Document ID: SEC-2011-1640-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-10-24T04:00Z

[Federal Register Volume 76, Number 205 (Monday, October 24, 2011)]
[Notices]
[Pages 65758-65763]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27328]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65585; File No. SR-FINRA-2011-057]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt New 
FINRA Rule 5123 (Private Placements of Securities)

October 18, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on October 5, 2011, Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items

[[Page 65759]]

have been prepared by FINRA. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rule 5123, which as described 
further below, would require that members and associated persons that 
offer or sell applicable private placements (as described in the Rule), 
or participate in the preparation of private placement memoranda 
(``PPM''), term sheets or other disclosure documents in connection with 
such private placements, provide relevant disclosures to each investor 
prior to sale describing the anticipated use of offering proceeds, and 
the amount and type of offering expenses and offering compensation. 
FINRA Rule 5123 also would require that the PPM, term sheet or other 
disclosure document, and any exhibits thereto, be filed with FINRA no 
later than 15 calendar days after the date of the first sale, and any 
material amendments to such document, or any amendments to the 
disclosures mandated by the Rule, be filed no later than 15 calendar 
days after the date such document is provided to any investor or 
prospective investor, as discussed further below.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and for 
Web site viewing and printing 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, FINRA 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. FINRA 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
    FINRA is proposing to adopt new Rule 5123 (Private Placements of 
Securities) to ensure that investors in private placements are provided 
detailed information about the intended use of offering proceeds, the 
offering expenses and offering compensation. In addition, new Rule 5123 
would provide FINRA, through a member ``notice'' filing requirement, 
with more timely and detailed information about the private placement 
activities of member firms.
    Rule 5123(a) would prohibit a member or person associated with a 
member from offering or selling any security conducted in reliance on 
an available exemption from registration under the Securities Act of 
1933 (``Securities Act'') (``private placement''), or participating in 
the preparation of a PPM, term sheet or other disclosure document for 
such private placement, unless certain conditions are met. In 
particular, the member or associated person must provide a PPM or term 
sheet to each investor prior to sale that describes the anticipated use 
of offering proceeds, the amount and type of offering expenses, and the 
amount and type of compensation provided or to be provided to sponsors, 
finders, consultants, and members and their associated persons in 
connection with the offering. In addition, in a private placement 
without a PPM or term sheet, a member or person associated with a 
member must prepare a document that contains these disclosures and must 
provide the document to each investor prior to sale.
    Proposed Rule 5123(b) would require ``notice'' filings of members' 
private placement activities. Specifically, the proposed Rule would 
require participating members to file the PPM, term sheet or other 
disclosure document (including exhibits) with FINRA no later than 15 
calendar days after the date of first sale, and to file any material 
amendments to such document, or any amendments to the disclosures 
mandated by the Rule, with FINRA no later than 15 calendar days after 
the date such document is provided to any investor or prospective 
investor.
    Proposed Rule 5123(c) would exempt from the requirements of the 
Rule several types of private placements. Exemptions include offerings 
sold only to any one or more of the following purchasers:
     Institutional accounts, as defined in NASD Rule 
3110(c)(4); \3\
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    \3\ The SEC approved SR-FINRA-2010-052, which, when it becomes 
effective on December 5, 2011, will transfer the definition of 
``institutional accounts'' currently found in NASD Rule 3110(c)(4) 
to FINRA Rule 4512(c). See Securities Exchange Act Release No. 63784 
(January 27, 2011), 76 FR 5850 (February 2, 2011) (Approving SR-
FINRA-2010-052); Regulatory Notice 11-19 (April 2011) (SEC Approves 
Consolidated FINRA Rules Governing Books and Records). The text of 
proposed Rule 5123 will be amended to reflect this change after SR-
FINRA-2010-052 becomes effective.
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     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;
     Banks, as defined in Section 3(a)(2) of the Securities 
Act; and
     Employees and affiliates of the issuer.
    In addition, the Rule would exempt the following types of 
offerings:
     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 of exempt 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 (see NASD Notice to Members 02-32 (June 2002));
     Offerings of ``variable contracts'' as defined in Rule 
2320(b)(2);
     Offerings of modified guaranteed annuity contracts and 
modified guaranteed life insurance policies, as referenced in Rule 
5110(b)(8)(E);
     Offerings of non-convertible debt or preferred securities 
by issuers that meet the eligibility criteria for incorporation by 
reference in Forms S-3 and F-3; \4\
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    \4\ FINRA notes that the Commission recently adopted amendments 
to remove any references to credit ratings from its rules and forms 
promulgated under the Securities Act and the Exchange Act. See, 
e.g., Security Ratings, Securities Act Release No. 9245 (July 27, 
2011), 76 FR 46603 (August 3, 2011). FINRA is proposing to use the 
references described therein in the proposed rule change.
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     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 
investments on the part of the investor;
     Offerings of securities of a commodity pool operated by a 
commodity pool operator as defined under Section 1a(11) of the 
Commodity Exchange Act; and
     Offerings filed with FINRA under Rules 2310, 5110, 5121 
and 5122.
    These proposed exemptions are very similar to the exemptions in 
existing Rule 5122 (Member Private Offerings), upon which proposed Rule 
5123 is

[[Page 65760]]

based. The only differences in the exemptions are that the current 
proposed Rule would not exempt (1) Offerings in which a member acts in 
a wholesaling capacity and (2) offerings of certain credit derivatives, 
both of which are exempted from Rule 5122.\5\ Wholesaling is typically 
engaged in by broker-dealers affiliated with the issuer, and for 
reasons described in Section 5 below, FINRA does not intend to 
incorporate that exemption into proposed Rule 5123. The exemption for 
offerings of equity and credit derivatives was intended to avoid 
attributing certain derivative products on unaffiliated issuers as a 
``member private offering.'' However, since proposed Rule 5123 would 
apply to all offerings in which a member participates, that distinction 
is not relevant to Rule 5123.
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    \5\ The proposed rule change also would, as noted supra at note 
4, replace references to credit ratings with alternative language.
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    Proposed Rule 5123 contains provisions identical to those in 
current Rule 5122 regarding confidential treatment and application for 
exemption. Pursuant to proposed paragraph 5123(d), FINRA would accord 
confidential treatment to all documents and information filed pursuant 
to the Rule, and would use such documents and information solely for 
the purpose of determining compliance with FINRA rules or other 
applicable regulatory purposes. Proposed paragraph 5123(e) would 
provide members a method for application for an exemption from the 
provisions of the Rule for good cause pursuant to the Rule 9600 Series.
    FINRA will announce the implementation date of the proposed rule 
change no later than 90 days following Commission approval. The 
implementation date will be no more than 180 days following Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Exchange Act,\6\ which requires, 
among other things, that FINRA rules must 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 proposed rule change will provide 
investors in private placements with detailed information about the 
intended use of offering proceeds, the offering expenses and offering 
compensation. In addition, the proposed rule change will provide FINRA 
with more timely and detailed information about the private placement 
activities of member firms. As a result, FINRA believes that ensuring 
that investors have information about private placements will provide 
important investor protections in connection with private placements 
without unduly restricting capital formation through the private 
placement offering process. In addition, FINRA believes that the 
proposed rule change will assist its efforts to identify problematic 
terms and conditions in private placements, thereby helping to detect 
and prevent fraud in connection with private placements.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Exchange Act. The proposed rule 
change requires that members and associated persons provide relevant 
disclosures to each investor prior to the sale of applicable private 
placements, and file disclosure documents with FINRA no later than 15 
calendar days after the date of the first sale (or, in the case of 
material amendments, the date provided to an investor or prospective 
investor). As noted above, FINRA does not believe that the proposed 
rule change will unduly restrict capital formation through the private 
placement offering process. FINRA believes that the relatively modest 
``burden'' of the proposed rule change is both necessary and 
appropriate in helping 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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    In January 2011, FINRA published Regulatory Notice 11-04 requesting 
comment on proposed amendments to expand Rule 5122 (the ``11-04 
Proposal''). A copy of the Notice is available on FINRA's Web site at 
http://www.finra.org. The comment period expired on March 14, 2011. 
FINRA received 35 comments in response to the Notice. A list of the 
commenters and abbreviations that were received in response to the 
Notice are attached as Exhibit A, and copies of the comment letters 
received in response to the Notice are available on FINRA's Web site at 
http://www.finra.org. A summary of the comments and FINRA's response is 
provided below.
The 11-04 Proposal
    The 11-04 Proposal would have extended virtually all of the 
existing requirements of Rule 5122, i.e., those requiring disclosure, 
filing and limitations on the use of offering proceeds, to all private 
placements in which a member participates (subject to the listed 
exemptions). While many commenters expressed support for the 11-04 
Proposal,\7\ many, as discussed below, were critical of various 
provisions. Most criticisms concerned proposed requirements regarding 
the use of offering proceeds and filing. FINRA has considered the 
comments received in response to the 11-04 Proposal. The proposed rule 
change balances the goals of ensuring investors and FINRA receive key 
information about private placements while maintaining the flexibility 
and expediency offered by private placements. Based on these 
considerations, the current proposed rule change differs in several key 
respects from the 11-04 Proposal.
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    \7\ See, e.g., letters from Cornell, FSI, Intellivest 
Securities, Mick & Associates, NIBA and WSI.
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Comments Regarding Use of Offering Proceeds
    The issue generating the most comment was the proposed use of 
proceeds limitation (i.e., the proposed requirement that 85 percent of 
the proceeds raised be used for the business purposes described in the 
disclosure document). Many commenters expressed concerns about the 
ability of members to monitor an issuer's use of proceeds and the 
Rule's potential for additional liability if the use of proceeds 
deviates from that provided in the required disclosure document.\8\ 
Some raised concerns that, as written, the proposed Rule would impose 
burdens on or attempt to regulate non-FINRA members.\9\
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    \8\ See letters from 3PM, ABA, AOG, George, IPA, NYC Bar, NY 
State Bar, NIBA, Secore & Waller, SIFMA and Sullivan & Cromwell.
    \9\ See letters from ABA, NYC Bar, Patrick, Saxony, SIFMA and 
Sullivan & Cromwell.
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    Some commenters asserted the proposed 85 percent limitation was an 
arbitrary ``one size fits all'' approach and could be a barrier to 
capital formation, especially for smaller offerings or other specific 
types of offerings.\10\ Commenters suggested that the fixed costs of 
smaller offerings, or higher cost of specific types of offerings,

[[Page 65761]]

could make this limitation unworkable. A few commenters feared that 
constraints on the allowable expenses for such offerings could force 
issuers to explore alternative means of raising capital without the 
assistance of member firms, including the use of finders and 
unregistered persons.\11\ In addition, commenters raised interpretive 
questions regarding whether certain expenses--including, among other 
things, costs relating to due diligence, legal, travel, blue sky, stock 
grants, warrants, tail fees, rights of first refusal, conference 
expenses, trail fees, management fees and appraisals and valuations--
would be required to be treated as ``offering expenses'' or would 
constitute proceeds used for business purposes.\12\
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    \10\ See letters from ABA, AOG, BFS, FSI, George, IMS, IPA, NY 
State Bar, Patrick, Rothwell Consulting, Saxony, Schulten Ward, 
Secore & Waller, WSI and Weinstein Smith.
    \11\ See letters from ABA, Krieger & Prager and REISA.
    \12\ See letters from ABA, IMS, Locke Lord, Mick & Associates, 
Network 1, Patrick, REISA, Saxony, Secore & Waller, SIFMA, Sullivan 
& Cromwell and Weinstein Smith.
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    Some commenters recommended that FINRA simply require greater 
disclosures about the various uses of proceeds, offering expenses, and 
compensation as an alternative to adopting a use of offering proceeds 
limitation.\13\ Based in large part on these comments, as discussed 
above, FINRA has amended the proposal such that it no longer includes 
the substantive requirement that at least 85 percent of offering 
proceeds must be used for the disclosed business purposes and has 
instead chosen to reorient the Rule towards disclosure.
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    \13\ See letters from FSI, IPA, NIBA, REISA and WSI.
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    While FINRA continues to believe that the manner in which offering 
proceeds are used is critically important in a private placement--and 
that offerings in which a large percentage of offering proceeds are for 
other than business purposes raise regulatory concerns--FINRA believes 
that these concerns can be addressed through the obligations of broker-
dealers, under the suitability and anti-fraud provisions of the 
securities laws and FINRA rules, to conduct a reasonable inquiry of an 
issuer.\14\ FINRA appreciates the importance of raising capital in the 
private placement market for certain issuers and recognizes commenters' 
concerns that an across-the-board application of the 85 percent 
requirement may impose unnecessary burdens on some offerings, 
especially smaller private placements. FINRA's expectation is that the 
reasonable inquiry obligations of broker-dealers will encourage 
reasonable limits on the use of offering proceeds for purposes other 
than generating a return on investment.\15\ If the rigorous application 
of the reasonable inquiry obligations outlined in Regulatory Notice 10-
22 does not achieve this result, FINRA will reconsider the imposition 
of numerical limitations. In addition, eliminating the 85 percent 
requirement will simplify the administration of the Rule by removing 
the need for members to determine whether various expenses would have 
been classified as ``offering expenses,'' ``compensation,'' or 
``business purposes'' under the Rule. In the public offering context, 
FINRA's Corporate Financing Department staff's review process in 
connection with issuing a ``no-objections'' opinion ensures consistent 
and accurate treatment of various expenses. Since only a ``notice'' 
filing is required in proposed Rule 5123, the lack of staff review and 
comment could raise interpretive questions regarding the application of 
the 85 percent requirement if the provision remained in the Rule. 
Lastly, eliminating the 85 percent requirement would eliminate any 
implication, as indicated by some comments, that the 11-04 Proposal 
would create an independent, continuing obligation for members to 
monitor an unaffiliated issuer's use of proceeds after the closing of 
an offering.
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    \14\ See Regulatory Notice 10-22 (April 2010) (Regulation D 
Offerings).
    \15\ Members have an obligation to conduct a reasonable inquiry 
regarding the use of proceeds prior to making a recommendation in 
that security. See, e.g., Regulatory Notice 10-22 (regarding private 
placements). Such a recommendation would not comply with the 
requirements of FINRA's suitability rule if the description of the 
use of proceeds in the disclosure document is inconsistent with the 
information obtained in the course of this inquiry. See NASD Rule 
2310 (Recommendations to Customers (Suitability)). FINRA notes that 
the SEC has approved new FINRA Rule 2111 (Suitability). See 
Regulatory Notice 11-02 (January 2011) (SEC Approves Consolidated 
FINRA Rules Governing Know-Your-Customer and Suitability 
Obligations). See also Securities Exchange Act Release No. 63325 
(November 17, 2010), 75 FR 71479 (November 23, 2010) (File No. SR-
FINRA-2010-039; Order Granting Accelerated Approval, As Modified by 
Amendment, to Proposed Rule Change to Adopt FINRA Rules 2090 (Know 
Your Customer) and 2111 (Suitability) in the Consolidated FINRA 
Rulebook); Securities Exchange Act Release No. 64260 (April 8, 
2011), 76 FR 20759 (April 13, 2011) (File No. SR-FINRA-2011-016; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
to Delay the Implementation Date of FINRA Rule 2090 (Know Your 
Customer) and FINRA Rule 2111 (Suitability)).
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Comments Regarding Filing Requirements
    The 11-04 Proposal would have required a member to file information 
with FINRA by the time an offering document is provided to any 
investor. While the 11-04 Proposal states that offerings would not be 
held in abeyance pending FINRA staff review and that filings would not 
be ``approved'' nor would the staff issue ``no-objections'' opinions, 
commenters raised concerns about potential slowdowns of offerings due 
to the filing requirement. Several commenters believed that the 11-04 
Proposal's filing requirement could delay the offering process as firms 
would be reluctant to proceed with an offering without assurances or 
clearances from FINRA.\16\ Commenters also raised technical concerns 
about the proposed filing process, including concerns regarding who 
must file (e.g., each selling dealer in a private placement), how 
members of a selling group would know if an offering memorandum had 
been previously filed, and who bears the responsibility to file 
amendments.\17\ A few commenters, including the NYC Bar, suggested that 
the application of the filing requirement would result in offerings 
structured to avoid application of the Rule, either by limiting the 
offering to exempted investors or moving the transaction offshore.
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    \16\ See letters from ABA, Achates, IMS, Intellivest, IPA, 
George, LeGaye, Network 1, NIBA, NYC Bar, NY State Bar, Patrick, 
REISA, Saxony, Secore & Waller and Sullivan & Cromwell.
    \17\ See letters from Achates, FSI and Moloney.
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    In response to these comments, FINRA now proposes to require that a 
member file ``no later than 15 calendar days after the date of first 
sale.'' This timing requirement is the same as the filing requirement 
for Form D; synchronizing these timing requirements may allow some 
filers to utilize operational efficiencies. Moreover, by requiring a 
``notice'' filing, FINRA will remove any implication that the FINRA 
staff will provide comments on a filing; that such filing with FINRA 
could be a precondition to commencing an offering; or that members 
should expect to receive any FINRA staff input before proceeding with 
an offering. The proposed filing requirement would nevertheless provide 
FINRA staff with timely access to information about the private 
placement business of FINRA members.
    The proposal would require that each member that participates in a 
private placement make the requisite filing. FINRA had considered 
requiring only one member to file, but determined that such a 
requirement would limit its ability to gain timely access to 
information about the private placement business of FINRA members that 
might not file. Moreover, as the comment letters indicate, requiring 
only one member to file would complicate the ability of the other 
members to

[[Page 65762]]

participate, since they would have to determine whether another member 
had filed and whether the filing complies with FINRA's requirements. If 
one member engaged in the private placement under different 
compensation terms than another member, then it could further 
complicate such a single-filer regime. Therefore, it is more practical, 
and more helpful to FINRA's need for timely access to information about 
the private placement business of members, to require every member that 
participates in a particular private placement to make the notice 
filing.
Other Comments
    Comments regarding disclosure ranged from support \18\ to requests 
for clarification or guidance regarding what would constitute adequate 
disclosure \19\ to claims that disclosure would be duplicative of that 
provided to the SEC pursuant to Regulation D.\20\ Some requested 
clarification of specific types of disclosure (e.g., sponsor fees,\21\ 
non-variable third party costs \22\ or the scope of offering expenses 
\23\).
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    \18\ See, e.g., letter from WSI.
    \19\ See, e.g., letter from LeGaye.
    \20\ See letter from NY State Bar.
    \21\ See letter from AOG.
    \22\ See letter from Weinstein Smith.
    \23\ See letters from IMS and Weinstein Smith.
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    Several commenters suggested narrowing the scope of the Rule 
through additional exemptions, including adding exemptions for offers 
and sales to: all accredited investors; \24\ small groups of accredited 
investors; \25\ or alternatively a de minimis exemption for sales to 
accredited investors; \26\ other registered broker-dealers in 
connection with the establishment of a joint back office arrangement; 
\27\ issuers that are reporting companies under the Federal securities 
laws; \28\ knowledgeable employees or officers of the issuing company; 
\29\ or when there is a change in ownership.\30\ Others argued that 
exemptions for the following types of securities should be added: 
insurance contracts; \31\ mergers and acquisitions structured as a 
stock sale either for cash or for acquirer stock; \32\ secondary sales 
of securities; \33\ and privately offered commodity pools and 
investment funds.\34\
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    \24\ See letters from NYC Bar, SIFMA, Sullivan & Cromwell and 
Weinstein Smith.
    \25\ See letter from LeGaye.
    \26\ See letters from ABA, IMS, NYC Bar, Rothwell Consulting, 
SIFMA, St. Charles and Sullivan & Cromwell.
    \27\ See letter from ABA.
    \28\ See letter from SIFMA.
    \29\ See letters from ABA, SIFMA and St. Charles.
    \30\ See letter from IMS.
    \31\ See letter from Sutherland.
    \32\ See letter from NYC Bar.
    \33\ See letter from Sullivan & Cromwell.
    \34\ See letter from MFA.
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    FINRA believes the exemptions in the proposed rule change are 
appropriately tailored and inclusive, and as noted above, are very 
similar to those in existing Rule 5122. Based upon its experience with 
Rule 5122, FINRA does not believe it should expand the list of 
exemptions. Further, FINRA notes that the proposed Rule would provide a 
method by which a member may apply for an exemption from the provisions 
of the Rule for good cause pursuant to the Rule 9600 Series.
    Some commenters supported FINRA's proposal not to incorporate the 
wholesaling exemption into the Rule,\35\ while others questioned the 
elimination of this exemption, especially as the 11-04 Proposal would 
have eliminated the exemption for member private offerings as well as 
private placements more generally.\36\ The basis for this exemption in 
Rule 5122 was that distribution of the private placement by independent 
retail broker-dealers would obviate the need for the rule, which 
applies to private placements in which the selling member or its 
control entity is the issuer. However, given that the current proposed 
rule change reaches all private placements, the reliance upon the 
efforts of an ``independent'' broker-dealer is no longer relevant. 
Accordingly, the wholesaling exemption is not provided in proposed Rule 
5123.
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    \35\ See letters from Cornell, NIBA and SIFMA.
    \36\ See letters from 3PM, LeGaye, SIFMA and WSI.
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    Commenters also requested that the Rule (or supplementary material) 
state that the exemption provisions may be combined without triggering 
the requirements of the Rule.\37\ FINRA notes that the exemption 
provisions may be combined. These exemptions are derived from those in 
Rule 5122. In announcing the approval of Rule 5122, FINRA stated as 
follows:

    \37\ See letters from ABA, NYC Bar, Rothwell Consulting and 
SIFMA.

    Types of exemptions may be combined without triggering the 
requirements of the rule. For example, if an MPO is offered to both 
qualified purchasers and employees or affiliates of the issuer or 
its control entities, as long as these purchasers qualify for 
exemptions under the rule, the MPO would be exempt from the rule's 
requirements.\38\
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    \38\ See Regulatory Notice 09-27 (May 2009) (Member Private 
Offerings).

FINRA would make a similar statement in connection with a Regulatory 
Notice regarding this Rule.
    One commenter raised a concern that, as proposed, the Rule would 
not afford confidential treatment to any comment or similar letters by 
FINRA, and thus they could be discovered by a litigant through 
appropriate legal action.\39\ FINRA believes that proposed paragraph 
5123(d) addresses this issue and would afford confidential treatment to 
all such documents.
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    \39\ See letter from ABA.
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    As a result of the differences between the 11-04 Proposal (and Rule 
5122) and the current proposed Rule, as described above, FINRA is 
proposing that the rule regarding private placements be a new rule 
separate from Rule 5122.\40\
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    \40\ FINRA believes that the provisions of existing Rule 5122 
are appropriate for the types of private offerings covered by that 
rule, i.e., the offering of securities issued by a member or its 
control affiliate. In addition, FINRA is not aware of any concerns 
regarding the timing of Rule 5122's filing requirement.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission shall: 
(a) By order approve or disapprove such proposed rule change, or (b) 
institute proceedings to determine whether the proposed rule change 
should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Exchange Act. The Commission specifically 
requests comment on the following:
     Whether the proposed rule would impact issuers' access to 
capital via the private placement market, particularly small issuers. 
If so, how?
     Whether the proposed rule would impact investors 
purchasing private placement securities through a broker-dealer subject 
to the new rule. If so, how? For example, would knowledge of the 
information contained in a mandatory disclosure improve an investor's 
ability to decide whether to invest in a private placement subject to 
the rule?
     Whether the proposed rule would impact registered broker-
dealers' participation in private placements. If so, how?
    Comments may be submitted by any of the following methods:

[[Page 65763]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-057 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2011-057. This 
file number should be included on the subject line if e-mail 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 Web site (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 Web site 
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 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of FINRA. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FINRA-2011-057 
and should be submitted on or before November 14, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.

Exhibit A

Alphabetical List of Written Comments

    1. Achates Capital Advisors LLC (March 4, 2011) (``Achates'').
    2. American Bar Association (March 14, 2011) (``ABA'').
    3. AOG Wealth Management (March 14, 2011) (``AOG'').
    4. Balanced Financial Securities (February 12, 2011) (``BFS'').
    5. Colonnade Securities LLC (March 10, 2011) (``Colonnade'').
    6. Cornell University Law School (March 14, 2011) (``Cornell'').
    7. Financial Services Institute (March 15, 2011) (``FSI'').
    8. Ken George (March 14, 2011) (``George'').
    9. Integrated Management Solutions USA LLC (March 14, 2011) 
(``IMS'').
    10. Investment Program Association (March 14, 2011) (``IPA'').
    11. Intellivest Securities, Inc. (March 10, 2011) (``Intellivest 
Securities'').
    12. Krieger & Prager, LLP (February 18, 2011) (``Krieger & 
Prager'').
    13. The LeGaye Law Firm P.C. (March 14, 2011) (``LeGaye'').
    14. Valerie Lewis (January 19, 2011) (``Lewis'').
    15. Locke Lord Bissell & Liddell LLP (March 11, 2011) (``Locke 
Lord'').
    16. Moloney Securities Co., Inc. (March 7, 2011) (``Moloney'').
    17. Managed Funds Association (March 14, 2011) (``MFA'').
    18. Mick & Associates, P.C., LLO (March 10, 2011) (``Mick & 
Associates'').
    19. National Investment Banking Association (March 14, 2011) 
(``NIBA'').
    20. Network 1 Financial Securities, Inc. (March 10, 2011) 
(``Network 1'').
    21. New York City Bar Association (March 14, 2011) (``NYC Bar'').
    22. New York State Bar Association (March 28, 2011) (``NY State 
Bar'').
    23. Patrick Capital Markets, LLC (March 14, 2011) (``Patrick'').
    24. Real Estate Investment Securities Association (March 14, 2011) 
(``REISA'').
    25. Rothwell Consulting LLC (March 1, 2011) (``Rothwell 
Consulting'').
    26. Saxony Securities, Inc. (March 14, 2011) (``Saxony'').
    27. Schulten, Ward & Turner (February 3, 2011) (``Schulten Ward'').
    28. Secore & Waller, L.L.P. (March 14, 2011) (``Secore & Waller'').
    29. Securities Industry and Financial Markets Association (March 
14, 2011) (``SIFMA'').
    30. St. Charles Capital, LLC (March 14, 2011) (``St. Charles'').
    31. Sullivan & Cromwell LLP (March 14, 2011) (``Sullivan & 
Cromwell'').
    32. Sutherland Asbill & Brennan LLP (March 14, 2011) 
(``Sutherland'').
    33. Third Party Marketers Association (March 10, 2011) (``3PM'').
    34. Walton Securities, Inc. (March 14, 2011) (``WSI'').
    35. Weinstein Smith LLP (March 9, 2011) (``Weinstein Smith'').

[FR Doc. 2011-27328 Filed 10-21-11; 8:45 am]
BILLING CODE 8011-01-P