Who is typically restricted from investing in an IPO?

In the context of initial public offerings (IPOs), employees of a broker-dealer and their family members are typically restricted from participating in the IPO to prevent conflicts of interest and maintain market integrity. This restriction is crucial because individuals connected to a broker-dealer may have access to non-public information or influence the demand for the IPO, leading to potential abuse of information or market manipulation.

The rule is designed to ensure that those who have a direct connection to the securities industry, particularly those who can help establish or distribute the offering, do not have an unfair advantage over regular investors. This helps create a fairer market environment.

Other categories of individuals, such as employees of the issuing company and their families, while also facing restrictions, may have different rules applied to them, often depending on specific company policies rather than overarching regulations like those that apply to broker-dealer employees.