Regulatory Alerts2025-07-23 | Regulatory Notice 25-08Added · Updated
FINRA Adopts Exemption From FINRA Rules 5130 and 5131 for Business Development Companies
FINRA amends Rule 5130(c) to add a new exemption for business development companies, as defined in Section 2(a)(48) of the Investment Company Act, allowing them to purchase and sell initial equity public offerings. The rule stipulates that this exemption applies provided the business development company was not formed or maintained specifically to permit restricted persons to invest in new issues. FINRA concurrently updates Rule 5131(b)(2) to align new issue allocation prohibitions with the expanded list of exempt accounts under Rule 5130.
Page 1 of 2 Attachment A New language is underlined; deletions are in brackets.
- SECURITIES OFFERING AND TRADING STANDARDS AND PRACTICES
- SECURITIES OFFERINGS, UNDERWRITING AND COMPENSATION
- Restrictions on the Purchase and Sale of Initial Equity Public Offerings (a) through (b) No Change. (c) General Exemptions The general prohibitions in paragraph (a) of this Rule shall not apply to sales to and purchases by the following accounts or persons, whether directly or through accounts in which such persons have a beneficial interest: (1) through (5) No Change. (6) An investment company organized under the laws of a foreign jurisdiction, provided that: (A) through (B) No Change. (C) the investment company was not formed or maintained for the specific purpose of permitting restricted persons to invest in new issues; (7) through (9) No Change. (10) A tax exempt charitable organization under Section 501(c)(3) of the Internal Revenue Code; [or] (11) A church plan under Section 414(e) of the Internal Revenue Code[.]; or
Page 2 of 2 (12) A business development company as that term is defined in Section 2(a)(48) of the Investment Company Act provided that the business development company was not formed or maintained for the specific purpose of permitting restricted persons to invest in new issues. (d) through (j) No Change. 5131. New Issue Allocations and Distributions (a) No Change. (b) Spinning (1) No Change. (2) The prohibitions in this paragraph shall not apply to allocations of shares of a new issue to any account described in Rule 5130(c)(1) through (3) and (5) through ([11]12), or to any other account in which the beneficial interests of executive officers and directors of the company and persons materially supported by such executive officers and directors in the aggregate do not exceed 25% of such account. (c) through (f) No Change.