The Financial Industry Regulatory Authority’s review of various securities offering documents revealed instances in which broker-dealers have not complied with Securities Exchange Act Rules 10b-9 and 15c2-4 requirements (Requirements). FINRA released Regulatory Notice 16-08 to remind broker-dealers of their responsibility to have procedures reasonably designed to achieve compliance with the Requirements and to provide guidance regarding the Requirements.

The Requirements mandate that broker-dealers that participate in best efforts public and private securities offerings that have a contingency must: (1) safeguard investor funds until the contingency is satisfied, including by depositing the funds into “a separate bank account” for which the broker-dealer is the account holder and is designated as agent or trustee “for the persons who have the beneficial interests therein;” (2) as part of its reasonable investigation, review the terms of the contingency, including any agreement and disclosure by the issuer regarding the contingency; and (3) if the contingency is not met, ensure that investors’ funds are promptly refunded.

To view the full notice, click here.