[Federal Register Volume 90, Number 124 (Tuesday, July 1, 2025)]
[Notices]
[Pages 28835-28837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-12218]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103334; File No. SR-FINRA-2025-001]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Partial Amendment No. 1 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Exempt Certain Business Development
Companies From FINRA Rules 5130 (Restrictions on the Purchase and Sale
of Initial Equity Public Offerings) and 5131 (New Issue Allocations and
Distributions)
June 26, 2025.
I. Introduction
On March 25, 2025, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change (SR-FINRA-2025-001) to exempt
certain business development companies, as that term is defined in
Section 2(a)(48) of the Investment Company Act of 1940 (``Investment
Company Act''), each a ``BDC,'' from FINRA Rule 5130 (Restrictions on
the Purchase and Sale of Initial Equity Public Offerings) and from
paragraph (b) (Spinning) of FINRA Rule 5131 (New Issue Allocations and
Distributions).\3\ The proposed rule change was published for comment
in the Federal Register on March 31, 2025.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 102723 (March 25,
2025), 90 FR 14284 (March 31, 2025) (``Notice'').
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On May 13, 2025, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change.\5\ On June 12, 2025, FINRA filed a partial amendment to
the proposed rule change (``Partial Amendment No. 1'').\6\ The
Commission received two comment letters in response to the publication
of the Notice,\7\ as well as a response letter from FINRA.\8\ The
Commission is publishing this Order to provide notice of the filing of,
and to solicit from interested persons comments on, Partial Amendment
No. 1, and is approving on an accelerated basis the proposed rule
change, as modified by Partial Amendment No. 1 (``Amended Proposal'').
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 103033 (May 13,
2025), 90 FR 21377 (May 19, 2025). The Commission designated June
29, 2025, as the date by which the Commission shall approve or
disapprove or institute proceedings to determine whether to approve
or disapprove, the proposed rule change.
\6\ See Partial Amendment No. 1, available at https://www.finra.org/sites/default/files/2025-06/FINRA-2025-001_Partial_A-1.pdf. In Partial Amendment No. 1, FINRA requested that the
Commission find good cause pursuant to Section 19(b)(2) of the
Exchange Act for approving the proposed rule change, as modified by
Partial Amendment No. 1, prior to the thirtieth day after its
publication in the Federal Register.
\7\ Comments are available at: https://www.sec.gov/comments/sr-finra-2025-001/srfinra2025001.htm.
\8\ See Letter from Ilana Reid, Associate General Counsel, FINRA
(June 12, 2025) (``FINRA Response''), available at https://www.sec.gov/comments/sr-finra-2025-001/srfinra2025001.htm.
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II. Description of the Proposed Rule Change
As described in more detail in the Notice,\9\ FINRA proposed to
amend FINRA Rule 5130 by adding a categorical exemption for non-traded
BDCs in new paragraph (c)(12) and, by reference, in FINRA Rule
5131(b)(2) (together, the ``proposed exemption''). The proposed
exemption, as originally included in the Notice, would have applied to
a BDC, ``the shares of which are registered under the Securities Act
[of 1933].'' \10\ FINRA stated in the Notice that the proposed
exemption would allow non-traded BDCs, and therefore investors in non-
traded BDCs, to more easily obtain access to new issues in so much as
they could be included in the allowable 30 percent of a non-traded
BDC's portfolio.\11\ In addition, the proposed exemption would expand
the pool of investors who can participate in initial public offerings
(``IPOs'') through their investment in a non-traded BDC and would allow
non-traded BDCs to more easily diversify their portfolios with new
issues to the extent that such investments are consistent with all
other applicable regulations.\12\
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\9\ See Notice, 90 FR 14284-88.
\10\ See Notice, 90 FR 14285. As discussed below, in Part III,
Partial Amendment No. 1 changed this text to state ``provided that
the business development company was not formed or maintained for
the specific purpose of permitting restricted persons to invest in
new issues.'' See Partial Amendment No. 1, supra note 6, at 5.
\11\ See Notice, 90 FR 14286.
\12\ See Notice, 90 FR 14286.
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III. Summary of Comments, FINRA's Response, and Commission Findings
After reviewing the Notice, Partial Amendment No. 1, and comment
letters received, the Commission finds that the Amended Proposal is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder applicable to a national securities
association.\13\ In particular, the Commission finds that the Amended
Proposal is consistent with Section 15A(b)(6) of the Exchange Act,\14\
which requires, among other things, that FINRA rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, and, in general, to protect
investors and the public interest. The Commission also finds that the
Amended Proposal, is consistent, in particular, with Section 15A(b)(9)
of the Exchange Act,\15\ which requires that FINRA rules not impose any
burdens on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.
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\13\ In approving this rule change, the Commission has
considered the rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78o-3(b)(6).
\15\ 15 U.S.C. 78o-3(b)(9).
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The Amended Proposal will protect investors and the public interest
by allowing non-traded and private BDCs,\16\ which are subject to the
investor protections provided by the Investment Company Act and the
applicable rules adopted thereunder, to more easily invest in new
issues and to diversify their portfolios, without diminishing investor
protection. It will promote capital formation by expanding access to
IPOs through the entities of non-traded BDCs and private BDCs. The
Amended Proposal is designed to prevent fraudulent and manipulative
acts and practices by maintaining the integrity of the public offering
process through the requirement that BDCs not be formed or maintained
for the specific purpose of permitting restricted persons to invest in
new issues.\17\
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\16\ FINRA stated that the term ``private BDC'' refers to a BDC
that is offered in a private placement. See Partial Amendment No. 1,
supra note 6, at 3 n.4.
\17\ See Regulatory Notice 23-09 (May 2023) (``FINRA promotes
the capital raising process through appropriately tailored rules for
its members that are designed to promote transparency and to
establish important standards of conduct for the benefit of all
market participants, including investors and issuers.''). See also
Notice, 90 FR 14286.
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[[Page 28836]]
The Commission received two comment letters on the proposed rule
change.\18\ Both commenters stated their general support for the
proposed rule change,\19\ one of which suggested that the proposed
exemption should be expanded to cover all BDCs, including privately
offered BDCs.\20\ ICI stated that it is ``difficult, if not
impossible'' for private BDCs, similar to non-traded BDCs, to satisfy
the representation requirements of FINRA Rules 5130 and 5131.\21\ In
addition, ICI stated that BDCs are subject to ``extensive'' regulation
by the Commission under the Investment Company Act and that ``[i]t does
not logically flow'' that privately offered closed-end funds can avail
themselves of an exemption from FINRA Rules 5130 and 5131 while a
private BDC cannot qualify for the proposed exemption.\22\ ICI also
stated that extending the proposed exemption to private BDCs would not
impact the integrity of the public offering process because private
BDCs are subject to the same investment limitations under Section 55(a)
of the Investment Company Act as non-traded BDCs are and are therefore
unlikely to be formed for the purpose of investing in new issues.\23\
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\18\ See Letter from Kevin Ercoline, Assistant General Counsel,
Investment Company Institute (April 21, 2025) (``ICI''); Letter from
Anya Coverman, President and CEO, Institute for Portfolio
Alternatives (April 21, 2025) (``IPA'').
\19\ See ICI, at 2; IPA, at 2.
\20\ See ICI, at 2-3.
\21\ See ICI, at 2.
\22\ See ICI, at 3. ICI stated that a private fund is not
subject to the Investment Company Act (and generally has a much
higher investment standard reflecting the associated investor
sophistication and risk tolerance attributes) while a BDC is subject
to ``extensive'' regulation under the Investment Company Act. See
ICI, at 3.
\23\ ICI, at 3.
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In response, Partial Amendment No. 1 amended the proposed rule
change to include private BDCs. FINRA stated that it generally agrees
with ICI that extending the proposed exemption to private BDCs would
not impact the integrity of the public offering process because private
BDCs are subject to extensive regulation under the Investment Company
Act, including the same investment limitations to which non-traded BDCs
are subject.\24\ FINRA stated that it was therefore amending the
proposed rule change to exempt from FINRA Rule 5130 and FINRA Rule
5131(b) all BDCs, provided that the BDC was not formed or maintained
for the specific purpose of permitting restricted persons to invest in
new issues. According to FINRA, for purposes of the exemption, the
requirement that exempted BDCs not be formed or maintained for the
specific purpose of permitting restricted persons to invest in new
issues would further preserve the integrity of the public offering
process.\25\ FINRA stated that similar language appears in the
exemption for foreign investment companies under FINRA Rule
5130(c)(6)(C).\26\
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\24\ See FINRA Response, supra note 8, at 3. See also Partial
Amendment No. 1, supra note 6, at 4.
\25\ See FINRA Response, supra note 8, at 4.
\26\ In Partial Amendment No. 1, FINRA proposed to add the words
``or maintained'' to subparagraph (C) of FINRA Rule 5130(c)(6) to
clarify that a foreign company cannot be formed or maintained for
the purpose of circumventing the prohibition. See Partial Amendment
No. 1, supra note 6, at 6.
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The Commission agrees with FINRA that conditioning the proposed
exemption on the requirement that a BDC not be formed or maintained for
the purpose of circumventing the prohibition in FINRA Rule 5130 or
5131(b) will help to further mitigate the unlikely risk that an
otherwise restricted or covered person may invest in a non-traded or
private BDC for the purpose of investing in new issues.\27\ Further,
for the reasons discussed above, in this Part III, the Amended Proposal
is designed to prevent fraudulent and manipulative acts and practices,
as well as to promote just and equitable principles of trade, and does
not impose any burdens on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act.
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\27\ See FINRA Response, supra note 8, at 2.
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IV. Solicitation of Comments on Partial Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning whether Partial Amendment No. 1 is consistent with
the Exchange Act. Comments may be submitted by any of the following
methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-FINRA-2025-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-FINRA-2025-001. This
file number should be included on the subject line if used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendment, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of FINRA. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to the file number SR-FINRA-2025-001 and should be submitted on
or before July 22, 2025.
V. Accelerated Approval of the Amended Proposal
The Commission finds good cause to approve Amended Proposal prior
to the thirtieth day after the date of publication of notice of the
filing of Partial Amendment No. 1 in the Federal Register.\28\ In
Partial Amendment No. 1, FINRA modified the proposed rule change--in
direct response to comment received--to promote capital formation while
maintaining the protections that FINRA Rules 5130 and 5131(b) are
designed to provide. FINRA did not propose to change the substantive
intent of the proposed rule change. To reduce ambiguity regarding the
scope of the proposed rule change, FINRA instead proposed to remove the
text ``the shares of which are registered under the Securities Act''
and replace it with ``provided that the business development company
was not formed or maintained for the specific purpose of permitting
restricted persons to invest in new issues.'' The basis for this
partial amendment is the same as the basis for the original proposed
rule change, which the Commission previously noticed for public
comment.
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\28\ 15 U.S.C. 78s(b)(2).
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After consideration of the two comments received on the proposed
rule change, the Commission concludes
[[Page 28837]]
that Partial Amendment No. 1 responds to comments received, adds
clarity to the proposed rule change, and does not raise any novel
regulatory concerns. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\29\ to approve the proposed
rule change, SR-FINRA-2025-001, as modified by Partial Amendment No. 1,
on an accelerated basis.
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\29\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
For the reasons set forth above, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1, is
consistent with Section 15A(b)(6) of the Exchange Act,\30\ which
requires, among other things, that FINRA rules be designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, and, in general, protect investors and
the public interest.
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\30\ 15 U.S.C. 78o-3(b)(6).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act \31\ that the proposed rule change (SR-FINRA-2025-001), as
amended by Partial Amendment No. 1, be, and hereby is, approved on an
accelerated basis.
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\31\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-12218 Filed 6-30-25; 8:45 am]
BILLING CODE 8011-01-P