Series 79 practice questionhardIPO Process
In book-building for an IPO, which allocation practice could expose an underwriter to regulatory scrutiny for spinning?
- AAllocating shares only to institutional investors with large AUM
- BAllocating IPO shares to executives of private companies who may award future investment banking business✓ Correct answer
- CAllocating shares based solely on order size
- DAllocating shares after the closing of the offering
Explanation
Why B — Allocating IPO shares to executives of private companies who may award future investment banking business
Allocating IPO shares to executives in return for future business is considered spinning and is prohibited. The trap is thinking that all institutional allocations are automatically compliant, which is not the case if conflicts exist.
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