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Filing Guidance - Public Offering Review

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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 three business days 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.

Unless FINRA members can rely on an applicable exemption from filing, they cannot participate in a public offering subject to FINRA Rule 5110 until FINRA provides a no objections opinion regarding the underwriting terms and arrangements.

The terms "Participating Member" and "Participate, Participation or Participating" are defined in FINRA Rules 5110(j)(15) and 5110(j)(16), respectively. All public offerings in which a member participates, including securities offered pursuant to SEC Regulation A, must be filed with FINRA for review, except as exempted from the filing requirements under FINRA Rule 5110(h).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 three (3) business days 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(h) for more information.3

To learn more about public offerings that are required to be filed with FINRA, see FINRA Rules 5110(a)(2) and 5110(j)(18). For additional information regarding potential exemptions, see FINRA Rules 5110(h)(1) and 5110(h)(2).

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(h)(2). 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 of the requirements set forth in FINRA Rule 5121(a). In addition, participating FINRA members must 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 disclosed4 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.5 FINRA members may select a review program concurrent with or following the initial submission of a public offering filing. The 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. In July 2020, FINRA updated the eligibility criteria to increase the number of filings that can qualify for a Limited Review. FINRA members that use this review program 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:

  • Total underwriting compensation is within allowable guidelines;
  • Underwriting arrangements do not include prohibited terms as defined in the “Unreasonable Terms and Arrangements” section of FINRA Rule 5110; and
  • The offering does not include a new or novel product or is one that poses complex regulatory issues.

The Limited Review program will be administered as follows:

  • A filer may request a Limited Review at any time after the Filing Form has been submitted, or
  • Public Offering Review (POR) staff will consider whether a filing is eligible for Limited Review after the Filing Form has been submitted and may change the review program to Limited Review without a request.

If the offering is not eligible for Limited Review because it does not meet the program criteria, the offering will be reviewed under the Full Review program. We encourage FINRA members to contact the staff with any concerns well ahead of the proposed timeframe for launching an offering.

If the offering is eligible for Limited Review, then a Limited Review No Objections Letter will be transmitted to the FINRA member.

4.2 Full Review

Full Review is the default program available for all non-shelf public offering submissions that do not request a Limited 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 is issued.

If an Unreasonable Letter or Defer Letter is issued, the review staff will expect that the FINRA member submit complete 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 that impact the underwriting terms and arrangements, including an increase or decrease to the offering proceeds;
  1. changes in the public offering price; and
  1. 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 may continue 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
  1. 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 provides filing data associated with a participating FINRA member.

4.3 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 clearance (24/7) for shelf filings, including those of Well-Known Seasoned Issuers (WKSIs).

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

  • the Securities Act of 1933 registration number;
  • the Fed Wire Number and date; and
  • if specifically requested by FINRA, other documents and information set forth in FINRA Rule 5110(a)(4)(A) and (B).

FINRA will access the base shelf registration statement, amendments and prospectus supplements in the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system and populate the information necessary to conduct a review in FINRA’s Public Offering System. Upon filing of the required registration statement number pursuant to FINRA Rule 5110(a)(4)(E)(i), FINRA will provide a no objections opinion. To further facilitate issuers’ ability to timely access capital markets, FINRA’s review of documents and information related to a shelf takedown offering for compliance with FINRA Rule 5110 will occur on a post-takedown basis.

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 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
  • 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 92-28
    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/rules-guidance/notices

  • FINRA Rule 5110
    Corporate Financing Rule – Underwriting Terms and Arrangements
  • FINRA Rule 5130
    Restrictions on the Purchase and Sale of Initial Equity Public Offerings

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

 

1 FINRA Rule 5121(j)(18) defines "public offering" to mean any primary or secondary offering of securities made in whole or in part in the United States pursuant to a registration statement, offering circular or similar offering document, including exchange offers, rights offerings and offerings of securities made pursuant to a merger or acquisition, except for: (A) securities exempt from registration with the SEC pursuant to the provisions of Sections 4(a)(1), 4(a)(2) or 4(a)(5) of the Securities Act; (B) securities exempt from registration with the SEC pursuant to Rule 504 of SEC Regulation D, if the securities are restricted securities under Securities Act Rule 144(a)(3) or Rule 506 of SEC Regulation D; (C) securities exempt from registration with the SEC pursuant to Securities Act Rule 144A or SEC Regulation S; or (D) securities which are defined as “exempted securities” 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/rules-guidance/key-topics/public-offerings.

4 Prominent disclosure is defined in FINRA Rule 5121(f)(10).