FINRA Proposes to Broaden Exemptions to the New Issue and Spinning Rules: Amendments to Rules 5130 and 5131 Would Expand and Clarify Various Specific Exemptions and Align the Rules’ Anti-Dilution Provisions

Sullivan & Cromwell LLP - August 2, 2019
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On July 26, 2019, FINRA filed proposed rule changes with the SEC to amend Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings) and Rule 5131 (New Issue Allocations and Distributions) to exempt additional persons from the scope of the rules, modify current exemptions to further regulatory consistency, address unintended operational impediments and exempt certain types of offerings from the rules’ scope.  The proposed changes would: (1) incorporate the definition of “family member” and “family client” under the Investment Advisers Act of 1940 into the definition of “family investment vehicle” under Rule 5130; (2) exclude sovereign entities that own broker-dealers from the categories of restricted persons under Rule 5130; (3) exempt foreign employee retirement benefits plans that meet specified conditions from the rules; (4) provide alternative conditions for satisfying the foreign investment company exemption under Rule 5130; (5) exclude offerings that are conducted pursuant to Regulation S from the definition of “new issue” under the rules; (6) harmonize the issuer-directed provisions of Rule 5130(d) with those of Rule 5131.01; (7) exclude unaffiliated charitable organizations from the definition of “covered non-public company” in Rule 5131; and (8) add an anti-dilution provision to Rule 5131 to align it with a similar provision in Rule 5130.  The SEC has not yet published a notice soliciting comments on the proposed rule changes.