SEC Approves Amendment to FINRA IPO Allocation Rule 5131, Easing Compliance for Fund Investors

Introduction -

On November 27, 2013, the Securities and Exchange Commission (“SEC”) approved a change (the “Amendment”) to FINRA’s IPO allocation rule 5131 (the “Rule”).The Amendment allows a fund-of-funds to rely on a written representation from an unaffiliated private fund that does not look through to its beneficial owners, provided that the unaffiliated private fund meets certain other indicia of independence, namely that the unaffiliated private fund must: (a) be managed by an investment adviser; (b) have assets greater than $50 million; (c) own less than 25% of the account and is not a fund in which a single investor has a beneficial interest of 25% or more; and (d) not have been formed for the specific purpose of investing in the account.

In the Adopting Release, the SEC states that FINRA will announce the effective date of the proposed rule change in a Regulatory Notice3 to be published no later than 60 days following the SEC’s November 27 approval. The effective date will be no later than 120 days following the SEC’s approval.

Please see full memo below for more information.

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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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