FINRA promotes the capital-raising process through appropriately tailored rules that are designed to promote transparency and to establish important standards of conduct for the benefit of all market participants, including investors and issuers participating in offerings.
There have been significant developments recently in the mechanisms companies use to raise capital through securities offerings. FINRA believes it is essential that its oversight also evolve where appropriate to ensure that important investor protections are preserved without interfering with capital formation. In response, and as part of FINRA360, we have taken a number of steps to modernize FINRA's regulation of broker-dealers' participation in capital-raising activities, including creating the Capital Acquisition Broker (CAB) rule set for firms engaged in a limited range of corporate-financing activities, and the Funding Portal Rules, a set of streamlined rules that are tailored to the limited scope of activities in which funding portals are permitted to engage under the JOBS Act and the SEC's Regulation Crowdfunding.
While these changes increase efficiency and reduce unnecessary burdens on the capital-raising process without compromising important protections for issuers and investors, FINRA is exploring whether additional changes to these or other FINRA rules, operations or administrative processes would further enhance the capital-raising process while ensuring investor protections.
In April 2017, FINRA issued two Regulatory Notices requesting comment on ways to increase efficiency and reduce unnecessary burdens on the capital raising process without compromising important protections for investors and issuers.
Capital Acquisition and Placement Broker Committee
In December 2017, FINRA formed the Capital Acquisition and Placement Broker Committee on a two-year trial basis. The committee will advise FINRA on regulatory and public policy issues arising from the activities of member firms that have elected or are considering electing to be CABs, as well as member firms that have not elected CAB status but have similar business models.
- Published Regulatory Notice 17-14 requesting comment on the effectiveness and efficiency of the rules, operations and administrative processes governing broker-dealer activities related to the capital-raising process and their impact on capital formation. Based in part on feedback FINRA received in response to this Notice and response to companion Regulatory Notice 17-15, FINRA is proposing amendments to FINRA Rules 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements), 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings) and 5131 (New Issue Allocations and Distributions), discussed below.
- In April 2019, FINRA filed with the SEC proposed amendments to modernize, simplify and clarify FINRA Rule 5110, which applies to underwriting terms and arrangements regarding the public offering of securities.
- Preparing to file with the SEC amendments to FINRA Rules 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings) and 5131 (New Issue Allocations and Distributions) that would remove certain impediments to capital formation that are unnecessary to protect investors, including to exempt additional persons and types of transactions from the scope of the rules, modify current exemptions to enhance regulatory consistency, and address unintended operational issues.
- Formed the Capital Acquisition and Placement Broker Committee on a two-year trial basis to advise FINRA on CAB-related issues.
Qualification Exam Restructuring