Question

The self-supporting spouse of a registered representative has an account with your firm. Your firm is underwriting the initial public offering (IPO) of ACME Co. common stock, and the spouse inquires about whether it is possible to receive an allocation. The registered representative should inform the spouse that the issue:A. cannot be purchased through the IPO
B. can only be purchased through the IPO if the amount purchased is insubstantial
C. can only be purchased through the IPO with the approval of FINRA
D. can be purchased through the IPO without restrictions

Answer 1

Answer:

A. cannot be purchased through the IPO

Explanation:

Financial Industry Regulatory Authority (FINRA) prohibits the purchase of equity IPOs (Initial Public Offerings) by industry "insiders." The list of prohibited purchasers includes FINRA member firms for their own accounts, officers and employees of member firms (and their immediate family members), fiduciaries to member firms (such as accountants and lawyers that are retained by FINRA member firms); and investment managers for investment companies, insurance companies, pension plans, who want to buy personally, etc.

The self-supporting spouse has an account with the firm and therefore cannot purchased through IPO.

5130. Restrictions on the Purchase and Sale of Initial Equity Public Offerings

(a) General Prohibitions

(1) A member or a person associated with a member may not sell, or cause to be sold, a new issue to any account in which a restricted person has a beneficial interest, except as otherwise permitted herein.

(2) A member or a person associated with a member may not purchase a new issue in any account in which such member or person associated with a member has a beneficial interest, except as otherwise permitted herein.

(3) A member may not continue to hold new issues acquired by the member as an underwriter, selling group member or otherwise, except as otherwise permitted herein.