FINRA recently published Regulatory Notice 21-26, “FINRA Amends Rules 5122 and 5123 Filing Requirements to Include Retail Communications That Promote or Recommend Private Placements.” The notice amends FINRA Rules 5122 and 5123 to require additional filing requirements by member firms as it relates to the sale of private placement offerings.

Both FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) apply to private placements of unregistered securities. Prior to the rule amendments, Rule 5122 required member firms to provide prospective investors with a private placement memorandum (PPM), term sheet, or other offering document that discloses the intended use of the offering proceeds, the offering expenses and the amount of selling compensation that will be paid to the member firm. Rule 5123 required members to file with FINRA any PPM, term sheet or other offering document, including any material amended versions, used in connection with a private placement of securities. 

FINRA has amended Rules 5122 and 5123 to require member firms to file with the FINRA Corporate Financing Department (“Corp Fin”) retail communications that promote or recommend such private placement offerings, in addition to filing PPMs, term sheets and other offering documents. Example of retail communications include web pages, slide presentations, pitch decks, one-page teasers, fact sheets, sales brochures, executive summaries, and investor packets. The new filing requirements become effective on October 1, 2021.

We encourage our broker dealer clients to review Regulatory Notice 21-26 and to take prompt steps to ensure compliance with the recent rule amendments prior to the October 1, 2021 effective date.