BD Corner: SEC Approves FINRA Rule 5123 Requiring Filing of Private Placement Offering Docs

Last month FINRA announced SEC approval of new FINRA Rule 5123. The Rule requires each FINRA member firm selling securities in a private placement to file a copy of any private placement memorandum, term sheet or other offering documents with FINRA within 15 calendar days from the date of sale (or indicate that it did not use any such offering document). The rule becomes effective on December 3, 2012 and applies prospectively to any private placement that begins selling efforts thereafter. The rule exempts certain limited offerings sold solely to institutional, qualified and other sophisticated purchasers.

The new rule follows on the heels of Rule 5122, which was adopted last year and generally requires member firms engaging in private placements of unregistered securities in which the member firm is the issuer to: disclose in the offering documents the intended use of the proceeds, offering expenses and the amount of selling compensation to be paid to the broker-dealer; submit the offering documents to FINRA’s Corporate Financing Department prior to the offering; and comply with the requirement that at least 85% of the offering proceeds raised not be used to pay for offering costs, discounts, commissions or any other cash or non-cash incentives, and that those proceeds be used for the business purpose disclosed in the offering documents. According to FINRA’s Regulatory Notice announcing Rule 5123, both rules “are part of a multi-pronged approach to enhance oversight and investor protection in private placements.”

FINRA also indicated it is developing a private placement filing system to receive the offering documents that must be filed under Rule 5123 that will be accessible through the Firm Gateway and that will allow firms to submit filings on behalf of others involved in the sale.

For further information about Rules 5122, 5123 or any other securities related concern, please contact the author at or (619)298-2880.

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