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ARTICLE · 09 MAY 2011

New FINRA Rule 5131: Implications For Fund Managers

Foley Hoag LLP
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On May 27, 2011, new Rule 5131 ( New Issue Allocations and Distributions) of the Financial Industry Regulatory Authority, Inc. ("FINRA") will go into effect.

United StatesFinance and Banking
Jeffrey Collins
Jeffrey Collins
Tiffany Ann Ford
Tiffany Ann Ford
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On May 27, 2011, new Rule 5131 ( New Issue Allocations and Distributions) of the Financial Industry Regulatory Authority, Inc. ("FINRA") will go into effect. This new rule is intended to address certain abuses in the allocation and distribution of new issues and specifically prohibits, among other things, "spinning." The full text of the rule can be found on the FINRA website. Rule 5131 does not replace the existing new issues rule (Rule 5130), but instead creates an additional set of requirements.

Although FINRA Rule 5131 only applies directly to FINRA members, investment funds that participate in new issues will likely be impacted. In order to comply with the new rule, broker-dealers that are subject to FINRA rules will require certain representations from a fund before the fund will be allowed to participate in initial public offerings ("new issues").

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