FINRA’s Change to Rules 5122 and 5123

FINRA’s Change to Rules 5122 and 5123

On July 15, 2021, FINRA released Regulatory Notice 21-26 announcing changes to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) effective October 1, 2021. The changes will require members to file retail communications that promote or recommend private placement offerings that are subject to those rules’ filing requirements.

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Changing the Definition of “Accredited Investor”

Changes to The Definition of Accredited Investor

The changes to the definition of “Accredited Investor” that the SEC approved in August of 2020 officially went into effect on December 8th. The changes now allow people to qualify based on factors other than net worth. Now individuals will be able to qualify as an Accredited Investor based on clear measures of financial sophistication, such as professional knowledge and experience or certifications in addition to the traditional test for income or net worth. The change also expanded and updated the list of entities that can meet the definition an participate in certain private offerings.

The SEC’s intentions with the change were to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in private capital markets to expand investment opportunities while maintaining appropriate investor protections and promote capital formation.

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SEC Rule to Simplify Exempt Offering Framework for Small Firms

SEC Rule to Simplify Exempt Offering Framework for Small Firms

On Nov. 2, 2020, the U.S. Securities and Exchange Commission (SEC) adopted final rules to simplify the exempt offering framework. The SEC’s goal with these amendments was to “simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.”. More Specifically they aimed to:

  • Address the ability of issuers to move from one exemption to another;
  • Set clear and consistent rules governing offering communications between investors and issuers;
  • Address potential gaps and inconsistencies in their rules relating to offering and investment limits; and
  • Harmonize certain disclosure requirements and bad actor disqualification provisions.

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FINRA’s Proposed Change to Rules 5122 and 5123

FINRA’s Proposed Change to Rules 5122 and 5123

On October 28, 2020, FINRA filed a proposed rule change to amend Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) that would require members to file retail communications concerning Private Placement offerings. Previously, Rules 5122 and 5123 required all offering documents to be filed with FINRA. However, they weren’t specific enough to include all documents that should have been considered offering documents, such as retail communications.

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