Definition of Offering of Securities by FINRA Members

When a FINRA member firm wishes to raise money by offering securities for sale to investors special rules apply to the offering. When a FINRA member firm goes public it may not underwrite its own securities. The member wishing to go public must engage the services of a qualified lead underwriter. A qualified lead underwriter is a FINRA member who has been the book running lead underwriter in at least 3 offerings in the last 3 years. The member’s participation in those offerings must have been for at least 50 percent of the shares being sold. The proceeds of member offerings must be placed in escrow and may not be released for use by the member until the member has completed a net capital computation and submitted it to FINRA. The computation must show that the member’s AI:NC does not exceed 10:1 or that its net capital is greater than 120 percent of its required net capital.

Applying "Offering of Securities by FINRA Members" to Securities Exams:

When calculating the net capital the member may use the funds being held in escrow as part of the calculation. If the net capital computation shows AI:NC of greater than 10:1 or if its net capital is less than 120 percent of its required net capital the offering will be canceled and the funds returned to investors. If the member calculates net capital using the alternative method the offering will be canceled if the member’s net capital is less than 7 percent of aggregate debit items. When a FINRA member is offering securities for sale, the member who is issuing the securities must file the underwriting agreement with FINRA’s Corporate Finance Department. If the member is raising money for itself through a member private offering (MPO), the member must file the private placement memorandum or term sheet with FINRA’s CFD 10 calendar days prior to it being given to potential investors. If no offering documents are to be used FINRA must be notified of that fact. Pass the series 24 exam with ease with these great series 24 training materials.

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