The SEC approved rule changes that will provide additional exemptions under FINRA Rule 5130 ("Restrictions on the Purchase and Sale of Initial Equity Public Offerings") and Rule 5131 ("New Issue Allocations and Distributions"). The amendments will become effective on January 1, 2020.
As previously covered, the amendments will exempt additional persons and offerings from the scope of the rules, and conform the exemptions in the two rules more closely. In particular, the amendments will:
- expand the categories of entities to whom a broker-dealer may sell IPO shares in accordance with FINRA Rule 5130 to include (i) additional categories of "family investment vehicles" based on the "family office" exemption under the Investment Advisers Act of 1940, (ii) sovereign entities that own a broker-dealer, (iii) foreign employee retirement benefit plans that meet certain conditions, and (iv) foreign investment companies that are "widely held";
- exclude offerings made outside the United States from FINRA Rules 5130 and 5131; and
- conform certain exemptions in FINRA Rules 5130 and 5131 more closely to (i) permit "issuer-directed" allocations directed by the affiliates and selling shareholders of an issuer, (ii) permit executive officers and directors of a public company or a covered non-public company to maintain their ownership interest in an issuer under "anti-dilution" exemptions, and (iii) permit a broker-dealer to allocate IPO shares to executive officers and directors of a charitable organization that is not affiliated with the broker-dealer.
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