Regulatory Notice 09-49

SEC Approves Amendments to Modernize and Simplify NASD Rule 2720 Relating to Public Offerings in Which a Member Firm With a Conflict of Interest Participates; Effective Date: September 14, 2009

Executive Summary

Effective September 14, 2009, firms must comply with the requirements of new NASD Rule 2720 (Public Offerings of Securities with Conflicts of Interest), which governs public offerings of securities in which a member firm with a conflict of interest participates. The new rule amends and replaces the previous NASD Rule 2720 in its entirety.

 

As described more fully in this Notice, the rule prohibits a member firm with a conflict of interest from participating in a public offering, unless the nature of the conflict is prominently disclosed and:

 

  • a qualified independent underwriter (QIU) participates in the offering; or
  • the member firm(s) primarily responsible for managing the offering does not itself have a conflict (and is not an affiliate of a firm with a conflict); or
  • the offered securities are exchange-listed and satisfy the requirements for a bona fide public market or are investment grade rated by a nationally recognized statistical rating organization.

 

Additionally, member firms with a conflict of interest must comply with certain net capital, discretionary accounts and filing requirements, as applicable.

 

The text of new NASD Rule 2720 is set forth in Attachment A of this Notice.

 

Questions regarding this Notice should be directed to:

 

  • Paul Mathews, Director, Corporate Financing Department, at (240) 386-4623;
  • Lisa Toms, Associate Director and Senior Counsel, Corporate Financing Department, at (240) 386-4661;
  • Gary Goldsholle, Vice President and Associate General Counsel, Office of General Counsel (OGC), at (202) 728-8104; and
  • Lisa Horrigan, Associate General Counsel, OGC, at (202) 728-8190.