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UBS PaineWebber to penalize brokers for rushed sell-offs

UBS PaineWebber said it will penalize brokers when individual clients sell newly issued stock too quickly, a move that some analysts called a bid by the fourth-biggest brokerage to win more investment-banking business.

If their client sells the shares within 40 trading days, UBS PaineWebber's 8,900 brokers will not only lose the commission on the purchase -- standard industry practice -- they will be fined by the firm an amount equal to the lost payment, said spokesman Paul Marrone.

The policy, disclosed to brokers yesterday, reflects a clash between the interests of individual investors and corporate clients. Some investors seek to sell new shares soon after they are sold, because stocks often climb shortly after they are sold.

Companies don't like the practice, known as "flipping," as it can depress the shares.

"When a firm can differentiate itself by saying, `we will bring more stability to the aftermarket,' and give a concrete example of how, that's worthwhile," said Michael Holland, chairman of money management firm Holland & Co.

UBS PaineWebber's Marrone declined to comment on why the firm decided to enact the policy now.

UBS Warburg, the investment-banking unit of Switzerland's biggest bank, is adding staff to win more business. The firm has arranged 39 US stock sales this year worth US$4.9 billion. That's up from last year's 27 sales for US$2.6 billion.

The year's biggest sale was a US$2.9 billion transaction for Sprint Corp. that generated about US$77.5 million in fees for the firm, according to Bloomberg data.

Companies selling stock sometimes hire investment banks with large bases of individual clients to buy and hold their stock.

"The policy was put in place to ensure quality distribution and discourage flipping, which will protect the interests of our clients," Marrone said. "The policy at UBS PaineWebber has been and continues to be that clients are free to buy and sell securities whenever they want." The new policy gives brokers more incentive to know their clients better and understand their trading habits, Holland said.

"It's probably a good marketing device for the investment bankers in a very competitive business," Holland said.

"This policy has some teeth to it."
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