SEC Approves FINRA Rule 5123

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The Securities and Exchange Commission recently approved the Financial Industry Regulatory Authority (“FINRA”) proposals to amend Rule 5123 governing FINRA members who participate in private offerings of securities (“Rule 5123”).  Rule 5123 requires FINRA members selling securities in non-public offerings, such as private placements, or participating in the preparation of private placement documents such as memoranda, term sheets or other disclosure documents, to submit such disclosure documents with FINRA within fifteen days after the first sale of securities, or state that no offering documents were used.  Rule 5123 became effective on December 3, 2012.

Exemptions Under Rule 5123

The following types of offerings are exempt from Rule 5123(b) disclosure requirements.  Offerings sold to:

♦  institutional accounts, as defined in FINRA Rule 4512(c)9;

♦  qualified purchasers, as defined in Section 2(a)(51)(A) of the Investment Company Act of 1940 (the “Investment Company Act”);

♦  an entity composed exclusively of qualified institutional buyers, as defined in Rule 144A of the Securities Act of 1933 (the “Securities Act”);

♦  qualified institutional buyers, as defined in Rule 144A of the Securities Act;

♦  investment companies, as defined in Section 3 of the Investment Company Act;

♦  employees and affiliates of the issuer, as defined in FINRA Rule 5121;

♦  knowledgeable employees, as defined in Investment Company Act Rule 3c-5;

♦  accredited investors, as defined in Rule 501(a)(1), (2), (3) or (7) of the Securities Act;


♦  offerings made pursuant to Rule 144A under the Securities Act or Regulation S;

♦  offerings filed with FINRA under FINRA Rules 2310, 5110, 5121 and 5122, or exempt from filing thereunder in accordance with FINRA Rule 5110(b)(7);

♦  offerings of “variable contracts,” as defined in FINRA Rule 2320(b)(2);

♦  offerings of modified guaranteed annuity contracts and modified guaranteed life insurance policies, as referenced in FINRA Rule 5110(b)(8)(E);

♦  offerings of securities issued in conversions, stock splits and restructuring transactions that are executed by an investor without the need for additional consideration or investments on the part of the investor;

♦  business combination transactions, as defined in Securities Act Rule 165(f); and

♦  offerings by registered investment companies.

In limited circumstances, under Rule 5123(d), a FINRA member may be exempt from the requirements of Rule 5123 by a showing of “good cause.”

Electronic Filing System

FINRA is developing a private placement filing system to receive Rule 5123 filings, which will require electronic filings through its Firm Gateway electronic system.  Although the required materials will be filed with FINRA, once received, they will remain non-public and will be used only for determining compliance with FINRA rules or other appropriate regulatory requirements.

For more information about recent changes and proposals to FINRA rules please visit

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
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