Magazine article American Banker

Stock Purchase Plans to Get Tighter Rules

Magazine article American Banker

Stock Purchase Plans to Get Tighter Rules

Article excerpt

The Securities and Exchange Commission is set to increase disclosure requirements on dividend reinvestment programs, lawyers familiar with the agency's plans said.

The SEC, which declined to comment, is not seeking to stop the practice, which has helped banks raise hundreds of millions of dollars in capital, the lawyers said.

Instead, it is seeking more information about the role of investment banks in the programs.

Under these programs, investment banks purchase common stock from banks and other corporations and resell it to investors. Bear, Stearns & Co. and Kidder, Peabody & Co. are the big players.

Information Lacking

As currently set up, registration statements under the program include little or no information on the investment banks' role.

Banks that have raised large amounts of common equity this way include First Interstate Bancorp, which raised $458 million last year; Chase Manhattan Corp., which raised $259 million; and Wells Fargo & Co., which raised $160 million in the last half of the year.

Until the new requirements come out, the commission has stopped large-scale sales of stock to investment banks under the dividend programs.

The programs allow stockholders to buy additional shares at a discount directly from the company, either through reinvestment of dividends or with cash.

They were originally seen as a way to allow long-term investors to add to their stock holdings without having to pay commissions to brokers.

But investment banks in recent years have bought huge blocks of stock in corporations with the aim of becoming eligible for the dividend programs.

They then set up complex arbitrage trades, including covering their own short-selling positions. This has at times increased volatility in the stocks of companies with dividend programs. …

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