Additional Filing and Notification Requirements

This final section covers the remaining Financial Industry Regulatory Authority (FINRA) rules and federal laws that apply to offering participants: from disclosure obligations to networking arrangements and the Trust Indenture Act.

FINRA Rule 5160 (Disclosure of Price and Concessions)

• Members participating in a selling agreement must disclose to other participating broker-dealers:
  • The public offering price
  • The concession
  • The reallowance (if any)
• This ensures all participants in the distribution have access to the same compensation information

FINRA Rule 5190 (Notification Requirements for Offering Participants)

Syndicate managers must notify FINRA of:

• Syndicate covering transactions
• Penalty bids
• Stabilizing activities
• The date and time of initiation and termination of stabilizing bids
• Overallotment and syndicate short covering transactions

These notifications ensure FINRA can monitor for potential manipulation during distributions.

FINRA Rule 3160 (Networking Arrangements with Financial Institutions)

• Governs arrangements where a member conducts broker-dealer services on the premises of a financial institution (e.g., a bank)
• Must ensure customers understand that:
  • Securities are NOT insured by the Federal Deposit Insurance Corporation (FDIC)
  • Securities are NOT bank deposits
  • Securities are NOT guaranteed by the bank
  • Securities involve investment risk, including possible loss of principal

Exam Tip: Gotchas

When a broker-dealer operates inside a bank, customers may assume their investments carry the same protections as bank deposits. Rule 3160 requires clear disclosure that securities are NOT FDIC-insured and NOT bank deposits. The exam tests this customer-confusion scenario.

FINRA Rule 3170 (Tape Recording by Certain Firms)

• Known as the "taping rule"
• Requires certain firms to tape-record all telephone conversations relating to the firm's business
• Applies to firms that employ a high percentage of registered persons from disciplined firms
• Designed to provide a compliance tool for firms with a higher risk profile

Trust Indenture Act of 1939

• Applies to corporate debt securities offered to the public in excess of $50 million (with some exceptions)
• Requires a formal trust indenture (agreement between issuer and trustee) to protect bondholders
• The trustee (usually a bank) acts as a fiduciary for bondholders
• The trust indenture spells out the rights of bondholders and the obligations of the issuer

Exam Tip: Gotchas

The Trust Indenture Act applies to corporate debt over $50 million, not equity. The trustee is a fiduciary for bondholders - separate from the issuer. Know that this act works alongside the Securities Act of 1933 but has its own $50 million threshold.