Series 24: 4.2.5.2. Prohibition On Spinning

4.2.5.2. Prohibition on Spinning

Rule 5131 prohibits the act of spinning. Spinning is when a member firm promises shares of an IPO to persons who are in a position to direct securities business to the firm in the future. Prior to the rule, investment banks would commonly offer shares of “hot IPOs” to officers and directors of companies in exchange for investment banking business.

The rule explicitly prohibits members from offering shares to officers and directors who have used the broker-dealer for investment banking services in the last 12 months, plan to use them in the next 3 months, or have stated or implied a commitment to use them in the future. FINRA extends this prohibition to persons materially supported by such executive officers and directors.

SAMPLE QUESTION

Which of the foll