The Financial Industry Regulatory Authority (FINRA) has announced that its amendments to Rules 5130 and 5131 (the Rules) pertaining to allocations of new issues will be effective on January 1, 2020.[1] Broker-dealers and other affected firms are encouraged to update relevant documents.

The amendments, among other things, create additional general exemptions from the Rules and specific exclusions from “restricted persons” in Rule 5130, which together will permit FINRA member firms to allocate new offerings of equity securities or “new issues” to certain entities and individuals previously unable to receive allocations.[2] Please see our LawFlash of November 13, 2019, discussing all the amendments to the Rules.[3]

In addition to announcing the effective date for the amendments to the Rules, FINRA reiterated that the amendments

  • clarify interpretations of the Rules;
  • harmonize the Rules with other regulations;
  • replace case-by-case exemptions with general relief;
  • create alternative means to qualify for an exemption; and
  • align the Rules with each other.

Next Steps

The amendments to Rules 5130 and 5131 are effective January 1, 2020. We encourage affected broker-dealers to update their account opening documents and other firms, such as private funds, to update documents such as subscription documents, in order to gather updated information. These updates should allow FINRA member firms to broaden the universe of investors to which they can allocate new issues.