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SEC Approves FINRA Rule 5123 Requiring Notice Filings in Certain Private Placements
Practical Law Legal Update 8-519-8214 (Approx. 4 pages)
SEC Approves FINRA Rule 5123 Requiring Notice Filings in Certain Private Placements
by PLC Corporate & Securities
| Published on 08 Jun 2012 • USA (National/Federal) |
The SEC granted accelerated approval of FINRA Rule 5123, which requires FINRA member firms that participate in certain private placements to make notice filings with FINRA, with certain exceptions.
On June 7, 2012, the SEC granted accelerated approval of new FINRA Rule 5123. The rule requires FINRA member firms that participate in certain private placements to make notice filings (which must include a copy of the offering document used in the private placement, if any) with FINRA, subject to certain exceptions.
The new rule will provide FINRA with more timely and detailed information about the private placement activities of its member firms. Specifically Rule 5123 requires a member that offers or sells any securities in a private placement to file with FINRA a copy of any private placement memorandum (PPM), term sheet or other disclosure document used in the sale (including exhibits), and any materially amended versions of those documents, within 15 calendar days after the date of first sale. For any private placement that does not include a PPM or term sheet, FINRA requires the members participating in the offering to notify it that no disclosure document was used.
FINRA has made it clear in the rule that the filing requirement is a notice filing, meaning that issuers and members should not expect FINRA comments or feel the need to obtain any FINRA input before commencing the offering process.
Rule 5123 defines a private placement as a non-public offering in reliance on an available exemption from registration under the Securities Act. As a result, Rule 5123 does not apply to securities offered under:
- Secondary market transactions under Sections 4(1), (3) and (4) of the Securities Act.
- Sections 3(a)(2), (9), (10) or (12) of the Securities Act.
The rule exempts other types of offerings and offerings sold to certain purchasers from its notice filing requirements. Key exemptions include, among others:
- Offerings sold by the FINRA member solely to any one or more of the following purchasers:
- institutional accounts (as defined in FINRA Rule 4512(c));
- qualified purchasers;
- qualified institutional buyers;
- investment companies;
- issuer employees and affiliates; or
- accredited investors as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
- The following types of offerings:
- made under Rule 144A or Regulation S;
- of non-convertible debt or preferred securities that meet the transaction eligibility criteria for registering primary offerings of non-convertible securities on Forms S-3 or F-3 (see Practice Notes, Registration Statement: Form S-3: Transaction Requirements and Registration Statement: Form F-3: Transaction Requirements); or
- filed with FINRA under Rules 2310, 5110, 5121 or 5122.
For more information on private placements, see Practice Note, Road Map for Undertaking a Private Offering.