New Issue Rule: Prohibition on Sales of IPO Shares to “Restricted Persons”
On the test, FINRA Rule 5130 might be referred to as the New Issue Rule. It generally prohibits the sale of shares in a new issue (i.e., an IPO) to an account in which any “restricted person” has a beneficial interest. The term “restricted person” includes any FINRA member or other broker-dealer; broker-dealer personnel, including immediate family members; attorneys, accountants, financial consultants, finders, and anyone acting in a fiduciary capacity to the lead underwriter, and its immediate family members; portfolio managers and their immediate family members; and persons with a significant ownership interest in a broker-dealer, and their immediate family members. Underwriters should keep these restrictions in mind when allocating shares. The definition of a family member varies from one FINRA rule to another, but for purposes of Rule 5130, “immediate family member” means a parent, mother-in-law or father-in-law, spouse, brother or sister, brother-in-law or sister-in-law, son-in-law or daughter-in-law, and children, and any other i