Source: http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=7300
Timestamp: 2019-04-25 04:44:49+00:00

Document:
FINRA is issuing this Notice to provide additional information and guidance on the new FINRA Rules governing notification requirements and marketplace-specific rules relating to Regulation M under the Securities Exchange Act of 1934.1 As announced in Regulatory Notice 08-57, the FINRA Rules become effective December 15, 2008.
The text of the amendments is set forth in Attachment A of this Notice. The forms firms must use to notify FINRA under the amendments are provided in Attachment B of this Notice and are available (along with any updates) online at www.finra.org/RegM.
• Office of General Counsel, at (202) 728-8071.
The guidance in this Notice relates only to firms' Regulation M-related notification obligations under FINRA rules and does not address other obligations that may apply, e.g., the FINRA transaction reporting rules or the Regulation M-related rules of a national securities exchange.
New FINRA Rule 5190 (Notification Requirements for Offering Participants) consolidates some of the Regulation M-related notification requirements that currently are found in NASD Rule 2710 and Incorporated NYSE Rule 392 (Notification Requirements for Offerings of Listed Securities). Unlike FINRA's current rules, the new rule applies uniformly to distributions of listed and unlisted securities.
Rule 5190(c)(1) sets forth the notification requirements applicable to distributions of listed and unlisted securities that are "covered securities"13 subject to a restricted period under Rule 101 or 102 of Regulation M.
Specifically, firms must determine, in accordance with Regulation M, whether the applicable restricted period commences one day or five days prior to pricing (a "one-day" or "five-day" restricted period), and notify FINRA in writing of the firm's determination and the basis for such determination.14 Additionally, firms are required to include in the written notification the contemplated date and time of commencement of the restricted period,15 and identify the distribution participants and affiliated purchasers.16 Under the new rule, firms are not required to submit a copy of the registration statement or other offering documents to FINRA's Market Regulation Department.
Firms must provide notification no later than the business day prior to the first complete trading session of the applicable restricted period, unless later notification is necessary under specific circumstances.18 Where the principal market closes early (e.g., for a holiday), the shortened session would constitute a complete trading session for purposes of the rule.
• Restricted period (i.e., the first and last trade dates of the actual restricted period).
Firms also are required to identify the distribution participants and affiliated purchasers.
Firms must submit the notification no later than the close of business the next business day following the pricing of the distribution, unless later notification is necessary under specific circumstances.22 This requirement ensures that FINRA gets timely pricing information in instances where a distribution does not terminate for weeks or even months after pricing, as might be the case, for example, in a shelf offering.
Finally, firms must notify FINRA in writing if they cancel or postpone any distribution for which prior notice of commencement of the restricted period has been provided to FINRA.23 Firms must provide such notification immediately upon the cancellation or postponement of the distribution.
Rule 5190(c)(2) requires that any firm that is an issuer or selling security holder in a distribution of a security, including an "actively traded" security, subject to a restricted period under Rule 102 of Regulation M comply with the notification requirements of Rule 5190(c)(1), discussed above. This requirement ensures that FINRA is notified of any distribution in which a firm is participating as an issuer or selling security holder, to the extent that notice of such distribution has not already been provided under Rule 5190.
Rule 5190(e) requires firms to notify FINRA of penalty bids or syndicate covering transactions in connection with an offering of an OTC Equity Security. Firms must notify FINRA of their intention to conduct such activity prior to imposing the penalty bid or engaging in the first syndicate covering transaction, and identify the security and its symbol and the date such activity will occur. In addition, firms are required to subsequently confirm such activity within one business day of completion, and identify the security and its symbol, the total number of shares and the date(s) of such activity.
These requirements are substantially similar to the current OTCBB rules; however, the amendments clarify that they apply to distributions of all OTC Equity Securities and are not limited to distributions of OTCBB-eligible securities.
Pursuant to paragraphs (c)(1) and (d) of Rule 5190, the member firm acting as manager (or in a similar capacity) is responsible for notifying FINRA of the distribution. However, if no member firm is acting as manager (or in a similar capacity), then each firm that is a distribution participant or affiliated purchaser is required to notify FINRA, unless another member firm has assumed responsibility in writing for compliance with the notification requirement. Pursuant to Rule 5190(c)(2), a firm that is an issuer or selling security holder must comply with the notification requirements of paragraph (c)(1), unless another member firm has assumed responsibility in writing for compliance with those requirements. Similarly, pursuant to Rule 5190(e), a firm that intends to impose a penalty bid or effect a syndicate covering transaction is responsible for notifying FINRA, unless another member firm has assumed responsibility in writing for compliance with the rule.
All notices under Rule 5190 must be submitted to FINRA's Market Regulation Department via email to secondaryofferings@finra.org; fax to (301) 339-7403; or a third-party vendor (e.g., Dealogic, Ipreo), within the time periods prescribed by the rule. The notification required under Rule 5190 must not be sent to FINRA's Corporate Financing Department. Submission to the Corporate Financing Department does not constitute compliance with Rule 5190.
Firms are reminded that they must update any notification submitted to the Market Regulation Department, as necessary (e.g., a manager would update the notification if distribution participants were added after the restricted period commenced or if a deal was oversubscribed and the over-allotment option was exercised).
Nasdaq Stock Exchange rules impose certain notification requirements that are similar to those of Rule 5190. Firms that have an obligation under both FINRA and Nasdaq Stock Exchange rules are not required to submit two separate filings to FINRA's Market Regulation Department to satisfy those rules; rather, the forms that have been designed to satisfy FINRA rules also include fields for purposes of compliance with the comparable Nasdaq Stock Exchange rules.29 Firms that are not subject to Nasdaq Stock Exchange rules would not be required to complete those additional fields.
FINRA's OTCBB and ADF marketplace rules include certain Regulation M-related requirements. Consistent with the amendments discussed above, and as part of the rule change approved by the SEC, FINRA has clarified the scope and application of these marketplace-specific requirements.
New FINRA Rule 6470 (Withdrawal of Quotations in an OTC Equity Security in Compliance with SEC Regulation M) requires that, in connection with a distribution of an OTC Equity Security, a firm must withdraw its quotations in the offered security to comply with the applicable restricted period under Regulation M. In addition, Rule 6470 prohibits the entry of stabilizing bids for OTC Equity Securities pursuant to Rule 104 of Regulation M. Because firms can withdraw their quotes in OTC Equity Securities without first requesting excused withdrawal status (as required under ADF rules), there is no notification requirement under Rule 6470.
Rule 6470 is substantially similar to current OTCBB rules; however, the amendments clarify that the requirements apply not only to OTCBB-eligible securities, but to all OTC Equity Securities quoted in any inter-dealer quotation system (e.g., OTCBB and Pink Sheets).
An ADF Market Maker also must submit a written request to ADF Operations and FINRA's Market Regulation Department to rescind the firm's excused withdrawal status. As part of that request, the firm must notify FINRA of the date and time of the pricing of the offering, the offering price and the time the offering terminated.32 The request must be submitted no later than the close of business the next business day following the pricing of the distribution.
The obligation to request excused withdrawal status and to subsequently rescind excused withdrawal status is on the ADF Market Maker that is posting quotations in the ADF; however, another member firm can assume responsibility—which must be in writing—for compliance on the ADF Market Maker's behalf. As amended, the rule no longer requires the manager of the distribution to submit the request on behalf of each firm participating in the distribution (of course, under the rule, a member firm acting as manager can agree, in writing, to do so on behalf of the firms).
Firms must submit notification forms under Rule 6275 to FINRA's Market Regulation Department via email to secondaryofferings@finra.org; fax to (301) 339-7403; or a third party vendor (e.g., Dealogic, Ipreo), and to ADF Operations via email to FINRAOperations@finra.org or fax to (240) 386-6225, within the time periods prescribed by the rule.
To further assist firms, FINRA will publish a set of Frequently Asked Questions (FAQ) to facilitate firms' compliance with the amendments and the FAQ will be available on FINRA's Web site.
The rule amendments become effective on December 15, 2008.
1 17 CFR §242.100 to 105.
2 "OTC Equity Security," as defined in FINRA Rule 6420 (formerly NASD Rule 6610), includes all non-exchange-listed securities, such as OTCBB and Pink Sheets securities.
3 See Securities Exchange Act Release No. 58514 (September 11, 2008), 73 FR 54190 (September 18, 2008) (order approving SR-FINRA-2008-039). See also Regulatory Notice 08-57 (October 2008).
4 See Securities Exchange Act Release No. 38067 (December 20, 1996), 62 FR 520 (January 3, 1997) (File No. S7-11-96) (Anti-Manipulation Rules Concerning Securities Offerings; Final Rules). See also generally SEC Staff Legal Bulletin No. 9, Frequently Asked Questions About Regulation M (April 12, 2002 update) at http://www.sec.gov/interps/legal/mrslb9.htm.
5 See 17 CFR §242.100 (definition of "restricted period").
6 The exception for "actively traded" securities removes from Rule 101 of Regulation M securities with an ADTV value of at least $1 million where the issuer's common equity securities have a public float value of at least $150 million. For all other securities, the following standards apply in determining when the applicable restricted period commences: (1) for a distribution of a security with an ADTV value of at least $100,000, whose issuer has outstanding common equity securities having a public float value of at least $25 million, the restricted period begins one business day prior to pricing (or the date on which the person becomes a distribution participant), and (2) for a distribution of any other security, the restricted period begins five business days prior to pricing (or the date on which the person becomes a distribution participant). See 17 CFR §242.100 (definition of "restricted period") and 17 CFR §242.101(c)(1) ("actively traded" securities exception).
7 See 17 CFR §242.100 (definitions of "stabilizing," "syndicate covering transaction," and "penalty bid"). In general terms, a "stabilizing bid" is a bid that is intended to maintain the price of the offered security and is necessary to prevent or retard a decline in the security's price. A "penalty bid" allows a lead underwriter to reclaim a selling concession paid to a syndicate member if that member's customers sell their allocated shares in the immediate aftermarket. A "syndicate covering transaction" is generally defined as placing a bid or effecting a purchase to reduce a syndicate short position.
8 See Securities Exchange Act Release No. 56206 (August 6, 2007), 72 FR 45094 (August 10, 2007) (File No. S7-20-06) (Short Selling in Connection With a Public Offering; Final Rule).
9 See 17 CFR §242.100 (definition of "distribution").
10 See Securities Exchange Act Release No. 38067 (December 20, 1996), 62 FR 520 (January 3, 1997) (File No. S7-11-96) (Anti-Manipulation Rules Concerning Securities Offerings; Final Rules).
11 See 17 CFR §242.101(b)(10).
12 FINRA's Member Regulation Department also monitors for compliance with Regulation M in the context of member firm exams.
13 See 17 CFR §242.100 (definition of "covered securities").
15 The contemplated date and time of commencement of the restricted period is to be based upon the firm's projected pricing date as of the date of submission of notice under this rule. FINRA recognizes that conditions may arise that may affect when or whether the offering actually prices.
16 See 17 CFR §242.100 (definitions of "distribution participant" and "affiliated purchaser").
17 With respect to distributions of Nasdaq-listed securities, firms can rely on an Underwriting Activity Report (UAR) generated by FINRA's Market Regulation Department as the basis for determining the applicable restricted period.
18 In most instances, FINRA would expect to receive notification within the prescribed time frame, but may permit later notification in limited circumstances. Such determination would be made by FINRA's Market Regulation Department on a case-by-case basis. For example, there may be instances where the nature of the transaction has made it impossible to provide timely notice (e.g., a private investment in public equity (PIPE) offering is commenced and priced on the same day, and thus the firm could not have provided notice on the business day prior to the first complete trading session of the applicable restricted period).
20 In certain instances, e.g., PIPEs, this requirement may not be applicable.
21 In certain instances, e.g., PIPEs, this requirement may not be applicable.
22 See supra note 18.
24 See supra note 6.
26 See supra note 18.
28 See supra note 18.
29 Firms must nonetheless comply with requirements under the Nasdaq Stock Exchange rules to provide notice to Nasdaq or Nasdaq MarketWatch, as applicable.
31 See supra note 18.
This Rule 5190 sets forth the notice requirements applicable to all members participating in offerings of securities for purposes of monitoring compliance with the provisions of SEC Regulation M. In addition to the requirements under this Rule 5190, members also must comply with all applicable rules governing the withdrawal of quotations in accordance with SEC Regulation M.
For purposes of this Rule, the following terms shall have the meanings as set forth in Rules 100 and 101 of SEC Regulation M: "actively traded," "affiliated purchaser," "covered security," "distribution," "distribution participant," "offering price," "penalty bid," "restricted period," "selling security holder," and "syndicate covering transaction."
(C) the cancellation or postponement of any distribution for which prior notification of commencement of the restricted period has been submitted under paragraph (c)(1)(A) above, immediately upon the cancellation or postponement of such distribution.
If no member is acting as a manager (or in a similar capacity) of such distribution, then each member that is a distribution participant or affiliated purchaser shall provide the notice required under this paragraph (c)(1), unless another member has assumed responsibility in writing for compliance therewith.
(2) Any member that is an issuer or selling security holder in a distribution of any security that is a covered security subject to a restricted period under Rule 102 of SEC Regulation M shall comply with the notice requirements of paragraph (c)(1), unless another member has assumed responsibility in writing for compliance therewith.
(2) the pricing of the distribution, including the security name and symbol, the type of security, the number of shares offered, the offering price, the last sale before the distribution, the pricing basis, the SEC effective date and time, the trade date, and identification of the distribution participants and affiliated purchasers, no later than the close of business the next business day following the pricing of the distribution, unless later notification is necessary under specific circumstances.
If no member is acting as a manager (or in a similar capacity) of such distribution, then each member that is a distribution participant or an affiliated purchaser shall provide the notice required under this paragraph (d), unless another member has assumed responsibility in writing for compliance therewith.
(2) confirmation that the member has imposed a penalty bid or engaged in a syndicate covering transaction, within one business day of completion of such activity, including identification of the security and its symbol, the total number of shares and the date(s) of such activity.
(1) through (15) No Change.
(1) [A member acting as a manager (or in a similar capacity) of a distribution of a security that is a subject security or reference security under Rule 101 of SEC Regulation M and any member that is a distribution participant or an affiliated purchaser in such a distribution that does not have a manager] Such Registered Reporting ADF Market Maker shall, unless another member has assumed responsibility in writing for compliance with this Rule, provide a written [notice] request to FINRA, in such form as specified by FINRA, to withdraw the Registered Reporting ADF Market Maker's quotations, [to ADF Operations and the Market Regulation Department of FINRA] no later than the business day prior to the first [entire] complete trading session of the one-day or five-day restricted period under Rule 101 or 102 of SEC Regulation M, unless later notification is necessary under the specific circumstances.
(2) not enter a stabilizing bid for the OTC Equity Security pursuant to Rule 104 of SEC Regulation M.
(b) For purposes of this Rule, the following terms shall have the meanings as defined in Rule 100 of SEC Regulation M: "affiliated purchaser," "covered security," "distribution," "distribution participant," "restricted period," "selling security holder," and "stabilizing."
1. This Attachment A reflects the amendments adopted pursuant to SR-FINRA-2008-039, as well as certain non-substantive technical changes to the underlying rule text adopted pursuant to SR-FINRA-2008-057 (filed for immediate effectiveness on December 3, 2008). Those rule filings are available at http://www.finra.org/Industry/Regulation/RuleFilings/2008/P038926 and http://www.finra.org/Industry/Regulation/RuleFilings/2008/P117483, respectively.
Acting in our capacity as manager of a potential secondary distribution of securities that are listed on the Nasdaq Stock Market, we request an underwriting activity report for the above covered security (subject and reference securities, as defined under SEC Regulation M Rule 100).
1 Please indicate 'Excused' for dealers that are not market makers.

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