FINRA Expands Scope of Filing Requirements for Private Placements

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In Regulatory Notice 21-26 (July 15, 2021), FINRA amended the filing requirements of Rules 5122 and 5123 to require members to file with FINRA any “retail communications,” as defined in FINRA Rule 2210, that promote or recommend private placement offerings. FINRA Rule 5122 covers private placements of securities issued by a FINRA member, while Rule 5123 covers other private placements. Both rules have filing requirements, as well as exemptions from those filing requirements for offerings to institutional accounts (as defined in FINRA Rule 4512(c)), qualified purchasers (as defined in the Investment Company Act of 1940), and qualified institutional buyers (as defined in Rule 144A under the Securities Act of 1933), among others.

The filing requirements of Rules 5122 and 5123 currently require the filing of any “private placement memorandum, term sheet, or other offering document” provided to any prospective investor, for Rule 5122, or used in connection with the sale, for Rule 5123. The amendments to these rules, which will come into effect on October 1, 2021, add to each rule’s filing requirement, “any retail communication (as defined under Rule 2210) that promotes or recommends the [member private offering] [private placement] ….” A “retail communication” means “any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period.”

According to FINRA, most members currently file these retail communications, although not required by the current versions of Rule 5122 or 5123. Examples provided by FINRA of retail communications that will now fall within the filing requirements include web pages, slide presentations, fact sheets, sales brochures, executive summaries, and investor packets.

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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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