FINRA Proposes Amendments to FINRA Rule 5122 to Address Member Firm Participation in Private Placements


On January 11, 2011, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 11-04 (the “Notice”) proposing to expand FINRA Rule 5122 to govern all private placements in which a member firm participates—not just those in which the member firm (or its control entity) is the issuer—while retaining all but one of the existing exemptions, including those for offerings sold solely to certain institutions, qualified purchasers and other sophisticated investors.1 If the amendments were adopted, a member broker dealer would be required to file the offering document for any private placement in which the member participates, subject to certain exemptions.

FINRA Rule 5122 was adopted in 2009 in response to abuses in the sale of private placements by member broker-dealers and their control entities. Currently, FINRA Rule 5122 applies only to private placements of securities issued by member broker-dealers and certain affiliated entities. However, the vast majority of private placements remain outside the scope of the rule. FINRA seeks to expand FINRA Rule 5122 to govern all private placements in which a member participates, subject to certain exemptions.

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