Reacting to Internet Frenzy, NASD Will Propose Rules to Decrease IPO Volatility

The National Assn. of Securities Dealers expects to propose rules aimed at curbing the volatility that has characterized recent initial public offerings of many Internet company stocks, Nasdaq President Alfred Berkeley said Monday.

The rules, which would need Securities and Exchange Commission approval, would seek to increase the visibility of the “true IPO market” before trading opens on a new stock, Berkeley said. One proposal would extend the period immediately before trading in which broker-dealers can set quotes at which they’re willing to buy and sell shares.

“We don’t think investors are well-served by herd behavior in which individual electronic orders run the price way up, then run it back down,” Berkeley said.

Several Internet-related IPOs have at least doubled in price recently during early trading, then fallen sharply in later trades on the Nasdaq Stock Market, which is run by the NASD. Some investors who placed “buy” orders shortly after trading opened encountered delays in having their orders executed--and lost money--as dealers tried to sort out the unusual investor demand for these stocks.

The NASD’s proposals would supplement recent actions taken by several retail brokerages to limit the types of orders they allow for IPOs. Ameritrade Holding Corp., for example, said it won’t accept pre-trading orders without a price limit, and Donaldson, Lufkin & Jenrette Inc.’s DLJ Direct has started prohibiting such orders for some volatile offerings.