The guidance addresses how the filing and review of public offerings both before and after the amendments’ September 16 implementation date will be impacted.
By Dana G. Fleischman and Gail S. Neely
On September 14, 2020, the Financial Industry Regulatory Authority, Inc. (FINRA) updated its Public Offerings page, including its Frequently Asked Questions regarding amendments to Rule 5110 (the Corporate Financing Rule). As of September 16, 2020 (the Amendment Implementation Date), FINRA members participating in public offerings of securities must comply with Rule 5110 as amended by rule changes that were approved by the Securities and Exchange Commission on December 23, 2019 (the Amended Rule).
In addition to providing general information about process changes to filings made via FINRA’s Public Offering System, the guidance also covers the following topics:
- Timing: The provisions of the Amended Rule will apply to any public offering that prices on or after the Amendment Implementation Date, regardless of whether such offering is currently in review by FINRA and even if FINRA has already issued a No Objections Letter for it.
- The Amended Rule will also apply to all takedown offerings occurring after the Amendment Implementation Date whether or not the base registration statement was filed with FINRA prior to the Amendment Implementation Date. Thus, for example, offering documents for takedowns off of base registration statements already on file with FINRA will no longer be required to be filed for clearance.
- As with prior versions of Rule 5110, an exemption from filing for certain public offerings should not be construed to mean that the substantive, non-filing-related provisions of Rule 5110 — including compensation limitations and disclosure requirements — do not continue to apply to such offerings.
- Lock-up requirements: Securities currently subject to lock-up restrictions under Rule 5110 that meet one of the new exemptions from the lock-up provisions set forth in the Amended Rule will automatically cease to be subject to such lock-up restrictions after the Amendment Implementation Date.
- Employee plan securities: The Amended Rule broadens the exclusion from underwriting compensation for securities issued in accordance with an employee benefit plan to include not just those plans that would qualify under section 401 of the Internal Revenue Code, but also “similar plans.” FINRA notes in its guidance that a “similar plan” should be interpreted to include written plans for the compensation of directors and employees that provide comparable securities grants to qualifying persons so long as such plan is not created for the purpose of evading the Amended Rule’s requirements.
- Applicability of compensation limits to foreign affiliates of FINRA members: Compensation received by a non-US affiliate of a participating FINRA member would not be subject to the Amended Rule (including with respect to the rule’s underwriting compensation limitations and disclosure requirements) if such compensation can be separately allocated to the non-US affiliate for services provided in the non-US portion of the public offering.
For additional information regarding the Amended Rule, see Latham’s Client Alert FINRA Issues Guidance and Sets Implementation Dates for Corporate Financing Rule Amendments.
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