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Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices Exchange Act 1 and Rule 19b4 2
thereunder to amend FINRA Rules 5122
Private Placements of Securities Issued by Members and 5123 Private Placements of Securities to require members to file retail communications concerning private placement offerings that are subject to those rules filing requirements.3 The Proposed Rule Change was published for public comment in the Federal Register on November 6, 2020.4 On December 11, 2020, FINRA consented to an extension of the time period in which the Commission must approve the Proposed Rule Change, disapprove the Proposed Rule Change, or institute proceedings to determine whether to approve or disapprove the Proposed Rule Change to February 4, 2021.5 On January 12, 2021, FINRA filed an amendment to modify the Proposed Rule Change Amendment No. 1.6 The Commission is publishing this order pursuant to Section 19b2B of the Exchange Act 7 to solicit comments on Amendment No. 1 from interested persons and to institute proceedings to determine whether to approve or disapprove the Proposed Rule Change, as modified by Amendment No.1
Amended Proposed Rule Change.
II. Description of the Amended Proposed Rule Change For certain private placements of unregistered securities issued by a FINRA member or a control entity 8
member private offerings, FINRA
Rule 5122 requires the member or control entity to provide prospective investors 9 with a private placement memorandum PPM, term sheet or other offering document that discloses the intended use of the offering proceeds, the offering expenses and the amount of selling compensation that 1 15

U.S.C. 78sb1.
CFR 240.19b4.
3 See infra note 4.
4 See Exchange Act Release No. 90302 Nov. 2, 2020, 85 FR 71120 Nov. 6, 2020 File No. SR
FINRA2020038 Notice.
5 See letter from Joseph Savage, Vice President, Office of General Counsel Regulatory Policy, FINRA, to Daniel Fisher, Branch Chief, Division of Trading and Markets, Commission, dated December 11, 2020.
6 Amendment No. 1 is available at https
www.finra.org/sites/default/files/2021-01/SRFINRA-2020-038-Amendment1.pdf.
7 15 U.S.C. 78sb2B.
8 A control entity means any entity that controls or is under common control with a member, or that is controlled by a member or its associated persons. See FINRA Rule 5122a23;
see also Notice at note 3.
9 Because of the types of private placements exempt from the application of Rule 5122, FINRA
believes that the rule applies predominately to private placements sold to retail investors. See Notice at 71121.
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will be paid to the member and its associated persons. Among other things, the current rule also requires a member to file the PPM, term sheet or other offering document with the FINRA
Corporate Financing Department at or prior to the first time the document is provided to any prospective investor, as well as any amendments to such documents within 10 days of being provided to any investor or prospective investor.10 Similarly, for certain private placements 11 of unregistered securities issued by a non-member, FINRA Rule 5123 requires members or control persons to file with FINRA any PPM, term sheet or other offering document,12
including any material amended versions thereof, used in connection with an offering within 15 calendar days of the date of first sale.
FINRA proposes amendments to Rules 5122 and 5123 to require members or control persons to file private placement retail communications 13 with FINRA, in addition to the currently required PPMs, term sheets, and other offering documents. Specifically, the Amended Proposed Rule Change would require members or control persons to file with the FINRA Corporate Financing Department at, or prior to, the first time the document is provided to any prospective investor, any retail communication that promotes or recommends a private placement, rather than any retail communication 10 See
Notice at 71120.
supra note 9.
12 Rules 5122 and 5123 do not enumerate the types of information that might be considered other offering documents. However, FINRA has stated previously that an example of other offering document is any other type of document that sets forth the terms of the offering. See Frequently Asked Questions FAQ About Private Placements, Question 10, available on www.finra.org. The terms of an offering include facts such as the amount of proceeds that the issuer intends to raise, the type of security, descriptions or illustrations of the intended use of proceeds, and explanations of tax benefits or other information that would be relevant to an investor when deciding whether to make an investment. See Notice at 71121.
13 Rule 2210a5 defines a retail communication as any written including electronic communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. See Regulatory Notice 2021 July 2020 stating that a member firm that assists in the preparation of a private placement memorandum or other offering document should expect that it will be considered a communication with the public by that member firm for purposes of Rule 2210 Communications with the Public; see also letter from Joseph P.
Savage, Vice President and Counsel, Office of General Counsel, FINRA, to Vanessa Countryman, Secretary, Commission, dated January 12, 2021, available at https www.sec.gov/comments/sr-finra2020-038/srfinra2020038-8233135-227749.pdf.
11 See
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that concerns a private placement, as originally proposed.14
III. Proceedings To Determine Whether To Approve or Disapprove File No. SR
FINRA2020038 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19b2B of the Exchange Act to determine whether the Amended Proposed Rule Change should be approved or disapproved.15 Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the Amended Proposed Rule Change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to the Amended Proposed Rule Change.
Pursuant to Section 19b2B of the Exchange Act,16 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis and input concerning whether the Amended Proposed Rule Change is consistent with the Exchange Act and the rules thereunder.
IV. Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the Amended Proposed Rule Change.
Specifically, the Commission is requesting comment on whether the Amended Proposed Rule Change adequately addresses commenters concerns regarding the scope of the proposed filing requirement in light of the regulatory goals of improving the quality of broker-dealer private placement communications and strengthening FINRAs ability to monitor for potential violations of its rules governing members communications with the public. In particular, the Commission invites the written views of interested persons concerning whether the Amended Proposed Rule Change is consistent with the Exchange Act and the rules thereunder.
Although there do not appear to be any issues relevant to approval or 14 Specifically, Amendment No. 1 would limit the filing requirement of the Proposed Rule Change to those retail communications that promote or recommend a private placement, rather than any retail communication that concerns a private placement, as originally proposed.
15 15 U.S.C. 78sb2B.
16 Id.

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