Resources/ Updates

Apr15

FINRA Looks to Amend Corporate Financing Rule

Rule 5110 prohibits unfair underwriting arrangements in connection with the public offering of securities.  FINRA wants industry feedback by May 30, 2017, on its proposed amendments to modernize, simplify and clarify FINRA Rule 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements) .

The proposal aims to keep the key standard of 5110, which is to disallow broker-dealers and their associated persons from  participating in a public offering where the terms and conditions (including underwriting comp) are unfair, unreasonable or break a FINRA rule.  The proposed rule text is available in Attachment A and with marked changes in Attachment B in Regulatory Notice 17-15.

Proposed Changes

FINRA is proposing a range of changes to Rule 5110 (see attached) including to the following areas:

  • Filing requirements
  • Filing exemptions
  • Disclosure requirements
  • Underwriting compensation
  • Lock-up restrictions
  • Valuation of securities
  • Prohibited terms and arrangements
  • Defined terms

Backfill

Rule 5110 was adopted in 1992 in response to underwriters dealing unfairly with issuers. Under the rule, a member that participates in a public offering must file info with FINRA about the underwriting terms and arrangements.

FINRA’s Corporate Financing Department reviews this information to see if terms and arrangements align with applicable FINRA rules.

Rule 5110 was updated in 2004 to better cover the financial activities of multi-service firms. FINRA recently conducted a quasi retrospective review of Rule 5110.

To Comment

  • Email: pubcom@finra.org
  • Mail: Jennifer Piorko Mitchell Office of the Corporate Secretary
    FINRA 1735 K Street, NW Washington, DC 20006-1506  
  • Comment by May 30, 2017

Related Documents

FINRA Notice Summary ~ Request for Comment on Proposed Amendments to the FINRA Corporate Financing Rule ~ April 2017 

FINRA Full Notice ~ RN 17-15 ~ Corporate Financing ~ April 2017

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