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February 1, 1999

Ah, the IPO Voila-tility!

By Stephen Lacey

Also in this article

The proliferation of online trading provides retail investors with an unprecedented level of access to initial public offerings.

The bad news, market analysts say, is that the same access has contributed to the recent volatility of Internet companies going public on Nasdaq.

Reacting to complaints of disorderly IPO trading in general, and volatility in particular, the National Association of Securities Dealers has prescribed measures to help ease the chaos.

Will the measures, and others possibly in the pipeline, work?

Some discount brokers, who have seen retail IPO orders grow dramatically on their online trading services, are not waiting to find out. Instead, they have taken their own steps, restricting access by online investors to some Internet IPOs.

"The landscape has changed and our responsibility is to help our customers understand the nature of trading in fast-moving market conditions," said Dan Hubbard, a spokesman for San Francisco-based Charles Schwab & Co., which imposed a first-day moratorium for online trading of some IPOs.

Since the beginning of December, Charles Schwab has placed restrictions on the trading of more than a dozen IPOs, requiring customers to call in their orders rather than execute trades online.

The nation's largest discount brokerage implemented the policy in an effort to educate customers about the potential for extreme volatility in new IPOs.

In addition, it has advised customers how to use limit orders to reduce their exposure to volatile markets. "It's fine to drive these stocks, just wear a seat belt," Hubbard quipped.

Other discount brokerages, such as Ameritrade Holdings, DLJ Direct and National Discount Brokers, reportedly have similar restrictions in place.

Nowhere has the reemergence of the retail investor as a powerful constituency on Wall Street been more evident than in the large volume of retail orders being executed for Internet stocks. And these same orders, experts say, are pushing up prices to stratospheric levels in early IPO trading. The buzz is that investors are in love with Internet IPOs and lust for more of ""

Some Examples

What started with a Donaldson, Lufkin & Jenrette price target of $100 for a newly-minted eBay (Nasdaq:EBAY) in October, and a December CIBC Oppenheimer $400 bogey for a now venerable (Nasdaq:AMZN), has spread like wildfire.

Paced by new offerings from EarthWeb (Nasdaq:EWBX), (Nasdaq: TGLO), Computer Literacy (Nasdaq: CMPL), Ticketmaster Online-CitySearch (Nasdaq:TMCS) and uBID (Nasdaq:UBID), some ten Internet-related offerings hit the market since the beginning of November.

Among the most recent: Market, a San Francisco-based provider of financial news, which had a mid-January offering of $17 a share, and rose in early trading to $130, finally settling on its debut at $97 1/2 at the market close.

As a result of the tremendous initial demand for Internet stocks, many issues like have skyrocketed to tremendous first-day openings only to erode in value later.

For example, on November 12, priced 3.1 million shares at $14 each. The stock opened trading in the aftermarket at $87, and quickly climbed to as high as $97 before retreating to close its inaugural session at $48 11/16 on a volume of 15.66 million shares.

At a recent price of $32 11/16, now trades at about one-third of its first-day high.