SEC to Vote on Underwriting Arrangements and Private Placement Exemptions

The SEC instituted proceedings to determine whether to approve FINRA amendments on underwriting compensation valuations and private placement exemptions. (See prior coverage.) 

The FINRA proposed rule change would amend FINRA Rules 5110 (Corporate Financing Rule - Underwriting Terms and Arrangements) and 5123 (Private Placements of Securities).

The proposed changes to Rule 5110 would:

• replace the existing valuation standard for securities acquisitions deemed underwriting compensation with one based on closing market price on the date of acquisition;
• add new exclusions from underwriting compensation for debt-for-equity exchanges, capital investments in direct participation programs and unlisted real estate investment trusts, and non-convertible preferred securities;
• clarify that "tail fees" are subject to the same requirements as termination fees under Rule 5110(g)(5)(B); and
• make minor technical and clarifying edits.

Proposed amendments to Rule 5123 would expand the private placement filing exemption to include two additional categories of accredited investors - entities and family offices with investments or assets under management exceeding $5,000,000 - consistent with the 2020 expansion of the accredited investor definition under Securities Act Rule 501 ("Definitions and terms - Accredited Investor").