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New Hot Issues Rules
The Securities
and Exchange Commission (the "SEC") has approved certain
changes to the Free-Riding and Withholding Interpretation (the
"Interpretation") Rules of the National Association
of Securities Dealers, Inc. (the "NASD"). This new
Interpretation addresses the ability of NASD members to participate
in bona-fide public distributions of "hot issue" securities.
"Hot issue" securities are defined as securities of
a public offering which trade at a premium in the secondary market
whenever such trading commences. The purpose of the Interpretation
is to protect the integrity of the public offering system by
ensuring that NASD members involved in the distribution of hot
issue securities do not withhold any securities for the benefit
of themselves or persons who are in a position to direct business
to such NASD members.
It is essential that U. S. based
and non-U.S. based funds and investment vehicles be aware of
these rules so that the fund managers can identify fund investors
who might be subject to the hot issue rules and take appropriate
action such as correct allocations of hot issue profit.
Modifications approved by the SEC,
now allow NASD members to participate in distributions of hot
issue securities pursuant to stand-by arrangements. This modification
to the Interpretation enables NASD members, acting in a stand-by
capacity, to acquire hot-issue securities not purchased during
the initial offering, thereby aiding in the successful completion
of the initial offering without depriving the public of a chance
to participate. The modified Interpretation requires that a stand-by
arrangement must (i) be disclosed in the prospectus relating
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To Our Clients and Friends
This month we feature new guidelines
issued by the NASD and recently approved by the SEC regarding
"Hot Issues." This is a subject which we think will
be receiving increasing attention over the next few months as
the pace at which funds are created and IPO activity increases.
We see IPO use becoming part of a fund's investment strategy
to enhance performance. Profit allocation concepts in use for
some time have been codified by the new rules.
Attention is also focused on the
Cayman Islands' legislative development of the limited duration
company and the limited life company. The Caymans continue to
keep pace with similar changes in the U. S. as many states have
introduced LLC statutes. In this regard, our tax group calls
readers' attention to a new Revenue Procedure dealing with the
tax status of the LLC.
Lastly, the subject of punitive
damages under standard broker agreements is noted and the Mastrobuono
case is descried.
We hope you enjoy this issue of
GlobalNote. Please call me if you would like further information
Sincerely,
Michael G. Tannenbaum
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