FINRA Funding Portal Rules and Related Forms
The SEC approved FINRA’s proposed Funding Portal Rules and related forms for SEC-registered funding portals that become FINRA members pursuant to the crowdfunding provisions of Title III of the Jumpstart Our Business Startups (JOBS) Act and the SEC’s Regulation Crowdfunding. FINRA’s Funding Portal Rules became effective on January 29, 2016. Regulatory Notice 16-06 provides a brief overview of the new Funding Portal Rules and provides information for prospective funding portals that plan to apply for FINRA membership.
• FINRA Regulatory Notice 16-06 (January 2016): SEC Approval of FINRA Funding Portal Rules and Related Forms
FINRA Topic Page: Funding Portals
OTC Quotations in Foreign Private Issues
In consultation with the staff of the SEC , FINRA is issuing this Notice to remind firms of their obligations under Securities Exchange Act (SEA) Rule 15c2-11 and FINRA Rule 6432 (Compliance with the Information Requirements of Rule 15c2-11) regarding quotations in the securities of foreign private issuers that rely on SEA Rule 12g3-2(b). Specifically, we are reminding firms that Rule 15c2-11(a)(4) requires that they make paragraph (a)(4) information reasonably available upon request to any person expressing an interest in a transaction involving the security, such as by providing the requesting person with appropriate instructions regarding how to obtain the information electronically. Firms cannot comply with this requirement by directing customers to an issuer’s website if, by its terms, the website restricts access by U.S. persons to the paragraph (a)(4) information.
• FINRA Regulatory Notice 19-09 (March 20, 2019): FINRA Reminds Firms of their Obligations Under SEC Rule 15c2-11(A)(4)
Capital Acquisition Broker (CAB) Rules
The SEC approved CAB Rule 203 (Engaging in Distribution and Solicitation Activities with Government Entities) and CAB Rule 458 (Books and Records Requirements for Government Distribution and Solicitation Activities) on December 6, 2017. These rules apply established “pay-to-play” and related recordkeeping rules to the activities of member firms that have elected to be governed by the CAB Rules. The rules will allow CABs to engage in distribution or solicitation activities for compensation with government entities on behalf of registered investment advisers. The rules became effective on December 6, 2017.
• FINRA Regulatory Notice 17-37 (November 6, 2017): SEC Approves “Pay-to-Play” and Related Rules for Capital Acquisition Brokers
The SEC approved FINRA’s rule set for firms that meet the definition of “capital acquisition broker” (CAB) and that elect to be governed under this rule set. CABs are firms that engage in a limited range of activities, essentially advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions. Firms that elect to be governed under the CAB rule set are not permitted, among other things, to carry or maintain customer accounts, handle customers’ funds or securities, accept customers’ trading orders, or engage in proprietary trading or market-making.
The CAB rules became effective on April 14, 2017. In order to provide new CAB applicants with lead time to apply for FINRA membership and obtain the necessary qualifications and registrations, CAB Rules 101-125 became effective on January 3, 2017. FINRA began accepting applications for firms that are not broker-dealers but wish to register as CABs, for existing member firms requesting to elect CAB status, and for CAB associated person registration and qualification, on January 3, 2017.
• FINRA Regulatory Notice 16-37 (October 2016): SEC Approves FINRA’s Capital Acquisition Broker Rules
FINRA Topic Page: Private Placements
(New) Solicitations of Interest Prior to a Registered Public Offering
The SEC is adopting a new communications rule under the Securities Act of 1933 that permits issuers to engage in oral or written communications with certain potential investors, either prior to or following the filing of a registration statement, to determine whether such investors might have an interest in a contemplated registered securities offering. The effective date is December 3, 2019.
• SEC Release No. 33-10699 (September 25, 2019), 84 FR 53011 (October 4, 2019) (File No. S7-01-19; Final Rule): Solicitations of Interest Prior to a Registered Public Offering
Regulation A Offerings
FINRA issued guidance regarding the FINRA filing requirements and review procedures that apply to firms that participate in Regulation A+ offerings. Specifically, FINRA’s Corporate Financing Rules require firms that participate in Regulation A+ offerings to file with FINRA information specified in the rules. FINRA’s Communications with the Public Rule and its Suitability Rule also apply to a firm’s participation in these offerings. FINRA also reminds firms that communications with the public concerning a Regulation A+ offering of Direct Participation Program securities must be filed with FINRA.
• FINRA Regulatory Notice 15-32 (September 2015): FINRA Filing Requirements and Review of Regulation A Offerings
FINRA Topic Page: Public Offerings
FINRA Rule 3110 (Supervision) includes a provision to help firms comply with their obligation under Section 15(g) of the Securities Exchange Act of 1934 to have policies and procedures in place reasonably designed to prevent potential insider trading. Rule 3110(d) requires that firms include in their supervisory procedures a process for reviewing securities transactions in certain types of accounts that is reasonably designed to identify trades that may violate insider trading prohibitions. When implementing these policies and procedures, firms may take a risk-based approach to monitoring transactions that takes into account their specific business models, and firms are encouraged to tailor their policies and procedures to their specific business models.
• FINRA Regulatory Notice 14-10 (March 2014): SEC Approves New Supervision Rules