Individual investors should be freed from a longstanding brokerage-industry practice that effectively forces them to hold shares of initial public offerings as long as three months, said Isaac Hunt, commissioner of the Securities and Exchange Commission. The system with which securities firms and brokers wield threats and penalties to discourage retail investors from "flipping," or selling their IPO shares for 30 to 90 days, is flawed and raises antitrust issues, Hunt said in a telephone interview last week. Hunt said he is considering bringing the issue before the agency and its staff in coming months, so other SEC officials may begin to weigh in. Critics contend that restricting individuals' ability to trade out of IPO shares gives institutional investors an unfair opportunity to profit from the dramatic ascents of new offerings in their first few trading days. Brokerage firms argue the restrictions create a less volatile market. John Coffee, a law professor and financial markets expert at the Columbia University Law School, however, says criticism of the retail-flipping restrictions will have to heighten before the SEC or Congress takes action to change the practice. "The pressure would have to get hotter," he says.
|Missing the Exits |
By the time most individual investors can sell IPO shares without penalty, their chance to take big profits has passed