FINRA Proposes IPO Allocation Exemptions for Collective Trust Funds

FINRA proposed rule amendments to exempt qualified collective trust funds ("CTFs") from restrictions on purchasing initial public offerings and receiving new issue allocations.

The proposal would amend FINRA Rule 5130(c) ("Restrictions on the Purchase and Sale of Initial Equity Public Offerings") by adding a categorical exemption for CTFs, allowing them to purchase new equity issues without needing to verify the restricted status of their numerous beneficial owners. To qualify, CTFs must have investments from 1,000 or more plan participants and beneficiaries of employee retirement benefit plans. Additionally, the fund must not have been formed or maintained for the specific purpose of permitting restricted persons to invest in new issues.

The proposal also would amend FINRA Rule 5131(b) ("New Issue Allocations and Distributions") to exempt qualifying CTFs from the rule's prohibitions against "spinning," which restricts the allocation of new issues to executive officers and directors of current or prospective investment banking clients. By referencing the new exemption in Rule 5130(c)(13), CTFs will be treated similarly to registered investment companies and common trust funds, which are already exempt from these allocation restrictions.

This proposal applies to FINRA members aiming to expand retirement plan investment options.