Cover Your Backside: FINRA Proposes To Allow Tail Fees and ROFRs


FINRA recently issued Regulatory Notice 12-27 regarding proposed amendments (the “Proposed Amendments”) to FINRA Rule 5110 (the “Corporate Financing Rule”). Provided that certain criteria are satisfied, the Proposed Amendments would afford issuers and investment banks with greater flexibility to use termination fees (“Tail Fees”) and/or rights of first refusal (“ROFRs”) in structuring and negotiating engagement letters and underwriting and financial advisory services.

What Is The Corporate Financing Rule?

The Corporate Financing Rule requires that member firms file with FINRA’s Corporate Financing Department documents and information, including engagement letters, regarding the underwriting arrangements in public securities offerings in which member firms participate. Through the Corporate Financing Rule, FINRA regulates the commercial reasonableness and fairness of underwriting compensation and arrangements in such offerings.

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