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Underwriter Conflicts of Interest 
NASD Rule 2720
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 Rule
text
Restricts
NASD members from participating in a distribution of:
- Securities issued by an affiliate
- Securities issued by any other issuer,
if NASD member or any of its affiliates has a conflict of interest
NASD
member may still participate if:
- Majority of its Board has been actively engaged in
investment banking or securities business for prior five years, and
- Offering price is no higher than the
price recommended by a
"qualified independent underwriter" included in the process
- "QIU" defined by
Rule 2720(b)(15)
- "QIU" is usually included in
the syndicate, though not required to be
NASD exemption requests
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Precedent
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 Ryan
Beck 2006
- Under "Underwriting" at page 80
- Due to broker-dealer subsidiary acting as
co-managerr
- JP Morgan is acting as a "QUI"
Cowen
Group 2006
- Under "Other Relationships" at page 139
- Due to broker-dealer subsidiary acting as lead
manager
- Merrill Lynch is acting as a "QUI"
NYSE
Group 2006
- Under "Relationships" at page 208
- Due to underwriters owning 18.3% of NYSE Group
- JP Morgan is acting as a "QUI"
MasterCard
2006
SEC_CODE_REF_0090001192884
- Under "Underwriting" at page 156
- Due to underwriters receiving proceeds from
redemption of their Class B stock
- Goldman Sachs is acting as a "QUI"
- Also see Risk Factors
at page 29
Medical
Properties Trust 2005
Nexstar
Broadcasting 2003
- IPO prospectus
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Underwriting agreement
- Conflict was due to an underwriter
affiliate receiving more than 10% of the net proceeds of the offering
- Provides for Lehman Brothers to act as a
"QUI"
SIRVA
2003
-
IPO prospectus
-
Underwriting agreement
- Conflict is due to an underwriter
affiliate receiving more than 10% of the net proceeds of the offering
- Provides for Goldman Sachs to act as a "QUI"
NPTest
Holding 2003
- IPO S-1/A
- Underwriting agreement
- Citigroup affiliate is a lender under
issuer's credit facility
- Provides for Banc of America Securities
to act as "Independent Underwriter"
Schering-Plough
2003
- Prospectus supplement
- Senior notes
- "QUI" not necessary per NASD Rule
2710(c)(8)
as the notes being sold are investment grade
- Issue arose over underwriter affiliates
holding issuer commercial paper
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Related Topics
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