FINRA Enhances its Public Offering Review Process


Effective September 30th, FINRA instituted enhancements to its public offering review process.  Such enhancements include an immediate clearance process for certain shelf offerings, an expansion of its expedited review program for non-shelf offerings and the introduction of a new limited review process for certain non-shelf offerings of exchange-listed securities.

Immediate Clearance

 FINRA’s review improvements provide member firms with immediate clearance, 24 hours per day, 7 days a week, for shelf filings.  Immediate clearance is available for WKSI filings, new shelf registration statements, and shelf takedowns.  In order to obtain immediate clearance, member firms must:

  • provide background information related to the offering and make the representations required by the existing same-day clearance procedures;
  • undertake to provide all information necessary to complete the filing within three business days; and
  • provide the Fedwire number for the payment of the filing fee.

 Non-Shelf Offerings

 FINRA now has three review programs available for non-shelf filings: full review, expedited review and limited review.  All non-shelf filings will initially be considered to be full review unless a different request is subsequently made.

 Expedited Review.  Effective September 30th, FINRA expanded the expedited review program for non-shelf offerings.  FINRA will determine whether to grant an expedited review request based on the complexity of the proposed arrangements.  PIPEs, resale offerings distributed on a best efforts basis, non-traded investment programs and offerings in which a participating FINRA member firm has acquired unregistered securities during the review period will generally not be eligible for an expedited review. 

 Limited Review.  On September 30th, FINRA implemented a new limited review process for certain non-shelf offerings. The member firm must submit a request for FINRA to consider whether to grant a limited review. For a member firm to request a limited review, the offering must satisfy all of the following criteria:

  •  securities must be listed on a national securities exchange;
  • firm commitment or straight best efforts distribution methods must be used;
  • total underwriting compensation must be within allowable guidelines and may not include securities;
  • underwriting arrangements may not include prohibited terms as defined in FINRA Rule 5110(f)(2), such as indeterminate items of value;
  • FINRA members must be identified in the offering documents and filing system;
  • offering must be filed with the SEC; and
  • offering must not include a new or novel product or be one that poses complex regulatory issues.

 A member firm must also make six representations as part of its request for limited review, although four of such representations may be deferred past the initial request.



FINRA Issues Helpful Materials to Aid Members with their Private Placement Notice Filings

FINRA recently released FAQs and a user guide related to Rule 5123 filings.  As discussed in more detail in the June/July issue of Up To Date, Rule 5123 requires, subject to certain exceptions, FINRA member firms that sell securities in certain private placements to submit a notice filing with FINRA.  Such notice filing shall include a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used in connection with such sale.  Members that do not employ offering documents must indicate to FINRA that no such documents were used in connection with the applicable offering.  Submissions must be made within 15 calendar days of the first sale.  The FAQs answer practical questions regarding filing requirements, such as: how members file a notice with FINRA, whether third parties can file offering documents on behalf of a member, and when does the 15-day period commence for filing with FINRA.  In addition, the FAQs address matters relating to exemptions form Rule 5123.  The FAQs also provide contact information at FINRA for members who have general inquiries and questions regarding Rule 5123.  The user guide gives members step by step instructions regarding how to access the private placement filing system and how to make a Rule 5123 filing.


SEC Approves FINRA Rule Related to Private Placements

On June 7, 2012, the SEC approved, on an accelerated basis, new FINRA Rule 5123 “Private Placements of Securities”).  The new rule will require, subject to certain exceptions, FINRA member firms that sell securities in certain private placements to submit a notice filing with FINRA, including disclosure documents, if any, utilized in the offering.  FINRA has noted that the filing requirement is a notice filing only.  Therefore, issuers and member firms should not expect to receive FINRA comments or input before commencing an offering.