DealLawyers.com Blog

Last week, the NASD proposed amendments to NASD Rule 2720 that would significantly amend the application of the rule to public offerings in which a participating broker/dealer has a conflict of interest. The more significant proposals are:

– exempt from the filing requirements and the qualified independent underwriter (QIU) requirements of Rule 2720 public offerings with a book-running lead manager or dealer/manager that does not have a conflict of interest and that can meet the disciplinary history requirements for a QIU and public offerings of investment-grade rated debt and securities that have a bona fide public market

– change the definition of “conflict of interest” so that the Rule covers public offerings in which at least five percent of the offering proceeds are directed to a participating member or its affiliates and eliminates ownership of subordinated debt as a basis for a conflict of interest

– modify the Rule’s disclosure requirements so that more information relating to conflicts of interest is prominently disclosed in offering documents

– amend the Rule’s provisions regarding the use of a QIU to focus on the QIU’s due diligence responsibilities and eliminate the requirement that the QIU render a pricing opinion

– amend the QIU qualification requirements to focus on the experience of the firm rather than its board of directors, prohibit a member that would receive more than five percent of the proceeds of an offering from acting as a QIU, and lengthen from five to ten years the amount of time that a person involved in due diligence in a supervisory capacity must have a clean disciplinary history

– eliminate provisions in the Rule that do not apply to public offerings and instead address an issuer’s corporate governance responsibilities

– eliminate a provision that applies certain disclosure requirements to intrastate offerings

Comments are due by October 30th…