Document ID: SEC-2013-1188-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-07-01T04:00Z

[Federal Register Volume 78, Number 126 (Monday, July 1, 2013)]
[Notices]
[Pages 39367-39369]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15629]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69843; File No. SR-FINRA-2013-026]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Members' Filing Obligations Under 
FINRA Rule 5123 (Private Placements of Securities)

June 25, 2013.
    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 June 20, 2013, 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 and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing rule changes related to members' filing 
obligations under Rule 5123 (Private Placements of Securities).
    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 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
    On June 7, 2012, the Commission approved FINRA Rule 5123 (``Private 
Placements of Securities'' or the ``Rule''),\4\ which requires that 
members file with FINRA any private placement memorandum, term sheet or 
such other offering document as exists in connection with a specified 
private placement in which the member participates. Specifically, the 
Rule provides that each member that sells a security in a non-public 
offering in reliance on an available exemption from registration under 
the Securities Act of 1933 (i.e., a private placement) must: (1) Submit 
to FINRA, or have submitted on its behalf by a designated member, a 
copy of any private placement memorandum, term sheet or other offering 
document, including any materially amended versions thereof, used in 
connection with such sale within 15 calendar days of the date of first 
sale; or (2) indicate to FINRA that no such offering documents were 
used.
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    \4\ See Securities Exchange Act Release No. 67157 (June 7, 
2012), 77 FR 35457 (June 13, 2012) (Notice of Filing of Amendments 
No. 2 and No. 3 and Order Granting Accelerated Approval of File No. 
SR-FINRA-2011-057).
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    To facilitate the transmission of the required information from 
members to

[[Page 39368]]

FINRA, FINRA has developed an electronic form for the processing of 
specified private placement filings (``Private Placement Form'' or 
``Form''), which must be filed through FINRA Firm Gateway.\5\ As 
announced in Regulatory Notice 12-40, the Form, an abbreviated version 
of which has been in use since the Rule became effective on December 3, 
2012, provides an efficient way for firms to submit the filings 
electronically in searchable Portable Document Format (PDF) to 
FINRA.\6\
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    \5\ FINRA Firm Gateway is an online compliance tool that 
provides consolidated access to FINRA applications and allows firms 
to submit required filings electronically to meet their compliance 
and regulatory obligations.
    \6\ See Regulatory Notice 12-40 (September 2012).
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    FINRA is filing the proposed rule change to codify the requirement 
that members file the Private Placement Form via FINRA Firm Gateway in 
connection with their compliance with Rule 5123, as set forth in 
Regulatory Notice 12-40. The existing Private Placement Form requests 
identifying and contact information for the member and the issuer, 
whether there is an affiliate relationship between the member and the 
issuer or sponsor, and basic information about the nature of the 
offering (e.g., the type of offering, the expected commencement date 
and whether a Form D has been filed with the SEC). FINRA also is 
proposing that the Form request, to the extent known by the member, 
certain other due diligence-related information concerning the 
offering, the issuer and its management,\7\ but would permit members to 
respond ``unknown'' to such questions. Therefore, this Form does not 
impose any obligation on broker-dealers to seek out information that 
they do not already have. Specifically, the Form would include 
questions, to the extent known, regarding:
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    \7\ FINRA provided guidance on the scope of a firm's 
responsibilities to conduct a reasonable investigation of private 
placement issuers in Regulatory Notice 10-22 (April 2010).

--Whether the offering is a contingency offering;
--whether independently audited financial statements are available for 
the issuer's most recently completed fiscal year;
--whether the issuer is able to use offering proceeds to make or repay 
loans to, or purchase assets from, any officer, director or executive 
management of the issuer, sponsor, general partner, manager, advisor or 
any of the issuer's affiliates;
--whether the issuer has a board of directors comprised of a majority 
of independent directors or a general partner that is unaffiliated with 
the firm;
--whether the issuer has engaged, or does the member anticipate that 
the issuer will engage, in a general solicitation in connection with 
the offering or sale of the securities; and
--whether the issuer, any officer, director or executive management of 
the issuer, sponsor, general partner, manager, advisor or any of the 
issuer's affiliates has been the subject of SEC, FINRA or state 
disciplinary actions or proceedings or criminal complaints within the 
last 10 years.

    FINRA also proposes to ask members to select an industry category 
for the specified private placement offering when completing the Form.
    The revised Form will assist FINRA in fulfilling its regulatory 
responsibilities by providing critical information regarding the nature 
of the offering, involved parties and the member's role in offering the 
securities.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ 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, in that it will assist in FINRA's efforts to detect 
and prevent fraud in connection with specified private placements. In 
addition, the proposed rule change will assist FINRA in evaluating the 
specified private placement activities of member firms and assess 
whether members are conducting a reasonable investigation for specified 
private placement offerings in which they participate.
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    \8\ 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 Act. FINRA notes that all members 
that participate in specified private placements will have to file 
electronically (or have another member that is participating in the 
specified private placement file on its behalf) a Private Placement 
Form in connection with Rule 5123. In addition, outside of very basic 
information about the member, the issuer (i.e., identity of the issuer 
and its contact information) and the nature of the offering (e.g., 
whether a Form D has been filed with the SEC), the Form will permit 
members to respond ``unknown'' to virtually all due diligence-related 
questions.
    Because the new questions to be added to the Form in connection 
with this proposed rule change do not impose an affirmative duty on 
members to obtain answers, but only requires the member to provide the 
information on the Form if known, FINRA believes that the proposed rule 
change presents a very modest filing burden upon members. In light of 
the role of Rule 5123 and the Form in assisting FINRA in its efforts to 
detect and prevent fraudulent and manipulative acts and practices and 
enhance the protection of investors, 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 Act.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    FINRA has filed the proposed rule change pursuant to Section 
19(b)(3)(A) \9\ of the Act and Rule 19b-4(f)(6) thereunder.\10\ Because 
the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires FINRA to provide the Commission with written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. FINRA 
has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative for 30 days after the

[[Page 39369]]

date of filing. However, pursuant to Rule 19b-4(f)(6)(iii) \12\ the 
Commission may designate a shorter time if such action is consistent 
with the protection of investors and the public interest. FINRA has 
asked the Commission to waive the 30-day operative delay so that the 
proposal may become operative immediately upon filing.
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    \11\ 17 CFR 240.19b-4(f)(6). 
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will assist in FINRA's efforts to detect and prevent fraud in 
connection with specified private placements. As noted by FINRA, the 
burden on members will be minimal because electronic filing of an 
abbreviated version of the Form accompanying specified private 
placement filings has been operative since the Rule became effective 
and the proposed rule change does not impose an affirmative duty on 
members to obtain any additional information not already known to them. 
Therefore, implementation time is not necessary as members already file 
through FINRA Firm Gateway. For these reasons, the Commission 
designates the proposed rule change to be operative upon filing.\13\
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    \13\ For purposes of waiving the 30-day operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 Act. 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-FINRA-2013-026 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-2013-026. 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 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-2013-026 and should be 
submitted on or before July 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15629 Filed 6-28-13; 8:45 am]
BILLING CODE 8011-01-P