New FINRA Rule 5123 – Private Placements of Securities

Last week the Securities and Exchange Commission approved an amended version of new FINRA Rule 5123.

The approved version of the new rule, which is considerably narrower than the original version, requires that a broker-dealer who participates in a private placement of securities file with FINRA copies of the private placement memorandum, term sheet or other offering documents, or indicate that there were no offering documents used. The filing must be made within 15 days of the date of the first sale of securities.

There are, however, a number of private placements which are exempt from new Rule 5123, for example, those involving securities sold solely to certain types of investors, such as institutional accounts, qualified purchasers within the meaning of the Investment Company Act, qualified institutional buyers (QIBs), investment companies, banks, certain employees and affiliates of an issuer, and certain accredited investors within the meaning of Rule 501(a) of Regulation D (such as banks and business development companies, but not individual investors or directors and officers). Certain types of offerings are also exempt from new Rule 5123, such as those made pursuant to Rule 144A or Regulation S.

All documents and information filed under new Rule 5123 will be afforded confidential treatment and used only to determine compliance with applicable FINRA rules and regulatory requirements.

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