Brokerage Shifts IPO Stabilization Plan

UBS PaineWebber is dropping a new policy that called for fining brokers who buy shares of new stocks and quickly sell them.

Instead, the nation’s fourth-largest brokerage firm will reward brokers with records for selling shares of initial public stock offerings--or IPOs--to longer-term investors, according to a company source who spoke on condition of anonymity. The reward will consist of rights to greater number of those shares, the source said Thursday.

UBS PaineWebber, like some other brokerages, has been seeking ways to stabilize the market for IPOs. During the tech-inspired bull market of the late ‘90s, IPOs often would soar soon after being issued and then would be sold by investors seeking quick profits.

Companies issuing the shares complained that the practice, called “flipping,” made it difficult to determine the share’s real value and scared away long-term investors. UBS PaineWebber in July decided to punish brokers who engaged in the practice by revoking their commissions and fining them an amount equal to that commission.

The Wall Street Journal said Thursday that the fines were to have begun Wednesday. The company source said no fines will be imposed.

The company would not comment. Brokers said the policy was too harsh and would require them to set aside their clients’ interests.

The North American Securities Administrators Assn. also contended that the fines posed a conflict of interest for brokers.

“When you have a stock broker who may lose a commission versus a client who perhaps has decided he wants to sell, the broker is put in a dilemma. If he executes the trade, he may lose the commission and be penalized, but, on the other hand, he has a duty to his client,” said Joseph P. Borg, NASAA’s president and director of the Alabama Securities Commission.