FINRA proposed amendments to Rule 5130 ("Restrictions on the Purchase and Sale of Initial Equity Public Offerings") and Rule 5131 ("New Issue Allocations and Distributions"). The proposed amendments would exempt additional persons and offerings from the scope of the rules, and conform the exemptions in the two rules more closely. In particular, the proposal would:
expand the categories of entities to whom a broker-dealer may sell IPO shares in accordance with FINRA Rule 5130 to include (i) additional categories of "family investment vehicles" based on the "family office" exemption under the Investment Advisers Act of 1940, (ii) sovereign entities that own a broker-dealer, (iii) foreign employee retirement benefit plans that meet certain conditions and (iv) foreign investment companies that are "widely held" based on additional criteria;
exclude offerings made outside the United States from FINRA Rules 5130 and 5131; and
conform certain exemptions in FINRA Rules 5130 and 5131 more closely to (i) permit "issuer-directed" allocations directed by the affiliates and selling shareholders of an issuer, (ii) permit executive officers and directors of a public company or a covered non-public company to maintain their ownership interest in an issuer under "anti-dilution" exemptions, and (iii) permit a broker-dealer to allocate IPO shares to executive officers and directors of a charitable organization that is not affiliated with the broker-dealer.
Comments must be submitted within 21 days of publication of the proposal in the Federal Register.
FINRA reminded broker-dealers to adopt procedures to determine whether a transaction involves a "TRACE-Eligible Security" which is a reportable event.
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