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.

The New York Stock Exchange LLC (“NYSE”) proposes to amend Rule 2 to remove the FINRA or other national securities exchange membership requirement for member organizations.  Rule 2 was previously amended in 2007 to require FINRA membership as part of the transition plan for the consolidation of NYSE Regulation, Inc. and the National Association of Securities Dealers (“NASD”).  During this transition period, FINRA provided regulatory surveillance and enforcement services to NYSE, including with respect to NYSE rules, while the harmonization of NYSE and NASD rules was completed.  The proposed rule change reflects the end of the transition period and related regulatory outsourcing as NYSE resumed direct performance of certain previously outsourced regulatory functions on January 1, 2016.  Going forward, common members will continue to be regulated pursuant to the current allocation plan between FINRA and NYSE, and FINRA will continue to perform certain regulatory services under the oversight of NYSE’s regulatory unit pursuant to the existing Regulatory Services Agreement.  The full notice may be found here and the full text of the proposed revisions may be found here.

Read our full REVERSEinquiries issue here.


Last month’s announcement by FINRA marks the completion of the consolidation of FINRA’s enforcement functions under the leadership of Susan Schroeder.  One of the key outcomes of FINRA360,  the new structure is designed to ensure a more consistent enforcement program.  Schroeder noted, “The consolidation of our enforcement function enables us to better target developing issues that can harm investors and market integrity, and ensure a uniform approach to charging and sanctions.”  Under the new structure, the Department of Enforcement contains two new centralized units, Investigations and the Office of the Counsel to the Head of Enforcement, and three specialized teams, Main Enforcement, Sales Practice Enforcement and Market Regulation Enforcement.  The groups will be headed by Terrence Bohan, Lara Thyagarajan, Jessica Hopper, Christopher Kelly and Elizabeth Hogan, respectively.  See the full announcement here.

Read our full REVERSEinquiries issue here.