SEC OKs Rule to Quell Volatility of Some IPOs

The U.S. Securities and Exchange Commission approved a rule Monday that gives broker-dealers as long as 30 minutes to set quotes on initial public offerings before Nasdaq Stock Market trading begins.

The rule, which becomes effective on Nasdaq today, seeks to quell the volatility of some IPOs by making the prices more reflective of market supply and demand. It extends the current five-minute period before trading.

“Nasdaq continues to explore longer-term options to address the issue of the volatility of Internet stocks,” said Nasdaq Senior Vice President William Broka.

The National Assn. of Securities Dealers, which runs Nasdaq, proposed the rule last month after six Internet company IPOs at least doubled in price during early trading and then fell in later trades.

Shares of Theglobe.com, for example, soared from an initial offering price of $9 to as much as $97 when they debuted Nov. 13, before dropping to $63.50 by the end of the first day of trading. Monday, they fell 81 cents to close at $41.

Under the new rules, Nasdaq will monitor quotes for 15 minutes before trading begins to determine whether an additional 15-minute quote period is necessary, NASD said. Nasdaq’s decision will be based on the extent to which the markets are “locked” or “crossed,” so that buying prices are as high as or higher than the best selling prices, the association said.

At the end of the 30-minute period, trading in the IPO will automatically begin.