FINRA to Target Firm Practices on Small-Cap Offerings in Foreign Jurisdictions

In a Targeted Examination Letter, FINRA asked member firms that have been involved in multiple small-cap offerings to respond to a series of questions about their activities with exchange-listed issuers that have business operations in foreign jurisdictions. FINRA singled out China as a jurisdiction of interest.

In the letter, FINRA stated that the review covers the period from January 1, 2023, through September 30, 2025. The examination focuses on firms involved in underwriting or placement activities and those engaged in trading, with detailed information requests specific to each group.

For Firms Involved in Underwriting or Placement 

FINRA asked firms that have acted as an underwriter, bookrunner, syndicate member, selling group member, or placement agent in small-cap offerings to provide information on their:

Supervisory procedures and policies, including all written supervisory procedures (WSPs), compliance policies, training materials, and other guidance related to due diligence, the review and approval process for participating in offerings and compliance with Regulation M and FINRA Rule 5210 (Publications of Transactions and Quotations);

Offering Details, including a detailed, tabular list of every small-cap offering the firm participated in (e.g., extensive information such as issuer name, offering type, firm's role, due diligence dates, investor types, compensation details, and names of all parties and personnel involved); and 

Agreements, including copies of all engagement agreements, advisory agreements, or other relevant contracts for each listed offering.

For Firms Involved in Trading

FINRA asked firms that participated in the initial allocation and/or secondary market trading of small-cap offerings, including through omnibus accounts, to provide information on:

Anti-Money Laundering including the firm’s complete written AML compliance program in effect during the relevant period;

Trading Supervision, including WSPs and other compliance materials related to the supervision of securities trading to detect activities such as market manipulation, insider trading, spoofing, and wash trading;

Omnibus Accounts, including specific WSPs and any guidance on the supervision of omnibus accounts; and 

Supervisory Tools, including a comprehensive list of all tools (e.g., exception reports, alerts, monitoring systems) used to supervise trading and detect suspicious activity related to account opening, share deposits, trading, money movements, and customer due diligence.)