A broker dealer underwriting a new issue must make a complete and bona fide offering of all securities being issued to the public and may not withhold any of the securities for:

  • The account of underwriters
  • The account of another broker dealer
  • The account of a firm employee or the account of those who are financially dependent on the employee
  • The account of employees of other National Association of Securities Dealers members


An exception to FINRA Rule 5130 applies to employees of limited broker dealers who engage solely in the purchase and sale of investment company products or DPPs. Employees of limited broker dealers may purchase new issues. This exemption applies only to the employees of the limited broker dealer, not to the firm itself.

These rules are in effect for all new issues, but are especially prevalent when dealing with a “hot issue.” A hot issue is one that trades at an immediate premium to its offering price in the secondary market. A broker dealer may not free ride by withholding securities for its own account or for the accounts of those listed above. FINRA Rule 5130 has replaced the freeriding and withholding rule. FINRA Rule 5130 requires that a broker dealer obtain an eligibility statement from all account owners who purchase a new issue of stock within 12 months prior to the purchase. There are some people who may purchase hot issues so long as the amount is not substantial and they have a history of purchasing new issues. These conditionally approved people are:

  • Officers and employees of financial institutions
  • Non supported family members
  • Accountants, attorneys, and finders associated with the underwriting
  • Accounts where restricted persons interest is limited to 10% or less

Need Help Passing The Series 57 Exam?

Underwriting Corporate Securities

Related Articles
  1. Investing

    What Does a Dealer Do?

    Dealers possess certain qualities that distinguish them from brokers and traders.
  2. Insights

    What's a Dealer Market?

    In a dealer market, market participants buy and sell through dealers who are designated as market makers.
  3. Investing

    What Is A Trading Account?

    A trading account enables an investor to buy and sell securities.
  4. Financial Advisor

    What Is A “Broker-Dealer” And Why Should You Care?

    For many investors, the financial services industry is a strange and mysterious place filled with a language all in its own. Terms like “alpha,” “beta” and “Sharpe-Ratio” ...
  5. Financial Advisor

    FINRA: How It Protects Investors

    Find out the history of FINRA, and how it's organized to monitor the markets and protect investors.
  6. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  7. Investing

    Picking Your First Broker

    If you're a rookie investor, your first big investment decision should be an informed one.
  8. Personal Finance

    Watch the Fees on Your New Car - They Can Add Up!

    If you’re in the market for a new car, the asking price isn’t the only number you should be negotiating. The fees can cost you if you aren’t careful.
  9. Trading

    Not All Online Trading Brokers Are Created Equal

    The online trading broker market is becoming more and more competitive. Small differences between them can add up to big fee savings for you--or losses.
  10. Trading

    Is Your Forex Broker A Scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center