Brokers to Get Slapped for Investor ‘Flipping’

UBS PaineWebber said it will penalize brokers when individual clients sell newly issued stock too quickly, a move that some analysts called a bid by the fourth-biggest brokerage to win more investment banking business.

If their client sells the shares within 40 trading days, UBS PaineWebber’s 8,900 brokers will not only lose the commission on the purchase--standard industry practice--they will be fined by the firm an amount equal to the lost payment, spokesman Paul Marrone said.

The policy, disclosed to brokers this week, reflects a clash between the interests of individual investors and corporate clients. Some investors seek to sell new shares soon after they are sold because stocks often climb shortly after they are sold. Companies don’t like the practice, known as “flipping,” as it can depress the shares.

UBS PaineWebber’s Marrone declined to comment on why the firm decided to enact the policy now.

Companies selling stock sometimes hire investment banks with large bases of individual clients to buy and hold their stock.

The new policy gives brokers more incentive to know their clients better and understand their trading habits, said Michael Holland, chairman of money management firm Holland & Co.

“It’s probably a good marketing device for the investment bankers in a very competitive business,” Holland said. “This policy has some teeth to it.”