Washington -- In an effort to prevent a replay of the initial public offering practices used by Wall Street during the tech boom before the bubble burst, the Securities and Exchange Commission has proposed a stringent set of rules to stop underwriters from artificially pumping up share demand during initial public offerings.
In a unanimous 5-0 vote, the SEC commissioners have put out for comment a proposal that would ban strategies such as "laddering," where IPO investors agree to purchase additional shares at a later time in order to maintain a higher share price following the offering.
The SEC proposal also seeks to restrict underwriters from demanding higher commissions from investors who want to get into a much sought-after or "hot" IPO.
"The price of an offering and the aftermarket trading price should be determined by investor demand and should be free from manipulative influence or misconduct on the part of those who brought the offering to market and stand to profit the most from the transaction," SEC Chairman William Donaldson said in a statement.
Brokerage firms Credit Suisse First Boston and the now-defunct Robertson Stephens each had settled laddering cases with the SEC.
