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5122. Private Placements of Securities Issued by Members

(a) Definitions
(1) Member Private Offering
A "member private offering" means a private placement of unregistered securities issued by a member or a control entity.
(2) Control Entity
A "control entity" means any entity that controls or is under common control with a member, or that is controlled by a member or its associated persons.
(3) Control
The term "control" means beneficial interest, as defined in Rule 5130(i)(1), of more than 50 percent of the outstanding voting securities of a corporation, or the right to more than 50 percent of the distributable profits or losses of a partnership or other non-corporate legal entity. Control will be determined immediately after the closing of an offering, and in the case of an offering with multiple intended closings, immediately following each closing.
(4) Private Placement
The term "private placement" means a non-public offering of securities conducted in reliance on an available exemption from registration under the Securities Act.
(b) Requirements
No member or associated person may offer or sell any security in a Member Private Offering unless the following conditions have been met:
(1) Disclosure Requirements
(A) If an offering has a private placement memorandum or term sheet, then such memorandum or term sheet must be provided to each prospective investor and must contain disclosures addressing:
(i) intended use of the offering proceeds; and
(ii) offering expenses and the amount of selling compensation that will be paid to the member and its associated persons.
(B) If an offering does not have a private placement memorandum or term sheet, then the member must prepare an offering document that contains the disclosures required in paragraph (b)(1)(A)(i) and (ii) and provide such document to each prospective investor.
(2) Filing Requirements
A member must file the private placement memorandum, term sheet or such other offering document with the Corporate Financing Department at or prior to the first time the document is provided to any prospective investor. Any amendment(s) or exhibit(s) to the private placement memorandum, term sheet or other offering document also must be filed with the Department within ten days of being provided to any investor or prospective investor.
(3) Use of Offering Proceeds
For each Member Private Offering, at least 85% of the offering proceeds raised must be used for business purposes, which shall not include offering costs, discounts, commissions or any other cash or non-cash sales incentives. The use of the offering proceeds also must be consistent with the disclosures required in paragraph (b)(1).
If, in connection with the offer and sale of any security in a Member Private Offering, a member or associated person discovers after the fact that one or more of the conditions listed above have not been met, the member or associated person must promptly conform the offering to comply with this Rule.
(c) Exemptions
The following Member Private Offerings are exempt from the requirements of this Rule:
(1) offerings sold solely to:
(A) institutional accounts, as defined in Rule 4512(c);
(B) qualified purchasers, as defined in Section 2(a)(51)(A) of the Investment Company Act;
(C) qualified institutional buyers, as defined in Securities Act Rule 144A;
(D) investment companies, as defined in Section 3 of the Investment Company Act;
(E) an entity composed exclusively of qualified institutional buyers, as defined in Securities Act Rule 144A; and
(F) banks, as defined in Section 3(a)(2) of the Securities Act.
(2) offerings of exempted securities, as defined in Section 3(a)12 of the Exchange Act;
(3) offerings made pursuant to Securities Act Rule 144A or SEC Regulation S;
(4) offerings in which a member acts primarily in a wholesaling capacity (i.e., it intends, as evidenced by a selling agreement, to sell through its affiliate broker-dealers, less than 20% of the securities in the offering);
(5) offerings of exempt securities with short term maturities under Section 3(a)(3) of the Securities Act;
(6) offerings of subordinated loans under SEA Rule 15c3-1, Appendix D (see NASD Notice to Members 02-32 (June 2002));
(7) offerings of "variable contracts", as defined in Rule 2320(b);
(8) offerings of modified guaranteed annuity contracts and modified guaranteed life insurance policies, as referenced in Rule 5110(b)(8)(E);
(9) offerings of unregistered investment grade rated debt and preferred securities;
(10) offerings to employees and affiliates of the issuer or its control entities;
(11) offerings of securities issued in conversions, stock splits and restructuring transactions that are executed by an already existing investor without the need for additional consideration or investments on the part of the investor;
(12) offerings of securities of a commodity pool operated by a commodity pool operator, as defined under Section 1a(5) of the Commodity Exchange Act;
(13) offerings of equity and credit derivatives, including OTC options; provided that the derivative is not based principally on the member or any if its control entities; and
(14) offerings filed with the Department under Rules 2310, 5110 or Rule 5121.
(d) Confidential Treatment
FINRA shall accord confidential treatment to all documents and information filed pursuant to this Rule and shall utilize such documents and information solely for the purpose of review to determine compliance with the provisions of applicable FINRA rules or for other regulatory purposes deemed appropriate by FINRA.
(e) Application for Exemption
Pursuant to the Rule 9600 Series, FINRA may exempt a member or person associated with a member from the provisions of this Rule for good cause shown.

• • • Supplementary Material: --------------

.01 Private Placement Memorandum. Nothing in this rule shall require a member to prepare a private placement memorandum. A member may satisfy the disclosure and filing requirements in the Rule with an offering document that does not meet the additional requirements of Securities Act Rule 502.

Amended by SR-FINRA-2011-065 eff. Dec. 5, 2011.
Amended by SR-FINRA-2010-060 eff. Dec. 15, 2010.
Amended by SR-FINRA-2009-078 eff. Dec. 14, 2009.
Amended by SR-FINRA-2009-062 eff. Oct. 19, 2009.
Amended by SR-FINRA-2009-046 eff. Aug. 17, 2009.
Adopted by SR-FINRA-2008-020 eff. June 17, 2009.

Selected Notice: 09-27.

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