Broker-dealers that recommend or sell private placements have additional requirements under FINRA and SEC rules. These requirements include:
- Filing certain offering documents
- Ensuring the suitability of any investments they recommend
Filing Requirements
Two FINRA rules require firms to file certain offering documents and information about the issuer, the offering terms, and the firms selling the private placement with FINRA.
- FINRA Rule 5122 (Member Private Offerings) requires firms that offer or sell their own securities or those of a control entity to file with the Corporate Financing Department a private placement memorandum, term sheet or other offering document at or prior to the first time the documents are provided to any prospective investor.
- FINRA Rule 5123 (Private Placements of Securities) requires firms to file with FINRA's Corporate Financing Department within 15 calendar days of the date of first sale of a private placement, a private placement memorandum, term sheet or other offering document, or indicate that no such offerings documents were used.
Firms also must file any amendments or exhibits to the offering document with the Corporate Financing Department within ten days of being provided to any investor. The information filed with the Corporate Financing Department is subject to confidential treatment. Firms should submit offering documents as searchable PDFs via the private placement filing system in the FINRA Gateway. Please note, 5122/5123 Notifications are "notice" filings. As such, FINRA will not respond to the filings with a comment letter nor provide a clearance letter.
Filing Resources
- Frequently Asked Questions regarding Private Placements
- Firm Guidance - Private Placement Filings
- Instructions for Requesting Entitlement to the Information Requests Application in the FINRA Gateway
Compliance Tools
Due Diligence and Suitability of Private Placements
FINRA will examine firms’ private placement activity to ascertain whether firms are conducting a reasonable inquiry of the issuer and offering.
The recent Regulation D amendments do not alter a firm's responsibility to conduct adequate due diligence on its offerings to ensure any recommendations to purchase securities in a private placement are suitable.
Firms must also understand their obligations to comply with Regulation BI in connection with its due diligence and suitability responsibilities.
Registration with the SEC (and exemptions from registering)
Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Issuers and broker-dealers most commonly conduct private placements under Regulation D of the Securities Act of 1933, which provides three exemptions from registration.
- Under Rule 504of Regulation D, issuers or firms may sell up to $5,000,000 of securities within a 12-month period.
- Under Rule 506of Regulation D, issuers or firms may employ general solicitations and advertising when offering private placements, provided that all purchasers of the offering are accredited investors.
Firms may conduct other forms of private placements using exemptions other than those allowed by Regulation D. Please consult the Rules tab on this page for additional applicable rules and exemptions.
Contact OGC
FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.
OGC staff contacts:
Paul MathewsandJim Wrona
FINRA, OGC
1700 K Street, NW
Washington, DC 20006
(202) 728-8000
FINRA Rules
FINRA Rules
FINRA Rules
FINRA Rules
FINRA Reminds Members of Their Obligations When Selling Private Placements
05/09/2023
FINRA Amends Rules 5122 and 5123 Filing Requirements to Include Retail Communications That Promote or Recommend Private Placements
07/15/2021
FINRA Updates Private Placement Filer Form Pursuant to FINRA Rules 5122 and 5123
03/11/2021
FINRA Provides Guidance on Retail Communications Concerning Private Placement Offerings
07/01/2020
FINRA Amends the FINRA Corporate Financing Rule
03/20/2020
FINRA Updates Private Placement Filer Form Pursuant to FINRA Rules 5122 and 5123
04/21/2017
FINRA Requests Comment on FINRA Rules Impacting Capital Formation
04/12/2017
Private Placements and Public Offerings Subject to a Contingency
02/08/2016
FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act)
01/29/2016
FINRA Updates Form for Filing Private Placements of Securities Pursuant to FINRA Rules 5122 and 5123
08/19/2013
SEC Approves New FINRA Rule 5123 Regarding Private Placements of Securities
09/05/2012
FINRA Requests Comment on Proposed Amendments to FINRA Rule 5122 to Address Member Firm Participation in Private Placements
01/11/2011
Obligation of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings
04/20/2010
- See AlsoSection 5
SEC Approves New FINRA Rule 5122 Relating to Private Placements of Securities Issued by a Member Firm or a Control Entity
05/18/2009
NASD Requests Comment on Proposed Rule 2721 to Regulate Member Private Securities Offerings
06/05/2007
NASD Issues Guidance on Section 1031 Tax-Deferred Exchanges of Real Property for Certain Tenants-in-Common Interests in Real Property Offerings
03/02/2005
Guidance
The Private Placements topic of the 2024 FINRA Annual Regulatory Oversight Report (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
January 09, 2024
Guidance
The Reg BI and Form CRS topic of the 2024 FINRA Annual Regulatory Oversight Report (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
January 09, 2024
Virtual Conference Panel
Attend this session to hear helpful tips on complying with FINRA Rule 2210, Communications with the Public when creating, reviewing, approving, distributing or using retail communications concerning private placement offerings. Join panelists as they share helpful tips in identifying red flags in third-party prepared materials, the use of forecasts of issuers operating metrics, and distribution rates. Panelists also explain the process for filing offering documents, including retail communications, with FINRA.
September 08, 2020
Guidance
This reference guide covers a range of private placement topics, from the basic question of "What is a private offering?" to more technical discussions on broker-dealer compliance with FINRA's private placement rules.
July 16, 2019
Interpretive Letter
Request for Interpretive Guidance on FINRA Rule 2111 (Suitability) in Relation to EB-5 Program Securities Transactions
August 26, 2013
Compliance Tools
Report cards created for firms to monitor timeliness of Corporate Financing filings.These report cards display statistics about late filings submitted to Corporate Financing.
FAQ
Frequently asked questions about private placements.
FAQ
1. My firm filed with the Advertising Regulation Department a retail communication that promotes or recommends a private placement subject to the filing requirements of FINRA Rules 5122 or 5123. Do we now need to file the same communication with the Corporate Financing Department?
Compliance Tools
Overview – The following is a guide to assist applicants as they prepare and submit information and documentation for FINRA Form New Member Application (NMA) or Form Continuing Member Application (CMA) regarding new private placement business. This checklist is designed to help applicants provide basic information FINRA staff may ask them to submit in order to begin a meaningful review and to aid the applicant in understanding the information and documentation needed as part of the application process.
Guidance
As noted in Regulatory Notice 10-22 (Obligations of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings), as part of their obligations under FINRA Rule2111(Suitability) and supervisory requirements under FINRA Rule3110(Supervision), firms must conduct a “reasonable investigation” by evaluating “the issuer and its management; the business prospects of the issuer; the assets held by or to be acquired by the issuer; the claims being made; and the intended use of proceeds of the offering.”
April 12, 2017
September 20, 2016
FINRA Sanctions Brookville Capital Partners $1.5 Million and Bars President Anthony Lodati for Fraud
March 12, 2015
November 29, 2011
April 07, 2011
March 15, 2011
April 20, 2010
April 19, 2010
March 18, 2010
December 21, 2009
Investor Alert
It’s no secret that when a promising company emerges or an industry sector becomes “hot,” investors typically flock to get a piece of the action. But what happens when the company is privately held and investors can’t readily buy shares because the company has not conducted an initial public offering of its stock? FINRA is issuing this alert to warn investors about pre-IPO scams purporting to offer access to shares of Facebook and other popular, well known private companies.
