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SEC Requests Comments on Partial Amendment No. 1 to FINRA Proposed Rule 5123
Practical Law Legal Update 4-517-4861 (Approx. 3 pages)
SEC Requests Comments on Partial Amendment No. 1 to FINRA Proposed Rule 5123
by PLC Corporate & Securities
| Published on 25 Jan 2012 • USA (National/Federal) |
The SEC published a notice and order requesting comments on Partial Amendment No. 1 to FINRA's proposed Rule 5123.
On January 20, 2012, the SEC published a notice and order requesting comments on Partial Amendment No. 1 to FINRA's proposed Rule 5123. Rule 5123 would require members of FINRA that offer or sell securities in certain private placements, or participate in the preparation of disclosure documents for these offerings, to, under certain circumstances:
- Provide information to investors describing the intended use of proceeds and the amount and type of offering expenses and compensation.
- File the disclosure document used in the offering with FINRA within 15 days of the offering's first sale.
FINRA Rule 5123 was published for comment in the Federal Register on October 24, 2011. On January 19, 2012, FINRA filed Partial Amendment No. 1 to the proposed rule as well as a letter responding to comments on the proposed rule. The SEC's notice and order is meant to solicit comments on whether the SEC should approve the proposed rule, as amended by Partial Amendment No. 1.
The changes to proposed Rule 5123 made by Partial Amendment No. 1 respond to comments received on the original proposed rule. These changes include:
- Clarification that the term "private placement" means a non-public offering of securities made in reliance on an available Securities Act registration exemption, but excluding offerings and sales made in reliance on:
- Sections 4(1), 4(3) and 4(4) of the Securities Act.
- Sections 3(a)(2), 3(a)(9), 3(a)(10) or 3(a)(12) of the Securities Act.
Among other things, this clarifies that the rule does not apply to secondary market trading, which was a major issue raised in comment letters on the original proposed rule. It is intended to bring Rule 5123's definition of private placement in line with the definition of this term in Rule 5122, which governs private offerings by FINRA member firms. - Clarification that, in a covered offering in which no disclosure document is used, to comply with the rule, FINRA members simply must make a notice filing with FINRA identifying the offering and stating there was no disclosure document. This responds to concerns raised in comment letters that the original proposed rule could have been interpreted to require FINRA members to prepare a disclosure document themselves if the issuer did not.
- Clarification that Rule 5123 does not require delivery of multiple copies of a disclosure document to a single customer. A participating member would only be required to deliver disclosure documents to persons it sells securities to in the private placement. In addition, the amendment clarifies that when multiple member firms participate in an offering, each member may make the required filing, or members may designate one member to make the required filing on behalf of all members mentioned in the filing.
- Addition of other types of offerings (including offerings of commercial paper exempt under Section 4(2)) to the list of offerings that fall into the definition of private placement but are exempt from the rule.
- Addition of other types of investors to the list of investors to which FINRA members do not have to provide the required disclosure.
The SEC will accept comments on proposed Rule 5123 as modified by Partial Amendment No. 1 for 30 days after publication of its notice and order in the Federal Register. Rebuttals to any comments must be submitted within 45 days of the notice and order's publication in the Federal Register.
For more information about proposed FINRA Rule 5123, see Legal Update, FINRA Proposes Rule 5123 Requiring Disclosure for Private Placements. For more information about private placements, see Practice Note, Section 4(2) and Regulation D Private Placements.