SEC OKs FINRA Amendments Expanding Private Placement Exemptions, Easing REIT and DPP Capital Rules
The U.S. Securities and Exchange Commission approved amendments to two Financial Industry Regulatory Authority rules governing private placements and underwriting compensation, exempting more accredited-investor offerings from filing requirements and clearing underwriter affiliates to invest in nontraded REIT and direct participation program offerings without a case-by-case exemption. FINRA has said the changes will reduce compliance costs and administrative burdens tied to capital raising.
The SEC’s order approves changes to FINRA Rule 5123 (Private Placements of Securities) and Rule 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements). FINRA first filed the proposed rule change on Jan. 22, 2026.
The Rule 5123 amendment expands the filing exemption for offerings sold to accredited investors to include two additional categories: family offices with more than $5 million in assets under management, and entities – not formed for the purpose of acquiring the securities offered – owning more than $5 million in investments. According to the order, the change aligns FINRA’s rule with the SEC’s 2020 expansion of the accredited investor definition. Rule 5123 requires broker-dealers to file private placement memoranda, term sheets, and other offering documents with FINRA within 15 calendar days of first sale, unless an exemption applies.
“The amendment to Rule 5123 not only aligns FINRA’s rule with the SEC’s 2020 expansion of the accredited investor definition but by expanding the exemptions to additional institutional accredited investors, FINRA continues to emphasize protecting retail investors by utilizing Rule 5123 filings to identify trends and rule violations,” explained securities attorney Brett Evans of Evans Law, PC.
The Rule 5110 amendments add an exclusion from underwriting compensation for capital investments made by underwriter affiliates in direct participation programs and nontraded real estate investment trusts, before or during a public offering. To qualify, the investment must be disclosed in the prospectus, priced on a net asset value basis, made in connection with an offering subject to FINRA’s direct participation program rule, and restricted for 180 days following the start of sales. Those transactions previously required participating members to request an exemption from FINRA on a case-by-case basis.
The amendments also add exclusions for debt-for-equity exchange transactions and non-convertible preferred securities acquired at a fair price, and update the rule’s valuation method for underwriting compensation to rely on closing market prices rather than the current “bona fide public market” standard. Additionally, they expand allowable termination-fee arrangements to cover “tail fees” negotiated in engagement letters.
The SEC received comment letters after the proposal’s initial publication but none after it issued an order instituting proceedings in April to determine whether to approve or disapprove the rule change. The effective date will be announced in a forthcoming FINRA regulatory notice.
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