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Corporate Financing Rule
Summary
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 Underwritten
public offerings are generally subject to NASD review and approval
- Including whether the underwriters proposed compensation is fair and not
excessive
For
NASD-member underwriters
- Regulates
total amount of underwriting compensation
- Prohibits unfair and unreasonable
arrangements
- Restricts resales of issuer's securities
- Addresses specified conflicts of interest
Requires filings with NASD's
Corporate
Financing Department
- Which must issue a "no objections" opinion before
offering can commence
- Otherwise, per Rule 461(b)(6), SEC can - and will - deny request for
acceleration
- Filings are usually handled by
underwriter's counsel,
issuer typically pays the NASD's fees
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Developments
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Shelf
offerings
- NASD has proposed changes to facilitate shelf
offerings
- Would add a new filing exemption for WKSIs
- Would add a filing exemption for shelf takedowns
if:
- Shelf offering is not the issuers IPO and does
not occur within 90 days of the issuer's IPO
- Issuer has been an SEC reporting company for at
least 90 days and is current in its reporting obligations
- Broker/dealer has not entered into any
distribution agreement for the securities and is not an affiliate of the issuer
and doesn't otherwise have a conflict of interest per NASD Rule 2720 or Rule
2710(h)
- Amount of securities in the takedown, together
with securities sold in the last 90 days, does not exceed the average weekly
reported trading volume (AWRTV) in the four prior weeks or 1% of the
total number of securities outstanding, provided that no amount of securities
sold in a single day can exceed 40% of AWRTV
- Sales are made in agency transactions that are
unsolicited (i.e., the broker/dealer cannot have solicited the seller of the
securities, but may solicit purchasers) and receives no more than the customary
broker's commission that is not in excess of the amount permitted under the NASD
Mark-Up Policy
- NASD proposal would also add a filing exemption
for offerings by foreign governments
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NASD Rule 2710 Hyperlinked
 Definitions
- Issuer
(a)(1)
- Net offering proceeds
(a)(2)
- Offering proceeds
(a)(3)
- Participating member(s)
(a)(4)
- Participation or participating in a public offering
(a)(5)
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Filing
requirements
- General
(b)(1)
- Means of filing
(b)(2)
- Confidential treatment
(b)(3)
- Requirement for filing
(b)(4)
- Documents to be filed
(b)(5)
- Information required to be filed
(b)(6)
- Offerings exempt from filing
(b)(7)
- Exempt offerings
(b)(8)
- Offerings required to be filed
(b)(9)
- Request for Underwriting Activity Report (b)(10)
- Submission of pricing information
(b)(11)
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| Underwriting
compensation and arrangements |
Whether
items of value are included in
underwriting compensation
- Pre-offering compensation
(d)(1)
- Undisclosed and post-offering compensation
(d)(2)
- Date of receipt of securities
(d)(3)
- Definitions:
- Exceptions from underwriting
compensation
(d)(5)
- Purchases and loans by certain entities (d)(5)(A)
- Investments in and loans to certain issuers
(d)(5)(B)
- Private placements with institutional investors
(d)(5)(C)
- Acquisitions and conversions to prevent dilution
(d)(5)(D)
- Purchases based on prior investment history
(d)(5)(E)
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Valuation
of non-cash compensation
- Securities received upon exercise or conversion (e)(1)
- Securities without an exercise or conversion price
(e)(2)
- Securities with an exercise or conversion price
(e)(3)
- Valuation discount - Longer resale restriction (e)(4)
- Fair price derivative or debt transaction (e)(5)
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Unreasonable terms and arrangements
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Lock-up
restriction on securities
- Lock-up restriction
(g)(1)
- Exceptions to lock-up restriction
(g)(2)
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Proceeds
Directed to a Member- Compliance With Rule
2720
(h)(1)
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Non-Cash
Compensation
- Compensation
- Non-cash compensation
- Offeror
- Restrictions on non-cash
compensation
(i)(2)
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| Exemptions |
NASD Notices to Members NTMs
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04-13
Feb 2004
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Addresses when securities acquired by members and their affiliates in private
placements will be deemed to be underwriting
compensation
-
NASD PDF
- NASD proposal filings
- SR-NASD-2000-004
02-26
May 2002
00-53
June 2000
99-50
June 1999
99-17
Feb 1999
98-88
Nov 1997
SEC_CODE_REF_0090001192884
97-80
Nov 1997
95-95
1995
95-73
1995
95-22
1995
- Exemption for modified guaranteed annuity
contracts and modified guaranteed life insurance contracts
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NASD webpage
94-82
Nov 1997
93-88
Nov 1997
- 415
shelf offerings - Certain Canadian securities
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NASD PDF
88-32
1988
86-27
1986
85-86
1985
84-37
1984
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Amendments
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SR-NASD-2000-04
2004
-
Addresses when securities acquired by members and their affiliates in private
placements will be deemed to be underwriting
compensation
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NASD
NTM 04-13 Feb 2004
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NASD
rule filings
SR-NASD-2003-139
2003
SR-NASD-2003-75
2003
SR-NASD-2003-68
2003
SR-NASD-2003-68
2003
SR-NASD-2000-13
2000
- Disclosures re: Direct Participation Program and
Real Estate Investment Trust securities
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NASD rule filings
SR-NASD-1999-74
2000
SR-NASD-1999-02
1999
SR-NASD-1999-01
1999
SR-NASD-1998-87
1998
SR-NASD-1998-81
1998
Prior
amendments
- SR-NASD-97-38 eff. 12.15.97
- SR-NASD-97-68 eff. 10.03.97
- SR-NASD-97-28 eff. 8.07.97
- SR-NASD-97-18 eff. 03.14.97
- SR-NASD-97-15 eff. 3.04.97
- SR-NASD-95-29 eff. 1.01.96
- SR-NASD-95-18 eff. 6.19.95
- SR-NASD-94-61 eff. 3.02.95
- SR-NASD-94-64 eff. 2.09.95
- SR-NASD-94-12 eff. 3.07.94
- SR-NASD-94-12 eff. 3.07.94
- SR-NASD-93-13 eff. 2.01.94
- SR-NASD-93-45 eff. 12.13.93
- Corporate Financing Rule adopted 4.15.92
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NASD's COBRADesk - Mandatory electronic filing
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NASD's
COBRA system 
NASD
NtM 02-26 2002
- Requires that filings
be made electronically using COBRA
- Effected by SEC-approved amendments to
Rule 2710
see SEC Release 3445709 4.09.02
- Applies to filings required by NASD Rules
2710, 2720 and 2810
- Deems all public offering documents filed
with SEC's EDGAR system to be filed with NASD
- Other required documents must be filed
with NASD using COBRA
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Determining
Underwriting Compensation
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SEC
Release 3448989 2003
- Approves
amendments to Rule 2710
- Release has full text of approved
amendments,
which vary in some respects from prior proposals
- Changes become effective on 3.22.04
see
NASD NtM 04-13
2004
- Changes
provide "greater clarity and predictability" for when securities received from
venture capital and lending arrangements will be deemed underwriting
compensation
- Thus
increasing underwriters' ability to make venture capital investments, receive
issuer securities as compensation for loans, consulting, and other services
- Limits
NASD review of underwriting compensation to the 180 day period prior
to filing of the public offering
- Exempts
securities that meet one of four
proposed safe harbors
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Receipt of Non-Cash Compensation
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NASD
NtM 03-53 2003
- Codification
of NASD practices re: receipt of non-cash compensation
including gifts, etc. from issuer to underwriter employees
- SEC
Release 3447697 2003
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Commentary
Related Topics
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