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. 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 upon the employee
- The account of employees of other FINRA members
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. 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
Underwriting Corporate Securities
InvestingDealers possess certain qualities that distinguish them from brokers and traders.
InsightsFind out the history of FINRA, and how it's organized to monitor the markets and protect investors.
Financial AdvisorAn alliance of public interest groups is pressuring FINRA to broaden its BrokerCheck tool.
InsuranceLearning about these various activities can give insight into how securities are issued and traded.
Financial AdvisorLearn about NYSE Rule 407 and how it may impact you as a financial advisor or investment broker. What you don't know about this regulation can hurt you.
Financial AdvisorFor 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” ...
Personal FinanceMany people research restaurants or movies, but few select brokers or financial advisors with much due diligence. Here's how BrokerCheck can help.
InvestingIf you're not familiar with freeriding and you're trading stocks, you should be. Although it sometimes happens unintentionally, it's illegal nonetheless.
TaxesWhen there are major changes in your life, you should adjust your withholding to ensure you aren't paying too much in taxes.
TaxesUnderstanding the origins of our tax withholding system is crucial to getting the most out of it.