Conflicts in Public Offerings

Overview

FINRA Rule 5121 (formerly NASD Rule 2720) requires a member that participates a public offering as to which it has a conflict of interest to take steps to address the conflict. Most significantly, a firm may be required to hire a "qualified independent underwriter" to participate in, or oversee, the underwriting, and there must be prominent disclosure in the offering documents of the conflict. Further, a member is generally prohibited from placing in a discretionary account any underwritten securities as to which the firm has a conflict unless the firm has received and maintains specific written approval from the account holder.

The definitions in Rule 5121 are also relevant to FINRA Rule 5110 (the "Corporate Financing Rule") and the requirements of the two Rules overlap to a good extent. A separate page is focused on Rule 5110. See also FINRA Private Placement Rule 5122 (Conflicts in Private Offerings) and FINRA Rule 5123 (Private Placements).

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