FINRA Proposes to Allow Certain BDCs to Buy Into IPOs

FINRA proposed amendments to FINRA Rule 5130 ("Restrictions on the Purchase and Sale of Initial Equity Public Offerings") and Rule 5131 ("New Issue Allocations and Distributions") to exempt certain business development companies ("BDCs") from restrictions on buying IPOs.

The proposed amendments would:

• Exempt certain BDCs from Rule 5130's definition of "restricted person"—allowing them to purchase shares in IPOs in which they are currently barred from purchasing due to affiliations with broker-dealers and investment managers.

• Modify Rule 5131(b) to exempt eligible BDCs from "spinning" restrictions—permitting IPO allocations to these entities even if they have relationships with investment banks involved in the offering, provided certain conditions are met.

• Align FINRA rules with SEC treatment of BDCs—reflecting regulatory changes that recognize the unique role of BDCs in providing capital to small and mid-sized businesses.

FINRA said the proposed changes stem from industry feedback on the regulatory barriers affecting BDC investments in public offerings. FINRA described these amendments as aiming to facilitate capital formation while maintaining investor protections.