Financial Industry Regulatory Authority, Inc. (“FINRA”) Rules 5122 (private placements of securities issued by member firms) and 5123 (private placements of securities) each require a FINRA member to file with the FINRA advertising department any private placement memorandum, term sheet or other offering document that discloses the intended use of the offering proceeds, the offering expenses and the amount of selling compensation that will be paid to the FINRA member. Because offerings covered by both rules to institutional investors are exempt from their respective filing requirements, the rules apply predominantly to private placements made to retail investors. Neither rule requires that a “retail communication,” as defined in FINRA Rule 2210, be filed with FINRA. However, many of such retail communications are filed voluntarily or by new FINRA members under Rule 2210(c)(1)(A).

In the proposed rule change filed with the SEC on October 28, 2020, FINRA noted that many of the voluntarily filed retail communications for private placements are deficient and tend to raise more compliance issues than for other products. Consequently, FINRA proposes to amend Rules 5122 and 5123 to require filing with FINRA any retail communication, as defined in Rule 2210, at or prior to the first time the retail communication is provided to a retail investor.

As this is an initial filing with the SEC, no effective date for the amendments was proposed.

Originally published in Mayer Brown’s Volume 3, Issue 9 REVERSEinquiries newsletter. 

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