FINRA proposed a rule change to make "substantive, organizational and terminology" amendments to Rule 5110 in order to ensure that underwriters' fees are fair and reasonable. Rule 5110 requires broker-dealers that participate in SEC-registered offerings of securities to file specified documents with FINRA regarding underwriting terms and arrangements.
According to FINRA, the proposal is intended to (i) modernize Rule 5110, (ii) simplify and clarify its provisions, and (iii) maintain protections for issuers and investors that participate in public offerings.
Specifically, FINRA is proposing the following changes:
- reduce the number of documents to be filed and increase the time in which to file them;
- reduce filing requirements for certain shelf offerings (that are not otherwise exempted);
- expand certain complete exemptions from filing requirements;
- reduce the specificity of public disclosure required as to the value of components of underwriting compensation;
- better define underwriting compensation and make certain exclusions from that definition clear;
- provide for certain exceptions from the lock-up restrictions;
- further define prohibited terms and arrangements; and
- define terms better generally.
Commentary / Steven Lofchie
The rule changes, and comments thereon, are likely to receive close review from the SEC, particularly given Commissioner Jackson's focus on the terms of underwriting arrangements.
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