FINRA Proposes Rule Change to Simplify and Refine the Scope of Corporate Financing Rules

FINRA filed with the SEC proposed rule changes to amend FINRA Rule 5110("Corporate Financing Rule - Underwriting Terms and Arrangements") and Rule 5121("Public Offerings of Securities with Conflicts of Interest") to "simplify and refine" the scope of the rules.

Rule 5110 generally regulates underwriting compensation and prohibits unfair arrangements in connection with the public offering of securities. Rule 5121 generally provides that members with a conflict of interest may not participate in a public offering unless the members comply with certain prescribed disclosures or other protections.

FINRA's proposed amendments (i) narrow the scope of the definition of "participation or participating in a public offering" so that firms which only provide advisory or consulting services will not fall within this definition, (ii) modify the lock-up restrictions to exclude shares owned by an underwriter that are not considered "items of value" received as part of the distribution, and (iii) limit certain of the information requirements to a "participating" (rather than "any") member.

See: Text of the Proposed Rule Change.