• FINRA Enhances its Public Offering Review Programs
  • October 17, 2013 | Authors: Michael "Teddy" Theodor Damgard; David I. Meyers; Lisa A. Raines; Thomas M. Rose
  • Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Norfolk Office
  • On September 30, 2013, the Financial Industry Regulatory Authority (“FINRA”) implemented certain enhancements to its public offering review programs, including introducing an immediate clearance process for certain shelf offerings and a limited review process for certain non-shelf offerings of exchange-listed securities.

    Immediate Clearance of Shelf Offerings
    FINRA has enhanced its same-day clearance process for shelf registration statements (“base” filings) and takedown shelf filings by introducing an immediate clearance process, allowing member firms to obtain a No Objections Letter immediately, 24 hours per day, 7 days a week, for certain shelf filings, including filings of Well-Known Seasoned Issuers (“WKSI”). In order to obtain immediate clearance of a shelf offering, the member firm must provide basic information regarding the offering, representations required by the existing same-day clearance process (including, without limitation, representations regarding the absence of prohibited arrangements, the adequacy of disclosure about underwriting compensation, and compliance with FINRA Rule 5121 regarding conflicts of interest) and WKSI filer representations (if applicable), an undertaking that all information necessary to complete the filing will be provided to FINRA no later than three business days following the initial submission of the filing to FINRA, and the FED Wire number, and date of the wire, for submission of the filing fee, if any.

    FINRA will conduct a post-offering review of the filing and the representations contained therein. Member firms may still choose to rely on the existing same-day clearance process for shelf offerings.

    Limited Review of Non-Shelf Offerings
    FINRA has also implemented a limited review process for certain non-shelf offerings. The member firm must submit a request for FINRA to consider whether to grant a limited review. For a member to request a limited review, the offering must satisfy all of the following criteria:

    • Securities must be listed on a national securities exchange (Corporate or Investment Program);
    • Firm commitment or straight best efforts distribution methods must be used;
    • Total underwriting compensation must be within allowable guidelines;
    • Underwriting arrangements may not include prohibited terms as defined in FINRA Rule 5110(f)(2), such as indeterminate items of value;
    • FINRA members must be identified in the offering documents and filing system;
    • Offering must be filed with the Securities and Exchange Commission (“SEC”); and

    Certain offering features would make the filing ineligible for this limited review process, including offerings:

    • In which securities are received as underwriting compensation; or
    • That include a novel product or pose complex regulatory issues.

    The member firm must also make the following two representations in its initial filing with FINRA requesting a limited review:

    • All documents required to be filed pursuant to FINRA Rule 5110 have been, or will be, submitted no later than five business days prior to the member’s participation. Documents required include, but are not limited to, underwriting or distribution related documents, any engagement letters, letters of intent or any other document entered into by any participating member(s) and the issuer during the 180 days preceding the initial filing with the SEC.
    • All representations made in the filing are accurate to the best of the member firm’s knowledge. The member firm undertakes to notify FINRA, no later than five business days prior to the member’s participation of any changes that may affect the staff’s No Objections Letter. The member firm understands that this notification may require a review prior to the member’s participation. If a notification is not made, the information filed herein will be presumed to be accurate at the time of the member’s participation in the offering.

    The member firm must also provide the following four representations prior to the issuance of a No Objections Letter; however, such representations may be deferred in the member’s initial filing with FINRA.

    • The association or affiliation between any participating member(s) and any officer, director, or beneficial owner of 5% or more of any class of the issuer's securities is indicated (if applicable) in the filing system.
    • The terms and arrangements between the issuer and participating members do not include any prohibited arrangements.
    • No participating member(s) has acquired unregistered securities that would be considered underwriting compensation during the 180 day period preceding the initial filing with the SEC through 90 days after the effective date of the filing.
    • If the offering is subject to FINRA Rule 5121, the registration statement or offering circular will comply with the prominent disclosure provisions.

    If the FINRA staff agrees that the filing is eligible for a limited review, the member firm would receive a Limited Review No Objections Letter once all of the representations have been made. If any of the four representations listed above are deferred, then the member would receive a Limited Review Defer Letter. The FINRA staff will again consider issuing a Limited Review No Objections Letter when all of the representations are provided.