Notice & Comment

Securities, Commodities, and Exchanges: FINRA Proposes New Rule on Private Placements and Member Firm Participation, by Jonathan Rusch

On January 11, the Financial Industry Regulatory Authority (FINRA) requested comment on a proposal to amend FINRA Rule 5122. Rule 5122, according to the FINRA regulatory notice, “requires, subject to certain exemptions, disclosure in the offering document of the intended use of offering proceeds, expenses, and the amount of selling compensation to be paid to the broker-dealer and its associated persons, in any private placement in which a participating broker-dealer (or its control entity) is the issuer. The rule also requires that at least 85 percent of the offering proceeds must be used for the business purposes identified in the offering document. Lastly, the rule requires each offering document to be submitted to FINRA to allow the staff to conduct ex post reviews to assess compliance with the rule and to identify problematic terms and conditions. “

The proposal would expand Rule 5122 “to reach all private placements in which a member firm participates—not just those in which the member firm (or its control entity) is the issuer—while retaining nearly all of the existing exemptions, including those for offerings sold solely to certain institutions, qualified purchasers and other sophisticated investors.” To reflect the broader scope of the proposed rule and its prior experience with Rule 5122, FINRA also proposed “to eliminate the exemption for offerings in which a member acts primarily in a wholesaling capacity.” The comment period ends March 14.

This post was originally published on the legacy ABA Section of Administrative Law and Regulatory Practice Notice and Comment blog, which merged with the Yale Journal on Regulation Notice and Comment blog in 2015.

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