Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA Rules 5110 (Corporate Financing Rule-Underwriting Terms and Arrangements) and 5123 (Private Placements of Securities)
Published Date: 7/29/2026
Notice
Summary
No summary available.
Analyzed Economic Effects
6 provisions identified: 5 benefits, 0 costs, 1 mixed.
Simpler valuation for underwriting stock
If a FINRA member acquires securities as underwriting compensation, the rule now values those securities using the closing market price on a U.S. registered national securities exchange or a designated offshore securities market on the date of acquisition. This replaces the prior "bona fide public market" test and is intended to make valuation more predictable for members and issuers.
Debt-for-equity exchanges excluded from compensation
Securities acquired by participating members in debt-for-equity exchange transactions can be excluded from underwriting compensation if certain conditions are met, including that the exchange is structured to provide economic and tax benefits to the issuer, the affiliated member subsequently offers the acquired equity in a firm commitment offering, terms were negotiated at arm's length based on market price, and customary compensation was negotiated. FINRA codified these conditions so members meeting them need not request exemptions.
Capital investments in DPPs and REITs excluded
Capital investments by participating members in direct participation programs (DPPs) and unlisted REITs can be excluded from underwriting compensation if conditions are met, including disclosure in the prospectus, valuation on a net asset value (NAV) basis, the offering being subject to Rule 2310, and the acquired securities being restricted for 180 days after sales begin. FINRA codified these conditions to reduce the need for exemptive requests.
Fewer filing requirements for certain accredited buyers
FINRA expanded the Rule 5123 filing exemption to cover offerings sold to entities owning investments in excess of $5,000,000 and to family offices with assets under management in excess of $5,000,000 (so long as they meet the SEC's accredited investor criteria). This means members do not need to file offering documents with FINRA for sales to those categories of accredited investors.
Preferred securities get debt-like treatment
Non-convertible preferred securities acquired by participating members in connection with a public offering will be treated the same as non-convertible debt securities for Rule 5110 purposes, provided they are acquired at a fair price. That means such securities can be considered underwriting compensation but have no compensation value if received at a fair price.
Tail fees allowed under conditions
FINRA clarified that payments described as "tail fees" will be treated like termination fees and are permitted as underwriting compensation only if specific requirements are met, such as reasonableness of the fee, elimination of payment if issuer terminates for cause, and that the issuer is not responsible for paying the tail fee unless the transaction is consummated within two years of termination. If requirements are not met, tail fees are unreasonable under Rule 5110.
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