Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, June 10, 2012

SEC Approves FINRA Rule Addressing Broker-Dealers' Obligations in Private Placements

On June 7, 2012, the SEC approved FINRA's proposed rule change to adopt FINRA Rule 5123 setting forth a broker-dealer's obligations in connection with private placements of securities issued by non-members (Download 34-67157[1]).  As originally proposed, the Rule would have imposed disclosure and filing requirements on members and associated persons participating in a private placement, specifically, to disclose to each investor prior to the sale the anticipated use of the proceeds and the amount and type of offering expenses and offering compensation.  If the issuer's disclosure documents did not provide this information, the broker-dealer would have been required to prepare such a document.  In response to industry comments that the proposal was too burdensome, FINRA eliminated the disclosure requirement.  Instead, the firm is requirerd simply to file any existing offering document or to state that no such document was used.

In approving the proposed rule change, the SEC stated its belief that FINRA had addressed adequately capital formation, competitive and efficiency concerns.  First, FINRA had eliminated the disclosure requirement, and, second, it had narrowly tailored the rule to require either a notice filing of the documents used within 15 days of the first sale or a statement that no such documents had been used.

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