FINRA Amends its Corporate Financing Rules

Regulatory Notice 26-19

Published Date:

October 21, 2026

Effective date for Rule 5123: October 21, 2026; Effective date for Rule 5110: December 21, 2026

Summary

FINRA has amended Rules 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements) and 5123 (Private Placements of Securities) to make substantive, organizational and terminology changes to the rules.1 These amendments simplify and clarify rule provisions while maintaining important protections for market participants, including issuers and investors participating in public offerings.

The amendments to Rule 5123 are effective on October 21, 2026. The amendments to Rule 5110 are effective on December 21, 2026. Additional guidance is provided in this Notice and on FINRA’s Corporate Financing page.

The text of the amendments is included as Attachment A.

Questions regarding this Noticeshould be directed to:

• Gabriela Aguero, Vice President, Corporate Financing, by [email](javascript:email(2380,'Gabriela Aguero');) or (240) 386-4657; or
• Micah Hauptman, Associate General Counsel, Office of General Counsel, by [email](javascript:email(2403,'Micah Hauptman');) or (202) 728-8123.

Background & Discussion

The ability of small and large businesses to raise capital is critical to job creation and economic growth. Rule 5110 has played an important role in the capital raising process by promoting investor and issuer protection and market integrity.

In general, FINRA Rule 5110 requires that when FINRA members participate in a public offering, the terms and conditions of the offering, including underwriter compensation, must be fair and reasonable. The rule requires FINRA members that participate in a public offering to file documents and information with FINRA about the underwriting terms and arrangements.2 Among other things, the rule contains provisions relating to how underwriting compensation is valued,3 and provides examples of payments that are not deemed to be underwriting compensation.4 FINRA’s Corporate Financing Department reviews filings prior to the commencement of the offering to determine whether the underwriting compensation and other terms and arrangements meet the requirements of the applicable FINRA rules.5

Rule 5123 plays an important role in providing information that assists FINRA in the identification of potential investor protection concerns, compliance issues and trends in the private placement market, which is an important source of capital for American businesses, including small and midsize companies.

In general, Rule 5123 requires members to file with FINRA any private placement memorandum, term sheet or other offering document, and any retail communication that promotes or recommends a private placement, used in connection with a private placement of securities to individuals.

In response to feedback received to enhance the capital-raising process without compromising protections for investors and issuers, FINRA has amended Rules 5110 and 5123.

Rule 5110 Amendments

The amendments to Rule 5110 improve and clarify parts of the rule covering the valuation method for securities deemed underwriting compensation. The amendments also include new exclusions from underwriting compensation that codify positions FINRA staff has taken and clarifications of other provisions. Further, the amendments include several changes that will improve the operation of the rule and reduce common questions encountered during the review process.

Valuation Method for Securities Acquisitions That Are Considered Underwriting Compensation

When participating members6 acquire securities that are deemed underwriting compensation, Rule 5110 governs how those securities are valued.7 Amended Rule 5110(c)(2) and (3) replaces the “bona fide public market”8 valuation method with a more predictable valuation method based on the closing market price of the security traded on a U.S. registered national securities exchange or a “designated offshore securities market” as defined under Securities Act Rule 902(b) on the date of the acquisition.9

Dually Listed Securities

For securities listed on both a U.S. national securities exchange and a foreign exchange that qualifies as a “designated offshore securities market” under Securities Act of 1933 (Securities Act) Rule 902(b), Rule 5110(a)(4)(B)(ii) continues to require an estimate of the maximum value for each item of underwriting compensation. Accordingly, members must use the price that results in the maximum compensation value of the securities acquired as underwriting compensation.

For example, where a member acquires securities at $9 per share listed on both a U.S. exchange and a foreign exchange, and the closing price on the designated offshore securities market is equivalent to $10 per share, the closing price on the U.S. registered national securities exchange is $10.10 per share, and the public offering price is $10.05 per share, the member must use the U.S. closing price of $10.10 per share, as it produces the maximum value for the securities included as underwriting compensation.

Securities with No Available Closing Price

Where a security trades on a U.S. national securities exchange but no closing price is available on the specific date of acquisition (e.g., due to a trading halt or an absence of trades on that date), members must use the public offering price per security for valuation purposes.

Exclusions From Underwriting Compensation for Certain Securities Acquisitions

Rule 5110 provides for exclusions from underwriting compensation for certain types of investments by participating members in anticipation of, or concurrently with, a public offering.10 The amended rule expands the exclusions to include: (1) debt-for-equity exchanges;11 (2) capital investments for direct participation programs (DPPs) and unlisted real estate investment trusts (REITs);12 and (3) non-convertible preferred securities.13

1. Debt-for-Equity Exchanges

A debt-for-equity exchange is composed of a series of transactions in which a lender acquires equity securities of the issuer, often referred to as exchange shares, in return for a cash loan. The exchange shares are subsequently or concurrently registered and offered by underwriters in a public offering, and the offering proceeds are used, in whole or in part, as repayment of the loan. When the lender is an affiliate of an underwriter, the lender falls within the definition of participating member, and the equity securities acquired by the affiliated lender for making the loan fall within the definition of underwriting compensation.

The amended rule adds new Rule 5110.01(b)(23) to provide an exclusion from underwriting compensation for securities acquired by a lender affiliated with a participating member in connection with debt-for-equity exchange transactions if the following conditions are met:

• the debt-for-equity exchange is structured to provide economic and tax benefits to the issuer and not the lender or affiliated member, except for negotiated customary compensation for the subsequent equity offering;14
• the affiliated member subsequently offered all of the equity securities the lender acquired in a firm commitment offering following the debt exchange;15
• the parties determined the terms of the debt exchange and the subsequent equity issued through arms’ length negotiations based on the market price of the equity, subject to negotiated customary compensation for the subsequent equity offering;16 and
• the affiliated member negotiated customary compensation for the subsequent equity offering.17

2. Capital Investments for DPPs and Unlisted REITs

Participating members commonly make capital investments in DPP and unlisted REIT offerings, providing equity capital or financing to an issuer in exchange for an equity stake. This financing arrangement may happen in advance of or concurrently with a public offering.

The amended rule adds new Rule 5110.01(b)(24) to provide an exclusion from underwriting compensation for securities acquired before or during the distribution of an offering by a participating member in the issuer or an affiliated entity in connection with DPPs and unlisted REITs if the following conditions are met:

• the acquisition of securities is disclosed in the prospectus;18
• the securities offered to the public and the securities acquired in the capitalization transaction are valued and priced on a net asset value (NAV) basis;19
• the offering for which the participating member is engaged is an offering subject to the requirements of Rule 2310 (Direct Participation Programs);20 and
• the securities acquired are restricted for a period of 180 days beginning on the date of the commencement of sales.21

3. Non-Convertible Preferred Securities

Rule 5110 provides that non-convertible or non-exchangeable debt securities and derivative instruments acquired by any participating member in a transaction related to a public offering at a fair price are considered underwriting compensation but have no compensation value.22 The amended rule adds non-convertible preferred securities, treating them in a comparable manner to non-convertible debt securities. Thus, to the extent non-convertible preferred securities are acquired by any participating member in a transaction related to a public offering at a fair price, those securities are considered underwriting compensation but have no compensation value.23

Additional Modifications to Rule 5110

Amended Rule 5110 includes other modifications that will improve the operation of the rule. First, amended Rule 5110(g)(5)(B) permits tail fees, in addition to termination fees and the receipt of compensation in the form of rights of first refusal in connection with a public offering that is not completed according to the terms of an agreement, provided specific requirements are met:

• the agreement specifies that the issuer has a right of “termination for cause,” which shall include the participating member’s material failure to provide the underwriting services contemplated in the written agreement;24
• the issuer’s exercise of its right of “termination for cause” eliminates any obligations with respect to the payment of any termination fee, tail fee or provision of any right of first refusal;25
• the amount of any termination fee or tail fee must be reasonable in relation to the underwriting services contemplated in the agreement and any fees arising from underwriting services provided under a right of first refusal must be customary for those types of services;26 and
• the issuer shall not be responsible for paying the termination fee or tail fee unless an offering or other type of transaction (as set forth in the agreement) is consummated within two years of the date the engagement is terminated by the issuer.27

If those requirements are not met, the receipt of any tail fees in connection with a public offering would constitute an unreasonable term or arrangement under Rule 5110.

Rule 5123 Amendments

Rule 5123 contains an exemption from filing for offerings sold to certain types of “accredited investors” under Rule 501 of the Securities Act.28 The amendments to Rule 5123 expand the filing exemption under Rule 5123 for sales to specified accredited investors to include offerings sold to investors meeting two additional accredited investor categories,29 consistent with the SEC’s addition of those categories to the accredited investor definition:30

• any entity,31 of a type not listed in paragraphs (a)(1), (2), (3), (7), or (8) of Rule 501, not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000;32 and
• any “family office” with assets under management in excess of $5,000,000, that is not formed for the specific purpose of acquiring the securities offered and its prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment.33

Implementation

The amendments to Rule 5123 are effective on October 21, 2026. The amendments to Rule 5110 are effective on December 21, 2026. For any offering subject to Rule 5110 for which the initial required filing date under Rule 5110(j)(19) falls before December 21, 2026, members must comply with the existing rule for the duration of that offering. For any offering subject to Rule 5110 for which the initial required filing date under Rule 5110(j)(19) falls on or after December 21, 2026, members must comply with the amended rule.

Members with questions about unique circumstances are encouraged to contact FINRA’s Corporate Financing Department at AskCorpFin@finra.org or (240) 386-4623. For questions related to specific offerings filed and assigned to staff, please direct your questions to the reviewers associated with the filing.

Endnotes

1 See Securities Exchange Act Release No. 105987 (July 24, 2026), 91 FR 47903 (July 29, 2026) (Order Approving File No. SR-FINRA-2026-002) (“Approval Order”).

2 Filings of public offerings are made electronically with FINRA through FINRA’s public offering filing system. The filing and review processes are described on the "Public Offerings" page available on the FINRA.org website. The following are some examples of public offerings that are routinely filed: (1) initial public offerings; (2) follow-on offerings; (3) shelf offerings; (4) rights offerings; (5) offerings by direct participation programs as defined in Rule 2310(a)(4); (6) offerings by real estate investment trusts; (7) offerings by a bank or savings and loan association; (8) exchange offerings; (9) offerings pursuant to SEC Regulation A; and (10) offerings by closed-end funds.

3 SeeRule 5110(c).

4 See Rule 5110.01(b).

5 FINRA does not approve or disapprove an offering; rather, it issues an opinion based on a review that relates solely to the FINRA rules governing underwriting terms and arrangements and the opinion does not purport to express any determination of compliance with any federal or state laws, or other regulatory or self-regulatory requirements regarding the offering. A member may proceed with a public offering required to be filed only if FINRA has provided an opinion that it has no objection to the proposed underwriting terms and arrangements. SeeRule 5110(a)(1)(C)(ii).

6 The term “participating member” means any FINRA member that is participating in a public offering, any affiliate or associated person of the member, and any immediate family, but does not include the issuer. See Rule 5110(j)(15).

7 See Rule 5110(c).

8 The definition of “bona fide public market” includes the requirement that the securities be traded on a national securities exchange and relies on SEC Regulation M’s definitions of average daily trading volume and public float. See Rule 5121(f)(3).

9 See Rule 5110(c)(2) and (3).

10 See Rule 5110.01(b).

11 See Rule 5110.01(b)(23).

12 See Rule 5110.01(b)(24).

13 See Rule 5110(a)(4), 5110(c)(5), 5110(e), and 5110.06.

14 See Rule 5110.01(23)(A).

15 See Rule 5110.01(23)(B).

16 See Rule 5110.01(23)(C).

17 See Rule 5110.01(23)(D).

18 See Rule 5110.01(24)(A).

19 See Rule 5110.01(24)(B). Capitalization transactions occurring before the issuer has material assets would be deemed to occur at or above NAV. See Approval Order, supra note 1, at note 57.

20 See Rule 5110.01(24)(C).

21 See Rule 5110.01(24)(D).

22 See Rule 5110(c)(5) and 5110.06.

23 If securities are not received at a fair price, the value of underwriting compensation that is attributed to these securities is the difference between their fair price and their actual price.

24 See Rule 5110(g)(5)(B)(i).

25 See Rule 5110(g)(5)(B)(ii).

26 See Rule 5110(g)(5)(B)(iii).

27 See Rule 5110(g)(5)(B)(iv).

28 See Rule 5123(b)(1)(J).

29 Id.

30 See Accredited Investor Definition, Securities Exchange Act Release No. 89669 (Aug. 26, 2020), 85 FR 64234 (Oct. 9, 2020).

31 Id. The Commission distinguished between natural persons and entities when describing the new categories of accredited investor, including this category. 85 FR 64237.

32 See 17 CFR 230.501(a)(9).

33 See 17 CFR 230.501(a)(12).

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Attachment A
New language is underlined; deletions are in brackets.

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5100. SECURITIES OFFERINGS, UNDERWRITING AND COMPENSATION
5101. Corporate Financing Rule — Underwriting Terms and Arrangements
      (a) Requirements for Public Offerings
      (1) through (3) No Change.
      (4) Documents and Information Required to be Filed (A) No Change.
      (B) Any member filing documents with FINRA pursuant to paragraph (a)(4)(A) must file the following information with respect to the offering in FINRA's Public Offering System:
      (i) through (iii) No Change.
      (iv) a description of any securities of the issuer acquired and beneficially owned by any participating member during the review period, provided that:
      a. non-convertible, [or] non-exchangeable debt or preferred securities and derivative instruments acquired in a transaction related to the public offering must be filed and also accompanied by a representation that a registered principal or senior manager of the participating member has determined if the transaction was or will be entered into at a fair price;

b. non-convertible, [or] non-exchangeable debt or preferred securities and derivative instruments need not be filed if acquired in a transaction that is unrelated to the public offering; and
c. securities if acquired in accordance with Supplementary
Material .01(b) need not be filed.
(v) through (vi) No Change.
(C) through (E) No Change.
(b) No Change.
(c) Valuation of Underwriting Compensation
(1) Limitation on Securities Received Upon Exercise or Conversion of Another Security A participating member may not receive a security (including securities in a unit), a warrant for a security, or a security convertible into another security as underwriting compensation in connection with a public offering unless:
(A) the security received or the security underlying the warrant or convertible security received is identical to the security offered to the public[ or to a security with a bona fide public market]; or (B) the security can be accurately valued[,] using any method in this paragraph (c)[as required by paragraph (g)(1) of this Rule]. (2) Valuation of Non-Convertible Securities Non-convertible securities received as underwriting compensation will have a compensation value based on:

(A) the difference between:
(i) either the closing market price [per]of the security traded on a U.S. registered national securities exchange or a designated offshore securities market as defined under Securities Act Rule 902(b) on the date of acquisition, or[, if no bona fide public market exists for the security,] the public offering price per security; and (ii) the per security cost; (B) through (D) No Change. (3) Valuation of Convertible Securities Options, warrants or convertible securities (“warrants”) shall have a compensation value based on the following formula:
(A) No Change.
(B) minus the resultant of the exercise or conversion price per warrant less either:
(i) the closing market price [per]of the convertible security, or the common stock or other security underlying the convertible security traded on a U.S. registered national securities exchange or a designated offshore securities market as defined under Securities Act Rule 902(b) on the date of acquisition[, where a bona fide public market exists for the security]; or (ii) the public offering price per security; (C) through (H) No Change. (4) No Change.

(5) Valuation of Securities Acquired in Connection with [a] Fair Price Non￾Convertible, [or ]Non-Exchangeable Debt or Preferred Securities and [or] Derivative Instruments Any non-convertible, [or] non-exchangeable debt or preferred securities and derivative instruments acquired or entered into at a "fair price" as defined in Supplementary Material .06(b) and underwriting compensation received in or receivable in the settlement, exercise or other terms of such non-convertible, [or] non-exchangeable debt or preferred securities and derivative instruments shall not have a compensation value for purposes of determining underwriting compensation. If the actual price for the non-convertible, [or] non-exchangeable debt or preferred securities and derivative instruments [is] are not at a fair price, compensation will be calculated pursuant to this paragraph (c) or based on the difference between the fair price and the actual price. (d) No Change. (e) Lock-Up Restriction on Securities (1) No Change. (2) Exceptions to Lock-Up Restriction Notwithstanding paragraph (e)(1):
(A) the lock-up restriction will not apply:
(i) through (iii) No Change.
(iv) to a non-convertible [or] and non-exchangeable debt or preferred security acquired in a transaction related to the public offering; (v) through (ix) No Change. (B) No Change.

(f) No Change.
(g) Unreasonable Terms and Arrangements
Without limiting the requirements of paragraph (a)(1)(A) of this Rule, the following terms and arrangements are prohibited:
(1) through (4) No Change.
(5) any underwriting compensation in connection with a public offering that is not completed according to the terms of an agreement entered into by an issuer and a participating member, except (A) No Change. (B) a termination fee, a tail fee or a right of first refusal, as set forth in a written agreement entered into by an issuer and a participating member, provided that:
(i) No Change.
(ii) an issuer's exercise of its right of "termination for cause" eliminates any obligations with respect to the payment of any termination fee, tail fee or provision of any right of first refusal; (iii) the amount of any termination fee or tail fee must be reasonable in relation to the underwriting services contemplated in the agreement and any fees arising from underwriting services provided under a right of first refusal must be customary for those types of services; and (iv) the issuer shall not be responsible for paying the termination fee or tail fee unless an offering or other type of transaction (as set forth in

the agreement) is consummated within two years of the date the engagement is terminated by the issuer; (6) through (11) No Change.
(h) through (i) No Change.
(j) Definitions
The definitions in Rule 5121 are incorporated herein by reference. For purposes of this Rule, the following terms have the meanings stated below:
(1) through (7) No Change.
(8) Immediate Family
The term “immediate family” means:
(A) the spouse or children of an associated person of a member; and (B) No Change.
(9) through (10) No Change.
(11) Insurance Company
For the purposes of paragraph (d) of this Rule, the term “insurance company” refers only to the regulated entity, not its subsidiaries or other affiliates. (12) through (18) No Change. (19) Required Filing Date (A) The term “required filing date” means the dates referenced in paragraph (a)(3) of this Rule; and (B) For a public offering exempt from filing under paragraph (h) of this Rule, the term “required filing date” means the date the public offering would have been required to be filed with FINRA but for the exemption.

(20) No Change.
(21) Total Equity Securities
For the purposes of paragraph (d) of this Rule, the term "total equity securities" means the aggregate of the total shares of:
(A) common stock outstanding of the issuer; and (B) common stock of the issuer underlying all convertible securities outstanding that convert without the payment of any additional consideration. (22) No Change.

• • • Supplementary Material: --------------
  .01 Underwriting Compensation
  (a) The following are examples of payments or benefits that are considered underwriting compensation:
  (1) through (12) No Change.
  (13) any compensation paid to any participating member in connection with a prior proposed public offering that was not completed, if the member firm participates in the revised public offering, except that accountable expenses received pursuant to paragraph (g)(5)(A) of this Rule shall not be deemed underwriting compensation; and (14) No Change. (b) Participating members may receive payments from an issuer or another source during the review period that may be unrelated to a particular offering. Such payments generally would not be deemed to be underwriting compensation. The following list, while not comprehensive, provides examples of payments that are not deemed to be underwriting compensation:
  (1) through (18) No Change.

(19) non-convertible [or]and non-exchangeable debt or preferred securities and derivative instruments acquired in a transaction that is unrelated to the public offering; (20) No Change. (21) securities acquired in the secondary market by a participating member that is a broker-dealer in connection with the performance of bona fide customer facilitation activities and bona fide market making activities; provided that securities acquired from the issuer will be considered “underwriting compensation” if the securities were not acquired at a fair price (taking into account, among other things customary commissions, mark-downs and other charges); [and] (22) securities acquired pursuant to a governmental or court-approved proceeding or plan of reorganization as a result of action by the government or court (e.g., bankruptcy or tax court proceeding);[.] (23) securities acquired by a lender affiliated with a participating member through a debt-for-equity exchange that is sold by its affiliated member, if:
(A) the debt-for-equity exchange was structured to provide economic and tax benefits to the issuer and not the lender or affiliated member, except for the compensation in subparagraph (D) of this Supplementary Material .01(b)(23); (B) the affiliated member subsequently offered all of the equity securities the lender acquired in a firm commitment offering following the debt exchange; (C) the terms negotiated in connection with the debt exchange and the subsequent equity offering were determined through arms’ length negotiations based on the market price of the equity exchanged, subject to the compensation in subparagraph (D) of this Supplementary Material .01(b)(23); and

(D) the affiliated member negotiated customary compensation for the subsequent equity offering; and (24) securities acquired before or during the distribution of an offering by a participating member in the issuer or an affiliated entity in connection with the investment of cash to capitalize a direct participation program or a real estate investment trust, as defined in Rule 2231(d), provided that:
(A) the acquisition of securities is disclosed in the issuer’s prospectus as a capital investment or a comparable form of capitalization; (B) the securities offered to the public and the securities acquired in the capitalization transaction are valued and priced on a net asset value or NAV basis; (C) the offering for which the participating member is engaged is an offering subject the requirements of Rule 2310; and (D) the securities acquired and excluded are not sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities for a period of 180 days beginning on the date of commencement of sales of the public equity offering. (c) No Change. .02 Venture Capital Transactions and Significantly Delayed Offerings. Notwithstanding paragraph (d) of this Rule, in the event that an offering is significantly delayed and the issuer needs funding pending consummation of the public offering, FINRA may exclude from underwriting compensation any securities acquired in a transaction that otherwise meets the requirements in paragraph (d), but occurs after the required filing date. To determine whether an

acquisition of securities that occurs after the required filing date may be excluded from underwriting compensation, FINRA will consider the following factors, as well as any other relevant factors and circumstances:
(a) through (c) No Change.
.03 Underwriting Compensation Securities Acquired Other than from the Issuer.
Notwithstanding paragraph (j)(22) of this Rule, FINRA may exclude securities acquired from a third-party entity from underwriting compensation. To determine whether an acquisition of securities from a third-party entity may be excluded from underwriting compensation, FINRA will consider the following factors, as well as any other relevant factors and circumstances:
(a) through (c) No Change.
.04 Underwriting Compensation Resulting from Issuer Directed Sales Programs.
Notwithstanding paragraph (j)(15) and (22) of this Rule, FINRA may exclude from underwriting compensation securities acquired by a participating member’s associated persons or their immediate family pursuant to an issuer directed sales program. To determine whether an acquisition of securities by a participating member’s associated persons or their immediate family pursuant to an issuer directed sales program may be excluded from underwriting compensation, FINRA will consider the following factors, as well as any other relevant factors and circumstances:
(a) through (c) No Change.
.05 No Change.
.06 Non-Convertible, [or ]Non-Exchangeable Debt or Preferred Securities and Derivative[s] Instruments

(a) Non-convertible, [or ]non-exchangeable debt or preferred securities and derivative instruments acquired in a transaction related to the public offering and at a fair price, will be considered underwriting compensation but will have no compensation value. Non-convertible, [or ]non-exchangeable debt or preferred securities and derivative instruments acquired in a transaction related to the public offering but not at a fair price, will be considered underwriting compensation and subject to the normal valuation requirements of this Rule. (b) The term “derivative instrument” means any "eligible OTC derivative instrument" as defined in SEA Rule 3b-13(a)(1), (2) and (3). The term “fair price” means the participating members have priced a derivative instrument or non-convertible, [or] non-exchangeable debt or preferred security in good faith; on an arm’s length, commercially reasonable basis, and in accordance with pricing methods and models and procedures used in the ordinary course of their business for pricing similar transactions. A derivative instrument or other security received as compensation for providing services for the issuer, for providing or arranging a loan, credit facility, merger, acquisition or any other service, including underwriting services will not be deemed to be entered into or acquired at a fair price. .07 Venture Capital Transactions. The determination of whether a securities acquisition may be excluded from underwriting compensation pursuant to paragraph (d) of this Rule is to be made at the time of the securities acquisition.

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5123. Private Placements of Securities
      (a) No Change.
      (b) Exemptions
      The following private placements are exempt from the requirements of this Rule:

(1) offerings sold by the member or person associated with the member solely to any one or more of the following:
(A) through (I) No Change.
(J) accredited investors described in Securities Act Rule 501(a)(1), (2), (3), [or] (7), (9) or (12).
(2) through (14) No Change.
(c) through (d) No Change.

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