Effect of New FINRA Anti-Spinning Rule on Private Funds

March 19, 2012

Effective May 27, 2011, new FINRA Rule 5131 will prohibit quid pro quo allocations and “spinning” of new issues to favored customers, such as certain executive officers and directors of potential investment banking clients, in exchange for investment banking business. Although Rule 5131 only applies to FINRA member firms, it will affect private funds and managers when FINRA members ask for certain representations and additional information from private funds and their investors in order to ensure that the FINRA members are not allocating New Issues in violation of the Rule.

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