Series 24: Selling To Restricted Persons: FINRA Rule 5130

Taken from our Series 24 Online Guide

Selling to Restricted Persons: FINRA Rule 5130

FINRA Rule 5130 was put in place to make sure that an initial public offering is offered fairly to all public investors, and does not give an advantage to insiders or people in the financial industry. FINRA Rule 5130 prohibits a member firm (broker-dealer) from selling shares of an IPO to an account in which a “restricted person” has a beneficial interest, subject to limited exceptions such as a registered investment company or tax-exempt charitable organization.

Restricted persons are:

• FINRA members and other broker-dealers
• Broker-dealer personnel including registered representatives and their family members
• Lawyers, accountants, financial consultants, or anyone else acting in a fiduciary capacity to the lead underwriter
• Portfolio managers
• Individuals with a significant ownership interest (10%+) in the broker-dealer

A restricted person is one who has beneficial interests (ownership) in at least 10% of the account.

Additionally, the rule also extends to

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