Freeriding and Withholding


What is a Freeriding and Withholding

Freeriding and Withholding is the withholding of a new issue of securities offered by a broker dealer for the benefit of the brokerage firm, an employee of the brokerage firm or their supported family members.

SecuritiesCE Explains Freeriding and Withholding

When a new issue of securities comes to market and are in high demand the securities often trade at an immediate premium in the secondary market. This is known as a “hot issue”. The broker dealer underwriting the issue must make a full and complete offering of the securities to the public and may not withhold the securities for its own account or for the account of its employees. FINRA Rule 5130 further goes on to clarify who meets the definition of a restricted person. A restricted person is a series 7 registered representative as well as those who are in a position to control broker dealers. All purchasers of new issues must have a letter or notice on file dated with in the last 12 months, stating that they are not restricted from purchasing new issues of common stock.

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