The same order widens the Rule 5123 filing exemption for private placements sold to family offices and large investment entities.

August 6, 2026

The Securities and Exchange Commission has approved FINRA rule amendments that codify how underwriter affiliates can put capital into non-traded REIT and direct participation program offerings, replacing a case-by-case exemptive process with a set of standing conditions.

The order, dated July 24 and published in the Federal Register five days later, clears changes FINRA proposed in January to Rule 5110, the corporate financing rule governing underwriting terms and compensation in public offerings, and to Rule 5123, which requires member firms to notify FINRA of the private placements they sell.

Capital Investments in DPPs and Unlisted REITs

The change with the most direct bearing on the non-traded product market is new Rule 5110.01(b)(24). Under the rule as it stood, securities that an underwriter affiliate acquired in an issuer or an affiliated entity before or during a DPP or unlisted REIT distribution were treated as underwriting compensation, which meant participating members had to request an exemption from FINRA to proceed. FINRA told the Commission these investments are common in DPP and REIT offerings, supplying initial or subsequent equity capital an issuer needs.

The new provision excludes those acquisitions from underwriting compensation when four conditions are met:

• the acquisition is disclosed in the prospectus;
• both the securities offered to the public and those acquired in the capitalization transaction are valued and priced on a net asset value basis;
• the offering is one subject to Rule 2310, FINRA’s direct participation program rule; and
• the acquired securities are restricted for 180 days following the commencement of sales.

FINRA described the conditions as a codification of the factors it has consistently applied in granting exemptions, and said the arrangement has worked well for issuers and investors under the existing relief process. Members whose transactions fall outside these conditions can still seek exemptive relief under Rule 5110(i) and the Rule 9600 Series.

A Wider Private Placement Filing Exemption

The Rule 5123 amendment adds two accredited investor categories to the existing filing exemption at paragraph (b)(1), aligning the rule with categories the Commission added to the accredited investor definition in August 2020:

• entities not otherwise enumerated in Rule 501, not formed to acquire the offered securities, owning investments above $5 million; and
• family offices with assets under management above $5 million, not formed to acquire the offered securities, whose investment decision is directed by someone with sufficient financial and business knowledge to evaluate the merits and risks.

FINRA argued to the Commission that both categories carry a level of sophistication comparable to the institutional accredited investors already exempt, and noted the $5 million threshold parallels the qualified purchaser standard covered by a separate Rule 5123 exemption. The rule otherwise continues to require members to file offering documents and related retail communications within 15 calendar days of first sale.

Tail Fees and Preferred Securities

Two further Rule 5110 changes reach placement agent economics. The amendments extend the treatment of termination fees to tail fees, the compensation members negotiate for a subsequent financing involving investors they introduced after an engagement ends. Those payments now carry the same conditions: the obligation must fall away if the issuer terminates for cause, the amount must be reasonable relative to the underwriting services contemplated in the agreement, and the issuer owes nothing unless the later transaction closes within two years of termination. Tail fees that miss those conditions become unreasonable arrangements under the rule.

Separately, non-convertible preferred securities acquired at a fair price will now be treated as non-convertible debt securities and derivative instruments already are: underwriting compensation carrying no compensation value. FINRA views the two as equivalent because neither converts to common stock and both deliver predetermined payments.

The order also replaces Rule 5110’s bona fide public market valuation standard for compensation securities with the closing market price on a U.S. registered national securities exchange or a designated offshore securities market as defined under Securities Act Rule 902(b), and adds an exclusion for securities acquired in debt-for-equity exchanges meeting four specified conditions.

The Institute for Portfolio Alternatives and SIFMA both submitted supporting comment letters during the February comment window. The Commission instituted proceedings on the proposal in April and received no further comments before approving it.