FINRA Rule 5123 – Notice Filing Obligations for Private Placements

November 26, 2012

On June 7, 2012, the Securities and Exchange Commission (“SEC”) approved proposed Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 5123 entitled Private Placement of Securities. The Rule requires each FINRA member firm that sells an issuer’s securities in a private placement to file with FINRA a copy of any private placement memorandum, term sheet or other offering document the firm used within 15 calendar days of the date of the sale, or indicate that it did not use any such offering documents. Any materially amended versions of the documents originally filed will need to be re-filed with FINRA. This will requrire the placement agents for 3(c)(1) funds to file offering materials with FINRA.

FINRA member firms must file the required offering documents electronically through the FINRA Firm Gateway. The Rule becomes effective on December 3, 2012 and applies prospectively to private placements that begin selling efforts on or after that date.Member firms should update their Written Supervisory Procedures prior to the effective date.

The Rule contains a catchall provision that gives FINRA discretion to exempt a member or associated person for “good cause shown”1. In addition, under the Rule, FINRA shall “accord confidential treatment to all documents and information filed”2 pursuant to the Rule.


The Rule provides certain exemptions based on the type of investors and the type of offerings. With respect to the type of investors, the Rule does not apply to private placements sold exclusively to institutional accounts, qualified purchasers, qualified institutional buyers, investment companies, an entity composed exclusively of qualified institutional buyers, banks, employees and affiliates of the issuer, knowledgeable employees,or eligible contract participants. While private placements sold exclusively to accredited investors under Securities Act Rule 501(a)(1), (2), (3) or (7) are exempt, private placements sold to accredited investors under Rule 501(a)(4), (5), or (6) are not.3 Thus, FINRA member firms who place interests of 3(c)(1) funds will still need to file a copy of the private placement memorandum with FINRA within 15 calendar days of the date of the sale.

The Rule also exempts certain types of offerings. Offerings of exempted securities under Section 3(a)(12) of the Securities Exchange Act, Rule 144A offerings, Regulation S offerings, offerings of securities of a commodity pool operated by a commodity pool operator, offerings of registered investment companies and offerings filed with FINRA under FINRA Rules 2310,5110,5121 and 5122 are exempt from Rule 5123.4

Filing Procedures

FINRA is in the process of developing a private placement filing system. On December 3, 2012, FINRA member firms that are required to file under Rule 5123 will be able to electronically submit the offering documents via the filing system, which will be accessible through the Firm Gateway. A member firm may make a filing on behalf of other firms involved in the sale of the private placement but must identify the other firms as part of the submission.

If you have any questions regarding this Client Memorandum or FINRA Rule 5123, please contact an attorney in the Investment Management Group or Capital Markets Group at Seward & Kissel.


1 FINRA Rule 5123(d).

2 FINRA Rule 5123(c).

3 See SEC Release No. 34-67157, p. 12 dated June 7 2012.

4 See FINRA Rule 5123(b) 2-14 for a complete list of the types of offerings that are exempt.