FINRA Proposes Changes to Corporate Financing Rules

FINRA requested comment on proposed amendments to "rules, operations and administrative processes impacting capital formation."

In Regulatory Notice 24-17, FINRA stated that the amendments to FINRA Rules 5110 ("Corporate Financing Rule — Underwriting Terms and Arrangements"), 5121 ("Public Offerings of Securities With Conflicts of Interest") and 5123 ("Private Placements of Securities") would, among other things:

• clarify parts of Rule 5110 regulating underwriting compensation, including the valuation method for and exceptions from securities acquisitions that are considered underwriting compensation;
• simplify compliance and improve the operation of Rule 5121 by clarifying the substantive requirements of a conflicted member and a Qualified Independent Underwriter; and
• expand the exemptions available under Rule 5123 to include offerings sold to investors meeting the categories of accredited investor for certain family offices and certain entities with assets under management in excess of $5 million, consistent with the SEC's treatment of those categories.

The amendments stem from feedback to Regulatory Notice 23-09 which requested comment on FINRA rules impacting capital formation. FINRA noted that, in addition to the proposed amendments, it implemented operational improvements in response to comments from members that raise capital relying on Regulation A+ and other exempt offerings.

Comments are due by March 20, 2025.