Welcome to Filing Obligations and Prohibited Compensation: the paperwork that follows a private placement your firm sells, and the compensation trap that catches representatives who pay outsiders to bring in business.
Exam Weight: 1 scored item within Function 1 (25 items / 50% of exam)
What You'll Learn
In this unit, you'll cover:
- The Filing Requirement: When a member must notify FINRA about a private placement, what gets filed, and the 15-calendar-day deadline
- Filing Exemptions: The closed list of private placements exempt from that filing requirement, plus the case-by-case exemption a member can ask FINRA for directly
- Prohibited Compensation: Why paying an unregistered introducer or finder for bringing in business is illegal, and the narrow exception for a nonregistered foreign finder
- Related Filings: How the private placement notice filing requirement differs from the issuer's own SEC notice and from the member private offering rule, which applies only when the member itself, or one of its control entities, is the issuer
Why This Matters
A member firm places private securities constantly in Function 1 of this exam, and a placement that fits none of the exemption categories starts a paperwork clock the moment the first sale closes.
- The filing and exemption rules test whether you know when that clock starts, what stops it from applying, and what FINRA does with the information once it's filed.
- The compensation rules test a different risk entirely: paying someone outside the firm for driving business its way, when that person was never licensed to earn it.
Missing the filing clock or paying the wrong person for the wrong reason both create real regulatory exposure, and both show up on this exam as scenario questions rather than definitions.
Let's start with the filing requirement itself: who must file, what they file, and by when.