What is defined as spinning in the context of investment banking?

In the context of investment banking, spinning refers specifically to the allocation of new shares to insiders of investment banking clients. This practice is often viewed as a conflict of interest and can raise ethical and regulatory concerns. The reason for this is that it can create an unfair advantage for the insiders who receive shares before they are available to the wider public, potentially allowing them to benefit significantly if the shares perform well after the public offering.

The practice of spinning is closely monitored by regulatory bodies like FINRA because it can erode investor confidence and violate principles of fair market access. When insiders receive preferential treatment in share allocations, it raises questions about the integrity of the underwriting process and can lead to potential legal ramifications for the firms involved.

Understanding this concept is crucial for investment banking professionals as it emphasizes the importance of adhering to ethical standards and regulations governing the distribution of shares in public offerings.