Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices 12913 

1Amendment No. 2 to SR–FINRA–2008–020. 

This amendment replaced and superseded the 

Continued 

6. NUREG–1496, ‘‘Generic 

Environmental Impact Statement in 

Support of Rulemaking on Radiological 

Criteria for License Termination of NRCLicensed Nuclear Facilities’’; 

7. NUREG–1757, Consolidated 

Decommissioning Guidance. 

If you do not have access to ADAMS, 

or if there are problems in accessing the 

documents located in ADAMS, contact 

the NRC Public Document Room (PDR) 

Reference staff at 1–800–397–4209, 301– 

415–4737, or by e-mail to pdr@nrc.gov. 

These documents may also be viewed 

electronically on the public computers 

located at the NRC’s PDR, O 1 F21, One 

White Flint North, 11555 Rockville 

Pike, Rockville, MD 20852. The PDR 

reproduction contractor will copy 

documents for a fee. 

Dated at Lisle, Illinois, this 13th day of 

March 2009. 

For the Nuclear Regulatory Commission. 

Christine A. Lipa, 

Chief, Materials Control, ISFSI, and 

Decommissioning Branch, Division of Nuclear 

Materials Safety, Region III. 

[FR Doc. E9–6399 Filed 3–24–09; 8:45 am] 

BILLING CODE 7590–01–P 

NUCLEAR REGULATORY 

COMMISSION 

[Docket No. 52–033–COL; ASLBP No. 09– 

880–05–COL–BD01] 

Detroit Edison Company; 

Establishment of Atomic Safety and 

Licensing Board 

Pursuant to delegation by the 

Commission dated December 29, 1972, 

published in the Federal Register, 37 FR 

28,710 (1972), and the Commission’s 

regulations, see 10 CFR 2.104, 2.300, 

2.303, 2.309, 2.311, 2.318, and 2.321, 

notice is hereby given that an Atomic 

Safety and Licensing Board (Board) is 

being established to preside over the 

following proceeding: 

Detroit Edison Company 

(Fermi Nuclear Power Plant, Unit 3) 

This proceeding concerns a Petition to 

Intervene and Request for Hearing dated 

March 9, 2009 from Beyond Nuclear, et 

al., that was submitted in response to a 

January 8, 2009 Notice of Hearing and 

Opportunity to Petition for Leave to 

Intervene on a Combined License for the 

Fermi Nuclear Power Plant, Unit 3 (74 

FR 836). The petitioners challenge the 

application filed by Detroit Edison 

Company pursuant to Subpart C of 10 

CFR Part 52 for a combined license for 

Fermi Nuclear Power Plant, Unit 3, 

which would be located in Monroe 

County, Michigan. 

The Board is comprised of the 

following administrative judges: 

Ronald M. Spritzer, Chair, Atomic 

Safety and Licensing Board Panel, 

U.S. Nuclear Regulatory 

Commission, Washington, DC 

20555–0001. 

Michael F. Kennedy, Atomic Safety 

and Licensing Board Panel, U.S. 

Nuclear Regulatory Commission, 

Washington, DC 20555–0001. 

Randall J. Charbeneau, Atomic Safety 

and Licensing Board Panel, U.S. 

Nuclear Regulatory Commission, 

Washington, DC 20555–0001. 

All correspondence, documents, and 

other materials shall be filed in 

accordance with the NRC E-Filing rule, 

which the NRC promulgated in August 

2007 (72 FR 49,139). 

Issued at Rockville, Maryland, this 19th 

day of March 2009. 

E. Roy Hawkens, 

Chief Administrative Judge,Atomic Safety 

and Licensing Board Panel. 

[FR Doc. E9–6555 Filed 3–24–09; 8:45 am] 

BILLING CODE 7590–01–P 

OVERSEAS PRIVATE INVESTMENT 

CORPORATION 

April 7, 2009 Annual Public Hearing 

Time and Date: Tuesday, April 7, 

2009, 2 p.m. 

Place: Offices of the Corporation, 

Twelfth Floor Board Room, 1100 New 

York Avenue, NW., Washington, DC. 

Status: Hearing open to the Public at 

2 p.m. 

Purpose: Annual Public Hearing to 

afford an opportunity for any person to 

present views regarding the activities of 

the Corporation. 

Procedures: 

Individuals wishing to make address 

the hearing orally must provide advance 

notice to OPIC’s Corporate Secretary no 

later than 5 p.m., Thursday, April 2, 

2009. The notice must include the 

individual’s name, organization, address 

and telephone number, and a concise 

summary of the subject matter to be 

presented. 

Oral presentations may not exceed ten 

(10) minutes. The time for individual 

presentations may be reduced 

proportionately, if necessary, to afford 

all participants who have submitted a 

timely request to participate an 

opportunity to be heard. 

Participants wishing to submit a 

written statement for the record must 

submit a copy of such statement to 

OPIC’s Corporate Secretary no later than 

5 p.m., Thursday, April 2, 2009. Such 

statements must be typewritten, doublespaced and may not exceed twenty-five 

(25) pages. 

Upon receipt of the required notice, 

OPIC will prepare an agenda for the 

hearing identifying speakers, setting 

forth the subject on which each 

participant will speak, and the time 

allotted for each presentation. The 

agenda will be available at the hearing. 

A written summary of the hearing will 

be compiled, and such summary will be 

made available, upon written request to 

OPIC’s Corporate Secretary, at the cost 

of reproduction. 

Contact Person for Information: 

Information on the hearing may be 

obtained from Connie M. Downs at (202) 

336–8438, via facsimile at (202) 408– 

0136, or via e-mail at 

connie.downs@opic.gov. 

Supplementary Information: OPIC is a 

U.S. Government agency that provides, 

on a commercial basis, political risk 

insurance and financing in friendly 

developing countries and emerging 

democracies for environmentally sound 

projects that confer positive 

developmental benefits upon the project 

country while creating employment in 

the U.S. OPIC is required by section 

231A(c) of the Foreign Assistance Act of 

1961, as amended (the ‘‘Act’’) to hold at 

least one public hearing each year. 

Dated: March 20, 2009. 

Connie M. Downs, 

OPIC Corporate Secretary. 

[FR Doc. E9–6582 Filed 3–24–09; 8:45 am] 

BILLING CODE 3210–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59599; File No. SR–FINRA– 

2008–020] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change, as Modified by 

Amendment No. 2 Thereto, Relating to 

Private Placements of Securities 

Issued by Members 

March 19, 2009. 

I. Introduction 

The Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) on September 

11, 2008, and amended on January 7, 

2009,1 pursuant to Section 19(b)(1) of 


PWALKER on PROD1PC71 with NOTICES
12914 Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices 

original filing submitted to the SEC on September 

11, 2008. Amendment No. 1, which was filed on 

December 22, 2008, was withdrawn on January 7, 

2009. 

2 15 U.S.C. 78s(b)(1). 

3 17 CFR 240.19b–4. 

4Exchange Act Release No. 59262 (January 16, 

2009), 74 FR 4487 (January 26, 2009) (SR–FINRA– 

2008–020). 

5See letter from Neville Golvala for ChoiceTrade 

dated February 7, 2009 (‘‘2009 ChoiceTrade letter’’) 

and letter from Jack L. Hollander for the Investment 

Program Association (‘‘IPA’’) dated February 17, 

2009 (‘‘IPA letter’’). 

6Franklin Ross, Inc., NASD No. E072004001501 

(settled April 2006), summarized in NASD Notice 

Disciplinary Actions, p. 1 (May 2006); Capital 

Growth Financial, LLC, NASD No. E072003099001 

(settled February 2006), summarized in NASD 

Notice Disciplinary Actions, p. 1 (April 2006); Craig 

& Associates, NASD No. E3B2003026801 (settled 

August 2005), summarized in NASD Notice 

Disciplinary Actions, p. D6 (October 2005); Online 

Brokerage Services, Inc., NASD No. C8A050021 

(settled March 2005), summarized in NASD Notice 

Disciplinary Actions, p. D5 (May 2005); IAR 

Securities/Legend Merchant Group, NASD No. 

C10030058 (settled July 2004), summarized in 

NASD Notice Disciplinary Actions, p. D1 (July 

2004); Shelman Securities Corp., NASD No. 

C06030013 (settled December 2003), summarized in 

NASD Notice Disciplinary Actions, p. D1 (February 

2004); Neil Brooks, NASD No. C06030009 (settled 

June 2003), summarized in NASD Press Release, 

NASD Files Three Enforcement Actions for 

Fraudulent Hedge Fund Offerings (August 18, 

2003); Dep’t of Enforcement v. L.H. Ross & Co., Inc., 

Complaint No. CAF040056 (Hearing Panel decision 

January 15, 2005); Dep’t of Enforcement v. Win 

Capital Corp., Complaint No. CLI030013 (Hearing 

Panel decision August 6, 2004). In addition to these 

cases, FINRA has numerous ongoing investigations 

involving MPOs. 

7FINRA Rule 5110 and NASD Rules 2720 and 

2810 govern member participation in public 

offerings of securities. 

8Members would remain subject to other FINRA 

rules that govern a member’s participation in the 

offer and sale of a security, including FINRA Rules 

2010 and 2020 and NASD Rule 2310. Members also 

are subject to the anti-fraud provisions of the 

Federal securities laws, including Sections 10(b), 

11, 12 and 17 of the Exchange Act. 

9The following is a list of persons and entities 

submitting comment letters in response to NTM 07– 

27: Letter from Timothy P. Selby for Alston & Bird 

LLP dated July 20, 2007 (‘‘Alston & Bird letter’’), 

letter from Keith F. Higgins for American Bar 

Association (‘‘ABA’’) Committee on Federal 

Regulation of Securities dated July 20, 2007 (‘‘ABA 

letter’’), letter from Todd Anders dated July 13, 

2007 (‘‘Anders letter’’), letter from Neville Golvala 

for ChoiceTrade dated July 19, 2007 (‘‘2007 

ChoiceTrade letter’’), letter from Stephen E. Roth, 

et al of Sutherland, Asbill & Brennan, LLP for the 

Committee of Annuity Insurers (‘‘CAI’’) dated July 

20, 2007 (‘‘CAI letter’’), letter from Peter J 

Chepucavage for the International Association of 

Small Broker-Dealers and Advisors (‘‘IASBDA’’) 

dated July 20, 2007 (‘‘IASBDA letter’’), letter from 

Alan Z. Engel for LEC Investment Corp. dated June 

14, 2007 (‘‘LEC letter’’), letter from Daniel T. 

McHugh for Lombard Securities Inc. dated July 20, 

2007 (‘‘Lombard letter’’), letter from Dexter M. 

Johnson for Mallon & Johnson, P.C. dated July 19, 

2007 (‘‘Mallon & Johnson letter’’), letter from John 

G. Gaine for Managed Funds Association (‘‘MFA’’) 

dated July 20, 2007 (‘‘MFA letter’’), letter from 

Curtis N. Sorrells for MGL Consulting Corp. dated 

July 20, 2007 (‘‘MGL letter’’), letter from Thomas W. 

Sexton for the National Futures Association 

(‘‘NFA’’) dated July 20, 2007 (‘‘NFA letter’’), letter 

from Michael S. Sackheim and David A. Form for 

the New York City Bar Committee of Futures and 

Derivatives Regulation Distribution Co. dated July 

19, 2007 (‘‘PFG letter’’), letter from Mary Kuan for 

Securities Industry and Financial Markets 

Association (‘‘SIFMA’’) dated July 27, 2007 

(‘‘SIFMA letter’’), and letter from Bill Keisler for 

Stephens Inc. dated July 20, 2007 (‘‘Stephens 

letter’’). 

10See MFA letter, CAI letter, and Alston & Bird 

letter. 

11See Anders letter, Mallon & Johnson letter, 

2007 ChoiceTrade letter, ABA letter, and SIFMA 

letter. FINRA did not agree with SIFMA that the 

potential for abuses in connection with private 

offerings by non-members is a reason to abandon 

the proposed rule change. The FINRA staff believed 

that offerings by members raise unique conflicts 

that require the protections of the proposed rule 

change. FINRA also disagreed with SIFMA’s 

contention that they do not have legal authority to 

adopt the proposed rule change. 

12See Alston & Bird letter, ABA letter, LEC letter, 

Mallon & Johnson letter, MFA letter, MGL letter, 

PFG letter, and SIFMA letter. 

13See ABA letter and SIFMA letter. 

the Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’) 2 and Rule 

19b–4 thereunder,3 a proposal to adopt 

new FINRA Rule 5122 (‘‘Rule’’) which 

would prohibit FINRA members or 

associated persons from offering or 

selling any security in a ‘‘Member 

Private Offerings’’ unless certain 

conditions have been met. This proposal 

was published for comment in the 

Federal Register on January 26, 2009.4

The Commission received two 

comments on the proposal.5 This order 

approves this proposed rule change. 

II. Description of the Proposed Rule 

Change 

FINRA proposed to adopt new FINRA 

Rule 5122, which would require a 

member that engages in a private 

placement of unregistered securities 

issued by the member or a control entity 

to (1) disclose to investors in a private 

placement memorandum, term sheet or 

other offering document the intended 

use of offering proceeds and the offering 

expenses, (2) file such offering 

document with FINRA, and (3) commit 

that at least 85 percent of the offering 

proceeds will be used for business 

purposes, which shall not include 

offering costs, discounts, commissions 

and any other cash or non-cash sales 

incentives. 

A. Background 

FINRA proposed the Rule in response 

to problems identified in connection 

with private placements by members of 

their own securities or those of a control 

entity (referred to as ‘‘Member Private 

Offerings’’ or ‘‘MPOs’’). In recent years, 

FINRA has investigated and brought 

numerous enforcement cases concerning 

abuses in connection with MPOs.6

Among the allegations in these cases 

were that members failed to provide 

written offering documents to investors 

or provided offering documents that 

contained misleading, incorrect, or 

selective disclosure, such as omissions 

and misrepresentations regarding selling 

compensation and the use of offering 

proceeds. In addition, as part of its 

examination program, FINRA conducted 

a non-public sweep of firms that had 

engaged in MPOs and found widespread 

problems. The MPO sweep revealed that 

in some cases, offering proceeds were 

used for individual bonuses, sales 

contest awards, commissions in excess 

of 20 percent, or other undisclosed 

compensation. 

Because MPOs are private 

placements, they are not subject to 

existing FINRA rules governing 

underwriting terms and arrangements 

and conflicts of interest by members in 

public offerings.7 This proposed rule 

change is intended to provide investor 

protections for MPOs that are similar to 

the protections provided by NASD Rule 

2720 for public offerings by members.8

In response to concerns about MPOs, 

FINRA issued Notice to Members 07–27 

(‘‘NTM 07–27’’) in June 2007 to solicit 

comment on a proposed new rule 

regarding MPOs (then numbered 

proposed NASD Rule 2721). FINRA 

received sixteen comment letters in 

response to NTM 07–27.9 These 

comments were varied. Some of these 

commenters expressed support for the 

intent of the proposed rule but voiced 

concerns about its breadth and scope,10

while others questioned the benefit or 

necessity of the proposed rule.11 Most of 

these comment letters also suggested 

edits to the proposed rule.12 These 

comments received in response to NTM 

07–27, and changes to the Rule as 

proposed as compared to the rule as it 

appeared in NTM 07–27, are described 

in more detail below in Sections II.B 

through II.F. 

B. Definitions 

The proposed rule change states that 

no member or associated person may 

offer or sell any security in a MPO 

unless certain conditions are met. The 

proposed rule change defines a MPO as 

‘‘a private placement of unregistered 

securities issued by a member or control 

entity.’’ The proposed rule further 

defines two of the terms in the 

definition of MPO, ‘‘private placement’’ 

and ‘‘control entity.’’ In response to one 

comment received in response to NTM 

07–27,13 FINRA defined the term 

‘‘private placement’’ to be ‘‘a non-public 

offering of securities conducted in 

reliance on an available exemption from 

registration under the Securities Act [of 

1933].’’ 


PWALKER on PROD1PC71 with NOTICES
Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices 12915 

14FINRA added language regarding ‘‘other noncorporate legal entities’’ based on commenters’ 

suggestions to clarify that control would extend to 

entities other than corporations or partnerships. See 

ABA letter and SIFMA letter. 

15See Alston & Bird letter, ABA letter, LEC letter, 

MFA letter, MGL letter, NYC Bar letter, and SIFMA 

letter. 

16 Given that FINRA is not imposing limits on 

selling compensation as it does in other rules, they 

did not believe it was necessary to provide a 

detailed definition of ‘‘selling compensation’’ as 

urged by SIFMA. FINRA believed that the term 

‘‘selling compensation’’ for purposes of a disclosure 

requirement is sufficiently clear. 

17See SIFMA letter. 

18????? 

19See ABA letter. 

20Exchange Act Release No. 59262 (January 16, 

2009), 74 FR 4487 (January 26, 2009). 

21See ABA letter, Mallon & Johnson letter, and 

SIFMA letter. 

22See proposed 5122(d). This confidential 

treatment provision is similar to that provided in 

FINRA Rule 5110(b)(3). 

23As noted supra, and in NTM 07–27, neither 

FINRA nor the Department would issue a ‘‘no 

objections opinion’’ regarding any offering 

document filed with the Department. However, 

FINRA has stated that if it subsequently determined 

that disclosures in the offering document appeared 

to be incomplete, inaccurate or misleading, they 

could make further inquiries. The filing 

requirement also could facilitate the creation of a 

confidential Department database on MPO activity 

that would be used in connection with the member 

examination process. 

The proposed rule change defines the 

term ‘‘control entity’’ as ‘‘any entity that 

controls or is under common control 

with a member, or that is controlled by 

a member or its associated persons.’’ 

The term ‘‘control’’ is defined as ‘‘a 

beneficial interest, as defined in Rule 

5130(i)(1), of more than 50 percent of 

the outstanding voting securities of a 

corporation, or the right to more than 50 

percent of the distributable profits or 

losses of a partnership or other noncorporate legal entity.’’ 14 The power to 

direct the management or policies of a 

corporation or partnership alone (e.g., a 

general partner), absent meeting the 

majority ownership or right to the 

majority of profits, would not constitute 

‘‘control’’ as defined in proposed FINRA 

Rule 5122. For purposes of this 

definition, FINRA clarified that entities 

may calculate the percentage of control 

using a ‘‘flow through’’ concept, by 

looking through ownership levels to 

calculate the total percentage of control. 

For example, if broker-dealer ABC owns 

50 percent of corporation DEF that in 

turn holds a 60 percent interest in 

corporation GHI, and ABC is engaged in 

a private offering of GHI, ABC would 

have a 30 percent interest in GHI (50 

percent of 60 percent), and thus GHI 

would not be considered a control entity 

under this definition. 

FINRA also reaffirmed, as stated in 

NTM 07–27, that performance and 

management fees earned by a general 

partner would not be included in the 

determination of partnership profit or 

loss percentages. However, if such 

performance and management fees are 

subsequently re-invested in the 

partnership, thereby increasing the 

general partner’s ownership interest, 

then such interests would be considered 

in determining whether the partnership 

is a control entity. 

In response to several comments 

received in response to NTM 07–27 

advocating that the timing for 

determining control take place at the 

conclusion rather than the 

commencement of an offering,15 FINRA 

revised the definition of control to be 

determined immediately after the 

closing of an offering. The definition 

also clarifies that, in the case of multiple 

closings, control will be determined 

immediately after each closing. If an 

offering is intended to raise sufficient 

funds such that the member would not 

control the entity under the control 

standard, but fails to raise sufficient 

funds, the member must promptly come 

into compliance with the Rule, 

including providing the required 

disclosures to investors and filings with 

FINRA’s Corporate Financing 

Department (‘‘Department’’). 

C. Disclosure Requirements 

The proposed rule change would 

require that a member provide a written 

offering document to each prospective 

investor in an MPO, whether accredited 

or not, and that the offering document 

disclose the intended use of offering 

proceeds as well as offering expenses 

and selling compensation.16 If the 

offering has a private placement 

memorandum or term sheet, then such 

memorandum or term sheet must be 

provided to each prospective investor 

and must contain these disclosures. If 

the offering does not have a private 

placement memorandum or term sheet, 

then the member must prepare an 

offering document that discloses the 

intended use of offering proceeds as 

well as offering expenses and selling 

compensation. FINRA clarified that the 

Rule is not meant to require a particular 

form of disclosure, however. To 

emphasize this point, FINRA proposed 

to issue Supplemental Material 5122.01, 

which would note that nothing in the 

Rule shall require a member to prepare 

a private placement memorandum that 

meets the additional requirements of 

Rule 502 under the Securities Act of 

1933 (‘‘Securities Act’’). 

FINRA believed that every investor in 

an MPO should receive basic 

information concerning the offering. 

FINRA also believed that none of the 

disclosures required in the proposed 

rule change would conflict with 

requirements under Federal or State 

securities laws.17

In response to comments received in 

response to NTM 07–27,18 the proposed 

rule change eliminates the previously 

proposed requirements to disclose risk 

factors and ‘‘any other information 

necessary to ensure that required 

information is not misleading.’’ One 

commenter at the time was concerned 

that requiring disclosure of these items 

could lead to an inconsistent scheme of 

regulation in interpreting the 

application of the Federal securities 

laws to private placements if FINRA’s 

expectation of what should be disclosed 

differed from the expectations of the 

SEC and the courts.19While FINRA 

omitted these disclosures from the 

proposed rule change, they specifically 

requested comment on their decision to 

exclude such disclosures.20

D. Filing Requirements 

The proposed rule change would 

require that a member file a private 

placement memorandum, term sheet, or 

other offering document with the 

Department at or prior to the first time 

such document is provided to any 

prospective investor. Any amendments 

or exhibits to the offering document also 

must be filed by the member with the 

Department within ten days of being 

provided to any investor or prospective 

investor. The filing requirement is 

intended to allow the Department to 

identify those offering documents that 

are deficient ‘‘on their face’’ from the 

other requirements of the proposed rule 

change. Notably, the filing requirement 

in the proposed rule change differs from 

that in Rule 5110 (Corporate Financing 

Rule) in that the Department would not 

review the offering and issue a ‘‘noobjections’’ letter before a member may 

commence the offering. 

FINRA affirmed, in response to 

concerns raised in comment letters 

received in response to NTM 07–27,21

that information filed with the 

Department pursuant to proposed 

FINRA Rule 5122 would be subject to 

confidential treatment. FINRA included 

a provision in the proposed rule change 

explicitly clarifying this position.22

FINRA has stated that the Department 

plans to develop a Web-based filing 

system that would allow for the filing to 

be deemed filed upon submission.23 In 

addition, the proposed rule change 

would not impose any additional 

requirements regarding filing of 

advertisements or sales materials, which 


PWALKER on PROD1PC71 with NOTICES
12916 Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices 

24See NYC Bar letter and SIFMA letter. 25See Mallon & Johnson letter. 26See IASBDA letter, Mallon & Johnson letter, 

ABA letter, and SIFMA letter. 27See IASBDA letter, Mallon & Johnson letter, 

and ABA letter. 28See NYC Bar letter. 

29Members’ offerings of subordinated loans are 

subject to an alternative disclosure regime. In 2002, 

the SEC approved a rule change to require, as part 

of a subordination agreement, the execution of a 

Subordination Agreement Investor Disclosure 

Document. See Exchange Act Release No. 45954 

(May 17, 2002), 67 FR 36281 (May 23, 2002); see 

also Notice to Members 02–32 (June 2002). 30See Lombard letter, ABA letter, MGL letter, 

NYC Bar letter, MFA letter, NFA letter, Alston & 

Bird letter, Anders letter, PFG letter, CAI letter, 

2007 ChoiceTrade letter, Mallon & Johnson letter, 

and SIFMA letter. 

31Accordingly, FINRA noted that in connection 

with this proposed Rule, they do not plan to 

recommend amending NASD Rule 0116 or the List 

of NASD Conduct Rules and Interpretive Materials 

that apply to Exempted Securities. See CAI letter. 

would continue to be governed by 

NASD Rule 2210.24

One commenter responding to NTM 

07–27 suggested that a member’s filing 

of Form D pursuant to Securities Act 

Regulation D should provide sufficient 

information to FINRA.25 FINRA staff 

disagreed. For example, FINRA noted 

that the information in Form D does not 

include information on a wide variety of 

expenses or applications of proceeds, 

nor does Form D require that such 

information is contained in the offering 

documents. 

E. Use of Offering Proceeds 

Proposed Rule 5122(b)(3) would 

require that each time an MPO is closed 

at least 85 percent of the offering 

proceeds raised be used for business 

purposes, which would not include 

offering costs, discounts, commissions, 

or any other cash or non-cash sales 

incentives. The use of offering proceeds 

also must be consistent with the 

disclosures to investors, as described 

above. This requirement was created to 

address the abuses where members or 

control entities used substantial 

amounts of offering proceeds for selling 

compensation and related party 

benefits, rather than business purposes. 

The proposed rule change does not limit 

the total amount of underwriting 

compensation. Rather, under the 

proposed rule change, offering and other 

expenses of the MPO could exceed a 

value greater than 15 percent of the 

offering proceeds, but no more than 15 

percent of the money raised from 

investors in the private placement could 

be used to pay these expenses. FINRA 

noted that the 15 percent figure is 

consistent with the limitation of offering 

fees and expenses, including 

compensation, in NASD Rule 2810 and 

the North American Securities 

Administrators Association guidelines 

with respect to public offerings subject 

to State regulation. 

Some commenters responding to 

NTM 07–27 expressed concern that the 

85 percent limit was arbitrary or 

unnecessary,26 and should be reduced 

or eliminated to allow flexibility for 

management in MPOs.27 FINRA 

believed that when a member engages in 

a private placement of its own securities 

or those of a control entity, investors 

should be assured that, at a minimum, 

85 percent of the proceeds of the 

offering are dedicated to business 

purposes. FINRA recognized that 

changing the business purpose or use of 

proceeds in an offering may in some 

instances benefit investors and 

reminded members that the member 

may change its use of proceeds, 

provided it makes appropriate 

disclosure to investors and files the 

amended offering document with the 

Department. 

One commenter responding to NTM 

07–27 requested that, when an issuer 

plans a series of MPOs, the issuer 

should be allowed to calculate the 85 

percent limit at the end of the series.28

FINRA believed, however, that the limit 

should apply to each MPO in order to 

assure investors that at least 85 percent 

of each offering in a series is dedicated 

to the business purposes described in 

that offering’s offering document. As a 

result, FINRA clarified that the 85 

percent limit applies to each MPO. 

F. Proposed Exemptions 

Proposed Rule 5122 would include a 

number of exemptions for sales to 

institutional purchasers because 

FINRA’s findings did not reveal abuse 

vis-a`-vis such purchasers, who are 

generally sophisticated and able to 

conduct appropriate due diligence prior 

to making an investment. Specifically, 

the proposed Rule would exempt MPOs 

sold solely to the following: 

• Institutional accounts, as defined in 

NASD Rule 3110(c)(4); 

• Qualified purchasers, as defined in 

Section 2(a)(51)(A) of the Investment 

Company Act; 

• Qualified institutional buyers, as 

defined in Securities Act Rule 144A; 

• Investment companies, as defined 

in Section 3 of the Investment Company 

Act; 

• An entity composed exclusively of 

qualified institutional buyers, as defined 

in Securities Act Rule 144A; and 

• Banks, as defined in Section 3(a)(2) 

of the Securities Act. 

In addition, the proposed rule change 

excludes the following types of 

offerings, which do not raise the 

concerns identified in the sweep or 

enforcement actions: 

• Offerings of exempted securities, as 

defined by Section 3(a)(12) of the 

Exchange Act; 

• Offerings made pursuant to 

Securities Act Rule 144A or SEC 

Regulation S; 

• Offerings in which a member acts 

primarily in a wholesaling capacity (i.e., 

it intends, as evidenced by a selling 

agreement, to sell through its affiliate 

broker-dealers, less than 20% of the 

securities in the offering); 

• Offerings of exempted securities 

with short term maturities under 

Section 3(a)(3) of the Securities Act; 

• Offerings of subordinated loans 

under Exchange Act Rule 15c3–1, 

Appendix D;29

• Offerings of ‘‘variable contracts,’’ as 

defined in NASD Rule 2820(b)(2); 

• Offerings of modified guaranteed 

annuity contracts and modified 

guaranteed life insurance policies, as 

referred to in FINRA Rule 5110(b)(8)(E); 

• Offerings of securities of a 

commodity pool operated by a 

commodity pool operator, as defined 

under Section 1a(5) of the Commodity 

Exchange Act; 

• Offerings of equity and credit 

derivatives, including over-the-counter 

(‘‘OTC’’) options, provided that the 

derivative is not based principally on 

the member or any of its control entities; 

and 

• Offerings filed with the Department 

under FINRA Rule 5110 or NASD Rules 

2720 or 2810. 

Finally, the proposed rule change also 

would exempt MPOs in which investors 

would be expected to have access to 

sufficient information about the issuer 

and its securities in addition to the 

information provided by the member 

conducting the MPO. These exemptions 

include: 

• Offerings of unregistered 

investment grade rated debt and 

preferred securities; 

• Offerings to employees and 

affiliates of the issuer or its control 

entities; and 

• Offerings of securities issued in 

conversions, stock splits and 

restructuring transactions executed by 

an already existing investor without the 

need for additional consideration or 

investments on the part of the investor. 

This list of exemptions is largely 

based on the exemptions previously 

proposed in NTM 07–27, with a few 

additions and clarifications in response 

to comments.30 FINRA clarified that 

exempted securities, as defined by 

Section 3(a)(12) of the Exchange Act, 

would not be subject to the Rule.31 In 


PWALKER on PROD1PC71 with NOTICES
Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices 12917 

32See NYC Bar letter, MFA letter, NFA letter, 

Alston & Bird letter, and SIFMA letter. 33See CAI letter and PFG letter. 34See, e.g., NASD Rule 2820. 35See MGL letter and SIFMA letter. 36See Mallon & Johnson letter. 37See SIFMA letter. 38See Stephens letter; see also Lombard letter. 

39See 2007 ChoiceTrade letter, PFG letter, and 

SIFMA letter. 

40See, e.g., Securities Act Release No. 8828 (Aug. 

3, 2007), 72 FR 45116 (Aug. 10, 2007); Securities 

Act Release No. 8766 (Dec. 27, 2006), 72 FR 400 

(Jan. 4, 2007). 

41See ABA letter and SIFMA letter. 

42See MFA letter. 

43See Anders letter and ABA letter. 

44See SIFMA letter. 

45Supra note 5. 

46Letter from Stan Macel, FINRA, dated March 9, 

2009. 

47 2009 ChoiceTrade Letter. 

48 IPA Letter. 

49 2009 ChoiceTrade Letter. 

50 IPA letter. 

51 2009 ChoiceTrade letter. See also supra for 

FINRA’s response to the jurisdictional question. 

52 IPA letter. 

addition, FINRA proposed an 

exemption for commodity pools in view 

of the oversight and regulation 

performed by the NFA and the 

Commodity Futures Trading 

Commission.32 FINRA also clarified that 

variable contracts and other life 

insurance products would be 

excluded,33 because the offer and sale of 

these types of offerings are already 

subject to existing FINRA rules.34

FINRA also proposed an exemption for 

member private offerings that are filed 

with the Department under FINRA Rule 

5110 or NASD Rules 2720 or 2810. 

In addition, FINRA clarified aspects 

of other previously proposed 

exemptions. FINRA clarified that their 

intent regarding the exemption for 

wholesalers is to provide an exemption 

for those that do not primarily engage in 

direct selling to investors.35 FINRA also 

clarified that offerings of securities 

issued in conversions, stock splits, and 

restructuring transactions that are 

executed by an already-existing investor 

without the need for additional 

consideration or investment on the part 

of the investor would be exempt.36

FINRA also noted that equity and 

credit derivatives, such as OTC options, 

would be exempt, provided that the 

derivative is not based principally on 

the member or any of its control 

entities.37 As a technical matter, the 

issuer of an equity or credit derivative 

is the member firm, and thus would 

make such offering an MPO. However, 

where the security offered is not based 

principally on the member or any of its 

control entities (e.g., an OTC option on 

Microsoft Corporation), FINRA does not 

believe such sale should be subject to 

the provisions of the proposed rule 

change. On the other hand, if the 

derivative is based principally on the 

member or a control entity (e.g., an OTC 

option overlying the member), then the 

sale of such security should be treated 

as an MPO and subject to the 

requirements of the proposed rule 

change. 

Finally, FINRA clarified that the 

exemption for employees and affiliates 

of issuers would apply to employees 

and affiliates of control entities as well, 

because these persons are expected to 

have access to a level of information 

about the securities of the issuer similar 

to employees and affiliates of the issuer 

itself.38

Based on the comment letters 

received in response to NTM 07–27,39

FINRA also reconsidered whether 

offerings to accredited investors should 

be exempt. However, FINRA continued 

to believe that an exemption for 

offerings made to accredited investors 

would not be in the public interest due 

to the generally low thresholds for 

meeting the definition of the term 

‘‘accredited investor.’’ FINRA noted that 

the SEC has recently proposed clarifying 

and modernizing its ‘‘accredited 

investor’’ standard.40

Additionally, FINRA believed that 

financial products offered by a public 

reporting company,41 an investment 

fund,42 or a State or Federal bank 

affiliate of a FINRA member,43 should 

not be excluded based solely on their 

status as a reporting company, a fund, 

or a bank. FINRA’s belief was that, as a 

general matter, exemptions are best 

tailored based on the type of securities 

offered or the type (and sophistication) 

of the purchaser rather than the type of 

offeror. FINRA also declined to exempt 

offerings that contribute below a 

specified level of a member’s net worth 

(e.g., 5%), to create a categorical 

exemption for all exempted securities 

under Section 3(a) of the Securities Act, 

or to expand the exemption for 

securities with short term maturities 

under Section 3(a)(3) of the Securities 

Act to include all securities with a 

maturity of nine months or less.44 As a 

practical matter, however, many of these 

products would be exempt because they 

meet one of the other exemptions 

enumerated in the Rule. 

III. Comment Letters 

The Commission received two 

comment letters in response to the 

proposed rule change.45 The 

Commission also received FINRA’s 

response to comments.46 One letter 

voiced serious objections to the Rule,47

while the other raised issues relating to 

the scope of the Rule.48 The specific 

comments from these two letters, as 

well as FINRA’s response to these 

comments, are discussed in detail 

below. 

One commenter stated that FINRA did 

not have jurisdiction to adopt the 

Rule.49 FINRA found no basis in this 

allegation because they believe that the 

Rule is consistent with Section 

15A(b)(6) of the Exchange Act and that 

the proposed rule change will provide 

important investor protections. FINRA 

also points out that the Rule, by its 

terms, would apply to members and 

their associated persons in connection 

with the offer and sale of a specific type 

of security offering. 

Both commenters argued that the 

requirements of the proposed rule 

change as applied to control entities of 

a member are overly broad. One 

commenter argued that the Rule would 

affect private placements by control 

entities that are not members which 

should not be part of the proposal.50

The other commenter argued that 

FINRA did not have jurisdiction over 

control entities that are not brokerdealers.51 FINRA disagreed with the 

commenters, stating that it has narrowly 

tailored the Rule to apply only in those 

instances where it believes oversight is 

warranted. For example, the definition 

of ‘‘control’’ in the Rule was limited to 

situations where the member owns more 

than 50% of the shares or distributable 

profits of the entity, where control has 

been found elsewhere at as little as 

10%. Further, FINRA asserts that the 

Rule is designed to address conflicts 

attendant to private offerings by the 

member and its control entities. FINRA 

does not believe that this conflict is any 

less relevant when the capital is not 

being raised directly for the member’s 

business purpose. 

One commenter argued that FINRA 

should issue no-objection letters or 

otherwise demarcate the end of their 

review process.52 FINRA responded that 

the purpose of their review is to find 

filings that are deficient on their face, 

and thus does not intend to engage in 

an extended review as it does in other 

situations. FINRA did note that the filed 

documents may be utilized in the 

member examination process. 

Both commenters raised objections to 

the imposition of a limit on offering 

expenses. FINRA disagrees with the 

commenters and believes that the limits 

placed on members in the Rule are 

warranted based on the abuses FINRA 

has found. They believe that investors 

should be assured that in the case where 


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12918 Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices 

53Exchange Act Release No. 59262 (January 16, 

2009), 74 FR 4487 (January 26, 2009). See also 

supra Section II.C. 

54 IPA letter. 

55 2009 ChoiceTrade letter. 

56 Id. 

57 Id. 

58 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

59 15 U.S.C. 78o–3(b)(6). 

60 15 U.S.C. 78s(b)(2). 

61 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 59364 

(February 5, 2009), 74 FR 6941 (hereinafter referred 

to as ‘‘Notice’’). 

4The $2,500 fee may include multiple issues of 

securities from the same issuer on the same 

application. 

5 Derivative Securities Products and Structured 

Products are defined in the NYSE Arca Schedule of 

Fees and Charges at notes 3 and 4. See also Notice, 

supra note 3. The definitions include all Derivative 

Securities Products and Structured Products traded 

on NYSE Arca Equities. 

members are placing their own or a 

control entity’s securities. They also 

point out that some limits are already in 

place via other rules or guidelines. 

NTM 07–27 required additional 

disclosures beyond what was proposed 

by FINRA to the Commission, but 

FINRA requested specific comment as to 

whether those additional disclosures 

should be put back into the Rule.53 Only 

one commenter addressed this question, 

but did support FINRA’s decision to 

remove these additional disclosures.54

One commenter objected to limiting 

the requirement of filing the offering 

document with FINRA to FINRA 

members only.55 FINRA responded that 

private offerings by members raise 

unique conflicts that necessitate the 

Rule. Further, that there is potential for 

abuse in private offerings by nonmembers is not a rationale for 

abandoning the proposal. 

One commenter challenged FINRA’s 

ability to keep the documents submitted 

to them confidential in spite of the 

promise of confidential treatment in 

proposed Rule 5122(d).56 FINRA 

strongly disagreed with this assessment. 

This commenter also argued that there 

were insufficient occurrences of 

disconcerting behavior by members to 

warrant a rule, asserted that the Rule 

required a private placement 

memorandum and objected to a new 

requirement to do so, argued that the 

anti-fraud rules were sufficient to 

address the behavior FINRA was 

concerned with, objected to the filing 

requirement generally, objected to 

making the offering document available 

for the member examination process, 

argued that accredited investors should 

be excepted from the Rule, and argued 

that the Rule was an over-reaction to the 

findings cited by FINRA in the 

proposal.57

IV. Discussion and Findings 

After careful review of the proposed 

rule change, the comments, and 

FINRA’s response to the comments, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act, and the rules 

and regulations thereunder that are 

applicable to a national securities 

association.58 In particular, the 

Commission believes that the proposed 

rule change is consistent with the 

provisions of Section 15A(b)(6) of the 

Act,59 which requires, among other 

things, that FINRA rules be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The Commission 

believes that FINRA is seeking to protect 

investors and the public interest as a 

result of numerous findings of 

disconcerting behavior by its members 

in connection with MPOs. The 

Commission also believes that FINRA 

has tailored the Rule to prohibit 

members or associated persons from 

offering or selling securities in certain 

MPOs in order to ensure that investors 

are protected from such abusive conduct 

with minimal disruption on capital 

formation. The Commission notes that, 

as explained in the supplementary 

material to the Rule, nothing in the Rule 

shall require a member to prepare a 

private placement memorandum that 

meets the additional requirements of 

Securities Act Rule 502. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,60 that the 

proposed rule change (File No. SR– 

FINRA–2008–020), as modified by 

Amendment No. 2, be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.61

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–6466 Filed 3–24–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59597; File No. SR– 

NYSEArca-2009–03] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Approving Proposed 

Rule Change To Establish a Technical 

Original Listing Fee Specific to 

Derivative Securities Products and 

Structured Products 

March 18, 2009. 

I. Introduction 

On January 23, 2009, NYSE Arca, Inc. 

(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend its rules governing 

NYSE Arca, LLC, which is the equities 

trading facility of NYSE Arca Equities, 

to adopt a technical original listing fee 

applicable specifically to Derivative 

Securities Products and Structured 

Products. Additionally, the Exchange is 

removing from the NYSE Arca Schedule 

of Fees and Charges, a reference to a fee 

waiver that was applicable only in 2007. 

The proposed rule change was 

published in the Federal Register on 

February 11, 2009.3 The Commission 

received no comments on the proposal. 

This order approves the proposed rule 

change. 

II. Description of the Proposal 

The Exchange proposes adopting a 

technical original listing fee of $2,500 

specifically for Derivative Securities 

Products and Structured Products.4

Derivative Securities Products and 

Structured Products 5 are currently 

subject to the Exchange’s existing 

technical original listing fee of $5,000, 

which is applicable to all listed 

securities, except for closed-end funds. 

A technical original listing would occur 

as a result of a change in state of 

incorporation, reincorporation under 

the laws of the same state, reverse split 

stocks, recapitalization, creation of a 

holding company or new company by 

operation of law or through an exchange 

offer, or similar events affecting the 

nature of a listed security. The fee 

applies if the change in the company’s 

status is technical in nature and the 

shareholders of the original company 

receive or retain a share-for-share 

interest in the new company without 

any change in their position in the 

issuer’s capital structure or rights. 

The Exchange further proposes a nonsubstantive change by removing 

Footnote 8 to the NYSE Arca Schedule 

of Fees and Charges, waiving a fee that 

was applicable only in 2007 and thus no 

longer relevant. 


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