SEC Proposal Is An Important Step to Protecting Investors During Securities Offerings

Washington, DC, February 16, 2005 - The Institute supports proposed amendments to Regulation M under the Securities Exchange Act of 1934 relating to anti-manipulation rules concerning the offering of securities, stating that the proposal is an important step in protecting investors from abuses in connection with securities offerings, particularly those made in initial public offerings (IPOs).

Background
Regulation M governs the activities of underwriters, issuers, selling security holders, and others in connection with offerings of securities. The proposed amendments are intended to prohibit certain activities by underwriters and other distribution participants that can undermine the integrity and fairness of the offering process, particularly with respect to allocations of offered securities. The proposal also seeks to enhance the transparency of syndicate covering bids, which may affect the aftermarket price and trading of an offered security, and prohibit the use of penalty bids.

ICI Position
The Institute, in a recent comment letter, strongly supports the goals of the proposal - promoting integrity, fairness, and transparency in the securities offering process - and states that the proposal would provide investors with greater confidence when purchasing securities. However, ICI states that the proposed amendment to Regulation M that would prohibit "penalty bids" would adversely impact the IPOs of closed-end funds.

ICI notes that penalty bids are widely used by closed-end funds as a means to stabilize the market price of closed-end fund shares, making the use of penalty bids critical to the efficient public offering of such funds. For this reason, the Institute recommends that the SEC continue to permit closed-end funds to use penalty bids, either by adopting an approach similar to that proposed by the NYSE and NASD that would permit the use of penalty bids for all issuers, or by creating a narrow exception for closed-end funds from a general prohibition.

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