FINRA Releases Public Offering FAQs

by Dechert LLP

FINRA, the largest independent regulator for all securities firms doing business in the United States, has released a set of FAQs relating to its review of public securities offerings filed on its Public Offering Filing System, which replaced FINRA’s COBRA Desk online filing system in June of 2012.

FINRA’s Corporate Financing Department reviews public offering filings and provides firms with regulatory guidance with respect to underwriting arrangements. The SEC defers to FINRA to establish reasonable levels of underwriting compensation and adequate disclosure of the underwriting terms and conflicts,1 and the staff of the SEC typically will not declare an issuer’s registration statement to be effective unless the filer has received a “no objections” letter from FINRA.

The recently released FAQs address a number of topics relating to FINRA’s corporate financing rules, including: exemptions to lock-up requirements; calculating underwriter compensation; disclosure requirements regarding underwriter’s counsel fees and expenses; conflicts of interest; dividend reinvestment programs (DRIPs), unlisted real estate investment trusts (REITs) and direct participation programs (DPPs); and filling fees and other process related issues.  

This legal update highlights some of the more salient FAQs, all of which can be read here:

Lock-up Requirements and Exemptions

  • All items of value received by underwriters during the 180-day period preceding a public offering are deemed to be underwriting compensation, unless they meet one of five exceptions provided in Rule 5110(d)(5). Unregistered securities acquired by underwriters during the 180-day review period that are excepted from such rule are subject to a 180-day lock-up following commencement of a public offering. However, in certain cases, FINRA has provided exemptive relief from such lock-up requirements. The FAQs set forth some facts and circumstances that FINRA staff has considered when determining whether to grant exemptive relief, in particular, whether: 
    • the acquisition of the securities was required in order to restructure the issuer’s capitalization for certain specified purposes;
    • the securities were registered and included as part of the underwritten public offering; and 
    • the securities were acquired under an arrangement that was designed to benefit the issuer and was not proposed by the FINRA member firm.

Underwriting Compensation

  • A Right of First Refusal (ROFR) granted to an underwriter is an item of value (worth the dollar amount the issuer has agreed to pay the underwriter to waive or terminate the ROFR, or, if no dollar amount has been agreed upon, 1% of the offering proceeds) required to be included in the underwriter compensation calculations, provided such ROFR is granted during the 180-day period prior to the commencement of a public offering.

Disclosure Requirements

  • If an underwriter’s counsel fees and expenses are paid or reimbursed by an issuer in connection with the distribution of a public offering, they must be included as underwriting compensation.  However they need not be separately itemized.    
  • When an underwriter receives compensation consisting of an option, warrant or convertible security, the specific terms of such instrument do not need to be disclosed in the prospectus. Rather, FINRA will review the instrument to determine whether its terms would violate Rule 5110(f)(2)(H).

Conflicts of Interest

  • FINRA has granted a limited exemption from compliance with the filing requirements of Rule 5110 and Rule 5121 for the public offerings of government sponsored enterprise issuers (GSE) when a conflict of interest exists because an affiliate of the underwriter owns more than 10% of the GSE.  
  • A FINRA member firm making a filing in connection with the offering of its own securities is required to engage a Qualified Independent Underwriter (QIU). In light of the fact that FINRA discontinued a program that required QIUs to file information annually to demonstrate that it met the Rule 5121(f)(12) standards, FINRA member firms are now required to represent in the Public Offering System that the QIU meets such qualification requirements.

DPPs and REITs

  • Rule 2310 prohibits unlisted REITs from charging a sales load or commission on securities that are purchased through the reinvestment of dividends.
  • The determination of whether a closed-end fund is a direct participation program (DPP) subject to Rule 2310 depends upon whether it receives flow-through tax treatment under the Internal Revenue Code, not on its legal structure.
  • FINRA has granted a limited exemption from the non-cash provision of Rule 2310 when an unlisted REIT hosts a training and education (T&E) meeting  with an affiliated unlisted REIT at or near a representative asset of the affiliated REIT, when the REIT and the affiliated REIT:
    • split the costs of the T&E meeting;
    • were managed by the same sponsor;
    • had selling agreements with the same broker-dealers; and
    • otherwise complied with the non-cash compensation requirements in Rule 2310.

1 FINRA Public Offering Electronic Filing System Filing Guide (July 2, 2012)

To browse our library of legal updates, please visit

For more information on Dechert's Corporate and Securities Group, click here.


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.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.