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
ProfessionalsDealers possess certain qualities that distinguish them from brokers and traders.
MarketsFind out the history of FINRA, and how it's organized to monitor the markets and protect investors.
Financial AdvisorThe securities industry isn't happy with the hand it may be dealt with the SEC's proposed CARDS rules.
InvestingLearning about these various activities can give insight into how securities are issued and traded.
Financial AdvisorAn alliance of public interest groups is pressuring FINRA to broaden its BrokerCheck tool.
InvestingA trading account enables an investor to buy and sell securities.
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.
InvestingIn a dealer market, market participants buy and sell through dealers who are designated as market makers.
Personal FinanceWithholding tax is the income tax federal and state governments require employers to withhold from employee paychecks.
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” ...