Quick Answer
A private placement cannot be processed until the issuer accepts the subscription agreement, and it settles on the offering documents' terms rather than a clearing corporation's cycle. The written confirmation must reach the customer at or before completion. A separate rule bars any firm from blocking a customer's account transfer.
Five steps: paperwork, retention, money, confirmation, and the customer's right to leave.
Which One-Liners Win Points?
- Nothing is ready to process until the issuer accepts the subscription agreement, usually by countersignature. An investor signing and sending funds is not enough.
- The firm's own records: the blotter entry, the principal's approval, and the payment or wire instructions.
- On a subscription-way transaction, made directly with the issuer, the records-creation rule excuses the order memorandum if the firm keeps a substitute: the subscription agreement copy on a purchase, an issuer-required document on a sale or redemption. The blotter stays required, and that copy rides in the order memorandum's retention category.
- The closing is where subscription acceptance and the transfer of funds meet, under the offering documents' terms.
- The payment-handling rule covers every distribution but a firm-commitment underwriting, and contingency picks the branch. Not contingent: transmit the money promptly to the persons entitled to it, normally the issuer. Contingent: hold it in a separate bank account with the broker-dealer as agent or trustee, or in a written bank escrow, then transmit or return it once the contingency occurs.
- Every confirmation shows transaction identity, capacity, contra-party identity when acting as agent, non-membership in the Securities Investor Protection Corporation (SIPC), and market-maker status or remuneration.
- No member or associated person may interfere with a customer's account transfer after a change in the representative's employment. Seeking a judicial order is one named example, not the whole list. The only exception is a genuine lien for monies owed, or another bona fide claim.
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Subscription agreement retention | at least 3 years, first 2 easily accessible |
| Answering a request the confirmation invites | 5 business days |
| Same request, trade effected more than 30 days earlier | 15 business days |
Which Gotchas Trip Students Up?
Exam Tip: Gotchas
- The written-agreements retention category is the wrong route, and the reason is the party: it reaches agreements the firm itself enters into, and here the parties are the investor and the issuer.
- Neither the payment-for-order-flow item nor the settlement-date add-on reaches a private placement. Both need a National Market System (NMS) stock or a quoted or trade-reported equity, and the add-on never reaches a direct participation program.
- A fixed-price sale on the day the firm acquired the security escapes the mark-up disclosure. Sell it later, or at a different price, and the duty returns.
One-Breath Recap
A private placement is not ready to process until the issuer accepts the subscription agreement; the firm then keeps a blotter entry, principal approval, and payment instructions, and a subscription-way transaction excuses the order memorandum only where a substitute is kept, riding in that memorandum's three-year category. Settlement runs on the offering documents, and the payment-handling rule transmits the money to the issuer or holds it until the contingency occurs. The confirmation goes out at or before completion, and no firm may block a customer's account transfer absent a genuine lien or bona fide claim.
Need more than the recap? Read the full Processing and Confirming Transactions unit.