Filing Guidance - Public Offering Review

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1. The Basics
1.1 Is there a filing requirement for FINRA members that participate in any capacity in connection with a proposed public offering of securities?
1.2 If a filing requirement does exist for a public offering, could there be an exemption available under FINRA Rule 5110 for the proposed transaction?
2. Using the Public Offering Filing System
3. Conflicts of Interest
3.1 What happens if a member has a conflict of interest in connection with a public offering?
4. Review Programs
4.1 Limited Review
4.1.1 What types of offerings are eligible for Limited Review?
4.1.2 Would a FINRA member be required to agree to all of the Limited Review representations as part of the initial filing?
4.1.3 What happens when a FINRA member defers one or more Limited Review representations?
4.2 Expedited Review
4.2.1 What can a FINRA member expect if all representations required for an Expedited Review are submitted?
4.3 Full Review
4.4 Shelf Offerings
5. Additional Resources
5.1 Public Offering System Guides
5.2 Regulatory Notices

1. The Basics


FINRA Rules 5110, 5121, and 2310 apply to public offerings of securities and generally require the following of FINRA member firms:

  • FINRA members must file documents and other information on a timely basis in connection with public offerings.[1] These documents include registration statements or offering circulars, amendments and distribution-related documents. The documents must be submitted no later than one business day after they are filed with or submitted to the Securities and Exchange Commission (SEC). FINRA accords confidential treatment to all filed documents and information.
  • FINRA members cannot participate if the underwriting terms and arrangements are unfair or unreasonable.
  • FINRA members must prominently disclose the nature of any conflicts of interest.
  • FINRA members participating in the distribution of shares in a Direct Participation Program or an Unlisted Real Estate Investment Trust must comply with additional compensation and disclosure requirements described in FINRA Rule 2310.

If FINRA members or persons associated with a FINRA member are engaged to participate in any public offering of securities, then no sales of securities subject to FINRA Rule 5110 shall commence until FINRA has provided a "no objections" opinion.

The terms "Participating Member(s)" and "Participation or Participating in a Public Offering" are defined in FINRA Rules 5110(a)(4) and 5110(a)(5), respectively. In addition, FINRA Rule 5110(b)(9) provides a non-exclusive list of offerings required to be filed which includes securities offered pursuant to SEC Regulation A.[2]

Overall, FINRA's review of public offerings complements the SEC's registration and review process for issuers and provides FINRA members with guidance on fair and reasonable underwriting terms and arrangements.

1.1 Is there a filing requirement for FINRA members that participate in any capacity in connection with a proposed public offering of securities?


A filing requirement may exist for a public offering that includes a participating member, as defined in FINRA Rule 5110. When a FINRA member is not participating in a public offering, there is no filing requirement with FINRA.

FINRA's Corporate Financing filing requirement for public offerings is one (1) business day following filing with the SEC, unless the filing meets an exemption from filing or an exemption from all of the provisions of the public offering rules. See FINRA Rule 5110(b)(4) for more information.[3]

An initial public offering, or IPO, refers to when a company first sells its securities to the public. See the SEC's website for more information on public offerings.[4]

To learn more about public offerings that are required to be filed with FINRA, see FINRA Rules 5110(b)(9) and 5121(f)(11). For additional information regarding potential exemptions, see FINRA Rules 5110(b)(7) and 5110(b)(8).

1.2 If a filing requirement does exist for a public offering, could there be an exemption available under FINRA Rule 5110 for the proposed transaction?

Yes, although public offerings are required to be filed with FINRA, there may be a filing exemption available. In addition, certain offerings may be exempt from compliance with FINRA Rules 5110, 5121 and 2310 under FINRA Rule 5110(b)(8). If an offering does not qualify for a filing exemption, it must be filed with the Corporate Financing Department at FINRA.

2. Using the Public Offering Filing System


FINRA developed and continues to enhance its Firm Gateway—a single point of service allowing FINRA members to quickly comply with rules, gather information and interact with FINRA.

If a FINRA member intends to file a public offering with FINRA, which requires access to the Firm Gateway, the FINRA member must register with the FINRA Entitlement Program in order to access FINRA's regulatory systems.

The Entitlement Program includes a Super Account Administrator (SAA) role that allows FINRA members to create, modify and delete account administrator and user accounts for FINRA applications.

3. Conflicts of Interest


As defined in FINRA Rule 5121(f)(5), a conflict of interest exists, if at the time of a member firm's participation in a public offering, any of the following four conditions applies:

  • The securities are to be issued by the member firm;
  • The issuer controls, is controlled by or is under common control with the member firm or the member firm's associated persons;
  • At least five percent of the net offering proceeds, not including underwriting compensation, are intended to be: (i) used to reduce or retire the balance of a loan or credit facility extended by the member firm, its affiliates and its associated persons, in the aggregate; or (ii) otherwise directed to the member firm, its affiliates and associated persons, in the aggregate; or
  • If, as a result of the public offering and any transactions contemplated at the time of the public offering: (i) the member firm will be an affiliate of the issuer; (ii) the member firm will become publicly owned; or (iii) the issuer will become a member firm or form a broker-dealer subsidiary.

3.1 What happens if a member has a conflict of interest in connection with a public offering?

If there is a conflict of interest, a FINRA member can participate in the proposed offering provided that the member complies with all requirements set forth in FINRA Rule 5121(a). In addition, participating FINRA members would need to comply with the requirements of FINRA Rule 5110.

A member firm with a conflict of interest cannot participate in a public offering, unless the nature of the conflict is prominently disclosed[5] 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 satisfy the requirements for a bona fide public market; OR
  • the offered securities are investment grade rated by a nationally recognized statistical rating organization.

FINRA Rule 5121 also requires a FINRA member engaged in offering its securities to the public to comply with additional requirements related to net capital computation and escrow of proceeds. Furthermore, FINRA Rule 5121 imposes restrictions on sales to discretionary accounts.

4. Review Programs


FINRA's Corporate Financing Department has implemented several review programs to fit the varying needs of FINRA members and accommodate different types of public offerings.[6] FINRA members may select a review program concurrent with or following the initial submission of a public offering filing. Following is a short description of each program and the applicable eligibility requirements.

4.1 Limited Review

In September 2013, FINRA introduced the Limited Review program to streamline the review process and provide faster clearance for non-shelf public offering filings. Because the Limited Review program requires the FINRA member to agree to certain representations, FINRA members that use this review program typically will not receive comments from FINRA unless there are subsequent changes to the structure of the transaction that would impact review program eligibility.

4.1.1 What types of offerings are eligible for Limited Review?

In order to be eligible for the Limited Review program, a filing must meet all of the following criteria:

  • Securities are listed on a national securities exchange (Corporate or Investment Program);
  • Total underwriting compensation is within allowable guidelines;
  • Securities received as underwriting compensation would make the filing ineligible, excluding acquisitions that meet an exception from underwriting compensation under FINRA Rule 5110(d)(5);
  • Underwriting arrangements do not include prohibited terms as defined in FINRA Rule 5110(f)(2), such as indeterminate items of value; and
  • The offering does not include a new or novel product or is one that poses complex regulatory issues.

Please note that FINRA may, in its discretion, make a filing eligible notwithstanding the criteria listed above.[7] If the offering is not eligible for Limited Review because it does not meet the program criteria, the filer must pursue a different method for filing the offering with FINRA. We encourage FINRA members to contact the staff with any concerns well ahead of the proposed timeframe for launching an offering.

4.1.2 Would a FINRA member be required to agree to all of the Limited Review representations as part of the initial filing?

No, there are six representations required. However, only two (2) are mandatory at the time of the Limited Review request. By selecting these representations, you agree to provide the staff no later than five business days prior to the member's participation any documents required to be filed and any updates to the information previously submitted.

Required representations:

  1. We represent that all documents required to be filed pursuant to FINRA Rule 5110 have been or will be submitted no later than five business days prior to the member's participation. Documents required include but are not limited to underwriting or distribution related documents, any engagement letters, letters of intent or any other document entered into by any participating member(s) and the issuer during the 180 days preceding the initial filing with the SEC.
  2. All representations made at this time are accurate to the best of our knowledge. We undertake to notify the staff, no later than five business days prior to the member's participation of any changes that may affect the staff's No Objections Letter. We understand that this notification may require a review prior to the member's participation. If a notification is not made, the information filed herein will be presumed to be accurate at the time of the member's participation in the offering.

In addition, there are four representations that can either be agreed to at the time of the initial request, or can be deferred and provided later in an update to the Limited Review request form.

These four representations are related to associations/affiliations, prohibited arrangements as defined in FINRA Rule 5110(f)(2), acquisitions of securities considered underwriting compensation and conflicts of interest.

Representations that can be deferred at the time of filing:

  1. We represent that the association or affiliation between any participating member(s) and any officer, director or beneficial owner of 5% or more of any class of the issuer's securities is indicated (if applicable) in the Association/Affiliation Summary.
  2. We represent that the terms and arrangements between participating FINRA members and the issuer do not include any prohibited arrangements as described in FINRA Rule 5110(f)(2). The term "participating members" is defined in FINRA Rule 5110(a)(4).
  3. We represent that no participating member(s) has acquired unregistered securities that would be considered underwriting compensation during the period beginning 180 days preceding the initial filing with the SEC through 90 days after the effective date of the filing.
  4. We represent that in the event the offering is subject to FINRA Rule 5121, the registration statement or offering circular will comply with the prominent disclosure provisions.

If the offering is eligible for Limited Review, and the FINRA member can agree to all of the Limited Review representations in the Public Offering Filing System, then a Limited Review No Objections Letter will be transmitted to the FINRA member.

Following the receipt of a No Objections Letter, FINRA Rule 5110 still requires the following information and documents to be filed on a timely basis for review:

  1. any amendments to documents;
  2. changes in the public offering price or number of shares prior to or at the time of pricing; and
  3. a copy of the final prospectus.

If such changes indicate a modification of the terms and arrangements of the proposed offering, further review may result in a change in FINRA's no objections opinion.

4.1.3 What happens when a FINRA member defers one or more Limited Review representations?

A FINRA member may defer some of the Limited Review representations. However, the FINRA member must agree to all of the Limited Review representations at a later date.

If the FINRA member chooses to defer any of the four representations, and the staff agrees that the filing is eligible, the FINRA member will receive a Limited Review Defer Letter instead of a No Objections Letter. When the FINRA member is able to agree to all of the previously deferred Limited Review representations, a Limited Review No Objections Letter will be issued. See the prior section for FINRA member obligations following the issuance of a no objections opinion.

If a FINRA member is unwilling or unable to make all Limited Review representations, an offering would not be eligible to receive a Limited Review No Objections Letter.

4.2 Expedited Review

To request an Expedited Review, the FINRA member must complete all of the representations and provide the required information in the Expedited Review screen in the Public Offering Filing System under Review Programs.

This information includes representations regarding compliance with FINRA Rules 5110(f)(2) and 5121, appropriate disclosure of any association or affiliation between the issuer and any member, submission of all relevant documents and the completion of due diligence. All requests for Expedited Review will be subject to review and approval after submission.

Please note that shelf offerings, PIPEs, resale offerings distributed on a best-efforts basis, non-traded investment programs and offerings in which a participating FINRA member firm has acquired unregistered securities during the review period will not be eligible for an Expedited Review.

Expedited review representations

  1. We represent that the association or affiliation between any member and any officer, director or beneficial owner of 5% or more of any class of the issuer's securities is indicated (if applicable) in the Association/Affiliation Summary.
  2. We represent that the terms and arrangements between participating FINRA members and the issuer do not include any prohibited arrangements as described in FINRA Rule 5110(f)(2). The term "participating members" is defined in FINRA Rule 5110(a)(4).
  3. We represent that no participating FINRA members have acquired unregistered securities during the period beginning 180 days preceding the initial filing with the SEC through 90 days after the effective date of the filing.
  4. We represent that in the event the offering is subject to FINRA Rule 5121, the registration statement or offering circular will comply with the prominent disclosure provisions.
  5. We represent that all relevant documents will be filed no later than 48 hours or sooner if required pursuant to FINRA Rule 5110, including but not limited to, all underwriting or distribution related documents, and any engagement letter, letter of intent, or any other documents entered into by any participating FINRA members and the issuer in the 180 days preceding the initial filing with the SEC.
  6. We represent that the due diligence process has been completed and that the representations provided herein are final and not subject to change.

4.2.1 What can a FINRA member expect if all representations required for an Expedited Review are submitted?

If the FINRA member can meet the requirements of the Expedited Review program, the Corporate Financing Department staff will expedite the review of the public offering. Once the review is complete, a No Objections Letter is transmitted to the FINRA member.

Following the receipt of a No Objections Letter, FINRA Rule 5110 still requires the following information and documents to be filed on a timely basis for review:

  1. any amendments to documents;
  2. changes in the public offering price or number of shares prior to or at the time of pricing; and
  3. a copy of the final prospectus.

If such changes indicate a modification of the terms and arrangements of the proposed offering, further review may result in a change in FINRA's no objection opinion.

4.3 Full Review

Full Review is the standard and default program available for all non-shelf public offering submissions that do not request a Limited or Expedited Review. FINRA members must submit required documents and disclose compensation and conflicts of interest. On average, the initial review process takes 15 to 25 business days following receipt and staff assignment through the Public Offering System. FINRA staff will review the filing submission and determine whether a No Objections Letter, Unreasonable Letter or Defer Letter would be issued.

If an Unreasonable Letter or Defer Letter is issued, the review staff will expect that the FINRA member submit responses to the comments through the Public Offering Filing System. Once all of the comments and regulatory issues are resolved, a No Objections Letter is transmitted to the FINRA member.

Following the receipt of a No Objections Letter, FINRA Rule 5110 still requires the following information and documents to be filed on a timely basis for review:

  1. any amendments to documents;
  2. changes in the public offering price or number of shares prior to or at the time of pricing; and
  3. a copy of the final prospectus.

If such changes indicate a modification of the terms and arrangements of the proposed offering, further review may result in a change in FINRA's no objection opinion.

All non-shelf public offerings filed with FINRA go through a triage process prior to assignment. Once the triage process is completed, the offering may be assigned to a first and second reviewer or a single reviewer.

  • The first reviewer is responsible for the initial review of a filing and the entire lifecycle of the filing, including the review of all amendments and responses to FINRA's comment letter.
  • The second reviewer provides oversight and guidance to the first reviewer as well as final approval.

FINRA issues three primary types of comment letters:

  • Defer Letter – FINRA issues a Defer Letter if it identifies regulatory concerns and requires clarification or additional documents.
  • Unreasonable Letter – FINRA issues an Unreasonable Letter if the terms and arrangements governing members' participation and disclosure regarding those terms and arrangements do not appear to comply with the Corporate Financing Rules. FINRA members may file modifications to the proposed underwriting and other terms and arrangements for further review.

    As an alternative to issuing a comment letter, FINRA may follow up with telephonic comments or issue additional comment letters if it requires supplemental information or documents. The comment and response process continues until all issues are resolved. FINRA members can call the first reviewer, whose contact information is included on the comment letter, to discuss the letter and interpretive questions. In addition, the staff may request supplemental information to assess a specific regulatory issue.
  • No Objections Letter – When the review process is complete, FINRA issues a No Objections Letter. A firm must receive a No Objections Letter before it participates in a distribution of securities to investors.

All correspondence, including comment letters, are made available in the Public Offering Filing System to the party that submitted the filing to FINRA. Even if a FINRA member did not submit a filing directly but engaged a third party, FINRA members can always determine the status of a review through the following methods:

  1. Phone: FINRA members identified as "participating" in a filing may call the Department at (240) 386-4623 and ask to be connected with the assigned staff; or
  2. Firm Gateway:
    1. FINRA members identified as "participating" in a filing may view the status of an offering in the Public Offering Dashboard; and
    2. access a Corporate Financing Report Card, which provide filing data associated with a participating FINRA member.

4.4 Shelf Offerings

A shelf offering is an offering of securities registered by an issuer pursuant to SEC Rule 415 where the securities are expected to be sold on a delayed or continuous basis, provided that the issuer meets the SEC's eligibility requirements for use of Form S-3, F-3 or any other Form filed with the SEC for that purpose. FINRA’s Corporate Financing Department recognizes that issuers and members engaged in the distribution of a shelf offering may need to access the market very quickly.

The review process for shelf offerings provides FINRA members with immediate clearance (24/7) for shelf filings including those of Well-Known Seasoned Issuers (WKSIs).

In order to obtain immediate clearance for a shelf offering in the Public Offering Filing System, you must provide basic offering information, in addition to:

  • an undertaking that all information necessary to complete the filing will be provided no later than three business days following the initial submission of the filing; and
  • the Fed Wire Number and date.

5. Additional Resources


FINRA's Corporate Financing Department web page has resources and information for firms, including links to rules, guidance and regulatory notices relevant to offerings regulated by FINRA's Corporate Financing Rules.

5.1 Public Offering System Guides

5.2 Regulatory Notices

  • Regulatory Notice 17-15
    FINRA Requests Comment on Proposed Amendments to the FINRA Corporate Financing Rule
  • Regulatory Notice 16-08
    Private Placements and Public Offerings Subject to a Contingency
  • Regulatory Notice 15-32
    FINRA Filing Requirements and Review of Regulation A Offerings
  • Regulatory Notice 15-02
    SEC Approves Amendments to FINRA Rule 2310 and NASD Rule 2340 to Address Values of Direct Participation Program and Unlisted Real Estate Investment Trust Securities
  • Regulatory Notice 14-22
    SEC Approves Amendments to FINRA Rule 5110 to Permit Termination Fees and Rights of First Refusal
  • 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
  • Regulatory Notice 08-35
    SEC Approves Amendments to NASD Rule 2810 (Direct Participation Programs)
  • Notice to Members 04-13
    SEC Approves Amendments to Rule 2710 (Corporate Financing Rule) and Rule 2720 (Distribution of Securities of Members and Affiliates-Conflicts of Interest)
  • Notice to Members 92-53
    Underwriting Compensation Received by Members in Public Corporate Equity Offerings
  • Notice to Members 92-28
    SEC Approval of Corporate Financing Rule and Code of Procedure for Corporate Financing and Direct Participation Program Matters

All FINRA Regulatory Notices are available at: http://www.finra.org/industry/notices

All FINRA Rules are available at: https://www.finra.org/industry/finra-rules

Footnotes


[1] FINRA Rule 5121(f)(11) defines "public offering" to mean any primary or secondary offering of securities made pursuant to a registration statement or offering circular including exchange offers, rights offerings, offerings made pursuant to a merger or acquisition and all other securities offerings of any kind whatsoever, except any offering made pursuant to: (A) an exemption from registration under Sections 4(1), 4(2), or 4(6) of the Securities Act; (B) Securities Act Rule 504, if the securities are "restricted securities" under Securities Act Rule 144(a)(3), Securities Act Rules 505 or 506; or (C) Securities Act Rule 144A or SEC Regulation S. The term public offering shall exclude exempted securities as defined in Section 3(a)(12) of the Exchange Act.

[2] See Notice to Members 15-32: "FINRA Filing Requirements and Review of Regulation A Offerings."

[3] To learn more about FINRA's review of Public Offerings, go to www.finra.org/industry/public-offerings.

[4] If a company decides to conduct a registered public offering, the Securities Act of 1933 requires the company to file a registration statement with the SEC before it may start offering its securities for sale. The company may not actually sell the securities covered by the registration statement until the SEC staff declares the registration statement "effective."

[5] Prominent disclosure is defined in FINRA Rule 5121(f)(10).

[7] See the Limited Review Program FAQ for more information.