9.1.1.3. Restrictions on the Purchase and Sale of an IPO—New Issue Rule
Initial public offerings must be offered to all public investors fairly and must not give an advantage to industry insiders. No broker or dealer may sell shares of an IPO to an account in which a restricted person has a beneficial interest, subject to certain limited exceptions. Restricted persons are defined as:
- • Broker-dealers and their personnel (including both associates and other employees)
- • Owners of a broker-dealer
- • Finders or individuals acting in a fiduciary capacity to the lead underwriter (including lawyers, accountants, or consultants)
- • Portfolio managers (any person who has authority to buy or sell securities for a bank, savings and loan institution, insurance company, investment company, investment adviser, or collective investment account)
- • Individuals with a beneficial interest in the broker-dealer
Employees of limited broker-dealers are excluded from this rule. A limited business broker-dealer is a broker-dealer whose authorization to engage in the securities industry is limited to the purchase and sale of investment company or variable contracts securities and direct participation program securities.
Accounts fall under the rule if a restricted person has beneficial interests in at least 10% of the account.
This rule extends to immediate family members of restricted persons. Immediate family members include children, spouses, parents, siblings, in-laws (of siblings, children, or parents), and anyone else for whom the restricted person provides material support. Material support means directly or indirectly providing more than 25% of a person’s income in the prior calendar year or living in the same household.
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