|Comments on FINRA Reg. Notice 11-44 due to NIBA by October 10|
|FINRA is proposing changes in the way firms report information pertaining to unlisted Direct Participation Programs (DPPs) and unlisted Real Estate Investment Trusts (REITs) on customer account statements. NASD Rule 2340, Customer Account Statements, would be amended for how firms report the per share estimated values of DPPs and REITs. Notice Link FINRA Seeks Comments on these Changes. FINRA asks that comments be submitted by November 12 on the following amendments:
- Limit the time period that the offering price may be used as the basis for a per share estimated value to the period provided under Rule 415(a)(5) of the Securities Act of 1933 - i.e., Initial Offering Period.
- Require firms to deduct organization and offering expenses from per share estimated values during the Initial Offering Period.
- Prohibit a firm from using a per share estimated value, from any source, if it "knows or has reason to know the value is unreliable," based upon publicly available information or nonpublic information that has come to the firm's attention.
- Allow a firm to omit a per share estimated value on a customer account statement if the most recent annual report of the DPP or REIT does not contain a value that complies with the disclosure requirements of Rule 2340.2
How rule would change: FINRA representatives have advised that the proposal would require that the account statement valuation for the security during the offering must be a net par value; that is the offering price minus any front-end fees. This net par value may only be used on account statements during the "initial" offering period covered by the first registration statement. The proposal would also clarify that a broker-dealer that knows that the issuer's estimated value is unreliable is permitted to refrain from including the issuer's value on the firm's customer account statements. Broker-dealers would not be required to monitor each valuation for validity.
NASD Rule 2340(c) today allows broker-dealers to use the offering price or par value on customer account statements for the duration of the securities offering (which generally are at least four years and sometimes longer using two or more consecutive registration statements) until 18 months after completion of the offering. Thereafter, the issuer must provide an estimated value for broker-dealers to use on the account statements.
FINRA Rule 2310 (Direct Participation Programs)-today prohibits a firm from participating in a public offering of a DPP or REIT unless the general partner or sponsor represents that it will include a per share estimated value in each annual report. The current industry practice is to use the value in the issuer's annual report as the per share estimated value on a customer account statement.
If you wish to submit your own comments you may send them to: Joseph Price, SVP, CorpFin/Advertising Regulation, 240-386-4623; Gary Goldsholle, VP and Assoc. GC - Office of the General Counsel, 202-728-8104; or Paul Mathews, Director - CorpFin Dept., 240-386-4639.
NIBA's planed efforts: While NIBA members are free to submit their own comments, we recommend a unified response. Please submit your questions and comments to: NIBA by email to firstname.lastname@example.org
by Tuesday, Oct 10. NIBA's Legislative Committee will organize all comments for review and prepare a unified single response.
Michael Fugler, NIBA Advisory Committee Chairman
Emily Foshee, NIBA Executive Director