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FINRA Rule 5123 Regarding Notice Filings for Private Placements Becomes Effective December 3, 2012

Published November 30, 2012

FINRA Rule 5123 (“Rule 5123” or the “Rule”) becomes effective on December 3, 2012 and will apply prospectively to private placements that begin selling efforts on or after this date. Rule 5123 requires a member firm of the Financial Industry Regulatory Authority (“FINRA”) selling an issuer’s securities in a private placement to file with FINRA a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used by the firm. Under the Rule, the FINRA member firm must file the disclosure documents within 15 calendar days of the date of the first sale or indicate that it did not use any such offering documents.

The required offering documents must be filed electronically with FINRA through the FINRA Firm Gateway (the “Firm Gateway System”). All broker-dealers have authorized users to this system. FINRA has indicated that it will afford confidential treatment to all documents and information filed pursuant to Rule 5123, and will use the offering materials only for the purpose of determining compliance with FINRA rules or other appropriate regulatory purposes.

The following private placements are exempt from the Rule 5123 filing requirement:

Exemptions Based on the Type of Offerings

  • offerings made pursuant to Rule 144A or Regulation S promulgated under the Securities Act of 1933 (the “Securities Act”);
  • offerings of debt securities sold under Section 4(2) of the Securities Act, so long the maturity is below 397 days and the minimum denomination is $150,000 (or the equivalent in other currencies);
  • offerings of exempted securities, as defined in Section 3(a)(12) of the Securities Exchange Act of 1934 (the “Securities Exchange Act”);
  • offerings of exempt securities with short-term maturities under Section 3(a)(3) of the Securities Act (i.e., commercial paper);
  • offerings of non-convertible debt or preferred securities by issuers that meet the eligibility criteria for registering primary offerings of non-convertible securities on SEC Forms S-3 and F-3;
  • offerings of securities in business combination transactions, such as exchange offers and transactions covered by Rule 145 promulgated under the Securities Act (statutory mergers and consolidations, reclassifications and asset transfers);
  • offerings of securities issued in conversions, stock splits and restructuring transactions to existing investors without the need for additional consideration or investments on the part of the investors;
  • offerings subject to FINRA filing requirements under its suitability rule (Rule 2310), corporate financing rule (Rule 5110) or conflicts of interest rule (Rule 5121); and
  • private placements by members (which are subject to Rule 5122).

Exemptions Based on the Type of Purchaser

  • investment companies, as defined in Section 3 of the Investment Company Act of 1940 (the “Investment Company Act”);
  • qualified institutional buyers (“QIBs”), as defined in Rule 144A promulgated under the Securities Act (“Rule 144A”), or an entity owned exclusively by QIBs;
  • qualified purchasers, as defined in Section 2(a)(51)(A) of the Investment Company Act;
  • institutional accounts, as defined in FINRA Rule 4512(c);
  • banks, as defined in Section 3(a)(2) of the Securities Act;
  • accredited investors, as described in Rule 501(a)(1), (2), (3), or (7) promulgated under the Securities Act; and
  • issuer employees and affiliates.

Additionally, FINRA member firms may apply for exemptions from the provisions of the Rule for “good cause.”

Please contact Mitchell C. Littman, Esq. at or Steven D. Uslaner, Esq. at if you have questions concerning the Rule.

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