsourcing provisions contained in NASD rules were primarily designed to allow them to contract clearing and related back-office services. Those arrangements didn’t concern NASD since their activities were overseen by state and federal securities regulators.

But over the past few years, firms have begun using non-regulated companies for some outsourced activities – such as data storage. NASD’s notice asserts the work product of those contractors has to be available to SRO examiners, as well as state and SEC inspectors, in the same way data produced in-house must be turned over upon request.

“The member has a continuing responsibility to oversee, supervise, and monitor the service provider’s performance of covered activities,” the notice says. “This requires the member to have in place specific policies and procedures that will monitor the service providers’ compliance with the terms of any agreements and assess [its] continued fitness and ability to perform the covered activities being outsourced.”

The self regulator reminded firms they are under no circumstances permitted to outsource activities requiring registration, except in cases where they contract services with another registered broker/dealer. Firms also aren’t permitted to outsource compliance or supervisory functions. This does not mean the firm can’t contract a compliance software company to develop in-house systems, but it does require the firm to ensure such systems are compatible with the dealer’s business model.

To read NASD’s notice on confidential information, please click here.

To read NASD’s notice on outsourcing, please click here.

Securities Exchange Commission

In the wake of several enforcement actions against firms that violated its Regulation M, which governs allocation of shares in initial public offerings (IPOs), the SEC issued guidance to remind firms which activities are prohibited during restricted periods. They include:

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Existing policies and procedures adequately address these technologies;
They’ve taken appropriate precautions to protect customer information;
They’re properly training employees on the use of available technology and the steps needed to ensure customer records and information are kept confidential; and
They need to conduct audits to detect potential systems vulnerabilities and ensure customer records are protected from unauthorized access.

NASD said policies must be geared toward those who have regular access to customer information. In addition to its data protection memo, NASD issued a second notice advising members perform due diligence on companies with whom they enter into outsourcing agreements. Many registered broker-dealers are not self-clearing and outsourcing provisions contained in NASD rules were primarily designed to allow them to contract clearing and related back-office services. Those arrangements didn’t concern NASD since their activities were overseen by state and federal securities regulators.

But over the past few years, firms have begun using non-regulated companies for some outsourced activities – such as data storage. NASD’s notice asserts the work product of those contractors has to be available to SRO examiners, as well as state and SEC inspectors, in the same way data produced in-house must be turned over upon request.

“The member has a continuing responsibility to oversee, supervise, and monitor the service provider’s performance of covered activities,” the notice says. “This requires the member to have in place specific policies and procedures that will monitor the service providers’ compliance with the terms of any agreements and assess [its] continued fitness and ability to perform the covered activities being outsourced.”

The self regulator reminded firms they are under no circumstances permitted to outsource activities requiring registration, except in cases where they contract services with another registered broker/dealer. Firms also aren’t permitted to outsource compliance or supervisory functions. This does not mean the firm can’t contract a compliance software company to develop in-house systems, but it does require the firm to ensure such systems are compatible with the dealer’s business model.

To read NASD’s notice on confidential information, please click here.

To read NASD’s notice on outsourcing, please click here.

Securities Exchange Commission

In the wake of several enforcement actions against firms that violated its Regulation M, which governs allocation of shares in initial public offerings (IPOs), the SEC issued guidance to remind firms which activities are prohibited during restricted periods. They include:

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

(August 15, 2005) Expansion of electronic communications has created new challenges for investment advisors and broker/dealers looking to ensure client information doesn’t leak to people intent on identity theft.

In a recent notice to members, the National Association of Securities Dealers (NASD) reminded its members of their duty to safeguard client data. Of particular concern, it says, is a trend toward telecommuting and the use of the wireless Internet (WiFi) and remote access technologies that let registered persons get work done while traveling. NASD has asked firms to consider whether:

Existing policies and procedures adequately address these technologies;
They’ve taken appropriate precautions to protect customer information;
They’re properly training employees on the use of available technology and the steps needed to ensure customer records and information are kept confidential; and
They need to conduct audits to detect potential systems vulnerabilities and ensure customer records are protected from unauthorized access.

NASD said policies must be geared toward those who have regular access to customer information. In addition to its data protection memo, NASD issued a second notice advising members perform due diligence on companies with whom they enter into outsourcing agreements. Many registered broker-dealers are not self-clearing and outsourcing provisions contained in NASD rules were primarily designed to allow them to contract clearing and related back-office services. Those arrangements didn’t concern NASD since their activities were overseen by state and federal securities regulators.

But over the past few years, firms have begun using non-regulated companies for some outsourced activities – such as data storage. NASD’s notice asserts the work product of those contractors has to be available to SRO examiners, as well as state and SEC inspectors, in the same way data produced in-house must be turned over upon request.

“The member has a continuing responsibility to oversee, supervise, and monitor the service provider’s performance of covered activities,” the notice says. “This requires the member to have in place specific policies and procedures that will monitor the service providers’ compliance with the terms of any agreements and assess [its] continued fitness and ability to perform the covered activities being outsourced.”

The self regulator reminded firms they are under no circumstances permitted to outsource activities requiring registration, except in cases where they contract services with another registered broker/dealer. Firms also aren’t permitted to outsource compliance or supervisory functions. This does not mean the firm can’t contract a compliance software company to develop in-house systems, but it does require the firm to ensure such systems are compatible with the dealer’s business model.

To read NASD’s notice on confidential information, please click here.

To read NASD’s notice on outsourcing, please click here.

Securities Exchange Commission

In the wake of several enforcement actions against firms that violated its Regulation M, which governs allocation of shares in initial public offerings (IPOs), the SEC issued guidance to remind firms which activities are prohibited during restricted periods. They include:

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

(August 15, 2005) Expansion of electronic communications has created new challenges for investment advisors and broker/dealers looking to ensure client information doesn’t leak to people intent on identity theft.

In a recent notice to members, the National Association of Securities Dealers (NASD) reminded its members of their duty to safeguard client data. Of particular concern, it says, is a trend toward telecommuting and the use of the wireless Internet (WiFi) and remote access technologies that let registered persons get work done while traveling. NASD has asked firms to consider whether:

Existing policies and procedures adequately address these technologies;
They’ve taken appropriate precautions to protect customer information;
They’re properly training employees on the use of available technology and the steps needed to ensure customer records and information are kept confidential; and
They need to conduct audits to detect potential systems vulnerabilities and ensure customer records are protected from unauthorized access.

NASD said policies must be geared toward those who have regular access to customer information. In addition to its data protection memo, NASD issued a second notice advising members perform due diligence on companies with whom they enter into outsourcing agreements. Many registered broker-dealers are not self-clearing and outsourcing provisions contained in NASD rules were primarily designed to allow them to contract clearing and related back-office services. Those arrangements didn’t concern NASD since their activities were overseen by state and federal securities regulators.

But over the past few years, firms have begun using non-regulated companies for some outsourced activities – such as data storage. NASD’s notice asserts the work product of those contractors has to be available to SRO examiners, as well as state and SEC inspectors, in the same way data produced in-house must be turned over upon request.

“The member has a continuing responsibility to oversee, supervise, and monitor the service provider’s performance of covered activities,” the notice says. “This requires the member to have in place specific policies and procedures that will monitor the service providers’ compliance with the terms of any agreements and assess [its] continued fitness and ability to perform the covered activities being outsourced.”

The self regulator reminded firms they are under no circumstances permitted to outsource activities requiring registration, except in cases where they contract services with another registered broker/dealer. Firms also aren’t permitted to outsource compliance or supervisory functions. This does not mean the firm can’t contract a compliance software company to develop in-house systems, but it does require the firm to ensure such systems are compatible with the dealer’s business model.

To read NASD’s notice on confidential information, please click here.

To read NASD’s notice on outsourcing, please click here.

Securities Exchange Commission

In the wake of several enforcement actions against firms that violated its Regulation M, which governs allocation of shares in initial public offerings (IPOs), the SEC issued guidance to remind firms which activities are prohibited during restricted periods. They include:

Tie-in agreements that promise aftermarket bids or purchases of IPO shares made prior to the completion of the distribution.
Telling customers that expressing interest in buying shares in the immediate aftermarket will help them obtain allocations of hot IPOs.
Asking customers whether they want aftermarket shares, and at what price, prior to the completion of the IPO distribution.
Proposing an aftermarket price when customers express interest, and accepting or seeking expressions of interest to purchase specific numbers of shares in the aftermarket that are pegged to the allocation amount, without any reference to a fixed total position size.
Soliciting aftermarket orders before all IPO shares are distributed or rewarding customers for aftermarket orders by allocating additional IPO shares.

The SEC last warned firms about Regulation M breaches during the summer of 2000. Since then, notes a Washington, DC-based securities attorney, concerns over the matter died down alongside the precipitous drop in new IPOs. With recent increased health in US capital markets, he says, problems have resurfaced.

To read the SEC’s Regulation M guidance, please click here.

After taking more than a year to consider industry comments, the SEC approved amendments to its penny stock regulations. Among other things the rule establishes criteria under which equities will be excluded from the penny stock classification. They include:

Being listed on a national securities exchange, provided the exchange has been registered prior to April 20, 1992 and maintained listing standards substantially similar to, or stricter than, those in place on January 8, 2004.
Situations in which a national securities exchange or a junior tier of the exchange, or an automated quotation system, has established initial listing standards that meet or exceed the SEC’s criteria and are consistent with maintenance of fair and orderly markets.

To read the SEC’s new penny stock rules, please click here.

Filed by Philip Porado, Advisor’s Edgephilip.porado@advisor.rogers.com

(08/15/05)

Industry

FAIR Canada applauds Saskatchewan’s OBSI bill

"Landmark" legislation is significant step forward in protecting investors, organization says

By James Langton |May 28, 2024

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