Public Distribution of IPO Shares

October 21, 1996 SEC-BED * MEMORANDUM CIRCULAR NO. 05-96 TO : Stock Brokers and Dealers Investment Houses Philippine Stock Exchange SUBJECT : Public Distribution of I P O Shares The Commission continues to receive complaints from brokers, underwriters and individual investors regarding the present system for the distribution of initial public offering (IPO) shares. As the Commission has stated previously all IPO shares must be widely distributed to the investing public. In order to reiterate this policy and to address the concerns raised by market participants, the Commission is today issuing this Memo circular to set forth certain guidelines to be followed in the distribution of IPO shares. The Commission believes that the distribution of IPO shares in the primary responsibility of underwriters. As a result, neither the Philippine Stock Exchange nor its members may impose requirements on underwriters or issuers which qualify, restrict or otherwise impact on the distribution process. In keeping with the Commission's policy that all IPO shares be widely distributed to the investing public, the following requirements must be met in all future IPO distributions: Brokers may request shares on behalf of their customers directly from the underwriter of the IPO. In the case of a "hot" issue (defined as an issue which trades at a premium above its public offering price in the immediate after market which can be the "grey market", the OTC market and/or the PSE), the broker must set all of the shares requested from the underwriter to its customers and may not purchase any of the shares for its own proprietary accounts. In the case of a "cold" issue (defined as an issue which trades at or below its public offering price in the immediate aftermarket), the broker may not return unsold shares to the underwriter but must purchase the shares for its own proprietary accounts. The Commission believes that the Philippine Stock Exchange, its member-brokers and the underwriter-members of the Investment House Association can work together to develop a scheme for the distribution of IPO shares which adheres to the above requirements while at the same time ensures the widest possible distribution of IPO shares to the investing public. In developing such scheme, the Commission expects the affected market participants to recognize the advantages of continuing to involve as many brokers as possible, both large and small, in the distribution of IPOs. With the adoption of this Memorandum Circular, the Commission hereby rescinds SEC-BED Memorandum Circular No. 3, Series of 1996, entitled "Public Distribution of IPO Shares" dated April 25, 1996. LibLex (SGD.) PERFECTO Y. YASAY, JR. Chairman