31764 Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 90302 (Nov. 2, 

2020), 85 FR 71120 (Nov. 6, 2020) (File No. SR– 

FINRA–2020–038) (‘‘Notice’’). 

4See letter from Joseph Savage, Vice President, 

Office of General Counsel Regulatory Policy, 

FINRA, to Daniel Fisher, Branch Chief, Division of 

Trading and Markets, Commission, dated December 

11, 2020. This letter is available at https://

www.finra.org/sites/default/files/2021-01/SRFINRA-2020-038-Extension1.pdf. 

5See letter from Joseph P. Savage, Vice President 

and Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, Commission, dated 

January 12, 2021 (‘‘FINRA January 12 Letter’’). The 

FINRA January 12 Letter is available at the 

Commission’s website at https://www.sec.gov/ 

comments/sr-finra-2020-038/srfinra2020038- 

8233135-227749.pdf. Amendment No. 1 is available 

at https://www.finra.org/sites/default/files/2021-01/ 

SR-FINRA-2020-038-Amendment1.pdf. 

6See letter from Joseph P. Savage, Vice President 

and Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, Commission, dated 

January 29, 2021 (‘‘FINRA January 29 Letter’’). The 

FINRA January 29 Letter is available at the 

Commission’s website at https://www.sec.gov/ 

comments/sr-finra-2020-038/srfinra2020038- 

8311262-228459.pdf. 

7See Exchange Act Release No. 91066 (Feb. 4, 

2021), 86 FR 8970 (Feb. 10, 2021) (File No. SR– 

FINRA–2020–038) (‘‘OIP’’). 

8See letter from Joseph P. Savage, Vice President 

and Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, Commission, dated 

April 12, 2021 (‘‘FINRA April 12 Letter’’). The 

FINRA April 12 Letter is available at the 

Commission’s website at https://www.sec.gov/ 

comments/sr-finra-2020-038/srfinra2020038- 

8662482-235305.pdf. 

9See letter from Joseph Savage, Vice President, 

Office of General Counsel Regulatory Policy, 

FINRA, to Daniel Fisher, Branch Chief, Division of 

Trading and Markets, Commission, dated May 4, 

2021. This letter is available at https://

www.finra.org/sites/default/files/2021-05/SRFINRA-2020-038-Extension2.pdf. 

10See letter from Joseph Savage, Vice President, 

Office of General Counsel Regulatory Policy, 

FINRA, to Daniel Fisher, Branch Chief, Division of 

Trading and Markets, Commission, dated May 25, 

2021. This letter is available at https://

www.finra.org/sites/default/files/2021-05/SRFINRA-2020-038-Extension3.pdf. 

11A ‘‘control entity’’ means any entity that 

controls or is under common control with a 

member, or that is controlled by a member or its 

associated persons. See FINRA Rule 5122(a)(2)–(3); 

see also Notice at note 3. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2021–046 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2021–046. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2021–046 and 

should be submitted on or before July 6, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–12475 Filed 6–14–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92133; File No. SR–FINRA– 

2020–038] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change, as Modified by 

Amendment No. 1, to FINRA Rules 

5122 (Private Placements of Securities 

Issued by Members) and 5123 (Private 

Placements of Securities) That Would 

Require Members To File Retail 

Communications Concerning Private 

Placement Offerings That Are Subject 

to Those Rules’ Filing Requirements 

June 9, 2021. 

I. Introduction 

On October 28, 2020, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend FINRA Rules 5122 (Private 

Placements of Securities Issued by 

Members) and 5123 (Private Placements 

of Securities) that would require 

members to file certain retail 

communications concerning private 

placements. 

The proposed rule change was 

published for comment in the Federal 

Register on November 6, 2020.3 On 

December 11, 2020, FINRA consented to 

an extension of the time period in 

which the Commission must approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change to February 4, 2021.4 On 

January 12, 2021, FINRA responded to 

five comment letters received in 

response to the Notice and filed an 

amendment to the proposed rule change 

(‘‘Amendment No. 1’’).5 On January 29, 

2021, FINRA responded to a sixth 

comment letter received in response to 

the Notice.6 On February 4, 2021, the 

Commission filed an Order Instituting 

Proceedings to determine whether to 

approve or disapprove the proposed 

rule change, as modified by Amendment 

No. 1.7 The Commission received no 

comments in response to the OIP. On 

April 12, 2021, FINRA responded to a 

seventh comment letter received in 

response to the Notice.8 On May 4, 

2021, FINRA consented to an extension 

of the time period in which the 

Commission must approve or 

disapprove the proposed rule change to 

May 26, 2021.9 On May 25, 2021, 

FINRA consented to an extension of the 

time period in which the Commission 

must approve or disapprove the 

proposed rule change to June 9, 2021.10

This order approves the proposed rule 

change, as modified by Amendment No. 

1. 

II. Description of the Proposed Rule 

Change 

For certain private placements of 

unregistered securities issued by a 

FINRA member or a control entity 11

(‘‘member private placements’’), FINRA 

Rule 5122 requires the member or 

control entity to provide prospective 


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12Because of the types of private placements 

exempt from the application of Rule 5122, FINRA 

believes that the rule applies predominately to 

private placements sold to retail investors. See 

Notice at 71121. 

13See Notice at 71120. 

14See Notice at note 8 (listing those types of 

member private placements exempt from the filing 

obligations of Rule 5122, including, among others, 

offerings sold solely to institutional accounts, 

qualified purchasers, qualified institutional buyers, 

investment companies, and banks). 

15Rules 5122 and 5123 do not enumerate the 

types of information that might be considered 

‘‘other offering documents.’’ However, FINRA has 

stated previously that an example of ‘‘other offering 

document’’ is ‘‘[a]ny other type of document that 

sets forth the terms of the offering.’’ See 

‘‘Frequently Asked Questions (FAQ) About Private 

Placements,’’ Question #10, available on 

www.finra.org. The ‘‘terms of an offering’’ include 

facts such as the amount of proceeds that the issuer 

intends to raise, the type of security, descriptions 

or illustrations of the intended use of proceeds, and 

explanations of tax benefits or other information 

that would be relevant to an investor when deciding 

whether to make an investment. See Notice at 

71121. 

16See FINRA Rule 2210(c) (Filing Requirements 

and Review Procedures). 

17FINRA Rule 2210(a)(5) defines a ‘‘retail 

communication’’ as any written (including 

electronic) communication that is distributed or 

made available to more than 25 retail investors 

within any 30 calendar-day period. See Regulatory 

Notice 20–21 (Jul. 2020) (stating that a member firm 

that assists in the preparation of a PPM or other 

offering document should expect that it will be 

considered a communication with the public by 

that member firm for purposes of Rule 2210); see 

also FINRA January 12 Letter. FINRA Rule 2210 

generally does not require members to file private 

placement communications. More specifically, 

there are no filing requirements for communications 

distributed or made available only to institutional 

investors, as defined in Rule 2210(a)(4), or 

communications that are distributed or made 

available to 25 or fewer retail customers within a 

30-day period. Moreover, there is no productspecific filing requirement for retail 

communications concerning private placements in 

FINRA Rule 2210(c)(1) through (4)), as those 

requirements apply only to retail communications 

concerning specified registered securities, such as 

mutual funds or variable products. Under FINRA 

Rule 2210(c)(1)(A), during the first year after a 

member’s registration is declared effective, the 

member must file at least 10 business days prior to 

use any widely disseminated retail communication 

(e.g., newspaper, television, or radio advertisements 

and publicly available websites). However, FINRA 

Rule 2210(c)(7) excludes specified retail 

communications from the filing requirements, 

including retail communications that were 

previously filed with FINRA’s Advertising 

Regulation Department and used without material 

change ((c)(7)(A)); that do not make any financial 

or investment recommendation or otherwise 

promote a product or service of the member 

((c)(7)(C)); or that are ‘‘offering documents’’ similar 

to prospectuses (such as PPMs) concerning 

securities that are exempt from registration 

((c)(7)(F)). 18All member communications must be based on 

principles of fair dealing and good faith, must be 

fair and balanced, and must provide a sound basis 

for evaluating the facts in regard to any particular 

security or type of security, industry, or service. See 

FINRA Rule 2210(d)(1)(A). 

19See Notice at 71122. 

20See Notice at 71223 (stating that members 

submit retail communications as part of their Rule 

5122 and 5123 private placement filings while some 

others submit them through FINRA’s Advertising 

Regulation Department’s filings review program 

under Rule 2210 either voluntarily or as new 

members) and at note 12 (citing FINRA Rule 

2210(c)(1)(A) requiring new members to file all 

widely-distributed retail communications (such as 

publicly available websites) that promote products 

or services of the firm during the first year after the 

member’s broker-dealer membership with FINRA’s 

Advertising Regulation Department is declared 

effective). 

21See Notice at 71122 (stating that the violations 

included retail communications that: contained 

prohibited projections or unreasonable forecasts; 

failed to provide a sound basis to evaluate the facts 

with respect to the offering; failed to adequately 

disclose the general risks associated with private 

placement investments; or contained readily 

apparent false or misleading statements or claims). 

22See id. 

23Amendment 1 to the proposed rule change 

clarified that members or control persons would be 

required to file any retail communication that 

‘‘promotes or recommends’’ a private placement, 

rather than any retail communication that 

‘‘concerns’’ a private placement, as originally 

proposed. 

24See Notice at 71122. 

25See id. 

26See e.g., supra note 14. 

27See Notice at 71122 and note 21. 

28See FINRA January 12 Letter, FINRA January 

29 Letter, and FINRA April 12 Letter. 

investors 12 with a private placement 

memorandum (‘‘PPM’’), term sheet or 

other offering document that discloses 

the intended use of the offering 

proceeds, the offering expenses, and the 

amount of selling compensation that 

will be paid to the member and its 

associated persons. Among other things, 

the current rule also requires a member 

to file the PPM, term sheet or other 

offering document with FINRA’s 

Corporate Financing Department at or 

prior to the first time the document is 

provided to any prospective investor, 

and to file any amendments to such 

documents within 10 days of being 

provided to any investor or prospective 

investor.13 Similarly, for certain private 

placements of unregistered securities 14

issued by a non-member, FINRA Rule 

5123 requires members or control 

persons to file with FINRA’s Corporate 

Financing Department any PPM, term 

sheet or other offering document,15

including any material amended 

versions thereof, used in connection 

with an offering within 15 calendar days 

of the date of first sale. 

Separately, FINRA also requires 

broker-dealers to file with FINRA’s 

Advertising Regulation Department 

certain written communications that 

they distribute or make available to 

retail customers to review those written 

communications for compliance with 

the content requirements of FINRA Rule 

2210 (Communications with the 

Public).16 For example, retail 

communications 17 are required to 

comply with the general, fair and 

balanced standards in FINRA Rule 

2210.18 Despite these existing 

obligations, FINRA has found a 

comparatively high rate of noncompliance with Rule 2210 of retail 

communications concerning private 

placements.19 Currently, some brokerdealers submit retail communications as 

part of their Rules 5122 and 5123 filings 

either voluntarily or as new members.20

In a 2018 spot check of these filings, 

FINRA found that 76% of retail 

communications filed during the spot 

check review period involved 

significant violations of Rule 2210.21

Further, FINRA stated that since January 

1, 2014, it has initiated 49 disciplinary 

actions related to non-compliant retail 

communications concerning private 

placements. This number represents 

21% of all actions involving private 

placements. According to FINRA, these 

communications often present false or 

misleading information regarding the 

underlying offering, which could result 

in significant losses to investors and 

could undermine public trust in the 

private placement markets.22

To address this area of regulatory 

concern, FINRA proposed amendments 

to Rules 5122 and 5123 that would 

require members or control persons to 

file retail communications that 

‘‘promote or recommend’’ a private 

placement with FINRA’s Corporate 

Financing Department, in addition to 

the currently required PPMs, term 

sheets, and other offering documents.23

The rules’ requirements that material 

amendments to offering documents 

must be filed also would apply to any 

material amendments to retail 

communications concerning private 

placements.24 The proposed rule change 

would provide FINRA with a more 

timely opportunity to review retail 

communications concerning private 

placements for compliance with its 

rules. Other than those documents filed 

pursuant to Rule 2210, FINRA’s review 

of such documents is currently limited 

to its cycle and spot exams of its 

members.25

The proposed rule change would not, 

however, broaden the application of the 

rules to capture those offerings that are 

currently exempt from filing.26 The 

proposed rule change also would not 

impose new filing fees on brokerdealers.27

In addition, the proposed rule change 

would neither amend Rule 2210 nor, as 

FINRA states, alter FINRA’s 

interpretation of the application of that 

rule’s requirements.28 Thus, if written 

communications qualify as retail 

communications pursuant to FINRA 

Rule 2210, those retail communications 


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29 In approving this rule change, the Commission 

has considered the rule’s impact on efficiency, 

competition, and capital formation. See 15 U.S.C. 

78c(f). 

30 15 U.S.C. 78o–3(b)(6). 

31See letter from David P. Meyer, President, 

Public Investors Advocate Bar Association, to 

Vanessa Countryman, Secretary, Commission, dated 

November 27, 2020 (‘‘PIABA Letter’’); letter from 

Lisa Hopkins President, General Counsel and 

Senior Deputy, North American Securities 

Administrators Association, Inc., to J. Matthew 

DeLesDernier, Assistant Secretary, Commission, 

dated November 24, 2020 (‘‘NASAA Letter’’); letter 

from James P. Dowd, North Capital Private 

Securities Corp. and Public Brokers, LLC, to 

Secretary, Commission, dated November 23, 2020 

(‘‘NCPSC Letter’’); and letter from Tom Selman, 

Founder, Scopus Financial Group, to Vanessa 

Countryman, Secretary, Commission, dated 

November 22, 2020 (‘‘Scopus Letter’’). 

32See NASAA Letter and PIABA Letter. 

33NASAA Letter (citing Securities Act Release 

No. 10824 (Aug. 6, 2020) (File No. S7–25–19) 

(updating the definition of ‘‘accredited investor’’ to 

identify more effectively investors that have 

sufficient knowledge and expertise to participate in 

investment opportunities that do not have the 

rigorous disclosure and procedural requirements, 

and related investor protections, provided by 

registration under the Securities Act of 1933); and 

Securities Act Release No. 10884 (Nov. 2. 2020) 

(File No. S7–05–20) (improving certain aspects of 

the exempt offering framework to promote capital 

formation while preserving or enhancing important 

investor protections)). 

34PIABA Letter (noting a rise in the percentage 

of American households qualified as ‘‘accredited 

investors’’ since the Commission first established 

the qualification standards in 1982). 

35See NCPSC Letter (referencing FINRA Rule 

2210(b)(4)). 

36Scopus Letter. Communications with the 

public are subject to FINRA Rule 2210’s content 

standards, including its requirements that 

communications be fair and balanced and not 

misleading. See FINRA January 12 Letter. 

37See NCPSC Letter. 

38FINRA January 12 Letter. 

39 Id. (citing Regulatory Notice 20–21 (Jul. 2020) 

(quoting Regulatory Notice 10–22 (Apr. 2010))). 

40See id.; see also Regulatory Notice 12–29 (Jun. 

2012) (stating that effective February 4, 2013, 

communications previously defined as ‘‘sales 

literature’’ under NASD Rule 2210 

(Communications with the Public) fell within the 

definition of ‘‘retail communication’’ in FINRA 

Rule 2210). 

41See FINRA January 12 Letter. 

42See supra note 38–41 and accompanying text. 

43FINRA Rule 2210(d)(1)(B); see also FINRA 

January 12 Letter. 

44See NCPSC Letter; letter from Anthony 

Chereso, President and CEO, Institute for Portfolio 

Alternatives, to Vanessa Countryman, Division of 

Investment Management [sic], Commission, dated 

January 26, 2021 (‘‘IPA Letter’’); and letter from 

Mick Law P.C., L.L.O. to Vanessa Countryman, 

Division of Investment Management [sic], 

Commission, dated February 2, 2021 (‘‘Mick 

Letter’’). 

45Under Exchange Act Rule 10b–5, it is unlawful 

for any person, directly or indirectly, by the use of 

any means or instrumentality of interstate 

commerce, or of the mails or of any facility of any 

national securities exchange, to employ any device, 

scheme, or artifice to defraud, to make any untrue 

statement of a material fact or to omit to state a 

material fact necessary in order to make the 

statements made, in the light of the circumstances 

would be subject to the proposed rule 

changes. 

III. Discussion and Commission 

Findings 

A. Discussion 

After careful review of the proposed 

rule change, as modified by Amendment 

No. 1, the comment letters, and FINRA’s 

responses to the comments, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 1, is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

that are applicable to a national 

securities association.29 Specifically, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 1, is consistent with Section 

15A(b)(6) of the Exchange Act,30 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. 

Four commenters supported the 

proposed rule change.31 Two of these 

commenters stated that the proposed 

rule change would establish necessary 

investor protections in light of 

regulatory changes that have expanded 

the marketplace for private 

placements.32 Specifically, one stated 

that its state securities administrator 

members have observed significant, 

recurring problems with private 

placements and that, ‘‘[w]ith the SEC’s 

recent regulatory changes to the private 

[placement] marketplace, . . . the need 

for increased regulatory scrutiny of 

private placement advertisements is 

even more acute.’’ 33 One other 

supportive commenter stated that, 

because the number of persons who can 

invest in private placements has 

increased substantially over the last 

several decades, ‘‘FINRA must keep an 

eye [on] private placement sales 

abuses.’’ 34 One of the other supportive 

commenters stated that FINRA and 

Commission rules already require 

members to keep detailed records on 

marketing materials, which are 

routinely requested during cycle 

examinations, and that the proposed 

rule changes could facilitate this review 

process.35 The fourth supportive 

commenter stated that the proposed rule 

changes are justified because they 

would help FINRA ‘‘better ensure that 

retail communications used by brokerdealers in retail private placements are 

fair, balanced and not misleading.’’ 36

1. Requests for Guidance Under FINRA 

Rule 2210 (Communications With the 

Public) 

a. Issuer-Prepared Material 

A supportive commenter requested 

that the Commission use this 

opportunity to provide ‘‘definitive 

guidance’’ to members with respect to 

the applicability of Rule 2210 to 

materials prepared and disseminated by 

an issuer to the public, without the 

involvement of a member firm or its 

registered representatives.37 In 

response, FINRA stated that it has 

already addressed the applicability of 

Rule 2210 to issuer-prepared 

communications.38 In particular, FINRA 

has previously stated that ‘‘[a member] 

that assists in the preparation of a 

private placement memorandum or 

other offering document should expect 

that it will be considered a 

communication with the public by that 

[member] for purposes of . . . Rule 

2210, FINRA’s advertising rule.’’ 39

Similarly, FINRA has stated that sales 

literature concerning a private 

placement that a member distributes 

will be deemed to constitute a 

communication by that member with 

the public, whether or not the member 

assisted in its preparation.40 Therefore, 

regardless of whether a member 

distributes a retail communication that 

is attached to a PPM or as a standalone 

document, it constitutes a member 

communication subject to Rule 2210.41

FINRA’s proposed rule change does 

not amend the definition of ‘‘retail 

communications’’ or change the scope 

of communications captured within the 

definition of the term. Thus, the 

Commission believes that 

interpretations of the definition of 

‘‘retail communications’’ are outside the 

scope of the proposed rule change. 

However, FINRA stated that it has 

issued guidance on retail 

communications concerning private 

placements, stating that, in general, if a 

member distributes sales literature 

concerning a private placement it will 

be deemed a communication by that 

member with the public subject to Rule 

2210.42 In addition, Rule 2210 prohibits 

members from publishing, circulating, 

or distributing ‘‘any communication that 

the member knows or has reason to 

know contains any untrue statement of 

a material fact or is otherwise false or 

misleading’’ regardless of its origin.43

b. Performance Projections 

Three commenters sought guidance 

regarding the application of FINRA Rule 

2210 to performance projections.44 A 

supportive commenter requested that 

the Commission provide interpretive 

guidance under Exchange Act Rule 10b– 

5 45 concerning the inclusion of 


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under which they were made, not misleading, or to 

engage in any act, practice, or course of business 

which operates or would operate as a fraud or 

deceit upon any person, in connection with the 

purchase or sale of any security. 

46See NCPSC Letter. 

47See FINRA Rule 2210(d)(1)(F) (stating that, in 

general, communications may not predict or project 

performance, imply that past performance will 

recur or make any exaggerated or unwarranted 

claim, opinion or forecast). 

48See id. 

49See FINRA January 12 Letter. 

50See id. (citing Regulatory Notice 20–21 (Jul. 

2020)). 

51See id. 

52 IPA Letter. 

53See id. 

54See FINRA January 29 Letter. 

55See Mick Letter. 

56See id. 

57See id. 

58See FINRA April 12 Letter. 

59See id. 

60Scopus Letter. 

61See id. 

62See FINRA January 12 Letter. 

63See letter from Atish Davda, Co-Founder and 

Chief Executive Office, Chris Giampapa, General 

Counsel, and Phil Haslett, Co-Founder and Chief 

Revenue Officer, EquityZen Inc., to Vanessa A. 

Countryman, Secretary, Commission, dated 

December 4, 2020. 

64See id. 

65See id. 

performance return objectives in private 

placement sales materials.46

Specifically, the commenter believes 

that because of Rule 2210’s restrictions 

on predicting or projecting 

performance,47 broker-dealers are 

placed at a competitive disadvantage 

relative to private placements that do 

not involve a broker-dealer (to which 

Rule 2010 would not apply), and that 

the Commission should ‘‘level the 

playing field.’’ 48

In response, FINRA stated that, in 

general, Rule 2210(d)(1)(F) prohibits 

member communications from 

predicting or projecting performance or 

making any exaggerated or unwarranted 

claim, opinion or forecast.49 More 

specifically, FINRA stated that retail 

communications concerning private 

placements may not project or predict 

returns to investors such as yields, 

income, dividends, capital appreciation 

percentages or any other future 

investment performance.50 However, 

FINRA also clarified that despite its 

prohibition on certain types of 

performance predictions, its rules 

permit retail communications 

concerning private placements to 

include reasonable forecasts of issuer 

operating metrics (e.g., forecasted sales, 

revenues or customer acquisition 

numbers) that may convey important 

information regarding the issuer’s plans 

and financial position. FINRA stated 

that these presentations should provide 

a sound basis for evaluating the facts, 

such as clear explanations of the key 

assumptions underlying the forecasted 

issuer operating metrics and the key 

risks that may impede achievement of 

the forecasted metrics.51

One commenter recommended that 

FINRA ‘‘clarify the application of its 

principles-based advertising rules to 

retail communications concerning 

private placement[s].’’ 52 In particular, 

the commenter recommended that 

FINRA provide interpretive guidance on 

the term ‘‘performance projection’’ to 

help members comply with FINRA Rule 

2210(d)(1)(F).53 FINRA responded that 

the proposed rule change would not 

amend or provide guidance on Rule 

2210. Accordingly, FINRA believes that 

the commenter’s recommendation is 

outside the scope of the proposed rule 

change.54

Another commenter described its 

experience evaluating the features and 

risks of alternative investments 

marketed through private placements 

and has found, like FINRA, many 

instances in which a sponsor’s offering 

promotional materials did not comply 

with FINRA Rule 2210.55 Thus, the 

commenter asked FINRA to further 

clarify Regulatory Notice 20–21 to: (1) 

Explain what types of information 

constitute an issuer’s ‘‘operating 

metrics’’ 56 and (2) clarify when 

members may present information about 

‘‘distribution rates’’ within retail 

communications.57

In response, FINRA stated that the 

commenter’s concerns regard the 

application of FINRA Rule 2210 rather 

than the filing requirements in the 

proposed rule changes to Rules 5122 

and 5123 that are the subject of the rule 

filing.58 FINRA reiterated its guidance 

under Regulatory Notice 20–21 but 

stated that it is willing to further discuss 

with its members issues regarding 

particular retail communications that 

are filed with FINRA, both before and 

after a communication is filed.59

Given that the proposed rule change 

does not change the interpretation of 

retail communications, the Commission 

believes that interpretations of the 

definition of ‘‘retail communications’’ 

are outside the scope of the proposed 

rule change. However, FINRA stated 

that it has existing guidance regarding 

the type of performance projections a 

member can include, and is prohibited 

from including, in its retail 

communications. 

2. Other Suggested Rule Changes 

One of the four commenters 

supporting the proposed rule change 

suggested three additional changes ‘‘to 

protect retail investors in the private 

placement market.’’ 60 First, the 

commenter recommended that FINRA 

combine Rules 5122 and 5123 into a 

single rule and that the combined new 

rule should require (as does Rule 5122) 

disclosure about the use of offering 

proceeds, offering expenses and selling 

compensation, suggesting that providing 

investors these key pieces of 

information about an offering is justified 

given the history of problems in the 

private placement market. Third, the 

commenter recommended that FINRA 

amend Rule 2210 so that it applies to 

PPMs, term sheets, and other offering 

documents in retail private placements, 

arguing that in the absence of a legal 

definition of ‘‘private placement 

memorandum’’ it is difficult to 

distinguish a PPM from other retail 

communications and it may be difficult 

to determine if a member assisted in its 

preparation. Accordingly, the 

commenter recommended that such 

offering documents be subject to the 

general content standards of Rule 

2210(d)(1).61

In response, FINRA stated that the 

commenter’s suggestions were beyond 

the scope of the proposed rule change 

and could not be adopted as part of this 

filing.62 The Commission agrees with 

FINRA that the commenter’s suggestions 

raise issues that go beyond the subject 

matter of this proposal and therefore are 

beyond the scope of the proposed rule 

change. 

3. Non-Promotional Communications 

One commenter expressed concern 

with the breadth of the communications 

that would be required to be filed.63 The 

commenter believes that requiring a 

member to file all ‘‘retail 

communications concerning a private 

placement’’ could result in members 

being required to file communications 

that are administrative in nature, such 

as confirmations that a signature was 

received or reminders of actions that 

investors still need to take.64 Instead, 

the commenter recommended that 

FINRA narrow the scope of the filing 

requirement to capture only ‘‘those 

types of communications on which 

investors are likely to base an 

investment decision,’’ such as pitch 

decks or slide shows.65

In response, FINRA noted that the 

examples of administrative 

communications that the commenter 

identified likely would be directed to a 

single or small group of investors, and 

thus would be correspondence (which is 

not subject to filing) rather than retail 


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31768 Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 

66See FINRA January 12 Letter. 

‘‘Correspondence’’ is defined as any written 

(including electronic) communication that is 

distributed or made available to 25 or fewer retail 

investors within any 30 calendar-day period. See 

Rule 2210(a)(2). 

67See supra note 17. 

68See FINRA January 12 Letter; see also supra 

note 5. 

69See supra note 20. 

70See supra note 19–22 and accompanying text. 

71See id. 

72See supra notes 32–34 and accompanying text. 

73Another commenter requested that the 

Commission require issuers of new Regulation D 

offerings to disclose, at a minimum, the use of 

offering proceeds and the offering expenses 

associated with the offering, and that they be filed 

for review. See Scopus Letter. The Commission 

believes that interpretations of its own regulatory 

terms are beyond the scope of the proposed rule 

change. 

74A commenter also requested that FINRA 

combine Rules 5122 and 5123 into a single rule 

requiring (as does Rule 5122) disclosure about the 

use of offering proceeds, offering expenses and 

selling compensation. The Commission finds that 

this suggestion is also beyond the scope of the 

proposed rule change. 

communications.66 Nevertheless, 

FINRA recognized that some of these 

administrative and non-promotional 

communications may fall within the 

definition of retail communication 

because they are distributed to more 

than 25 retail investors within a 30-day 

period.67 Accordingly, FINRA amended 

the proposed rule change to narrow the 

filing requirement to any retail 

communication that ‘‘promotes or 

recommends’’ a member private 

placement (Rule 5122) or other private 

placement (Rule 5123), rather than a 

retail communication ‘‘concerning’’ 

such offerings.68

The Commission believes that the 

proposed rule change in Amendment 

No. 1 to apply the filing requirement 

only to a retail communication that 

‘‘promotes or recommends’’ a member 

private placement is designed to protect 

investors and the public interest by 

appropriately narrowing the filing 

requirement to those communications 

that pose the greatest regulatory 

concern, and therefore improving the 

timeliness of FINRA’s review of private 

placement communications that might 

influence investors’ transaction 

decisions. 

B. Commission Findings 

Under Rules 5122 and 5123, brokerdealers are required to file with FINRA’s 

Corporate Financing Department any 

PPM, term sheet, or other offering 

document used in connection with 

private placements, but these rules do 

not currently require retail 

communications governed by Rule 2210 

to be filed. Similarly, Rule 2210 

generally does not require brokerdealers to file with FINRA’s Advertising 

Regulation Department the materials 

they use to communicate with retail 

investors concerning private 

placements. Accordingly, firms 

currently have no regulatory obligation 

to submit retail communications 

concerning private placements for 

review by FINRA. Currently, some 

broker-dealers submit retail 

communications as part of their Rules 

5122 and 5123 filings either voluntarily 

or as new members.69 Given the 

comparatively high rate of noncompliance with Rule 2210 in these 

private placement retail 

communications, and the increased risk 

of investor harm associated with those 

communications,70 FINRA proposed to 

amend Rules 5122 and 5123 to make 

such submissions mandatory, in 

addition to the currently required PPMs, 

term sheets, and other offering 

documents.71 The proposed rule change 

would not amend Rule 2210 or change 

FINRA’s interpretations of the rule. 

The Commission believes that the 

proposed rule change to require 

members to file retail communications 

concerning private placements would 

help prevent fraudulent and 

manipulative acts and practices by 

facilitating FINRA’s review of 

information about private placements 

being disclosed to retail customers in 

those communications. Requiring 

members to file retail communications 

concerning private placements with 

FINRA’s Corporate Financing 

Department would allow FINRA to 

review the documents more efficiently 

and timely than it could by relying on 

cycle reviews of its members. Through 

its reviews of the these retail 

communications, FINRA would be able 

to more efficiently identify retail 

communications about private 

placements that may not be fair and 

balanced as required by FINRA Rule 

2210, thereby reducing the potential risk 

of customer harm from investing on the 

basis of misleading communications. 

Moreover, given the high rate of noncompliance with this fundamental 

communications standard, FINRA’s 

increased ability to review retail 

communications concerning private 

placements pursuant to this proposed 

rule change would likely incentivize 

broker-dealers to distribute those types 

of retail communications that are fair 

and balanced in compliance with Rule 

2210 and deter them from presenting 

information in a manner that may cause 

investor harm. The Commission 

believes that these changes are 

particularly important in light of the 

expanded retail investor participation in 

the market for private placements.72 The 

proposed rule change would help 

encourage the use of fair and balanced 

communications to investors making 

investment decisions. 

Although some commenters requested 

clarification of specific aspects of the 

application of FINRA Rule 2210, such as 

broker-dealers’ use of performance 

projections in their retail 

communications, and in some cases 

sought guidance on specific factual 

scenarios, FINRA has previously 

provided guidance on these issues and 

has offered to continue to provide 

guidance as necessary. Moreover, the 

Commission believes that these 

comments are beyond the scope of this 

proposed rule change.73 Notably, the 

proposed rule change does not modify 

Rule 2210, does not change its 

application, nor does it subject any 

additional communications to 2210’s 

requirements.74

In sum, the Commission believes that 

the proposed rule change addresses a 

problem identified by FINRA regarding 

the comparatively high rate of noncompliance with Rule 2210 of retail 

communications concerning private 

placements. The Commission believes 

that FINRA’s proposed rule change 

would improve the quality of 

information available to retail investors 

about private placement securities 

offered by FINRA members and 

strengthen FINRA’s ability to monitor 

these communications for potential 

violations of its rules thereby improving 

prospective investors’ confidence in 

these communications. FINRA has taken 

a number of steps to narrowly tailor this 

proposed rule change in some key 

respects: The proposed rule change 

would apply to types of retail 

communications that have been found 

to have a high rate of noncompliance 

with FINRA’s fair and balanced 

standards; broker-dealers would not 

have to pay a filing fee for their 

submissions; and the proposed filing 

requirement has been narrowed to apply 

only to retail communications 

concerning private placements that 

‘‘promote or recommend’’ a private 

placement security. Thus, for the 

reasons stated above, we believe that the 

proposed rule change, as modified by 

Amendment No. 1, is consistent with 

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

the Exchange Act because it is 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. 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 31769 

75 15 U.S.C. 78s(b)(2). 

76 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The term ‘‘Member’’ means an individual or 

organization approved to exercise the trading rights 

associated with a Trading Permit. Members are 

deemed ‘‘members’’ under the Exchange Act. See 

Exchange Rule 100. 

4See Securities Exchange Act Release No. 91963 

(May 21, 2021), 86 FR 28662 (May 27, 2021) (SR– 

EMERALD–2021–18) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

to Adopt a New Historical Market Data Product To 

Be Known as the Open-Close Report). 

5See Exchange Rule 100. 

6See Securities Exchange Act Release Nos. 89497 

(August 6, 2020), 85 FR 48747 (August 12, 2020) 

(SR–CboeBZX–2020–059); 89498 (August 6, 2020), 

85 FR 48735 (August 12, 2020) (SR–Cboe–EDGX– 

2020–36); 85817 (May 9, 2019), 84 FR 21863 (May 

15, 2019) (SR–CBOE–2019–026); 89496 (August 6, 

2020), 85 FR 48743 (August 12, 2020) (SR–C2– 

2020–010); 89596 [sic] (August 17, 2020), 85 FR 

51833 (August 21, 2020) (SR–C2–2020–012); 62887 

(September 10, 2010), 75 FR 57092 (September 17, 

2010) (SR–Phlx–2010–121); 65587 (October 18, 

Continued 

IV. Conclusion 

It is therefore ordered pursuant to 

Section 19(b)(2) of the Exchange Act 75

that the proposed rule change (SR– 

FINRA–2020–038), as modified by 

Amendment No. 1, be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.76

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–12474 Filed 6–14–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92138; File No. SR– 

EMERALD–2021–20] 

Self-Regulatory Organizations; MIAX 

Emerald, LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend Its Fee 

Schedule To Adopt Fees for the OpenClose Report 

June 9, 2021. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on May 28, 

2021, MIAX Emerald, LLC (‘‘MIAX 

Emerald’’ or ‘‘Exchange’’), filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

as described in Items I, II, and III below, 

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the Exchange’s Fee Schedule 

(‘‘Fee Schedule’’) to adopt fees for a new 

data product to be known as the OpenClose Report. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://www.miaxoptions.com/rulefilings/emerald, at MIAX’s principal 

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange recently adopted a new 

data product known as the Open-Close 

Report, which will be available for 

purchase to Exchange Members 3 and 

non-Members.4 The Exchange now 

proposes to adopt fees for the OpenClose Report. The Open-Close Report is 

described under Exchange Rule 

531(b)(1). 

By way of background, the Exchange 

will offer two versions of the OpenClose Report, an end of day summary 

and intra-day report. The end-of-day 

version is a volume summary of trading 

activity on the Exchange at the option 

level by origin (Priority Customer, NonPriority Customer, Firm, Broker-Dealer, 

and Market Maker 5), side of the market 

(buy or sell), contract volume, and 

transaction type (opening or closing). 

The customer and professional customer 

volume is further broken down into 

trade size buckets (less than 100 

contracts, 100–199 contracts, greater 

than 199 contracts). The Open-Close 

Data is proprietary Exchange trade data 

and does not include trade data from 

any other exchange. It is also a historical 

data product and not a real-time data 

feed. 

The intraday Open-Close Report will 

provide similar information to that of 

Open-Close Data but will be produced 

and updated every 10 minutes during 

the trading day. Data is captured in 

‘‘snapshots’’ taken every 10 minutes 

throughout the trading day and is 

available to subscribers within five 

minutes of the conclusion of each 10- 

minute period. For example, subscribers 

to the intraday product will receive the 

first calculation of intraday data by no 

later than 9:45 a.m. ET, which 

represents data captured from 9:30 a.m. 

to 9:40 a.m. Subscribers will receive the 

next update by 9:55 a.m., representing 

the data previously provided together 

with data captured from 9:40 a.m. 

through 9:50 a.m., and so forth. Each 

update will represent the aggregate data 

captured from the current ‘‘snapshot’’ 

and all previous ‘‘snapshots.’’ The 

intraday Open-Close Data will provide a 

volume summary of trading activity on 

the Exchange at the option level by 

origin (Priority Customer, Non-Priority 

Customer, Firm, Broker-Dealer, and 

Market Maker), side of the market (buy 

or sell), and transaction type (opening or 

closing). All volume will be further 

broken down into trade size buckets 

(less than 100 contracts, 100–199 

contracts, greater than 199 contracts). 

The Exchange anticipates a wide 

variety of market participants to 

purchase the Open-Close Report, 

including, but not limited to, individual 

customers, buy-side investors, and 

investment banks. The Exchange 

believes the Open-Close Report product 

may also provide helpful trading 

information regarding investor 

sentiment that may allow market 

participants to make better trading 

decisions throughout the day and may 

be used to create and test trading 

models and analytical strategies and 

provides comprehensive insight into 

trading on the Exchange. For example, 

intraday open data may allow a market 

participant to identify new interest or 

possible risks throughout the trading 

day, while intraday closing data may 

allow a market participant to identify 

fading interests in a security. The 

product is a completely voluntary 

product, in that the Exchange is not 

required by any rule or regulation to 

make this data available and that 

potential subscribers may purchase it 

only if they voluntarily choose to do so. 

The Exchange notes that other 

exchanges offer a similar data product.6


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