Regulatory Notice 23-09

The Financial Industry Regulatory Authority, FINRA, has launched a high level consultation (Regulatory Notice 23-09) on ways to further improve capital raising possibilities in the U.S. financial market without compromising investor protection and financial market stability. In detail, FINRA seeks feedback from member firms as to the efficiency and adequacy of its current rules and possible modifications to achieve before mentioned objective.
Before raising its questions, FINRA presents some rule modifications and other regulatory activities it has made or conducted in the past to increase efficiency in the capital formation process, including
– changes to FINRA Rule 2241 to ensure fair access to investment research by issuers of all sizes;
– changes to FINRA Rule 5110 to ease requirements as regards shelf offerings and on venture capital engagements;
– the issuance of guidance as regards private placements; or
– changes to FINRA Rule 5130 to provide further exemptions as regards the purchase and sale of initial equity public offerings with respect to foreign investment companies and pension plans.
The questions set out by FINRA are the following – as quoted:
– Are there any FINRA rules, operations or administrative processes that should be updated or amended to better facilitate capital raising in a manner that preserves investor protection?
– Have FINRA’s rules covering the capital raising process effectively responded to the problem(s) they were intended to address?
– What have been the economic impacts, including costs and benefits, arising from FINRA’s rules on the capital raising process? To what extent do these economic impacts differ by business attributes, such as size of the member or differences in business models? Can you provide quantitative information regarding any of these impacts?
– Where have FINRA rules related to the capital raising process been particularly effective? Are there other rules or applications where a similar approach might enhance capital formation while maintaining investor protections?
– What, if any, unintended consequences have arisen from FINRA’s rules related to the capital raising process? Have members changed their business models and practices in ways unintended by FINRA with a consequence to capital formation or investor protection in response to FINRA’s rules in these areas?
– Are there other FINRA rules or practices not identified above that impact the capital raising process, such as rules related to the fixed income market (other than the amendments to FINRA Rule 11880)? If so, what has been your experience with these rules or practices?
– Are there any ambiguities in the rules that FINRA should address to aid members‘ compliance and enhance the capital raising process while ensuring investor protection concerns are addressed? Are there any other types of modifications to FINRA rules that should be considered? For example, can FINRA rules be modified to encourage the frequency of quotes, quoted prices or number of shares quoted for securities, particularly illiquid ones?
– What changes have occurred in the market for capital formation since Regulatory Notice 17-14 that should prompt FINRA to consider amending its rules to better facilitate capital raising?
– Can FINRA make any of its administrative processes or interpretations related to the capital raising process more efficient and effective? If so, which ones and how? Are there any such processes or interpretations that should be added?
– Is there any additional data FINRA could provide to facilitate capital formation or to facilitate analysis of the regulatory framework?
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FINRA strongly encourages firms to respond to the consultation, as the capital raising process is a key cornerstone in the U.S. financial market. The consultation will be open for public comment up to August 7, 2023.