NASD Rule 2790

What is ‘NASD Rule 2790’

A ruling passed by the National Association of Dealers (NASD), a self-regulating organization, prohibiting certain individuals from performing trades in hot-issue Initial Public Offering (IPO) equity. The rule was enacted in March of 2004, and is designed to help make the IPO market more equitable for all traders and dealers involved.

Explaining ‘NASD Rule 2790’

NASD Rule 2790 ensures that members of the NASD cannot purchase IPO equity at the cost of another investor, sell IPO equity for anything other than the offering price, and cannot trade IPO equity for personal gains.

Rule 2790 specifies that certain members of the NASD, others related to NASD members by business or relation, and other restricted persons may not trade IPO equity that would be at the cost of another investor. However, there are always exemptions to the rule.

Further Reading

  • May foreign benefits plans invest in new issues under FINRA Rules 5130 and 5131 – [PDF]
  • NASD publishes initial proposal to change conflict of interest rules relating to underwriting of public offerings in the United States – [PDF]
  • NASD regulation of IPO conflicts of interest-does gatekeeping work – [PDF]
  • Sinners or Saints? Top Underwriters, Venture Capitalists, and IPO Underpricing – [PDF]
  • FINRA IPO Allocation Rule; investment funds must now consider compliance – [PDF]
  • The continuing need for broker-dealer professionalism in IPOs – [PDF]
  • The law and economics of IPO favoritism and regulatory spin – [PDF]
  • Spinning and Underpricing-A Legal and Economic Analysis of the Preferential Allocation of Shares in Initial Public Offerings – [PDF]
  • SEC approves amendment to FINRA IPO allocation rule 5131, easing compliance for fund investors – [PDF]