Private Placements

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

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 504 of Regulation D, issuers or firms may sell up to $5,000,000 of securities within a 12-month period.
• Under Rule 506 of 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 Mathews and Jim Wrona
FINRA, OGC
1700 K Street, NW
Washington, DC 20006
(202) 728-8000