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Securities and Exchange Commission Chairman Arthur Levitt took the securities industry to task last Thursday, vowing to impose new rules if the industry refuses to reform its practices. Levitt threatened action if companies continue to give stock options to executives without shareholders’ approval and if companies don’t give more disclosure surrounding the allocation of IPO shares. “If the markets do not act in short order, the Commission should,” Levitt said, according to prepared remarks delivered at the Securities Industry Association’s annual meeting in Boca Raton, Fla. “Shareholder approval is not required to adopt certain stock option plans that permit grants to officers and directors, as long as those plans also include other employees,” Levitt said. “I am deeply concerned by reports of companies making increasing use of this exception to sidestep shareholder approval.” According to Levitt, the New York Stock Exchange is already considering requiring shareholder approval for all plans that grant options or award stock to officers and directors and has agreed to “push hard” for the change if Nasdaq follows suit. “I am greatly disappointed, however, that up to now, Nasdaq has been unwilling to make the same commitment,” Levitt said. “Let me assure you that the Commission will not stand idle if this important shareholder protection is not soon forthcoming.” Levitt also promised enforcement action for egregious cases of unfair IPO allocation. “It’s no secret that the driving force behind allocation of today’s hot IPOs is the weight of the brokerage relationship,” Levitt said. “Those clients that direct the most brokerage business to investment banks are more likely to be rewarded when it comes time to divvy up an IPO.” Shares that are awarded to the advisor based on the brokerage relationship at large are being given to the adviser’s favored accounts, Levitt charged. “In other words, a bonus earned by one client is being awarded without his knowledge to another,” he said. Copyright (c)2000 TDD, LLC. All rights reserved.

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