SEC Scales Back ‘Manipulation’ Rules Related to Stock Offerings

The Securities and Exchange Commission is scaling back 40-year-old rules aimed at preventing manipulation of securities offerings, a move long sought by Wall Street.

The changes adopted Wednesday exempt people involved in public offerings of big, actively traded stocks from several anti-manipulation rules. About 1,900 U.S. stocks and several foreign issues fall under the category.

The rules are meant to prevent traders from artificially inflating a company’s stock price before the offering, thus making extra money.

But since it has become harder to corner the market in a big stock such as IBM or AT&T; without arousing suspicion from analysts or other investors, the SEC felt it could narrow its focus to smaller stocks.

“Essentially, we’ve been requiring all offering participants to wear the same suit for the past 40 years,” SEC Chairman Arthur Levitt said. “Because this one-size-fits-all uniform is too restrictive for some, for years we have been coping by letting out seams and sewing on patches.”

For stocks that remain subject to the anti-manipulation rules, the SEC will shorten the period during which participants in an offering are barred from trading in that stock.

In addition, Nasdaq market makers will be able to trade in stocks even when their firm is involved in the offering, so long as they don’t direct the trading.

The streamlined rules were praised by the Securities Industry Assn., Wall Street’s biggest trade organization.

“This will strengthen liquidity by making it possible for market makers to stay in the market in circumstances where today they might have to withdraw,” SIA lead attorney Stuart Kaswell said.

The rule changes will take effect in just over two months.