On October 30, 2018, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed a proposed rule change to amend FINRA Rule 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements) (the “Rule”), which is the main FINRA rule regarding compensation in securities offerings, with the Securities and Exchange Commission (“SEC”).
The proposed Rule includes the following changes:
- Decreases the number of documents required to be filed and increases the amount of time in which to file them;
- Codifies the existing exemption for seasoned issuers and streamlines the filing requirement for shelf offerings;
- Clarifies the exemption for corporate issuers and expands the list of exempt offerings;
- Simplifies the underwriting compensation disclosure requirements;
- Consolidates the various provisions relating to underwriting compensation into a single definition and provides for various review periods depending on the type of offering;
- Expands the scope of the existing venture capital exceptions and creates a new exception for co-investments with certain regulated entities;
- Clarifies the treatment of non-convertible or non-exchangeable debt securities and derivatives;
- Provides for exceptions from the lock-up restrictions;
- Clarifies and amends the list of prohibited and unreasonable underwriting terms and arrangements; and
- Consolidates and clarifies the definitions related to the Rule.
The proposed Rule is currently under review by the SEC, and FINRA will announce the implementation date of the proposed rule change in a Regulatory Notice to be filed no later than 90 days following SEC approval. The implementation date will be no later than 180 days following the publication of such Regulatory Notice. To read our Legal Update on the proposed Rule, click here.