[ by Howard Haykin ]

The  SEC approved new FINRA Rule 5123, establishing new filing requirements for FINRA member firms when they sell private placements that are subject to certain exemptions.  In such instances, the member firm must file has 15 calendar days from the date of the sale to file with FINRA:  (i) a copy of any private placement memorandum ("PPM");  (ii) term sheet; or, (iii) other offering document used by the firm.  If a firm sells a private placement without using any offering documents, then the firm should indicate that it did not use any such offering documents.

The rule becomes effective 12/3/12, and will require firms to submit offering documents electronically to FINRA through the FINRA Firm Gateway.  Furthermore, beginning 12/3//12, firms must submit filings regarding member firm private offerings (MPOs), as required by FINRA Rule 5122, Private Placements of Securities Issued By Members.  These go through the Firm Gateway, as well.

Background & Discussion. FINRA Rule 5123 is part of a multi-pronged approach to enhance oversight and investor protection in private placements.  In Rule 5122, FINRA established standards on disclosure, use of proceeds and a filing requirement for private placements issued by a member firm or a control entity. FINRA also has previously provided guidance on the scope of a firm’s responsibility to conduct a reasonable investigation of private placement issuers in Regulatory Notice 10-22.  Rule 5123 complements Rule 5122, by ensuring that FINRA is provided with more timely and complete information about the private placement activities of firms on behalf of other issuers.

The rule exempts some private placements ...  sold solely to qualified purchasers, institutional purchasers and other sophisticated investors.

Developing the Private Placement Filing System. FINRA is developing a private placement filing system to receive the offering documents that firms must file under the new rule.  The filing system, which firms will access through the Firm Gateway, will provide an efficient way for firms to electronically submit the filings in searchable Portable Document Format (PDF) to FINRA. In response to comments during the rulemaking process, the filing system will allow a firm to submit a filing on behalf of other firms involved in the sale of the private placement. A firm that makes a filing on behalf of itself and other firms must identify the other firms as part of its submission.

Notice Filings. On 12/3/12, when the new filing system becomes operational, firms that file offering documents pursuant to Rule 5122 must use the new filing system. Firms are reminded that filings under Rules 5123 and 5122 are “notice” type filings. As such, FINRA will not respond to the filings with a comment letter or provide a clearance letter.

Confidential Treatment and Exemptions. Similar to Rule 5122, FINRA will accord confidential treatment to all documents and information filed pursuant to Rule 5123. The rule also provides firms with a method to apply for an exemption from its provisions for good cause pursuant to the Rule 9600 Series.

FINRA Staff Contracts. Direct quetsions conerning this notice to: Joseph Price, SVP, Corporate Financing/Advertising Regulation, at (240) 386-4623; Paul Mathews, Director, Corporate Financing Department, at  (240) 386-4623; Lisa Jones Toms, Associate Director and Sr. Counsel, Corporate Financing Department, at (240) 386-4661; or, Stan Macel, Assistant General Counsel, Office of General Counsel (OGC), at (202) 728-8056.

For further details, go to:  [FINRA RegNote 12-40, September 2012].