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04-13 SEC Approves Amendments to Rule 2710 (Corporate Financing Rule) and Rule 2720 (Distribution of Securities of Members and Affiliates-Conflicts of Interest)
Amendments to the Corporate Financing Rule
Effective Date: March 22, 2004
Legal & Compliance
On December 23, 2003, the Securities and Exchange Commission (SEC) approved amendments to Rule 2710 (Corporate Financing Rule or Rule) and Rule 2720 (Distribution of Securities of Members and Affiliates-Conflicts of Interest Rule) that modernize and simplify the Rules to better reflect the various financial activities of multiservice firms (Rule Amendments).1 The Corporate Financing Rule regulates underwriting compensation and prohibits unfair arrangements in connection with public offerings of securities. The Rule requires members to file with NASD information about initial public offerings (IPOs) and certain secondary offerings. The Corporate Financing Department (Department) reviews this information prior to commencement of the offering to determine whether the underwriting compensation and other terms and arrangements meet the requirements of applicable NASD rules.
The SEC Approval Order, which includes the text of the Rules, is available at www.nasdr.com/filings/rf00_04.asp. The Approval Order contains a detailed discussion of the application of the Rule Amendments. Members with questions regarding the application of the Rules should review the information in the Approval Order in addition to the information provided in this Notice.
Questions regarding the Notice may be directed to Minh Le or Joani Ward, Assistant Supervisors, Corporate Financing Department, NASD, at (240) 386-4623.
In recent years, many NASD members have expanded the variety of services that they provide to their corporate financing clients. These services may include venture capital investment, financial consulting, commercial lending, hedging risk through derivative transactions, and investment banking. In addition, the pace of corporate financing activity has accelerated, and the typical time between private fundraising and an issuer's IPO has been shortened. As a result of these developments, NASD proposed amendments to the Corporate Financing Rule to ensure that the Rule would accommodate the modern, legitimate corporate financing activities of members, while protecting issuers and investors from unreasonable or coercive practices.
The Corporate Financing Rule, prior to the amendments discussed in this Notice, provides that any "item of value" acquired by the underwriter and related persons within the 12-month period before the filing date of a public offering will be examined by the Department to determine whether it was acquired "in connection with the public offering," and, as such, deemed to be underwriting compensation. Moreover, the Rule currently presumes that any item of value acquired within the six-month period before filing is underwriting compensation; this presumption, however, may be rebutted based on information provided to the Department.
As amended, the Corporate Financing Rule contains a more objective standard for members and the Department to use to determine whether "items of value," such as fees and securities received by underwriters and related persons, must be included in the calculation of underwriting compensation under the Rule. In this regard, Rule 2710(c)(3)(A) sets forth a non-exclusive list of specific types of "items of value" that, along with all other items of value received or to be received by underwriters and related persons in connection with or related to the distribution of the public offering, will be included for purposes of determining the amount of underwriting compensation received or to be received. Rule 2710(c)(3)(B), in turn, provides a list of items that will not be considered "items of value" for purposes of the Rule.
"Items of value" received by an underwriter or related person during the 180-day period before filing the registration statement or other information with the Department and up to the time of the offering's effectiveness or commencement of sales (Review Period) are deemed to be underwriting compensation unless the securities were received in a transaction that meets one of five exceptions contained in the Rule. These exceptions are described below.
The Rule Amendments provide five exceptions, which identify types of transactions in which securities acquired in connection with the transactions, though items of value, will not be considered to be underwriting compensation. The exceptions are intended to cover identified bona fide capital-raising transactions.
This exception applies to securities received as consideration for certain investments and loans by entities that are affiliates of members. To fall within this exception, these affiliated entities must meet certain capital and other requirements that are designed to ensure that they are engaged in bona fide businesses providing loans to, or venture capital investments in, other companies. This exception limits the amount of securities of an issuer that may be acquired in transactions during the Review Period to 25 percent.
This exception applies to the acquisition of securities of issuers that have significant institutional investor involvement in their corporate governance. The exception is available for acquisitions by qualifying related entities in a private placement or as compensation for a loan or credit facility. To fall within this exception, the entities also must meet certain capital and other requirements to ensure that the entities have been primarily engaged in the business of making investments in or loans to other companies. The exception limits the amount of securities of an issuer that may be acquired in a transaction to 25 percent. Unlike the first exception, however, it applies the 25 percent threshold to each acquisition of securities under the exception.
This exception applies to venture capital investments or the receipt of securities as compensation for acting as a placement agent in transactions that include significant institutional investor participation. The exception includes the requirement that an institutional investor that is not affiliated with any member participating in the public offering must have negotiated, established or approved the terms of the investment. In addition, underwriters and related persons, in the aggregate, may not purchase or receive as placement agent compensation securities in an amount that exceeds 20 percent of the amount of securities sold in the private placement.
This exception applies to acquisitions of securities that are acquired as the result of: (1) a qualifying right of preemption or a stock-split or a pro-rata rights or similar offering, or (2) the conversion of securities that have not been deemed by NASD to be underwriting compensation. The only terms of the purchased securities that could be different from the terms of securities purchased by other investors would be preexisting contractual rights that were granted in connection with a prior purchase.
Further, the opportunity to purchase or receive additional securities must have been provided to all similarly situated security holders. Finally, the amount of securities purchased or received must not have increased the recipient's percentage ownership of the same generic class of securities of the issuer, except in the case of conversions and passive increases that result from another investor's failure to exercise its own rights. The Rule Amendments include a definition of a "right of preemption" and list the circumstances under which a purchaser might receive a preemptive right.
This exception applies to acquisitions made in private placements during the Review Period in order to prevent dilution of a long-standing equity interest in the issuer. To be eligible for the exception, the investor must have made at least two prior purchases of the issuer's securities: at least one investment must have been made at least 24 calendar months before the required filing date and a second investment must have been made more than 180 days before the required filing date.
The Rule Amendments also list securities, fees, and expenses that are excluded from the definition of "item of value." Securities, fees, and expenses that are not items of value are not deemed to be underwriting compensation and, as further discussed below, are not subject to the Rule's lock-up restrictions.
The Rule Amendments provide that listed securities purchased in public market transactions are not treated as items of value. In addition, the Rule Amendments provide a definition of "listed securities" that specifies the eligible markets and exchanges on which such securities must be listed to meet the definition.
The Rule Amendments provide that nonconvertible or non-exchangeable debt securities and derivative instruments are not items of value if acquired or entered into: (1) for a fair price; (2) in the ordinary course of business; and (3) in transactions unrelated to the public offering. In addition, any securities received in settlement of a derivative that is entered into at a fair price also do not have a compensation value.
The Rule Amendments define "fair price" debt securities and derivative instruments to be those that the underwriters and related persons have priced in good faith, on an arms' length basis, in a commercially reasonable manner, and in accordance with pricing methods and models and procedures used in the ordinary course of their business for pricing similar transactions. This "fair price" definition is intended to distinguish covered debt and derivative transactions from a transaction in which the benefit to the underwriter or related person is related to the underwriting or similar services provided to the issuer. The fair price definition excludes a derivative instrument or other security received for acting as a private placement agent for the issuer, for providing or arranging a loan, credit facility, merger, acquisition, or any other service, including underwriting services. The Rule Amendments provide that any debt or derivative transaction acquired or entered into at a fair price and any item of value received or receivable in the exercise or settlement of such debt or derivative transaction shall have no underwriting compensation value.
To be excluded from the definition of "item of value," the Rule Amendments require that the debt securities and derivative instruments be acquired or entered into "in transactions unrelated to the public offering." Generally, a transaction occurring within the Review Period that is negotiated by personnel in a member's investment banking department would not be considered to be "unrelated to the public offering."2
The Rule Amendments provide that information regarding debt and derivative transactions that are related to the public offering must be filed if the related public offering is subject to the filing requirements of the Rule (e.g., a derivative transaction designed to hedge the interest rate risk in a non-investment grade rated debt offering). The information initially filed may be limited to a brief description of the transaction and a representation that the transaction was (or if the pricing terms have not been set will be) entered into at a fair price as defined in the Rule. The required information must be submitted only with respect to the particular public offering to which a particular debt security or derivative instrument relates. The Department will evaluate the information submitted on a case-by-case manner. In this regard, the Department will determine that a debt security or derivative instrument acquired in a transaction at a fair price has a compensation value only if facts and circumstances indicate that the transaction is structured so that the risk to the underwriter or related person and the benefit to the customer is minimal, in comparison to the benefit received by the underwriter or related person.3
The Corporate Financing Rule also specifies that offerings exempt from the Rule's filing requirements, such as offerings of investment-grade rated debt or shelf offerings by issuers with a 36-month reporting history and $150 million public float, nevertheless must comply with other provisions of the Rule. Accordingly, members must ensure that the underwriting terms and arrangements comply with the Rule. If a participating member has entered into a fair price derivative transaction in connection with an offering that is exempt from the Rule's filing requirements, members or their counsel must evaluate the facts and circumstances and reasonably determine that the transaction was executed at a fair price and, therefore, has no compensation value. In making such determination, members or their counsel would apply the same test as that applied by the Department (and discussed in subsection b above)—i.e., whether the transaction was, in fact, not entered into at a fair price because the risk to the underwriter or related person and the benefit to the customer is minimal, in comparison to the benefit received by the underwriter or related person.
The Rule Amendments provide that securities acquired through stock bonus, pension, or profit-sharing plans that qualify under Section 410 of the Internal Revenue Code and shares of an investment company registered under the Investment Company Act of 1940, will not be considered items of value.
The Rule Amendments clarify that cash compensation for acting as placement agent for a private placement or for providing a loan, credit facility, or for services in connection with merger and acquisitions, will not be considered items of value.
The Rule Amendments narrow the application of the lock-up restriction to public equity offerings. The Rule Amendments provide that common or preferred stock, options, warrants, and other equity securities of the issuer that are unregistered and acquired by an underwriter or related person within 180 days before the filing of the registration statement, or acquired after the filing of the registration statement and deemed to be compensation by NASD, are subject to a 180-day lock-up. All securities that are acquired in transactions that meet the requirements of the five exceptions discussed above also are subject to the lock-up. The Rule Amendments prohibit any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities subject to the lock-up, in order to prevent circumvention of the lock-up restrictions.
The Rule Amendments contain several exceptions to the lock-up restriction. If the aggregate amount of securities of the issuer held by the underwriter or related persons does not exceed 1 percent of the securities being offered, the securities are not subject to the lock-up. In addition, the Rule Amendments provide exceptions for certain investment funds, transfers of securities that are not considered to be an item of value, transfers by operation of law or reorganization of the issuer, and transfers of securities that were previously, but no longer are, subject to a lock-up restriction in connection with a prior public offering. The Rule Amendments also: (1) provide an exception for transfers of securities to any member participating in the offering and officers or partners thereof if all the securities so transferred remain subject to the lock-up restriction and (2) allow the exercise or conversion of any security if all the securities received remain subject to the lock-up restriction for the remainder of the time period.
The Rule Amendments also provide an exception to the lock-up for fair price derivatives acquired in connection with a public offering that are not deemed to be underwriting compensation.4 Nevertheless, when an underwriter or related person acquires unregistered equity securities of an issuer as the result of the settlement of such a fair price derivative contract, the unregistered equity securities are subject to the lock-up provision of the Rule to the same extent as any other unregistered equity securities. Some members urged NASD to exempt such acquisitions from the lock-up, noting, for example, that issuer puts in connection with repurchase programs and certain shareholder hedging transactions could be adversely affected when settled in unregistered equity securities during the 180-day period. NASD is concerned, however, that underwriters holding significant amounts of unregistered equity could dilute or manipulate the market for an issuer's securities immediately following a public offering, especially in the case of thinly traded issuers. Accordingly, the Department will consider, on a case-by-case basis, whether to exempt from the Rule those unregistered equity securities necessary as the result of settlement of fair price derivatives. In conducting such reviews, the Department will consider whether the lock-up restriction is interfering with bona fide hedging activity that benefits an issuer and its shareholders.
The Rule Amendments also provide an exception from the lock-up restrictions for Rule 144A securities acquired after the completion of the issuer's IPO.
The Rule Amendments eliminate the requirement to file information on the NASD affiliation or association of every shareholder of the issuer. Instead, the Rule Amendments require members to file information on the NASD affiliation of any: (1) officer or director of the issuer; (2) beneficial owner of 5 percent or more of any class of the issuer's securities; and (3) beneficial owner of the issuer's unregistered equity securities purchased during the 180-day period immediately preceding the filing date of the public offering (except purchases through an issuer's employee stock purchase plan).
The Rule Amendments provide that the required filing date is no later than one business day after the registration statement or other offering documents are filed or submitted to the SEC, state securities commission or other regulatory authority, or if not filed, 15 days prior to the anticipated date on which offers will commence. Offerings submitted to the SEC for review on a confidential basis will be considered filed with the SEC as of the date of the confidential submission.
The Rule Amendments provide that the receipt of securities for purposes of the Review Period will be deemed to be: (1) the date of the closing of a private placement; (2) the date a loan or credit agreement is executed; or (3) the date beneficial ownership is transferred as consideration for financial advisory or consulting services, merger or acquisition services, acting as a finder, or for any other service.
The Rule Amendments require members to file information with the Department regarding the receipt of items of value by participating members during the 90-day period following the effective date of a registration statement. In addition, all items of value received and all arrangements entered into for the future receipt of an item of value that are not disclosed to NASD prior to the issuance of a "no objections" letter must be disclosed in order for the Department to determine whether such items of value are in fact underwriting compensation for the public offering.
The Rule, prior to the amendments discussed in this Notice, prohibits underwriters or related persons from receiving warrants as compensation that have an exercise price below the public offering price. The Rule Amendments eliminate this prohibition, but require such warrants to be valued in accordance with the valuation provisions in the Rule, to be included in the compensation calculations, and to be subject to the compensation limitations.
The Rule Amendments clarify that an underwriter or related person may not receive as compensation a security, a warrant, or a convertible security unless the security received or the security underlying the warrant or convertible security is identical to the security offered to the public or to a security with a bona fide independent market, or the security can be accurately valued in accordance with the valuation provisions in the Rule.
The Rule Amendments also clarify that the application of the valuation method depends on whether the security has an exercise of conversion price. Convertible securities with no conversion price are valued in the same manner as common stock.
The valuation methods in the Rule provide a minimum compensation value to securities with a high exercise price. Otherwise, securities with, for example, an exercise price of 165 percent of the public offering price would have a zero valuation. The Rule Amendments provide that securities with an exercise price must have a minimum compensation value of .2 percent of the offering proceeds for each amount of securities that is up to 1 percent of the securities being offered, excluding securities subject to an overallotment option.
The Rule Amendments provide lower valuations of securities with longer lock-up restrictions. A lower value of 10 percent of the value of securities acquired as underwriting compensation will be deducted for each 180-day lock-up period beyond the mandatory 180-day lock-up period.5 Transfers permitted by certain exceptions to the lock-up provisions are not permitted for securities whose valuation has been reduced by undertaking to abide by the longer lock-up periods.
In reviewing the proposed Rule Amendments, commenters noted that financial services transactions are complex and sometimes have unusual or unique structures not contemplated by the Rule Amendments as drafted. These commenters urged NASD to retain flexibility in its application of the rule provisions.
In response to these comments, Rule 2710(j) provides NASD staff with the authority to provide exemptions from the Rule. Pursuant to the Rule 9600 Series, the staff, for good cause shown after taking into consideration all relevant factors, may conditionally or unconditionally grant an exemption from any provision of the Rule to the extent that such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest. In its Approval Order, the SEC concluded that this exemptive authority is reasonable and provides NASD staff the authority to exempt transactions that, although covered by the Rule, the Rule was not intended to address.6
1 See Release No. 34-48989 (SR-NASD-2000-04) (December 23, 2003), 68 FR 75684 (December 31, 2003) (Approval Order).
2 An exception to this general principle would be a put option or other derivative instrument that is entered into by an issuer with an underwriter or related person in connection with a publicly disclosed share repurchase program. The public disclosure and transparent nature of the repurchase program distinguish the derivative transaction in support of the program from other privately negotiated transactions between the investment bankers and the issuer during the Review Period.
3 NASD staff recognizes that the fact that a debt security or derivative instrument turns out to be more or less favorable to a party as the result of unanticipated market movements or other events subsequent to entry into a transaction would not necessarily mean that the transaction was done at an unfair price or that it could necessarily be characterized as underwriting compensation.
4 Fair price derivatives acquired in transactions unrelated to a public offering are not "items of value," and accordingly not subject to the lockup restrictions.
5 For example, the underwriting compensation value of securities with a value of 2.50 percent will be reduced to 2.25 percent if the securities are restricted for one year from the effective date and to 2 percent if the securities are restricted for 18 months following the effective date.
6 See Approval Order, 68 FR at 75701. The Department generally would not use its exemptive authority to exclude transactions that narrowly fail to meet one or more criteria of the Rule.
New text is underlined; deletions are in brackets.
2710. Corporate Financing Rule - Underwriting Terms and Arrangements
For purposes of this Rule, the following terms shall have the meanings stated below.
The definitions in Rule 2720 are incorporated herein by reference.
The issuer of the securities offered to the public, any selling security holders offering securities to the public, any affiliate of the issuer or selling security holder, and the officers or general partners, directors, employees and security holders thereof[;].
Offering proceeds less all expenses of issuance and distribution[;].
Public offering price of all securities offered to the public, not including securities subject to any overallotment option, securities to be received by the underwriter and related persons, or securities underlying other securities[;].
Any NASD member that is participating in a public offering, any associated person of the member, any members of their immediate family, and any affiliate of the member.
Participation in the preparation of the offering or other documents, participation in the distribution of the offering on an underwritten, non-underwritten, or any other basis, furnishing of customer and/or broker lists for solicitation, or participation in any advisory or consulting capacity to the issuer related to the offering, but not the preparation of an appraisal in a savings and loan conversion or a bank offering or the preparation of a fairness opinion pursuant to SEC Rule 13e-3[; and].
[Includes underwriters,] Consists of underwriter's counsel, financial consultants and advisors, finders, [members of the selling or distribution group,] any participating member [participating in the public offering], and any [and all] other persons [associated with or] related to any participating member [and members of the immediate family of any of the aforementioned persons].
Securities meeting the listing standards to trade on the national securities exchanges identified in SEC Rule 146, markets registered with the SEC under Section 6 of the Exchange Act, and any offshore market that is a "designated offshore securities market" under Rule 902(b) of SEC Regulation S.
A derivative instrument is any "eligible OTC derivative instrument" as defined in SEC Rule 3b-13(a)(1), (2) and (3).
A derivative instrument or non-convertible or non-exchangeable debt security has been acquired or entered into at a fair price for purposes of subparagraphs (b)(6)(A)(iv), (c)(3)(B)(vi) and (vii), and (e)(5) if the underwriters and related persons have priced the debt security or derivative instrument in good faith; on an arm's length, commercially reasonable basis; and in accordance with pricing methods and models and procedures used in the ordinary course of their business for pricing similar transactions. A derivative instrument or other security received for acting as a private placement agent for the issuer, for providing or arranging a loan, credit facility, merger, acquisition or any other service, including underwriting services, is not included within this "fair price" definition.
The required filing date shall be the dates provided in subparagraph (b)(4), and for a public offering exempt from filing under subparagraph (b)(7), the required filing date for purposes of subparagraph (d) and (g) shall be the date the public offering would have been required to be filed with the NASD but for the exemption.
other regulatory authority; or
No member or person associated with a member shall participate in any manner in any public offering of securities in which the underwriting or other terms or arrangements in connection with or relating to the distribution of the securities, or the terms and conditions related thereto, are unfair or unreasonable.
[c. as a finder's fee;]
[d. for consulting services to the issuer; and]
All items of value received [or to be received] and all arrangements entered into for the future receipt of an item of value by the underwriter and related persons during the [twelve (12) month] period commencing 180 days immediately preceding the required filing date of the registration statement or similar document pursuant to subparagraph (b)(4) above[, and at the time of and subsequent to] until the date of effectiveness or commencement of sales of the public offering[,] will be [examined to determine whether such items of value are] considered to be underwriting compensation in connection with the public offering [and, if received during the six (6) month period immediately preceding the filing of the registration statement or similar document, will be presumed to be underwriting compensation received in connection with the offering, provided, however, that such presumption may be rebutted on the basis of information satisfactory to the Association to support a finding that the receipt of an item is not in connection with the offering and shall not include cash discounts or commissions received in connection with a prior distribution of the issuer's securities].
All items of value received and all arrangements entered into for the future receipt of an item of value by any participating member that are not disclosed to the NASD prior to the date of effectiveness or commencement of sales of a public offering, including items of value received subsequent to the public offering, are subject to postoffering review to determine whether such items of value are, in fact, underwriting compensation for the public offering.
Securities of the issuer acquired by the underwriter and related persons will be considered to be received for purposes of subparagraphs (d)(1) and (d)(5) as of the date of the:
For purposes of subparagraph (d)(5) below, the following terms will have the meanings stated below.
Notwithstanding subparagraph (d)(1) above, the following items of value are excluded from underwriting compensation (but are subject to the lock-up restriction in subparagraph (g)(1) below), provided that the member does not condition its participation in the public offering on an acquisition of securities under an exception and any securities purchased are purchased at the same price and with the same terms as the securities purchased by all other investors.
For purposes of determining the value to be assigned to securities received as underwriting compensation, the following criteria and procedures shall be applied[:].
An underwriter and related person may not receive a security (including securities in a unit), a warrant for a security, or a security convertible into another security as underwriting compensation in connection with a public offering unless:
Price [s] Securities that [are not options, warrants or convertible securities] do not have an exercise or conversion price shall have a compensation value [be valued on the basis of] based on:
[(C) o] Options, warrants or convertible securities that have an exercise or conversion price ("warrants") shall [be valued on the basis of] have a compensation value based on the following formula:
A lower value equal to 10% of the calculated value shall be deducted for each 180-day period that the securities or underlying securities are restricted from sale or other disposition beyond the 180-day period of the lock-up restriction required by subparagraph (g)(1) below. The transfers permitted during the lock-up restriction by subparagraphs (g)(2)(A)(iii)-(iv) are not available for such securities.
Derivative or Debt Transaction
Any debt or derivative transaction acquired or entered into at a "fair price" as defined in subsection (a)(9) and item of value received in or receivable in the settlement, exercise or other terms of such debt or derivative transaction shall not have a compensation value for purposes of determining underwriting compensation. If the actual price for the debt or derivative security is not a fair price, compensation will be calculated pursuant to this subsection (e) or based on the difference between the fair price and the actual price.
No member or person associated with a member shall participate in any manner in a public offering of securities after any arrangement proposed in connection with the public offering, or the terms and conditions relating thereto, has been determined to be unfair or unreasonable pursuant to this Rule or inconsistent with any By-Law or any Rule or regulation of [the Association] NASD.
Without limiting the foregoing, the following terms and arrangements, when proposed in connection with [the distribution of] a public offering of securities, shall be unfair and unreasonable[:].
In any public equity offering, other than a public equity offering by an issuer that can meet the requirements in subparagraphs (b)(7)(C)(i) or (ii) any common or preferred stock, options, warrants, and other equity securities of the issuer, including debt securities convertible to or exchangeable for equity securities of the issuer, that are unregistered and acquired by an underwriter and related person during 180 days prior to the required filing date, or acquired after the filing of the registration statement and deemed to be underwriting compensation by the NASD, and securities excluded from underwriting compensation pursuant to subparagraph (d)(5) above, shall not be sold during the offering, or sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the public offering, except as provided in subparagraph (g)(2) below.
Notwithstanding subparagraph (g)(1) above, the following shall not be prohibited:
No member shall participate in a public offering of an issuer's securities where more than [ten (10) percent] 10% of the net offering proceeds, not including underwriting compensation, are intended to be paid to [members participating in the distribution of the offering or associated or affiliated persons of such members, or members of the immediate family of such persons] participating members, unless the price at which an equity issue or the yield at which a debt issue is to be distributed to the public is established pursuant to Rule 2720(c)(3).
All offerings included within the scope of [this] subparagraph [(8)] (h)(1) shall disclose in the underwriting or plan of distribution section of the registration statement, offering circular or other similar document that the offering is being made pursuant to the provisions of this subparagraph and, where applicable, the name of the member acting as qualified independent underwriter, and that such member is assuming the responsibilities of acting as a qualified independent underwriter in pricing the offering and conducting due diligence.
The provisions of [this] subparagraphs [(8)] (h)(1) and (2) shall not apply to:
The terms "compensation," "non-cash compensation" and "offeror" as used in this Section (d) of this Rule shall have the following meanings:
In connection with the sale and distribution of a public offering of securities, no member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any non-cash compensation, except as provided in this provision. Non-cash compensation arrangements are limited to the following:
A member shall maintain records of all non-cash compensation received by the member or its associated persons in arrangements permitted by subparagraphs (d)(2)(C)-(E). The records shall include: the names of the offerors, non-members or other members making the non-cash compensation contributions; the names of the associated persons participating in the arrangements; the nature and value of non-cash compensation received; the location of training and education meetings; and any other information that proves compliance by the member and its associated persons with subparagraph (d)(2)(C)-(E).
Pursuant to the Rule 9600 Series, the [Association may exempt a member or person associated with a member from the provisions of this Rule] appropriate NASD staff, for good cause shown after taking into consideration all relevant factors, may conditionally or unconditionally grant an exemption from any provision of this Rule to the extent that such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest.
1 The current annual amount fixed by the Board of Governors is $100.
2720. Distribution of Securities of Members and Affiliates - Conflicts of Interest