FINRA proposed amending FINRA Rule 5110 ("Corporate Financing Rule - Underwriting Terms and Arrangements") to make "substantive, organizational and terminology" changes. FINRA stated that the proposal is intended to enhance the rule by simplifying its provisions, while simultaneously maintaining critical protections for market participants.
FINRA's proposed rule changes would:
- increase the time allowed for filing, as well as eliminate duplicative requirements;
- exempt from filing securities in an investment-grade rated series, as well as add an experienced issuer concept to the Form S-3 exemption from filing;
- clarify the definition of underwriting compensation and add a "review period" concept based on the type of offering;
- venture capital exceptions;
- clarify when non-convertible or non-exchangeable debt securities and derivatives have value as underwriting compensation and clarify the application of fair price concepts to these instruments;
- clarify and amend lock-up restrictions and exemptions, including the addition of a hedging transaction exemption; and
- clarify and amend prohibited terms and arrangements.
Further, the proposal would also update cross-references and make technical changes to other FINRA rules as a result of the proposed amendments to the corporate financing rule.
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