Definition of Disproportional Allocation

Disproportional Allocation is a method used by FINRA to determine if a free-riding violation has occurred with respect to a hot issuer. A firm is only allowed to sell up 10% of a new issue to conditionally approved purchasers.

Applying "Disproportional Allocation" to Securities Exams:

Free-riding is defined as: failure to make a bona fide distribution of a hot issue. In order to ensure that new issues, and hot issues, are made available to the general public FINRA states that a maximum of 10% of the hot issue can be retained by the broker dealers for sale to conditionally approved purchasers.

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