FINRA Enhances Public Offering Review Process, Including Same Day Clearance

What you need to know:

FINRA has enhanced its review process for approving underwriter compensation arrangements in public offerings by implementing new procedures for immediate same day clearance of shelf registrations and takedowns on a 24 hours a day, 7 days a week basis.  FINRA has also implemented enhanced procedures for limited reviews of non-shelf offerings.  The technology enhancements shorten FINRA review turnaround time, improve visibility of the status of FINRA’s review of an offering and streamline comment and response procedures.

What you need to do:

FINRA member firms and companies preparing shelf or non-shelf public offerings should be aware of the FINRA review enhancements, which enable FINRA’s corporate financing department to provide immediate clearance for shelf offerings and shorten review time for non-shelf offerings.

Immediate Clearance for Shelf Offerings

The enhancements allow for immediate clearance on a 24/7 basis for shelf filings including base prospectuses and takedowns, eliminating the need for the FINRA corporate financing department to process filings before clearance is provided, as was required by the prior same day clearance process.  To obtain immediate clearance of a shelf offering, a member firm must provide basic offering information, the applicable Fed Wire number and date, and an undertaking that all information necessary to complete the filing will be provided within three business days following the initial submission.

Expedited Review for Non-Shelf Offerings Expanded

FINRA’s existing expedited review program for non-shelf offerings, which provides a streamlined review for offerings with an anticipated effective or commencement date within a week or less of the initial filing with the SEC, has been expanded to include more filings.  Offerings other than the following types are eligible to submit an expedited review request:  shelf offerings, PIPEs, resale offerings distributed on a best efforts basis, non-traded investment programs and offerings in which a FINRA member is acquiring unregistered securities during the review period.  The corporate financing department evaluates each expedited review request based on the complexity of the proposed underwriter compensation arrangements. 

New “Limited Review” Option

The review process enhancements for non-shelf offerings include the addition of a limited review program.  Filings that meet specified eligibility criteria and that make certain required representations may, if the corporate financing department is otherwise comfortable with the complexity of the proposed underwriting arrangements, receive a FINRA “No Objections Letter” without the need for further review of offering details and documentation that would occur in an expedited or full review process. 

The eligibility criteria for a limited review request are as follows:

  • Subject securities must be listed on a national securities exchange;
  • Distribution method must be either firm commitment or straight best efforts;
  • Aggregate underwriting compensation must be within permissible guidelines;
  • No securities may be received as underwriting compensation;
  • The offering may not involve prohibited underwriting arrangements under FINRA Rule 5110(f)(2), such as indeterminate items of value;
  • FINRA members must be identified in the offering documents and FINRA filing;
  • The offering must be been filed with the Securities and Exchange Commission; and
  • The offering must not involve novel products or complex regulatory issues.

Link to FINRA Guide

Click here to access the report and guidelines issued by FINRA, which include instructions for making same day clearance, expedited and limited review requests.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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