FINRA Rule 5130

FINRA Rule 5130 governs who may purchase new issues — initial public offerings of equity securities. The rule bars member firms from selling IPO shares to any account in which a restricted person has a beneficial interest, and it bars restricted persons from buying those shares for themselves.

Restricted persons include FINRA member firms and their employees, other broker-dealers, portfolio managers who buy securities on behalf of institutions, finders and fiduciaries involved in the offering, and immediate family members of these individuals. Before selling new issue shares to an account, a firm must obtain a written representation that the account owner is eligible, and that verification must be refreshed periodically.

The rule exists because hot IPOs often begin trading above their offering price, making allocations valuable. Without Rule 5130, industry insiders could reserve underpriced shares for themselves rather than distributing them to public investors — undermining the fairness and integrity of the offering process. Limited exceptions exist, such as shares an issuer directs to its own employees and accounts where restricted persons hold only a small, de minimis interest.

The SIE exam tests Rule 5130 within the primary market and IPO process material. Know the purpose of the rule, who counts as a restricted person, and that the prohibition applies to equity IPOs — not to debt offerings or secondary market purchases made after trading begins.