INVESTMENT BANKING

Funding Portals

FINRA Funding Portal Rules and Related Forms

The SEC approved FINRA’s proposed Funding Portal Rules and related forms for SEC-registered funding portals that become FINRA members pursuant to the crowdfunding provisions of Title III of the Jumpstart Our Business Startups (JOBS) Act and the SEC’s Regulation Crowdfunding. FINRA’s Funding Portal Rules became effective on January 29, 2016. Regulatory Notice 16-06 provides a brief overview of the new Funding Portal Rules and provides information for prospective funding portals that plan to apply for FINRA membership.

• FINRA Regulatory Notice 16-06 (January 2016):  SEC Approval of FINRA Funding Portal Rules and Related Forms

FINRA Topic Page:  Funding Portals  

 

Jumpstart Our Business Startups (JOBS) ACT

The SEC approved FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act) as part of FINRA's proposal to establish the Funding Portal Rules and related forms. Regulatory Notice 16-07 provides further guidance on new Rule 4518 (Notification to FINRA in Connection with the JOBS Act), which applies to registered broker-dealer members of FINRA that contemplate acting as intermediaries in transactions involving the offer or sale of securities pursuant to the crowdfunding provisions of Title III of the JOBS Act and the SEC's Regulation Crowdfunding.  Under Rule 4518, registered broker-dealer members must provide notification to FINRA in a manner specified in the rule prior to engaging in such activities. FINRA Rule 4518 became effective on January 29, 2016.

• FINRA Regulatory Notice 16-07 (January 2016):  SEC Approval of FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act)

Private Placements

Exemptions to Facilitate Intrastate and Regional Securities Offerings. 

The SEC adopted amendments to modernize Rule 147 under the Securities Act of 1933, which provides a safe harbor for compliance with the Section 3(a)(11) exemption from registration for intrastate securities offerings. The SEC also established a new intrastate offering exemption under the Securities Act, designated Rule 147A, which will be similar to amended Rule 147, but will have no restriction on offers and will allow issuers to be incorporated or organized outside of the state in which the intrastate offering is conducted provided certain conditions are met. The amendments to Rule 147 and new Rule 147A are designed to facilitate capital formation, including through offerings relying upon intrastate crowdfunding provisions under state securities laws, while maintaining appropriate investor protections and providing state securities regulators with the flexibility to add additional investor protections they deem appropriate for offerings within their state. 

Exemptions To Facilitate Intrastate and Regional Securities Offerings, Release Nos. 33-10238; 33-79161 (October 26, 2016), 81 FR 83494 (November 21, 2016)

 

Capital Acquisition Broker (CAB) Rules

The SEC approved FINRA’s rule set for firms that meet the definition of “capital acquisition broker” (CAB) and that elect to be governed under this rule set. CABs are firms that engage in a limited range of activities, essentially advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions. Firms that elect to be governed under the CAB rule set are not permitted, among other things, to carry or maintain customer accounts, handle customers’ funds or securities, accept customers’ trading orders, or engage in proprietary trading or market-making.
The CAB rules became effective on April 14, 2017. In order to provide new CAB applicants with lead time to apply for FINRA membership and obtain the necessary qualifications and registrations, CAB Rules 101-125 became effective on January 3, 2017. FINRA began accepting applications for firms that are not broker-dealers but wish to register as CABs, for existing member firms requesting to elect CAB status, and for CAB associated person registration and qualification, on January 3, 2017.

• FINRA Regulatory Notice 16-37 (October 2016): SEC Approves FINRA’s Capital Acquisition Broker (CAB) Rules

FINRA Topic Page:  Small Firms

 

Contingency Offerings

FINRA’s review of securities offering documents has revealed instances in which broker-dealers have not complied with the contingency offering requirements of Rules 10b-9 and 15c2-4 under the Securities Exchange Act of 1934 (SEA). FINRA is publishing Regulatory Notice 16-08 to provide guidance regarding the requirements of SEA Rules 10b-9 and 15c2-4 and to remind broker-dealers of their responsibility to have procedures reasonably designed to achieve compliance with these rules.

FINRA Regulatory Notice 16-08 (February 2016):  Private Placements and Public Offerings Subject to a Contingency

 

Electronic Filing Depository

The North American Securities Administrators Association (NASAA) developed the online Electronic Filing Depository (EFD) to enhance the efficiency of the regulatory filing process for certain exempt securities offerings. The EFD online system allow issuers to submit Form D for a Regulation D, Rule 506 offering to state securities regulators and pay related fees. The EFD website also enables the public to search and view free of charge Form D filings made with state securities regulators.

• EFD is available at https://www.efdnasaa.org

 

FINRA Topic Page

FINRA Topic Page:  Private Placements

Public Offerings

Contingency Offerings

FINRA’s review of securities offering documents has revealed instances in which broker-dealers have not complied with the contingency offering requirements of Rules 10b-9 and 15c2-4 under the Securities Exchange Act of 1934 (SEA). FINRA is publishing Regulatory Notice 16-08 to provide guidance regarding the requirements of SEA Rules 10b-9 and 15c2-4 and to remind broker-dealers of their responsibility to have procedures reasonably designed to achieve compliance with these rules.

• FINRA Regulatory Notice 16-08 (February 2016):  Private Placements and Public Offerings Subject to a Contingency

 

Regulation A Offerings

FINRA issued guidance regarding the FINRA filing requirements and review procedures that apply to firms that participate in Regulation A+ offerings. Specifically, FINRA’s Corporate Financing Rules require firms that participate in Regulation A+ offerings to file with FINRA information specified in the rules. FINRA’s Communications with the Public Rule and its Suitability Rule also apply to a firm’s participation in these offerings. FINRA also reminds firms that communications with the public concerning a Regulation A+ offering of Direct Participation Program securities must be filed with FINRA.

•  FINRA Regulatory Notice 15-32 (September 2015):  FINRA Filing Requirements and Review of Regulation A Offerings

 

FINRA Topic Page

•  FINRA Topic Page:  Public Offerings

Supervision

Accounts At Other Broker-Dealers And Financial Institutions

The SEC has approved FINRA’s proposed rule change to adopt a new, consolidated rule governing accounts opened or established by associated persons at firms other than the firm at which they are employed. The new rule—FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions)—helps facilitate effective oversight of such accounts. Rule 3210 became effective on April 3, 2017.

FINRA Regulatory Notice 16-22 (June 2016): SEC Approves Consolidated FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions)

 

Insider Trading

FINRA Rule 3110 (Supervision) includes a provision to help firms comply with their obligation under Section 15(g) of the Securities Exchange Act of 1934 to have policies and procedures in place reasonably designed to prevent potential insider trading. Rule 3110(d) requires that firms include in their supervisory procedures a process for reviewing securities transactions in certain types of accounts that is reasonably designed to identify trades that may violate insider trading prohibitions. When implementing these policies and procedures, firms may take a risk-based approach to monitoring transactions that takes into account their specific business models. Rule 3110 became effective on December 1, 2014.

• FINRA Regulatory Notice 14-10 (March 2014):  SEC Approves New Supervision Rules
• SEC Enforcement Actions:  Insider Trading Cases
• SEC Staff Summary Report on Examinations of Information Barriers:  Broker-Dealer Practices Under Section 15(g) of the SEA (September 2012)

SEC Fast Answers:  Insider Trading