Series 7: 12.5.5 Retaining IPO Shares In A Member Account

12.5.5  Retaining IPO Shares in a Member Account

Underwriters and members of the selling group (and their agents) generally may not retain shares of the IPO for their own accounts to sell at a later time. However, underwriters may purchase unsold shares of an IPO under a standby agreement, if the following conditions are met:

• • It is disclosed in the prospectus.
• • It is stated in a written agreement.
• • A statement from the lead underwriter attests that it couldn’t find any buyers.
• • The shares will not be sold within three months.

Underwriters may place a portion of the issue in their accounts if it was stated in the underwriting agreement and the underwriters were unable to sell the shares to the public.

Sample Question 1

Jenny is an employee of a broker-dealer. She is a receptionist at the firm and is not a registered representative. She would like to purchase shares in an IPO that she has recently heard about at her office. Which of the following best describes her participation?

1. A. Jenny may purchase shares of the IPO on the same basis as other customers.
2. B. Jenny is prohibited from purchasing shares of the IPO, but her spouse may purchase shares on the same basis as other customers.
3. C. Jenny may purchase shares of the IPO as long as the purchase quantity doesn’t exceed 200 shares.
4. D. J