FINRA amended Rule 5131 to include an identical anti-dilution exemption provision that now allows executive officers and directors to maintain their equity holdings subject to the same qualifying conditions prescribed in Rule 5130. (d) Issuer-Directed Securities. The amendments include the following changes: What Should Private Funds, Managers and Broker-Dealers Do Now? (11) “Sovereign entity” means a sovereign nation or a pool of capital or an investment fund or other vehicle owned or controlled by a sovereign nation and created for the purpose of making investments on behalf or for the benefit of the sovereign nation. Discover the latest updates and developments about Lowenstein Sandler... Access our insightful thought leadership, including articles, client alerts, and blog posts... FINRA eases restrictions and harmonizes distribution rules. FINRA Rule 5130 Evolves Further to Address Non-US Investors and Securities Offerings. Jan. 1, 2020. h�bbd```b``f����*�T ��� ��.�� "뽀$��*�e��r���[email protected]�6�䟃�������H&�����@� �+ The prohibitions on the purchase and sale of new issues in this Rule shall not apply to an account in which a restricted person has a beneficial interest that meets the following conditions: (1) the account has held an equity ownership interest in the issuer, or a company that has been acquired by the issuer in the past year, for a period of one year prior to the effective date of the offering; (2) the sale of the new issue to the account shall not increase the account's percentage equity ownership in the issuer above the ownership level as of three months prior to the filing of the registration statement in connection with the offering; (3) the sale of the new issue to the account shall not include any special terms; and. New Issue Allocations and Distributions. • • • Supplementary Material: --------------. Amended by SR-FINRA-2019-022 eff. Sovereign entities are now excluded from the category of restricted persons covering owners of brokerdealers. A person with the authority to buy or sell securities for such a family investment vehicle has not been considered a portfolio manager based solely on this investment authority and, therefore was not considered a restricted person under Rule 5130. We speak your language, understand your issues and find commercially viable solutions to help drive business. }w���٪W�p��W;�t^����������W�y-�ކh�|l��]���r�����+���ku6�ց�w�;ie��gzҴ��� 9�a�!�Zf�-��t~�5��l]��W�k�V߸��y��.�Sa���X�9�љ����1U�"��}���������~�8�;�=��?��@�R�?���!����O�o��SB��Jh^���t�rpy���0�㊉����� �`ǜ���1J�K`�p�>�*\F��`)���M\�7#�KEeF�H�D����q�n��l�ʤ29;+���v���b��B�7 �MOF��A=�ヲR�G-*� Gy��ќm>�D3�(WT��9S�(�m�7֍�L���vqf � 2�N��.6b���C䑆�:*�� '��ި���I;�?x�{_�m�x�Fi��d(Dx���fcc�]O�M�4)s���~.�����o,;�rC8�D�b=��X�?��?^����łÓ��?��d��}���K�9���'��ԟ���b9��ft;����{zzhy0j�~Y��h��w���؃6��F^i8��Ź����#�c2z,���c�땰wv��mW�?���}�Nй�{k6����a�[email protected]�|۳�{Ӽ�!��C��ct�qt:z{��4�Y���+^h��:/��5����_!���^!ud�$�� �p.���61�3��s�ic���$ن+�m���B32뼔�*�=��zN�e�����c3�`A�3Y]2���e~�\eV��&c���Q�\��F��a������M��;�w��|=�L5�G%t�`]'�a�`��~҇����Vq�ϰJ�t��Z����3[�%��:����+(i>:ss:3�'� u&8������_洎�PV�E\�x+I=-uݛ�_aca嵇�i��S0�]��Ƞ�`h�U2>f�pY�)��� 2cz6A6�}^�a� ̴q �O�#�%��L$#��+��� �m=��d���s���h.aדJgݺ�u��xy~~vҪ��"��z#"��ʷ��+�/�R>��e�|���$�L��W��&+`=ۭ*)�|��m�� ���a f��j��6>9�^�};G�7�!8�;��Xڢ*��o0T�(O���gfFl�!�9�Gً�o�W�)j#�I���e��2� ��Z�RN��|*��l�2r�|!��Ng��CG���/�/��k���Ӗ���#���i���h:���%��� =)������]�S9�jG�,�����6p1� N�b9>�@� For consistency with Rule 5131.01, FINRA has amended paragraph (d) of Rule 5130 to apply the exemptions to securities directed by affiliates and selling shareholders of the issuer and to clarify that the exemptions apply to securities directed in writing. %%EOF The Rules were amended to broaden the family office exemption to include “family member” and “family client” as defined in the Investment Advisers Act of 1940.4 This change notably exempts “key employees” such as an unrelated portfolio manager of the family office who previously would have been subject to the new issue distribution restriction. Private funds must update their subscription agreements and annual investor certifications. Rule 5131(d)(2) requires lock-up agreements applicable to the officers and directors of an issuer entered into in connection with the new issue stipulate certain notification procedures be followed informing the issuer and general public of the impending release or waiver of such lock-up agreement’s transfer restrictions. To resolve this, the amendments add alternative tests to the five percent condition mentioned above. These amendments should benefit a broad range of market participants, including fund managers, benefit plans, family offices and sovereign entities. FINRA Rule 5130 protects the integrity of the public offering process by ensuring that: (1) members make bona fide public offerings of securities at the offering price; (2) members do not withhold securities in a public offering for their own benefit or use such securities to reward FINRA Rule 5130 generally restricts, among other things, broker-dealers (or persons associated with them) from selling shares of a new issue, to an account in which a restricted person has a beneficial interest. – Rules 5130 and 5131 (the “Rules”) promote fairness in the allocation of new issues of equity securities. FINRA Rule 5131 restricts broker-dealers from selling New Issues to accounts that are beneficially owned by persons that are executive officers or directors of public companies and certain covered non-public companies having specified relationships with the broker-dealer, and persons materially supported by these persons. (2) the final list of distribution participants and their underwriting commitment and retention amounts no later than three business days after the offering date. (3) "Conversion offering" means any offering of securities made as part of a plan by which a savings and loan association, insurance company or other organization converts from a mutual to a stock form of ownership. FINRA has clarified that foreign offerings, such as those conducted pursuant to Regulation S, are not subject to the new issue distribution restriction and therefore, restricted persons may fully participate in such offerings. The amendment excludes unaffiliated charitable organizations from the definition of a "covered non-public company" for the purposes of the "spinning" prohibition under Rule 5131, effectively allowing allocation of new issues to executive officers and directors of these charitable organizations even if they have a current or potential investment banking relationship. The Rules have been harmonized to provide regulatory consistency in the following instances: Issuer-Directed Allocations. The term "Restricted Person" includes broker-dealers and their personnel, finders and fiduciaries in securities offerings, portfolio managers, persons owning a broker-dealer, and, in some cases, persons materially supported by, or the immediate family members of these persons. (5) "Immediate family member" means a person's parents, mother-in-law or father-in-law, spouse, brother or sister, brother-in-law or sister-in-law, son-in-law or daughter-in-law, and children, and any other individual to whom the person provides material support. The prohibitions on the purchase and sale of new issues in this Rule … FINRA Rule 5130 prohibits a broker-dealer from selling New Issues to accounts in which "Restricted Persons" have a beneficial interest. (ii) An immediate family member of a person specified in subparagraph (C)(i) if the person specified in subparagraph (C)(i) materially supports, or receives material support from, the immediate family member. DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. (Under the Rules, "New Issue" means any initial public offering (IPO) of an equity security as defined in Section 3(a)(11) of the Securities Exchange Act of 1934 made pursuant to a registration statement or offering circular, subject to certain exceptions.) A sovereign wealth fund (“SWF”) is a pool of capital or an investment fund owned or controlled by a sovereign nation created for the purpose of making investments on behalf of the sovereign nation. Learn about our Pacific Alliance initiative. (2) "Collective investment account" means any hedge fund, investment partnership, investment corporation or any other collective investment vehicle that is engaged primarily in the purchase and/or sale of securities. Contact FINRA at 301-590-6500. (iii) An immediate family member of a person specified in subparagraph (B)(i) or (ii) if the person specified in subparagraph (B)(i) or (ii): a. materially supports, or receives material support from, the immediate family member; b. is employed by or associated with the member, or an affiliate of the member, selling the new issue to the immediate family member; or. FINRA announced that the changes would become effective on January 1, 2020, in Regulatory Notice 19-37. Rules 5130(d) and 5131.01 provide exemptions for issuer-directed allocations of securities, subject to specified conditions. The amended Rules exclude unaffiliated charitable organizations from the definition of “covered non-public company.”5 This change ensures that officers and directors of charitable organizations (i.e., 501(c)(3) organizations) are exempt from the new issue distribution restriction. Build a Morning News Brief: Easy, No Clutter, Free! (B) the insurance company does not limit the policyholders whose premiums are used to fund the account principally to restricted persons, or, if a general account, the insurance company does not limit its policyholders principally to restricted persons; (4) An account if the beneficial interests of restricted persons do not exceed in the aggregate 10% of such account; (5) A publicly traded entity (other than a broker-dealer or an affiliate of a broker-dealer where such broker-dealer is authorized to engage in the public offering of new issues either as a selling group member or underwriter) that: (A) is listed on a national securities exchange; or. 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