New Private Placement Filing Requirement for Broker-Dealers - FINRA Rule 5123

Date: November 14, 2012

December 3, 2012 is the effective date for new FINRA Rule 5123 (Private Placements of Securities). After that date, FINRA members that sell certain securities in private placement transactions under either Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D to individual, non-institutional investors who do not meet limited exemption criteria will be required to file any private placement memorandum, term sheet or "other offering document" used by the firm, or file a notice stating no offering document was used. The filing must be made with FINRA within 15 days after the date of first sale. FINRA members also will have to file any material amendments to any filed offering document within 15 days after the date of first sale made using the amended document. All filings made under FINRA Rule 5123 will be confidential and submitted electronically through the FINRA Firm Gateway system.

FINRA Rule 5123 will not apply to many of the most common private placement transactions, including (i) sales pursuant to Rule 144A or Regulation S, (ii) sales to qualified institutional buyers (QIBs), institutional accredited investors, qualified purchasers, employees and affiliates (as defined in FINRA Rule 5123) of the issuer, eligible contract participants, or knowledgeable employees (as defined in the Investment Company Act), even if sales are made pursuant to Section 4(a)(2) or Rule 506, and (iii) sales of certain investment grade, non-convertible debt or preferred securities or certain short-term debt securities.

Among the more salient points of FINRA Rule 5123 and the accompanying release are:

  • The required filings are so called "notice filings," which do not trigger any review or clearance of any private placement offering documents
  • Required filings must be made within 15 calendar days of the date of first sale of the offered securities 
  • The rule becomes effective December 3, 2012 and applies prospectively to private placements that begin selling efforts on or after that date
  • The .pdf documents filed must be "in a searchable format"
  • Only one firm need make the filing even if multiple firms are selling the offering
  • If material amendments are made to the offering documents, then those must be submitted to FINRA as well

FINRA Regulatory Notice 12-40, announcing the effective date and including the full text of FINRA Rule 5123, may be accessed by clicking here.

Please contact the attorneys listed if you need any guidance concerning new FINRA Rule 5123.