[Federal Register Volume 84, Number 149 (Friday, August 2, 2019)]
[Notices]
[Pages 37921-37931]
[FR Doc No: 2019-16483]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86509; File No. SR-FINRA-2019-012]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove Proposed Rule Change To Amend FINRA Rule 5110
(Corporate Financing Rule--Underwriting Terms and Arrangements) To Make
Substantive, Organizational and Terminology Changes

July 29, 2019.

I. Introduction

    On April 11, 2019, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend FINRA Rule 5110
(Corporate Financing Rule--Underwriting Terms and Arrangements)
(``Rule'' or Rule 5110) to make substantive, organizational and
terminology changes to the Rule.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The proposed rule change was published for comment in the Federal
Register on May 1, 2019.\3\ On June 12, 2019, the Commission extended
to July 30, 2019, the time period in which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule
change.\4\ The Commission received six comment letters on the
proposal.\5\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 85715 (April 25,
2019), 84 FR 18592 (May 1, 2019) (``Notice'').
    \4\ See Securities Exchange Act Release No. 34-86091 (June 12,
2019), 84 FR 28371 (June 18, 2019).
    \5\ See Letter from Suzanne Rothwell, Managing Member, Rothwell
Consulting LLC, to Secretary, Commission, dated May 14, 2019
(``Rothwell''); letter from Stuart J. Kaswell, Esq., to Vanessa
Countryman, Acting Director, Commission, dated May 17, 2019
(``Kaswell''); letter from Eversheds Sutherland (US) LLP, on behalf
of the Committee of Annuity Insurers, to Brent J. Fields, Secretary,
Commission, dated May 21, 2019 (``CAI''); letter from Aseel Rabie,
Managing Director and Associate General Counsel, Securities Industry
and Financial Markets Association, to Vanessa Countryman, Acting
Secretary, Commission, dated May 30, 2019 (``SIFMA''); letter from
Robert E. Buckholz, Chair, Federal Regulation of Securities
Committee, ABA Business Law Section, American Bar Association, to
Vanessa Countryman, Acting Secretary, Commission, dated May 30, 2019
(``ABA''); letter from Davis Polk & Wardwell LLP, to Vanessa
Countryman, Acting Secretary, Commission, dated June 5, 2019
(``Davis Polk'').
---------------------------------------------------------------------------

    On July 11, 2019, FINRA responded to the comments and filed Partial
Amendment No. 1 to the proposal.\6\ The Commission is publishing this
notice and order to solicit comments on the proposal as modified by
Partial Amendment No. 1 from interested persons and to institute
proceedings pursuant to Exchange Act Section 19(b)(2)(B) \7\ to
determine whether to approve or disapprove the proposed rule change, as
modified by Partial Amendment No. 1.
---------------------------------------------------------------------------

    \6\ See Letter from Jeanette Wingler, Associate General Counsel,
FINRA, to Vanessa Countryman, Secretary, Commission, dated July 11,
2019 (``FINRA Response''). Partial Amendment No. 1 and FINRA's
response to comments received are available at https://www.finra.org/industry/rule-filings/sr-finra-2019-012. See also
Section II.B infra.
    \7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Institution of proceedings does not indicate that the Commission
has reached any conclusions with respect to the proposed rule change,
nor does it mean that the Commission will ultimately disapprove the
proposed rule change. Rather, as discussed below, the Commission seeks
additional input on the proposed rule change, as modified by Partial
Amendment No. 1, and on the issues presented by the proposal.

II. Description of the Proposed Rule Change

A. Proposed Rule Change as Originally Filed

    The following is a summary of the proposed rule change as
originally filed by FINRA.\8\
---------------------------------------------------------------------------

    \8\ See Notice, supra note 3, for a complete description of the
proposal as originally filed.
---------------------------------------------------------------------------

    As described in more detail in the Notice, FINRA proposes to modify
Rule 5110 in an effort to modernize, simplify, and streamline the Rule.
Specifically, FINRA proposes changes to the following: (1) Filing
requirements; (2) filing requirements for shelf offerings; (3)
exemptions from filing and substantive requirements; (4) underwriting
compensation; (5) venture capital exceptions; (6) treatment of non-
convertible or non-exchangeable debt securities and derivatives; (7)
lock-up restrictions; (8) prohibited terms and arrangements; and (9)
defined terms.\9\

FINRA believes that these changes should lessen the regulatory costs
and burdens incurred when complying with the Rule.
---------------------------------------------------------------------------

    \9\ As discussed below, the proposal retains the current
approach to itemized disclosure of underwriting compensation, but
makes explicit the existing practice of disclosing specified
material terms and arrangements related to underwriting
compensation, such as exercise terms, in the prospectus. In
addition, the proposed rule change does not include any changes to
current Rule 5110(h) (Non-Cash Compensation). According to FINRA,
these provisions are the subject of a separate consolidated approach
to non-cash compensation. See Regulatory Notice 16-29 (August 2016).
---------------------------------------------------------------------------

Filing Requirements
    FINRA proposes to allow members more time to make the required
filings with FINRA from one business day after filing with the SEC or a
state securities commission or similar state regulatory authority to
three business days.\10\
---------------------------------------------------------------------------

    \10\ See proposed Rule 5110(a)(3)(A).
---------------------------------------------------------------------------

    FINRA also proposes to clarify and reduce filing requirements by
directing members to provide SEC document identification number if
available.\11\ FINRA also proposes to require filing: (1) Industry-
standard master forms of agreement only if specifically requested to do
so by FINRA; \12\ (2) amendments to previously filed documents only if
there have been changes relating to the disclosures that impact the
underwriting terms and arrangements for the public offering in those
documents; \13\ (3) a representation as to whether any associated
person or affiliate of a participating member is a beneficial owner of
5% or more of ``equity and equity-linked securities''; \14\ and (4) an
estimate of the maximum value for each item of underwriting
compensation.\15\
---------------------------------------------------------------------------

    \11\ See proposed Rule 5110(a)(4)(A).
    \12\ See proposed Rule 5110(a)(4)(A)(ii).
    \13\ See proposed Rule 5110(a)(4)(A)(iii).
    \14\ See proposed Rule 5110(a)(4)(B)(iii) and proposed Rule
5110(j)(7).
    \15\ See proposed Rule 5110(a)(4)(B)(ii).
---------------------------------------------------------------------------

    FINRA also proposes to make a number of other clarifications
regarding filing requirements to FINRA and filing requirements of
specific members participating in the public offering.\16\
---------------------------------------------------------------------------

    \16\ See proposed Rule 5110(a)(3)(B), 5110(a)(2), 5110(a)(1)(C),
and 5110(a)(1)(B). See also Notice, supra note 3, 84 FR at 18593.
---------------------------------------------------------------------------

    FINRA proposes to adopt a new provision addressing terminated
offerings, which provides that, when an offering is not completed
according to the terms of an agreement entered into by the issuer and a
member, but the member has received underwriting compensation, the
member must give written notification to FINRA of all underwriting
compensation received or to be received, including a copy of any
agreement governing the arrangement.\17\
---------------------------------------------------------------------------

    \17\ See proposed Rule 5110(a)(4)(C) and proposed Rule
5110(g)(5).
---------------------------------------------------------------------------

Filing Requirements for Shelf Offerings
    FINRA proposes to codify exemptions from the filing requirements
for certain shelf offerings that have historically been exempt from
Rule 5110 and to streamline the filing requirements for the remaining
shelf offerings.\18\
---------------------------------------------------------------------------

    \18\ See Notice, supra note 3, 84 FR at 189593-594.
---------------------------------------------------------------------------

Public Offerings Exempt From the Filing Requirement
    FINRA proposes to expand and clarify the scope of the exemptions
under current Rule 5110. For example, FINRA proposes to exempt from
Rule 5110's filing requirement a public offering by an ``experienced
issuer.'' \19\ Although the proposed rule change would continue to
apply Rule 5110's filing requirement to shelf offerings by issuers that
do not meet the ``experienced issuer'' standard, such issuer would only
need to file the following: (1) The Securities Act of 1933
(``Securities Act'') registration statement number; and (2) if
specifically requested by FINRA, other documents and information set
forth in Rule 5110(a)(4)(A) and (B).\20\ FINRA also proposes to clarify
that securities of banks that have qualifying outstanding debt
securities are exempt from the filing requirement.\21\
---------------------------------------------------------------------------

    \19\ The proposed rule change would delete references to the
pre-1992 standards for Form S-3 and standards approved in 1991 for
Form F-10 and instead codify the requirement that the issuer have a
36-month reporting history and at least $150 million aggregate
market value of voting stock held by non-affiliates or alternatively
the aggregate market value of voting stock held by non-affiliates is
at least $100 million and the issuer has an annual trading volume of
three million shares or more in the stock. See proposed Rule
5110(j)(6) and Notice, supra note 3.
    \20\ See proposed Rule 5110(a)(4)(E).
    \21\ See proposed Rule 5110(h)(1)(A).
---------------------------------------------------------------------------

    FINRA proposes to expand the current list of offerings that are
exempt from both the filing requirements and substantive provisions of
Rule 5110 to include public offerings of closed-end ``tender offer''
funds (i.e., closed-end funds that repurchase shares from shareholders
pursuant to tender offers), insurance contracts and unit investment
trusts.\22\ In addition, the proposed rule change reclassifies three
items from the offerings exempt from filing and rule compliance to
offerings excluded from the definition of public offering. The three
items are: (1) Offerings exempt from registration with the SEC pursuant
to Section 4(a)(1), (2) and (6) of the Securities Act; (2) offerings
exempt from registration under specified Regulation D provisions; and
(3) offerings of exempted securities as defined in Section 3(a)(12) of
the Exchange Act.
---------------------------------------------------------------------------

    \22\ See proposed Rule 5110(h)(2)(E), (K) and (L).
---------------------------------------------------------------------------

Disclosure Requirements
    FINRA states that the proposed rule change would retain the current
requirements for itemized disclosure of underwriting compensation and
disclosing dollar amounts ascribed to each such item.\23\ FINRA also
proposes to incorporate into proposed Supplementary Material .05 to
Rule 5110 the requirements for disclosure of specified material terms
and arrangements that it believes are consistent with current
practice.\24\ Further, the proposal makes explicit the existing
practice of disclosing specified material terms and arrangements
related to underwriting compensation in the prospectus, and requires a
description for: (1) Any right of first refusal (``ROFR'') granted to a
participating member and its duration; and (2) the material terms and
arrangements of the securities acquired by the participating member
(e.g., exercise terms, demand rights, piggyback registration rights and
lock-up periods).\25\
---------------------------------------------------------------------------

    \23\ See proposed Rule 5110(b)(1) and Supplementary Material .05
to Rule 5110. See also proposed Rule 5110(e)(1)(B) requiring
disclosure of lock-ups.
    \24\ See proposed Supplementary Material .05 to Rule 5110.
    \25\ See proposed Supplementary Material .05 to Rule 5110.
---------------------------------------------------------------------------

Underwriting Compensation
    FINRA proposes to define the term ``Underwriting Compensation'' in
proposed Rule 5110 to mean ``any payment, right, interest, or benefit
received or to be received by a participating member from any source
for underwriting, allocation, distribution, advisory and other
investment banking services in connection with a public offering. In
addition, underwriting compensation shall include finder's fees,
underwriter's counsel fees and securities.'' \26\
---------------------------------------------------------------------------

    \26\ See proposed Rule 5110(j)(22).
---------------------------------------------------------------------------

    Rule 5110 currently provides that all items of value received or to
be received from any source are presumed to be underwriting
compensation when received during the period commencing 180 days before
the required filing date of the registration statement, and up to 90
days following the effectiveness or commencement of sales of a public
offering. FINRA states that, to better reflect the different types of
offerings subject to the Rule, the proposed rule change would introduce
the defined term ``review period'', and that the applicable time period
would vary based on the type of offering. The proposed rule change
would define the term ``review period'' to mean: (1) For a firm
commitment offering, the 180-day period preceding the required filing
date through the 60-day period following the effective date of the
offering; (2) for a best efforts offering, the 180-day period preceding
the required filing date through the 60-day period following the

final closing of the offering; and (3) for a firm commitment or best
efforts takedown or any other continuous offering made pursuant to Rule
415 of the Securities Act, the 180-day period preceding the required
filing date of the takedown or continuous offering through the 60-day
period following the final closing of the takedown or continuous
offering.\27\
---------------------------------------------------------------------------

    \27\ See proposed Rule 5110(j)(20). FINRA states that, in
accordance with this proposal, payments and benefits received during
the applicable review period would be considered in evaluating
underwriting compensation.
---------------------------------------------------------------------------

    The proposed rule change would continue to provide two non-
exhaustive lists of examples of payments or benefits that would and
would not be considered underwriting compensation, with streamlining
and clarifying modifications.\28\
---------------------------------------------------------------------------

    \28\ See proposed Supplementary Material .01 to Rule 5110. See
also Notice, supra note 3, for a full description of the proposal.
---------------------------------------------------------------------------

    In addition, the proposed rule change would take a principles-based
approach in considering whether issuer securities acquired from third
parties or in directed sales programs may be excluded from underwriting
compensation. Such approach would start with the presumption that the
issuer securities received during the review period would be
underwriting compensation. FINRA, however, would consider the following
factors, as well as any other relevant factors and circumstances when
considering whether securities of the issuer acquired from third
parties may be excluded from underwriting compensation. Specifically,
these include: (1) The nature of the relationship between the issuer
and the third party, if any; (2) the nature of the transactions in
which the securities were acquired, including, but not limited to,
whether the transactions are engaged in as part of the participating
member's ordinary course of business; and (3) any disparity between the
price paid and the offering price or market price.
    With respect to issuer securities acquired in directed sales
programs (commonly called friends and family programs), the proposed
definition of ``participating member'' includes any FINRA member that
is participating in a public offering, any affiliate or associated
person of the member, and any immediate family of an associated person
of the member, but does not include the issuer.\29\ Under proposed
Supplementary Material .04 to Rule 5110, FINRA would consider the
following factors, as well as any other relevant factors and
circumstances when considering whether an acquisition of securities by
a participating member pursuant to an issuer's directed sales program
may be excluded from underwriting compensation: (1) The existence of a
pre-existing relationship between the issuer and the person acquiring
the securities; (2) the nature of the relationship; and (3) whether the
securities were acquired on the same terms and at the same price as
other similarly-situated persons participating in the directed sales
program.
---------------------------------------------------------------------------

    \29\ See proposed Rule 5110(j)(15).
---------------------------------------------------------------------------

Venture Capital Exceptions
    FINRA states that the proposed rule change would modify, clarify
and expand the venture capital exceptions.\30\ Specifically, the
proposed rule change would no longer treat as underwriting compensation
securities acquisitions covered by two of the current exceptions: (1)
Securities acquisitions and conversions to prevent dilution; and (2)
securities purchases based on a prior investment history. This
treatment is conditioned on prior investments in the issuer occurring
before the review period.\31\ When subsequent securities acquisitions
take place (e.g., as a result of a stock split, a right of preemption,
a securities conversion or when additional securities are acquired to
prevent dilution of a long-standing interest in the issuer), the
acquisition of the additional securities would not be treated as
underwriting compensation under the proposed Rule.\32\
---------------------------------------------------------------------------

    \30\ Rule 5110(d)(5) currently provides exceptions designed to
distinguish securities acquired in bona fide venture capital
transactions from those acquired as underwriting compensation (for
brevity, referred to herein as the ``venture capital exceptions'').
The proposed rule change would modify, clarify and expand the
exceptions to further facilitate members' participation in bona fide
venture capital transactions. FINRA states that the venture capital
exceptions would include several restrictions to ensure the
protection of other market participants and that the exceptions are
not misused to circumvent the requirements of Rule 5110. See Notice,
supra note 3.
    \31\ See proposed Supplementary Material .01(b)(14), (16-18).
    \32\ The proposed rule change would add these acquisitions to
the list of examples of payments that are not underwriting
compensation because they are based on a prior investment history
and are subject to the terms of the original securities that were
acquired before the review period. See proposed Supplementary
Material .01(b)(14), (16-18).
---------------------------------------------------------------------------

    FINRA also proposes to broaden two of the current venture capital
exceptions regarding purchases and loans by certain affiliates, and
investments in and loans to certain issuers, by removing a limitation
on acquiring more than 25% of the issuer's total equity securities.\33\
These venture capital exceptions specify that the affiliate must be
primarily in the business of making investments or loans. FINRA states
that the proposed rule change expands the scope of these exceptions to
include that the affiliate, directly or through a subsidiary it
controls, must be in such business and further permits that the entity
may be newly formed by such affiliate.
---------------------------------------------------------------------------

    \33\ See proposed Rule 5110(d)(1) and (2).
---------------------------------------------------------------------------

    With respect to the current venture capital exception relating to
private placements with institutional investors, the proposal would
require that the institutional investors participating in the offering
are not affiliates of a FINRA member and must purchase at least 51% of
the total number of securities sold in the private placement at the
same time and on the same terms.\34\ In addition, the proposed rule
change would raise the percent that participating members in the
aggregate may acquire from 20% to 40% of the securities sold in the
private placement.\35\ The proposed rule change would expand the scope
of proposed FINRA Rule 5110(d)(3) to include providing services for a
private placement (rather than just acting as a placement agent).\36\
---------------------------------------------------------------------------

    \34\ See Notice, supra note 3, 84 FR at 18597.
    \35\ See proposed Rule 5110(d)(3)(C).
    \36\ See proposed Rule 5110(d)(3).
---------------------------------------------------------------------------

    FINRA proposes to adopt a new venture capital exception where a
highly regulated entity with significant disclosure requirements and
independent directors who monitor investments is also making a
significant co-investment in an issuer and is receiving securities at
the same price and on the same terms as the participating member. The
exception applies for securities acquired in a private placement before
the required filing date of the public offering by a participating
member if at least 15% of the total number of securities sold in the
private placement were acquired, at the same time and on the same
terms, by one or more entities that is an open-end investment company
not traded on an exchange, and no such entity is an affiliate of a
FINRA member participating in the offering.
    The proposed rule change would also provide some additional
flexibility in the availability of the venture capital exceptions for
securities acquired where the public offering has been significantly
delayed. The proposed rule change would take a principles-based
approach in considering whether it is appropriate to treat as
underwriting compensation securities acquired by a member after the
required filing date in a transaction that, except for the timing,

would otherwise meet the requirements of a venture capital
exception.\37\
---------------------------------------------------------------------------

    \37\ See Notice, supra note 3, 84 FR at 18597.
---------------------------------------------------------------------------

Treatment of Non-Convertible or Non-Exchangeable Debt Securities and
Derivatives
    The proposed rule change would expressly provide that non-
convertible or non-exchangeable debt securities and derivative
instruments \38\ acquired in a transaction unrelated to a public
offering would not be underwriting compensation.\39\ In contrast, for
any non-convertible or non-exchangeable debt securities and derivative
instruments acquired in a transaction related to the public offering,
the proposed rule change would clarify that: (1) A description of those
securities and derivative instruments must be filed with FINRA; and (2)
this description must be accompanied by a representation that a
registered principal or senior manager of the participating member has
determined if the transaction was or will be entered into at a fair
price.\40\
---------------------------------------------------------------------------

    \38\ Consistent with the current Rule, the proposed rule change
would define the term ``derivative instrument'' to mean any eligible
OTC derivative instrument as defined in Rule 3b-13(a)(1), (2) and
(3) of the Exchange Act. See proposed Supplementary Material .06(b)
to Rule 5110.
    \39\ See proposed Supplementary Material .01(b)(19) to Rule
5110.
    \40\ See proposed Rule 5110(a)(4)(B)(iv)(a). Generally
consistent with current Rule 5110, the proposed rule change would
define the term ``fair price'' to mean the participating members
have priced a derivative instrument or non-convertible or non-
exchangeable debt security in good faith; on an arm's length,
commercially reasonable basis; and in accordance with pricing
methods and models and procedures used in the ordinary course of
their business for pricing similar transactions. The proposed rule
change would also clarify that a derivative instrument or other
security received as compensation for providing services for the
issuer, for providing or arranging a loan, credit facility, merger,
acquisition or any other service, including underwriting services
will not be deemed to be entered into or acquired at a fair price.
See proposed Supplementary Material .06(b) to Rule 5110.
---------------------------------------------------------------------------

    FINRA also proposes to clarify that non-convertible or non-
exchangeable debt securities and derivative instruments acquired in a
transaction related to the public offering at a fair price would be
considered underwriting compensation but would have no compensation
value. In contrast, the proposed rule change would provide that non-
convertible or non-exchangeable debt securities and derivative
instruments acquired in a transaction related to the public offering
but not at a fair price would be considered underwriting compensation
and subject to the normal valuation requirements of Rule 5110.\41\
---------------------------------------------------------------------------

    \41\ See, e.g., proposed Supplementary Material .06(a) to Rule
5110; proposed Rule 5110(c); Notice, supra note 3.
---------------------------------------------------------------------------

Lock-Up Restrictions
    FINRA states that, subject to some exceptions, Rule 5110 requires
in any public equity offering a 180-day lock-up restriction on
securities that are considered underwriting compensation. The proposed
rule change would provide that the lock-up period begins on the date of
commencement of sales of the public equity offering (rather than the
date of effectiveness of the prospectus).\42\
---------------------------------------------------------------------------

    \42\ See proposed Rule 5110(e)(1)(A). The proposed rule change
also would provide that the lock-up restriction must be disclosed in
the section on distribution arrangements in the prospectus or
similar document consistent with proposed Supplementary Material .05
requiring disclosure of the material terms of any securities. See
proposed Rule 5110(e)(1)(B).
---------------------------------------------------------------------------

    FINRA proposes to add an exception from the lock-up restriction for
securities acquired from an issuer that meets the registration
requirements of Registration Forms S-3, F-3 or F-10.\43\ The proposed
rule change would also add an exception from the lock-up restriction
for securities that were acquired in a transaction meeting one of Rule
5110's venture capital exceptions.\44\ The proposed rule change would
also add an exception from the lock-up restriction for securities that
were received as underwriting compensation and are registered and sold
as part of a firm commitment offering.\45\
---------------------------------------------------------------------------

    \43\ See proposed Rule 5110(e)(2)(A)(iii).
    \44\ See, e.g., proposed Rule 5110(e)(2)(A)(vi); Notice, supra
note 3.
    \45\ See, e.g., proposed Rule 5110(e)(2)(A)(viii); Notice, supra
note 3.
---------------------------------------------------------------------------

    FINRA proposes to provide clarity about the treatment of non-
convertible or non-exchangeable debt securities and derivative
instruments acquired in transactions related to a public offering and
whether those securities are subject to the lock-up requirement.\46\
---------------------------------------------------------------------------

    \46\ For a full description of this proposal, see Notice, supra
note 3. See, also, proposed Rule 5110(e)(2)(A)(iv).
---------------------------------------------------------------------------

    The proposed rule change would provide that the lock-up restriction
does not apply to derivative instruments acquired in connection with a
hedging transaction related to the public offering and at a fair
price.\47\ In addition, FINRA proposes to add an exception to the lock-
up restriction to permit the transfer or sale of the security back to
the issuer in a transaction exempt from registration with the SEC.\48\
FINRA also proposes to modify the lock-up exception in current Rule
5110(g)(2)(A)(ii) to permit the transfer of any security to the
member's registered persons or affiliates if all transferred securities
remain subject to the restriction for the remainder of the lock-up
period.\49\
---------------------------------------------------------------------------

    \47\ See proposed Rule 5110(e)(2)(A)(v). Derivative instruments
acquired in transactions related to the public offering that do not
meet the requirements of the exception would continue to be subject
to the lock-up restriction. See Notice, supra note 3.
    \48\ See proposed Rule 5110(e)(2)(B)(iii).
    \49\ See proposed Rule 5110(e)(2)(B)(i). The proposed rule
change would retain the current exception to the lock up for the
exercise or conversion of any security, if all such securities
received remain subject to the lock-up restriction for the remainder
of the 180-day lock-up period. See proposed Rule 5110(e)(2)(B)(ii).
---------------------------------------------------------------------------

    Finally, because proposed Supplementary Material .01(b)(20) would
provide that securities acquired subsequent to the issuer's IPO in a
transaction exempt from registration under Rule 144A of Securities Act
would not be underwriting compensation, FINRA states that the proposed
rule change would correspondingly delete as unnecessary the current
exception from the lock-up restriction for those securities.\50\
---------------------------------------------------------------------------

    \50\ See current Rule 5110(g)(2)(A)(viii).
---------------------------------------------------------------------------

Prohibited Terms and Arrangements
    FINRA proposes to clarify and amend the list of prohibited
unreasonable terms and arrangements in connection with a public
offering of securities.\51\ For example, the proposed rule change would
clarify that it would be considered a prohibited arrangement for any
underwriting compensation to be paid prior to the commencement of sales
of public offering, except: (1) An advance against accountable expenses
actually anticipated to be incurred, which must be reimbursed to the
issuer to the extent not actually incurred; or (2) advisory or
consulting fees for services provided in connection with the offering
that subsequently is completed according to the terms of an agreement
entered into by an issuer and a participating member.\52\
---------------------------------------------------------------------------

    \51\ See proposed Rule 5110(g).
    \52\ See proposed Rule 5110(g)(4). For a complete description of
the proposal with respect to prohibited terms and arrangements, see
Notice, supra note 3, 84 FR at 18599-600, and Exhibit 5 as
originally filed.
---------------------------------------------------------------------------

Defined Terms
    The proposal would consolidate the defined terms in one location at
the end of the Rule, which FINRA believes will simplify and clarify
FINRA Rule 5110's defined terms.\53\ For example, FINRA proposes to
consolidate the various provisions that address what constitutes

underwriting compensation into a single, new definition of
``underwriting compensation.'' \54\ The proposed rule change also would
eliminate the term ``underwriter and related persons'' and instead use
the defined term ``participating member.'' \55\
---------------------------------------------------------------------------

    \53\ For a complete description of the proposal with respect to
defined terms, see Notice, supra note 3, 84 FR at 18600, and Exhibit
5 as originally filed.
    \54\ See proposed Rule 5110(j)(22).
    \55\ FINRA states that, substantively consistent with the
current Rule, the proposed rule change would define ``participating
member'' to include any FINRA member that is participating in a
public offering, any affiliate or associated person of the member,
and any ``immediate family,'' but does not include the issuer. See
proposed Rule 5110(j)(15). While not included in the ``participating
member'' definition, the broad definition of underwriting
compensation would include underwriter's counsel fees and expenses,
financial consulting and advisory fees and finder's fees. As such,
FINRA believes that the definition of ``underwriting compensation''
would ensure that the Rule addresses fees and expenses paid to
persons previously covered by the term ``underwriter and related
persons.'' In addition, the term ``immediate family'' is clarified
for readability in proposed Rule 5110(j)(8) to mean the spouse or
child of an associated person of a member and any relative who lives
with, has a business relationship with, or provides to or receives
support from an associated person of a member. See Notice, supra
note 3, for a full description of the proposal as originally filed.
---------------------------------------------------------------------------

Valuation of Securities
    The proposal would retain the current method for valuing options,
warrants and other convertible securities received as underwriting
compensation in the current Rule.\56\
---------------------------------------------------------------------------

    \56\ See proposed Rule 5110(c).
---------------------------------------------------------------------------

B. Notice of Partial Amendment No. 1

1. Introduction
    Set forth in Section II.B.2 below is the summary of Partial
Amendment No. 1 to the proposed rule change, as prepared and submitted
by FINRA to the Commission.\57\
---------------------------------------------------------------------------

    \57\ The text of the proposed rule change, including Partial
Amendment No. 1, is available on FINRA's website at http://www.finra.org/industry/rule-filings/sr-finra-2019-012.
---------------------------------------------------------------------------

2. Self-Regulatory Organization's Statement of the Purpose of the
Proposed Rule Change, as Modified by Partial Amendment No.1
    Partial Amendment No. 1 makes the following changes to the
Proposal: (1) Modifies the requirement to file a description of any
securities of the issuer acquired and beneficially owned by any
participating member during the review period; (2) excepts ``actively-
traded'' securities from the lock-up restriction; (3) excludes from
underwriting compensation in a revised public offering accountable
expenses received pursuant to Rule 5110(g)(5)(A) in a prior offering;
(4) exempts issuer self-tender offers from the filing and substantive
requirements of the Rule; (5) clarifies the proposed investment grade
debt exemption in Rule 5110(h)(1)(A); (6) modifies some proposed
defined terms; and (7) clarifies when securities acquired would be
deemed underwriting compensation pursuant to Rule 5110.
Filing a Description of Acquired Securities
    Commenters stated that proposed Rule 5110(a)(4)(B)(iv), which
requires the filing of a ``description of any securities of the issuer
acquired and beneficially owned by any participating member during the
review period,'' should be limited to a description of any securities-
based underwriting compensation acquired during the review period by
the participating member (i.e., no description for securities that do
not constitute underwriting compensation).\58\ Commenters stated that
the provision would impose significant additional costs and
administrative burdens on members and, due to likely fluctuations in
holdings over the review period, would present compliance challenges.
---------------------------------------------------------------------------

    \58\ See ABA, Davis Polk and SIFMA.
---------------------------------------------------------------------------

    A description of issuer securities acquired and beneficially owned
by the participating member during the review period is needed to
evaluate the underwriting terms and arrangements of the public offering
and to ensure that there is no circumvention of the Rule. In response
to the commenters' concerns and to reduce costs and administrative
burdens on participating members, FINRA is proposing in this Partial
Amendment No. 1 to revise Rule 5110(a)(4)(B)(iv) to not require filing
a description of any securities acquired in accordance with
Supplementary Material .01(b), which sets forth a non-exhaustive list
of payments that generally would not be deemed to be underwriting
compensation. This approach would reduce filing burdens for members
regarding payments and benefits that would not be considered
underwriting compensation, while ensuring that FINRA receives adequate
information about other issuer securities acquired and beneficially
owned by the participating member during the review period to fully
evaluate the underwriting terms and arrangements of the public offering
and to ensure that there is no circumvention of the Rule.\59\
---------------------------------------------------------------------------

    \59\ Specifically, Rule 5110(a)(4)(B)(iv) would be revised to:
``(iv) a description of any securities of the issuer acquired and
beneficially owned by any participating member during the review
period, provided that: a. non-convertible or non-exchangeable debt
securities and derivative instruments acquired in a transaction
related to the public offering must be filed and also accompanied by
a representation that a registered principal or senior manager of
the participating member has determined if the transaction was or
will be entered into at a fair price; [and] b. non-convertible or
non-exchangeable debt securities and derivative instruments need not
be filed if acquired in a transaction that is unrelated to the
public offering[.]; and c. securities if acquired in accordance with
Supplementary Material .01(b) need not be filed.''
---------------------------------------------------------------------------

Lock-Up Restriction
    SIFMA suggested eliminating the lock-up requirement for offerings
of securities that are ``actively-traded'' (as defined in Rule
101(c)(1) of SEC Regulation M). The Proposal would add exceptions from
the lock-up restriction where other protections or market forces
obviate the need for the restriction. Due to the existing public market
for the securities, the Proposal included a proposed exception from the
lock-up restriction for securities acquired from an issuer that meets
the registration requirements of SEC Registration Forms S-3, F-3 or F-
10. The justification for this proposed exception also applies to
securities that are ``actively-traded'' as defined in Rule 101(c)(1) of
SEC Regulation M (i.e., securities that have an average daily trading
volume value of at least $1 million and are issued by an issuer whose
common equity securities have a public float value of at least $150
million; provided, however, that such securities are not issued by the
distribution participant or an affiliate of the distribution
participant). Accordingly, FINRA is proposing in this Partial Amendment
No. 1 to add Rule 5110(e)(2)(A)(ix) to provide that the lock-up
restriction would not apply ``to a security that is `actively-traded'
(as defined in Rule 101(c)(1) of SEC Regulation M).''
Revised Public Offerings
    Commenters stated that consideration of prior compensation received
in a revised public offering is not appropriate, particularly if the
compensation is received for services actually rendered or for out-of-
pocket expenses actually incurred in connection with the prior offering
that was not completed in compliance with the requirements of proposed
Rule 5110(g)(4) and (g)(5).\60\ Commenters stated that it is unclear:
(1) What a ``revised public offering'' is; (2) whether the inclusion is
limited solely to compensation received (or arrangements for
compensation entered into) during

the review period for the revised public offering; and (3) how proposed
Supplementary Material .01(a)(13) relates to proposed Rule
5110(a)(4)(C) requiring notice to FINRA of compensation received for a
prior offering that was not completed.
---------------------------------------------------------------------------

    \60\ See ABA, Davis Polk and SIFMA. SIFMA acknowledges that
proposed Supplementary Material .01(a)(13), which provides that
``underwriting compensation'' includes ``any compensation paid to
any participating member in connection with a prior proposed public
offering that was not completed, if the member firm participates in
the revised public offering,'' is consistent with a similar
provision in the current Rule. See Rule 5110(c)(3)(A)(xiii).
---------------------------------------------------------------------------

    As SIFMA acknowledges, Rule 5110 currently applies to underwriting
compensation received in a prior public offering that was not completed
when the participating member participates in the revised public
offering. When assessing whether an offering is a revised public
offering, FINRA looks at the facts and circumstances of the current
offering and any relevant prior offering that was not completed with a
focus on the material offering terms and underwriting terms and
arrangements. When assessing a revised public offering, FINRA would
consider securities and other compensation received as part of the
prior offering that was not completed and during the review period for
the revised public offering. Considering compensation received in the
prior offering that was not completed is vital to preventing a
participating member from being compensated twice for performing the
same services for the issuer. Furthermore, the compensation received in
a prior terminated offering would be considered underwriting
compensation under Rule 5110 only if the member participates in the
revised public offering.
    As the commenters noted, a participating member in a revised public
offering may have received payment for accountable expenses in the
prior offering that was not completed. FINRA believes that these
expenses may be excluded from underwriting compensation in the revised
public offering and, accordingly, FINRA is proposing in this Partial
Amendment No. 1 to revise Supplementary Material .01(a)(13) to exclude
from underwriting compensation accountable expenses received pursuant
to Rule 5110(g)(5)(A).\61\
---------------------------------------------------------------------------

    \61\ Specifically, Supplementary Material .01(a)(13) would be
revised to provide that underwriting compensation would include
``any compensation paid to any participating member in connection
with a prior proposed public offering that was not completed, if the
member firm participates in the revised public offering, except that
accountable expenses received pursuant to paragraph (g)(5)(A) shall
not be deemed underwriting compensation.''
---------------------------------------------------------------------------

Issuer Self-Tender Offers
    With respect to the exemption in Rule 5110(h)(2)(G) for third-party
tender offers, ABA suggested revising this exemption to also include
tender offers by issuers for their own securities under the Exchange
Act. ABA stated that there is little logic for excluding third-party
tender offers, but not issuer self-tenders, when a FINRA member may act
as dealer manager in connection with either type of transaction. FINRA
is proposing in this Partial Amendment No. 1 to amend Rule
5110(h)(2)(G) to apply to ``tender offers made pursuant to SEC
Regulation 14D or Rule 13a-4 under the Exchange Act.'' Both third-party
tender offers and issuer self-tender offers are subject to disclosure,
filing and procedural requirements as set forth in the Exchange Act.
Moreover, issuer self-tender offers have historically not been filed
with FINRA for review pursuant to Rule 5110.
Investment Grade Debt Exemption
    With respect to the proposed investment grade debt exemption in
Rule 5110(h)(1)(A), Rothwell opposed including public offerings where
the issuer has securities in the same series that have equal rights and
obligations as investment grade rated securities because doing so may
allow an issuer to avoid filing a public offering of any type of
securities with FINRA for review based on the issuer having only
outstanding unrated non-convertible debt or preferred securities that
the issuer deems to be in the same series as qualifying reacquired
Treasury securities that were once rated investment grade. Rothwell
suggested adding ``outstanding'' after ``has'' to ensure that an
offering of debt or equity securities can rely only on the exemption at
a time when the issuer has outstanding a qualifying issue of investment
grade rated debt or preferred securities so that Treasury securities
cannot qualify for this purpose.
    FINRA does not intend the exemption to apply where the issuer has
only outstanding unrated non-convertible debt or preferred securities
that the issuer deems to be in the same series as qualifying reacquired
Treasury securities that were once rated investment grade. FINRA is
proposing in this Partial Amendment No. 1 to revise proposed Rule
5110(h)(1)(A) to exempt ``securities offered by a bank, corporate
issuer, foreign government or foreign government agency that has
outstanding unsecured non-convertible debt with a term of issue of at
least four years or unsecured non-convertible preferred securities that
are investment grade rated, as defined in Rule 5121(f)(8), or are
outstanding securities in the same series that have equal rights and
obligations as investment grade rated securities, provided that an
initial public offering of equity is required to be filed.''
Defined Terms
    ABA suggested that the definition of ``bank'' expressly include
U.S. branches and agencies of a foreign bank, which have been
interpreted by the SEC to constitute U.S. banks for other purposes
under the federal securities laws, including in connection with Rule
15a-6 under the Exchange Act. ABA stated that the need for a ``foreign
bank'' to apply to FINRA for an exemption under the Rule is
unnecessarily burdensome, particularly in the context of reliance on
the investment grade debt exemption set forth in Proposed Rule
5110(h)(l)(A).
    FINRA is proposing in this Partial Amendment No. 1 to amend the
proposed defined term bank in Rule 5110(j)(2) to mean ``a bank as
defined in Section 3(a)(6) of the Exchange Act, a branch or agency in
the United States of a foreign bank that is supervised and examined by
a federal or state banking authority and otherwise meets the
requirements of Section 3(a)(6) of the Exchange Act, or [is] a foreign
bank that has been granted an exemption under this Rule and shall refer
only to the regulated entity, not its subsidiaries or other
affiliates.'' As the ABA noted, this approach is consistent with the
SEC's interpretation of what is a bank for other purposes under the
federal securities laws. For example, the SEC provided that for
purposes of Rule 15a-6 under the Exchange Act, a foreign bank is
excluded from the defined term ``bank'' except to the extent that the
``foreign bank establishes a branch or agency in the United States that
is supervised and examined by a federal or state banking authority and
otherwise meets the requirements of section 3(a)(6).'' \62\
---------------------------------------------------------------------------

    \62\ See Securities Exchange Act Release No. 27017 (July 11,
1989), 54 FR 30013 (July 18, 1989) (File No. S7-11-88, Registration
Requirements for Foreign Broker-Dealers, note 16) and Frequently
Asked Questions Regarding Rule 15a-6 and Foreign Broker-Dealers,
footnote 3, (March 21, 2013) available at https://www.sec.gov/divisions/marketreg/faq-15a-6-foreign-bd.htm.
---------------------------------------------------------------------------

    SIFMA supported carving out ``participating members'' from the
defined term ``issuer'' and suggested a clarifying carve out to exclude
any participating member that is the actual corporate issuer of the
securities being offered or a selling security holder offering its own
beneficially held securities to the public. FINRA is proposing in this
Partial Amendment No. 1 to amend the defined term ``issuer'' to exclude
a participating member, except where the participating member is
offering its securities. Specifically, FINRA proposes to revise

proposed Rule 5110(j)(12) to define ``issuer'' to mean ``a registrant
or other person that is offering its securities to the public, any
selling security holder offering securities to the public, any
affiliate of the registrant or such other person or selling security
holder, and the officers or general partners, and directors thereof,
but does not include a participating member unless the participating
member is itself the registrant or a selling security holder offering
its own beneficially held securities to the public.''
    The ABA suggested a technical change to the defined term ``public
offering'' in proposed Rule 5110(j)(18)(A) to update the reference to
offerings pursuant to Section 4(a)(6) of the Securities Act to Section
4(a)(5) of the Securities Act. FINRA is proposing in this Partial
Amendment No. 1 to amend the defined term's reference to these
offerings as suggested by the commenter.
Underwriting Compensation
    Commenters asserted that participating members' purchases of
securities in the public offering at the public offering should not be
underwriting compensation subject to Rule 5110.\63\ FINRA would
interpret the Proposal not to include as underwriting compensation non-
convertible securities purchased by the participating member in a
public offering at the public offering price during the review period.
FINRA is proposing in this Partial Amendment No. 1 to revise the
Supplementary Material to expressly exclude securities purchased on
these terms from being deemed underwriting compensation under the
Proposal.\64\ FINRA has seen acquisitions of convertible securities by
a participating member with negotiated or preferential terms prohibited
under proposed Rule 5110(g)(8). FINRA would consider these securities
to be underwriting compensation.
---------------------------------------------------------------------------

    \63\ See ABA, Davis Polk, Rothwell and SIFMA. Commenters noted
questions raised by the inclusion as underwriting compensation of
any equity securities acquired by a participating member during the
review period under Supplementary Material .01(a)(7) and scope of
the defined term ``review period'' in proposed Rule 5110(j)(20).
    \64\ Specifically, FINRA is proposing in this Partial Amendment
No. 1 to amend proposed Supplementary Material .01(a)(7) to provide
that underwriting compensation includes ``common or preferred stock,
options, warrants, and other equity securities, including debt
securities convertible to or exchangeable for equity securities,
beneficially owned, as defined in Rule 5121 by the participating
members the value of which is determined pursuant to this Rule, and
acquired during the review period, as defined in this Rule, except
that non-convertible securities purchased by a participating member
in a public offering at the public offering price during the review
period shall not be deemed underwriting compensation;''.
---------------------------------------------------------------------------

    As set forth in the Proposal, proposed Supplementary Material
.01(b)(12) would provide that compensation received through any stock
bonus, pension, or profit-sharing plan that qualifies under Section 401
of the Internal Revenue Code or a similar plan is not underwriting
compensation. ABA recommended revising the provision to expressly
include securities received under a written compensatory benefit plan
in an offering exempt from registration pursuant to Rule 701 under the
Securities Act and any other ``employee benefit plan'' (as such term is
defined in Securities Act Rule 405). Davis Polk requested confirmation
that grants of equity compensation to immediate family of participating
members, other than new employees of the issuer, in the ordinary course
of business pursuant to bona fide equity compensation arrangements will
not be deemed underwriting compensation.\65\
---------------------------------------------------------------------------

    \65\ Davis Polk also disagreed with the ABA that the exclusion
from underwriting compensation only apply to equity grants made
pursuant to Rule 701 under the Securities Act due to limitations on
annual grants of equity compensation under Rule 701 that force
reliance on Section 4(a)(2) of the Securities Act. However, it is
not clear that the ABA intended to propose the exclusion as
suggested by Davis Polk.
---------------------------------------------------------------------------

    To provide additional clarity, FINRA is proposing in this Partial
Amendment No. 1 to revise Supplementary Material .01(b)(12) to refer to
a written compensatory benefit plan in an offering exempt from
registration pursuant to Rule 701 under the Securities Act and any
other employee benefit plan (as defined in Securities Act Rule 405). As
revised, Supplementary Material .01(b)(12) would exclude from
underwriting compensation ``compensation received through any stock
bonus, pension, employee benefit plan, or profit-sharing plan that
qualifies under Section 401 of the Internal Revenue Code or a similar
plan, including, but not limited to, an employee benefit plan as
defined in Securities Act Rule 405 or a compensatory benefit plan or
compensatory benefit contract exempt from registration pursuant to
Securities Act Rule 701 . . .''

III. Summary of Comments and FINRA's Response 66
---------------------------------------------------------------------------

    \66\ See Notice, supra note 3, for full FINRA discussion of the
original filing.
---------------------------------------------------------------------------

    The Commission received six comment letters on the filing as
originally proposed.\67\ Subsequently, FINRA submitted Partial
Amendment No. 1 and a response to the comments.\68\ The comments and
FINRA's response are summarized below.
---------------------------------------------------------------------------

    \67\ See supra note 5 and accompanying text.
    \68\ See FINRA Response, supra note 6.
---------------------------------------------------------------------------

Overall Proposal
    Four commenters support FINRA's efforts to review, streamline and
modernize the Rule for the benefit of market participants but offer
suggested modifications to some aspects of the proposal.\69\ As
discussed below, one commenter expresses support and suggests a
modification of a proposed exemption, but otherwise does not comment on
other aspects of the proposal.\70\ In response, FINRA proposes certain
modifications to the initial proposal as described in detail below.
---------------------------------------------------------------------------

    \69\ See ABA, Davis Polk, Rothwell and SIFMA, supra note 5.
    \70\ See CAI, supra note 5.
---------------------------------------------------------------------------

    One commenter believes that excessive underwriting compensation
should be addressed through disclosure to investors and states that
FINRA Rule 5110 is inconsistent with the Exchange Act and the
Securities Act.\71\ In response, FINRA states its belief that, while
disclosure of underwriting compensation is an important component of
Rule 5110, disclosure alone is not sufficient to prohibit unfair
underwriting terms and arrangements that disadvantage issuers and
investors in public offerings of securities.
---------------------------------------------------------------------------

    \71\ See Kaswell, supra note 5.
---------------------------------------------------------------------------

Filing Requirements
    Three commenters state that several of the proposed filing
requirements are unnecessary.\72\ Namely, commenters argue that the
following filing requirements should be eliminated: (1) Disclosure of
holdings that are excluded from underwriting compensation; (2) M&A and
private placement engagement letters; (3) a representation as to
whether any officer or director of the issuer and any beneficial owner
of 5% or more of any class of the issuer's equity and equity-linked
securities is an associated person or affiliate of a participating
member; (4) notification of underwriting compensation received in
terminated or revised offerings; and (5) a description of securities
acquired in bona fide venture capital transactions.\73\
---------------------------------------------------------------------------

    \72\ See ABA, Davis Polk and SIFMA, supra note 5.
    \73\ See id.
---------------------------------------------------------------------------

    In response to commenters' concerns, FINRA proposes in Partial
Amendment No. 1 to revise FINRA Rule 5110(a)(4)(B)(iv) to not require
filing a description of any securities acquired in accordance with
Supplementary Material .01(b), which sets forth a non-

exhaustive list of payments that generally would not be deemed to be
underwriting compensation.\74\ With respect to a revised public
offering, as discussed in Partial Amendment No. 1, and in response to
commenters' concerns, FINRA proposes to revise Supplementary Material
.01(a)(13) to exclude from underwriting compensation accountable
expenses received pursuant to Rule 5110(g)(5)(A).\75\
---------------------------------------------------------------------------

    \74\ See FINRA Response, supra note 6 at 3-4.
    \75\ Specifically, Supplementary Material .01(a)(13) would be
revised to provide that underwriting compensation would include
``any compensation paid to any participating member in connection
with a prior proposed public offering that was not completed, if the
member firm participates in the revised public offering, except that
accountable expenses received pursuant to paragraph (g)(5)(A) shall
not be deemed underwriting compensation.'' See also FINRA Response,
supra note 6 at 6 n.10.
---------------------------------------------------------------------------

    FINRA, however, continues to believe that M&A and private placement
engagement letters should be required to be filed with FINRA so that it
may determine if they impact the underwriting terms and arrangements
for the public offering.\76\ Likewise, FINRA continues to believe that
beneficial owners of 5% or more must be disclosed.\77\ FINRA also
continues to believe that underwriting compensation received or to be
received in terminated offerings is relevant to FINRA's evaluation of
compliance with Rule 5110.\78\
---------------------------------------------------------------------------

    \76\ See FINRA Response, supra note 6 at 3.
    \77\ See FINRA Response, supra note 6 at 4-5. See also ABA,
Davis Polk and SIFMA, supra note 5. ABA and SIFMA suggest a 25%
threshold, while Davis Polk suggests a 10% threshold.
    \78\ See FINRA Response, supra note 6 at 5.
---------------------------------------------------------------------------

    FINRA proposes to retain the requirement that a description be
filed for any securities acquired in a bona fide venture capital
transaction as set forth in proposed Rule 5110(d). FINRA believes that
a description of the securities is needed for FINRA to assess whether
the acquisition meets the requirements for a venture capital exception
or whether the securities should instead be treated as underwriting
compensation.\79\
---------------------------------------------------------------------------

    \79\ See FINRA Response, supra note 6 at 4.
---------------------------------------------------------------------------

    Although most commenters suggest scaling back the filing
requirements, one commenter suggests that FINRA withdraw the proposed
expansion of an exemption from such requirement. Specifically, the
commenter proposes that the expansion of ``seasoned issuer'' filing
exemption to an issuer's public offerings where the issuer has
``securities in the same series that have equal rights and obligations
as investment grade rated securities'' be removed.\80\ Moreover, this
and another commenter requested additional clarification on the
``seasoned issuer'' exemption.\81\ Namely, one commenter sought
clarification regarding whether the issuer's qualifying debt or
preferred securities for purposes of the exemption must be issued and
outstanding.\82\ The other commenter requested clarification that the
use of the term ``corporate issuer'' in the exemption is not meant to
exclude issuers if they are not organized in ``corporate'' form.\83\ In
response to commenters' concerns, FINRA proposes to further revise Rule
5110(h)(1)(A) to exempt ``securities offered by a bank, corporate
issuer, foreign government or foreign government agency that has
outstanding unsecured non-convertible debt with a term of issue of at
least four years or unsecured non-convertible preferred securities that
are investment grade rated, as defined in Rule 5121(f)(8), or are
outstanding securities in the same series that have equal rights and
obligations as investment grade rated securities, provided that an
initial public offering of equity is required to be filed'' (emphasis
added). FINRA further clarifies that it does not intend the exemption
to apply where the issuer has only outstanding, unrated non-convertible
debt or preferred securities that the issuer deems to be in the same
series as qualifying reacquired Treasury securities that were once
rated investment grade. In addition, FINRA states that it would
interpret ``corporate issuers'' to include, among other entities,
limited partnerships and limited liability companies.\84\
---------------------------------------------------------------------------

    \80\ See Rothwell, supra note 5.
    \81\ See Rothwell and ABA, supra note 5.
    \82\ See Rothwell, supra note 5.
    \83\ See ABA, supra note 5.
    \84\ See FINRA Response, supra note 6 at 14.
---------------------------------------------------------------------------

Disclosure
    One commenter suggests adopting a de minimis exception for itemized
disclosure under which participating members may disclose a maximum
aggregate value for items of underwriting compensation.\85\ In
response, FINRA notes that it previously considered the Rule's
disclosure requirements in responding to comments received to the
Notice 17-15 Proposal, and has decided to retain the current disclosure
requirements.\86\
---------------------------------------------------------------------------

    \85\ See SIFMA, supra note 5.
    \86\ See FINRA Response, supra note 6 at 7.
---------------------------------------------------------------------------

Valuation
    Two commenters request clarification, as well as offer suggestions,
on FINRA's proposal to modify Rule 5110's calculations for valuing
convertible and non-convertible securities.\87\ Commenters request
alternative valuation methodologies on a case-by-case basis \88\ and
for unit securities.\89\ One commenter also requests, for purposes of
clarification, express exclusion from valuation as underwriting
compensation for options and other derivatives acquired at a fair
price.\90\
---------------------------------------------------------------------------

    \87\ See SIFMA and Rothwell, supra note 5.
    \88\ See SIFMA, supra note 5 at 8.
    \89\ See Rothwell, supra note 5 at 12.
    \90\ See SIFMA, supra note 5 at 8.
---------------------------------------------------------------------------

    FINRA proposes to retain the methods in the current Rule for
valuing options, warrants and other convertible securities received as
underwriting compensation. FINRA states that exemptive relief may be
available on a case-by-case basis pursuant to Rule 5110(i) for a member
firm that seeks to use a single, consistently applied alternative
valuation methodology.\91\ FINRA also notes that it has previously
provided guidance for valuing unit securities.\92\ With respect to
options and other derivatives acquired at a fair price, FINRA notes
that the requested clarification is set forth in proposed Rule
5110(c)(5), which states ``[a]ny non-convertible or non-exchangeable
debt or derivative instrument acquired or entered into at a `fair
price' as defined in Supplementary Material .06(b) and underwriting
compensation received in or receivable in the settlement, exercise or
other terms of such non-convertible or non-exchangeable debt or
derivative instrument shall not have a compensation value for purposes
of determining underwriting compensation.'' \93\
---------------------------------------------------------------------------

    \91\ See FINRA Response, supra note 6 at 8.
    \92\ See id.
    \93\ See FINRA, supra note 6 at 8.
---------------------------------------------------------------------------

Venture Capital Exceptions
    Commenters generally support the venture capital exceptions \94\
with one commenter requesting clarification on the definition of
``institutional investor'' and suggesting that the exception be
expanded to include other highly regulated entities.\95\ The commenter
also suggests that the venture capital exceptions should be clarified
to provide that a participating member could make the determination as
to the availability of an exception at the time of the acquisition of
the securities.\96\ In response, FINRA notes that it had previously
considered these issues in responding to comments received to the
Notice 17-15 Proposal \97\ and declines to make further changes. FINRA
states that it will retain the definition of ``institutional investor''
as proposed and

also notes that whether an acquisition of the securities meets an
exception must be determined before the required filing date.\98\
---------------------------------------------------------------------------

    \94\ See Rothwell and SIFMA, supra note 5.
    \95\ See SIFMA, supra note 5 at 4-5.
    \96\ See id.
    \97\ See FINRA Response, supra note 6 at 10.
    \98\ See id.
---------------------------------------------------------------------------

Lock-Up Restriction
    One commenter suggests several changes to FINRA's proposed lock-up
restriction, such as eliminating the restriction for offerings of
securities that are ``actively-traded,'' making consistent the lock-up
period for participating members in a follow-on offering as the lock-up
period for insiders, and allowing the sale or other disposition of
locked-up securities by registered investment advisers who are
participating members.\99\ In response, as discussed in Partial
Amendment No. 1, FINRA proposes to add Rule 5110(e)(2)(A)(ix) to
provide that the lock-up restriction will not apply ``to a security
that is ``actively-traded'' (as defined in Rule 101(c)(1) of SEC
Regulation M).'' \100\ FINRA also notes that it would consider any
additional request for exemptive relief under Rule 5110 pursuant to
Rule 5110(i).\101\
---------------------------------------------------------------------------

    \99\ See SIFMA, supra note 5 at 6.
    \100\ See FINRA Response, supra note 6 at 11.
    \101\ See id.
---------------------------------------------------------------------------

Non-Cash Compensation
    Two commenters request clarification that restrictions on non-cash
compensation as set forth in the current Rule and proposed Rule 5110(f)
are not intended to limit or otherwise be inconsistent with other
provisions in the Rule that implicitly permit the receipt by
participating members of non-cash compensation under appropriate
circumstances.\102\ In response to the commenters' request for
clarification, FINRA confirms the commenters' understanding regarding
the restrictions on receipt of non-cash compensation.\103\
---------------------------------------------------------------------------

    \102\ See ABA, supra note 5 at 7; SIFMA, supra note 5 at 9.
    \103\ See FINRA Response, supra note 6 at 12.
---------------------------------------------------------------------------

Prohibited Terms and Arrangements
    One commenter, although generally supportive of the proposed
changes relating to prohibited terms and arrangements in connection
with a public offering of securities, offers two suggestions.\104\ The
commenter suggests that payments allowed prior to the commencement of
sales of a public offering also be permitted in respect of offerings
that are not completed if the payments are for services actually
provided and the issuer has not terminated the services of the
participating member for cause.\105\ The commenter further suggests
that Rule 5110(g)(11), which provides that a FINRA member may not
``participate with an issuer in the public offering of securities if
the issuer hires persons primarily for the purpose of solicitation,
marketing, distribution or sales of the offering, except in compliance
with Section 15(a) of the Exchange Act or [Exchange Act] Rule 3a4-1 and
applicable state law,'' should be further modified to limit this
prohibition to those instances in which the FINRA member knows, or
reasonably should have known, that the issuer had hired persons absent
compliance with applicable federal or state securities laws.\106\ FINRA
believes that these specific modifications to proposed FINRA Rule
5110(g) are not necessary.\107\
---------------------------------------------------------------------------

    \104\ See ABA, supra note 5.
    \105\ See ABA, supra note 5 at 7-8.
    \106\ See id.
    \107\ See FINRA Response, supra note 6 at 12-13.
---------------------------------------------------------------------------

Exemptions from Filing and Substantive Requirements
    Commenters are generally supportive of FINRA's proposal to exempt
certain offerings from the filing requirements.\108\ One commenter,
however, requests that FINRA expand the exemptions to include tender
offers by issuers for their own securities under the Exchange Act.\109\
In response to comment, as discussed in Partial Amendment No. 1, FINRA
proposes to amend Rule 5110(h)(2)(G) to include tender offers by
issuers for their own securities.\110\ Accordingly, Proposed Rule
5110(h)(2)(G) will apply to ``tender offers made pursuant to SEC
Regulation 14D or Rule 13a-4 under the Exchange Act.'' \111\
---------------------------------------------------------------------------

    \108\ See Rothwell, CAI and ABA, supra note 5.
    \109\ See ABA, supra note 5 at 10.
    \110\ See FINRA Response, supra note 6 at 14.
    \111\ See FINRA Response, supra note 6 at 14.
---------------------------------------------------------------------------

Defined Terms
    One commenter suggests that the definition of ``bank'' under
proposed Rule 5110(j)(2) should also include the US branches and
agencies of a foreign bank.\112\ In response, as discussed in the
Partial Amendment No. 1, FINRA proposes to amend the proposed
definition of bank in Rule 5110(j)(2) to mean ``a bank as defined in
Section 3(a)(6) of the Exchange Act, a branch or agency in the United
States of a foreign bank that is supervised and examined by a federal
or state banking authority and otherwise meets the requirements of
Section 3(a)(6) of the Exchange Act, or [is] a foreign bank that has
been granted an exemption under this Rule and shall refer only to the
regulated entity, not its subsidiaries or other affiliates.'' \113\
---------------------------------------------------------------------------

    \112\ See ABA, supra note 5 at 10.
    \113\ See FINRA Response, supra note 6 at 15.
---------------------------------------------------------------------------

    Three commenters express concern over the term ``experienced
issuer'' in Rule 5110(j)(6) and suggested alternatives or requested
clarification.\114\ For example, commenters express concern that the
proposal would eliminate SEC and FINRA's past interpretive guidance
relating to the term.\115\ FINRA, however, believes that the proposed
definition of ``experienced issuer'' codifies standards currently in
place and simplifies the analysis for the benefit of members.\116\
FINRA also believes that any guidance and interpretation issued by the
SEC or FINRA relating to the term remain valid and illustrative.\117\
---------------------------------------------------------------------------

    \114\ See ABA, Davis Polk and SIFMA, supra note 5.
    \115\ See id.
    \116\ See FINRA Response, supra note 6 at 16.
    \117\ See id.
---------------------------------------------------------------------------

    One commenter requests to expand the defined term ``independent
financial adviser'' in Rule 5110(j)(9) and revise proposed Rule
5110(j)(16) to allow an independent financial adviser to provide
ordinary services to an issuer and assist the issuer in preparing the
offering document and other documents.\118\ In response, FINRA
disagrees with the suggested expansion of services that may be provided
by the independent financial adviser.\119\
---------------------------------------------------------------------------

    \118\ See Rothwell, supra note 5 at 14-15.
    \119\ See FINRA Response, supra note 6 at 17.
---------------------------------------------------------------------------

    Three commenters suggest a variety of changes to the proposed
definitions of ``participate,'' ``issuer,'' and ``participating
member.'' \120\ FINRA, however, does not agree with the commenters'
suggestions to create additional carve-outs from the definitions.\121\
Nevertheless, in response to one commenter's concern,\122\ as discussed
in the Partial Amendment No. 1, FINRA proposes to amend the defined
term ``issuer'' to exclude a participating member, except where the
participating member is offering its securities.\123\
---------------------------------------------------------------------------

    \120\ See Rothwell, ABA, SIFMA and Davis Polk, supra note 5.
    \121\ See FINRA Response, supra note 6 at 18.
    \122\ See Rothwell, supra note 5.
    \123\ See FINRA Response, supra note 6 at 18.
---------------------------------------------------------------------------

    One commenter suggest that the defined term ``public offering''
should expressly exclude securities offered or sold by a broker-dealer
pursuant to Sections 4(a)(3) and 4(a)(4) of the Securities Act.\124\
FINRA, in response,

declines to make the suggested revision.\125\
---------------------------------------------------------------------------

    \124\ See ABA, supra note 5 at 11. The ABA also suggests a
technical change to update the reference in proposed Rule
5110(j)(18)(A) to offerings pursuant to Section 4(a)(6) of the
Securities Act to Section 4(a)(5) of the Securities Act. As
discussed in the Partial Amendment No. 1, FINRA proposes to revise
the public offering definition's reference to these offerings as
suggested by the commenter. See id.
    \125\ See FINRA Response, supra note 6 at 18.
---------------------------------------------------------------------------

    Four commenters assert that participating members' purchases of
securities in a public offering at the public offering price should not
be considered underwriting compensation subject to Rule 5110.\126\
Moreover, two commenters suggest that proposed Supplementary Material
.04, which addresses securities acquired by a participating member's
associated persons or their immediate family members in issuer directed
sales programs, should be modified to focus only on securities acquired
at a price lower than the public offering price.\127\ In response,
FINRA provides that it would interpret the proposal not to include as
underwriting compensation non-convertible securities purchased by a
participating member in a public offering at the public offering price
during the review period. As discussed in the Partial Amendment No. 1,
FINRA proposes to revise the Supplementary Material to expressly
exclude securities purchased on these terms from being deemed
underwriting compensation.\128\
---------------------------------------------------------------------------

    \126\ See ABA, Davis Polk, Rothwell and SIFMA, supra note 5.
    \127\ See ABA and SIFMA, supra note 5.
    \128\ See FINRA Response, supra note 6 at 19 n.27.
---------------------------------------------------------------------------

    Two commenters request clarification as to whether certain
compensated parties would be considered ``participating members'' and
thus their compensation be deemed underwriting compensation.\129\ For
example, one commenter requests confirmation that compensation received
by a non-U.S. underwriter that is not itself a FINRA member or an
affiliate of a participating FINRA member is not considered
underwriting compensation.\130\ FINRA confirms that such compensation
is not underwriting compensation for the purposes of Rule 5110.\131\
---------------------------------------------------------------------------

    \129\ See SIFMA and Davis Polk, supra note 5.
    \130\ See SIFMA, supra note 5 at 7-8.
    \131\ See FINRA Response, supra note 6 at 19-20.
---------------------------------------------------------------------------

    Another commenter requests confirmation that fees and other
compensation paid by an issuer to a foreign broker-dealer affiliated
with a participating member in connection with the foreign distribution
of an offering occurring both in the U.S. and outside the U.S.
simultaneously should not be deemed underwriting compensation under
Rule 5110.\132\ In response, FINRA states that, if the participating
members are able to divide underwriting compensation so as to
separately allocate the underwriting compensation received by the non-
U.S. broker-dealer for the non-U.S. portion of the global offering,
FINRA would consider that separately allocated underwriting
compensation to be outside the scope of Rule 5110 and not subject to
the requirements of Rule 5110.\133\
---------------------------------------------------------------------------

    \132\ See Davis Polk, supra note 5 at 4.
    \133\ See FINRA Response, supra note 6 at 20.
---------------------------------------------------------------------------

    Finally, another commenter notes that the inclusion of ``finder's
fees, underwriter's counsel fees, and securities'' in the proposed
``underwriting compensation'' definition in Rule 5110(j)(22) is
confusing and unnecessary in light of the much clearer and more fulsome
language contained in the Supplementary Material .01.\134\ In response,
FINRA provides that it does not believe that the non-exhaustive
examples in Supplementary Material .01 do not obviate the need for the
defined term to capture the full scope of possible underwriting
compensation.\135\
---------------------------------------------------------------------------

    \134\ See ABA, supra note 5 at 4-5.
    \135\ See FINRA Response, supra note 6 at 20.
---------------------------------------------------------------------------

Underwriting Compensation
    One commenter supports the changes in proposed Supplementary
Material .01 of items that would or would not be underwriting
compensation,\136\ while others requested that additional items be
excluded from underwriting compensation.\137\ Specifically, commenters
suggest the following be excluded: (1) The 1% valuation assigned to
ROFRs; \138\ (2) nominal gifts and occasional entertainment; \139\ (3)
fees for services performed by participating members in the ordinary
course of business unrelated to the distribution of the offering; \140\
(4) bona fide market making activity; \141\ and (5) any cash
compensation, securities or other benefit received by an associated
person, immediate family or affiliate of a participating member if the
FINRA member or its parent or other affiliate is issuing its own
securities in the public offering.\142\ In response, FINRA disagrees
with these suggestions and believes that such compensations should be
reported to FINRA as underwriting compensation.\143\
---------------------------------------------------------------------------

    \136\ See Rothwell, supra note 5 at 2.
    \137\ See ABA, Davis Polk and SIFMA, supra note 5.
    \138\ See SIFMA and ABA, supra note 5.
    \139\ See ABA, supra note 5.
    \140\ See Davis Polk, supra note 5.
    \141\ See ABA and Davis Polk, supra note 5.
    \142\ See SIFMA, supra note 5.
    \143\ See FINRA Response, supra note 6 at 20-23.
---------------------------------------------------------------------------

    Two commenters suggests revising Supplementary Material .01(b)(14)
to exclude securities acquired as the result of an ``exercise'' of
securities that were originally acquired prior to the review
period.\144\ In response, FINRA states that, pursuant to proposed
Supplementary Material .01(b)(15), securities acquired as the result of
an exercise of options or warrants that were originally acquired prior
to the review period would not be underwriting compensation.\145\
---------------------------------------------------------------------------

    \144\ See ABA and Davis Polk, supra note 5.
    \145\ See FINRA response, supra note 6 at 21-22.
---------------------------------------------------------------------------

    Two commenters suggest that the exception in proposed Supplementary
Material .01(b)(12) be expanded to include additional employee benefit
plans.\146\ In response to commenters' suggestions,\147\ and as
discussed in the Partial Amendment No. 1, FINRA proposes to revise
Supplementary Material .01(b)(12) to refer to a written compensatory
benefit plan in an offering exempt from registration pursuant to Rule
701 under the Securities Act and any other employee benefit plan (as
defined in Securities Act Rule 405).\148\
---------------------------------------------------------------------------

    \146\ See ABA and Davis Polk, supra note 5
    \147\ See id.
    \148\ See FINRA Response, supra note 6 at 22.
---------------------------------------------------------------------------

FINRA Rule 5121 (Public Offerings of Securities With Conflicts of
Interest)
    Two commenters request clarification regarding the required
participation by a QIU.\149\ In response, FINRA states that it has
previously provided guidance regarding QIU participation pursuant to
Rule 5121, and is willing to consider requests for additional guidance
on Rule 5121 separate from the proposal.\150\
---------------------------------------------------------------------------

    \149\ See, e.g., SIFMA, supra note 5 at 10, and ABA, supra note
5 at 8-9.
    \150\ See FINRA Response, supra note 6 at 23-24.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove SR-FINRA-
2019-012 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule
change should be approved or disapproved.\151\ Institution of
proceedings appears appropriate at this time in view of the legal and
policy issues raised by the proposal. As noted above, institution of
proceedings does not indicate that the Commission has

reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
comment on the issues presented by the proposed rule change and provide
the Commission with arguments to support the Commission's analysis as
to whether to approve or disapprove the proposed rule change, as
modified by Partial Amendment No. 1.
---------------------------------------------------------------------------

    \151\ 15 U.S.C. 78s(b)(2). Exchange Act Section 19(b)(2)(B)
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
The time for conclusion of the proceedings may be extended for up to
an additional 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding or if the self-
regulatory organization consents to the extension.
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange,\152\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposal's consistency with Section
15A(b)(9) of the Act,\153\ which requires that FINRA's rules be
designed to, among other things, promote just and equitable principles
of trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and, in general, to protect
investors and the public interest. As summarized above, commenters
raised, and sought clarification regarding, a number of issues. In
response, FINRA recently submitted Partial Amendment No. 1 and response
to comments. Accordingly, the Commission believes it is appropriate to
institute proceedings to allow additional consideration and comments by
both commenters and the Commission, and any potential response to
comments or supplemental information by FINRA.
---------------------------------------------------------------------------

    \152\ 15 U.S.C. 78s(b)(2)(B).
    \153\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

V. Request for Written Comments

    The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues raised by the proposed rule change, as modified by Partial
Amendment No. 1. In particular, the Commission invites the written
views of interested persons on whether the proposed rule change, as
modified by Partial Amendment No. 1, is inconsistent with Section
15A(b)(6), or any other provision, of the Exchange Act, or the rules
and regulations thereunder.
    Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\154\
---------------------------------------------------------------------------

    \154\ Exchange Act Section 19(b)(2), as amended by the
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97
(1975), grants the Commission flexibility to determine what type of
proceedings--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Report of the Senate Committee on Banking, Housing and Urban
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess.
30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and
arguments by August 23, 2019 concerning whether the proposed rule
change should be approved or disapproved. Any person who wishes to file
a rebuttal to any other person's submission must file that rebuttal by
September 16, 2019. In light of the concerns raised by the proposed
rule change, as modified by Partial Amendment No. 1, as discussed
above, the Commission invites additional comment on the proposed rule
change, as modified by Partial Amendment No. 1, as the Commission
continues its analysis of whether the proposed rule change, as modified
by Partial Amendment No. 1, is consistent with Section 15A(b)(6), or
any other provision of the Exchange Act, or the rules and regulations
thereunder.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2019-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2019-012. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of FINRA. All comments received will be
posted without change. The Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly.
    All submissions should refer to File Number SR-FINRA-2019-012 and
should be submitted on or before August 23, 2019. If comments are
received, any rebuttal comments should be submitted by September 16,
2019.
---------------------------------------------------------------------------

    \155\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\155\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16483 Filed 8-1-19; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 81, Number 74 (Monday, April 18, 2016)]
[Notices]
[Page 22589]
[FR Doc No: 2016-08859]

-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 5891-009]

Deschutes Valley Water District; Notice of Availability of
Environmental Assessment

    In accordance with the National Environmental Policy Act of 1969
and the Federal Energy Regulatory Commission's (Commission)
regulations, 18 CFR part 380 (Order No. 486, 52 FR 47897), the Office
of Energy Projects has reviewed the Deschutes Valley Water District's
(licensee) application to amend the license in order to construct and
operate fish passage facilities at the Opal Springs Hydroelectric
Project No. 5891. The project is located on the Crooked River in
Jefferson County, Oregon. The project occupies federal lands
administered by the U.S. Bureau of Land Management.
    The application, filed with the Commission on October 8, 2015,
contains an Environmental Analysis in its Exhibit E. After independent
review of the licensee's Exhibit E, Commission staff has decided to
adopt the licensee's Environmental Analysis and issue it as staff's
Environmental Assessment (EA). The EA analyzes the potential
environmental impacts of construction and operation of fish passage
facilities plus the proposed mitigation measures and concludes that
granting the proposed amendment would not constitute a major federal
action that would significantly affect the quality of the human
environment.
    A copy of the EA is on file with the Commission and is available
for public inspection. The EA may be viewed on the Commission's Web
site at http://www.ferc.gov using the ``eLibrary'' link. Enter the
docket number (P-5891) in the docket number field to access the
document. For assistance, contact FERC Online Support at
<EMAIL_ADDRESS>or call toll-free at 1-866-208-3676 or (202)
502-8659 (for TTY).
    A copy of the EA may also be accessed using this link: http://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=14010704.
    You may also register online at http://www.ferc.gov/docs-filing/esubsription.asp to be notified via email of new filings and issuances
related to this or other pending projects. For assistance, contact FERC
Online Support.
    All comments must be filed within 30 days of the date of this
notice and should reference Project No. 5891-009. The Commission
strongly encourages electronic filing. Please file comments using the
Commission's efiling system at http://www.ferc.gov/docs-filing/efiling.asp. Commenters can submit brief comments up to 6,000
characters, without prior registration, using the eComment system at
http://www.ferc.gov/docs-filing/ecomment.asp. You must include your
name and contact information at the end of your comments. For
assistance, please contact FERC Online Support. In lieu of electronic
filing, please send a paper copy to: Kimberly D. Bose, Secretary,
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426.
    For further information, contact Jennifer Ambler at<PHONE_NUMBER>
or<EMAIL_ADDRESS>
    Dated: April 6, 2016.
Kimberly D. Bose,
Secretary.
[FR Doc. 2016-08859 Filed 4-15-16; 8:45 am]
 BILLING CODE 6717-01-P