12.5.4. New Issue Rule
IPO securities must be offered to all public investors fairly. FINRA’s New Issue Rule is meant to protect the distribution of IPO securities from manipulation by securities industry insiders. In most cases, the New Issue Rule prohibits IPO securities from being distributed to any account in which any restricted person has a beneficial interest. Restricted persons include:
• Broker-dealers and their employees
◊ A broker-dealer does not have to be involved in the IPO in order to be considered a restricted person. This is because the purpose of the New Issue Rule is to prevent industry insiders from giving each other favorable treatment.
◊ Likewise, a broker-dealer employee does not have to work directly with securities to be considered a restricted person. IT, HR, and clerical staff are all considered restricted persons.
• Persons with a significant ownership interest in a broker-dealer
• Attorneys, accountants, financial consultants, finders, or anyone else with a fiduciary duty to the lead underwriter
• Portfolio managers (persons with authority to buy or sell securities for a bank, insurance company, investment company, investment adviser, or collective investment account)
• Immediate family members of any of the above, including parents, children, spouses, siblings, mothers/fathers-in-law, brothers/sisters-in-law, sons/daughters-in-law, any individual who is part of the same household, or any individual who received material support (more than 25% of income) from the person in the previous calendar year.
Example: 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 saw profiled in the business press. Her employer is not involved in the IPO, and none of her information about the IPO comes from people she knows in the industry. Unfortunately, the New Issue Rule would define Jenny a