Davis Polk & Wardwell Newsflash

FINRA May Not Clear Some Shelfs on an Expedited Basis

May 29, 2009

A company that has been subject to SEC reporting obligations for fewer than three years, that has less than $150 million in public float, or that is affiliated with a broker-dealer, generally must file its Form S-3 (or F-3) shelf registration statement with the Financial Industry Regulatory Authority (FINRA), provide the required FINRA certifications and obtain FINRA clearance before an underwriter may sell its securities in a public offering under the shelf.  FINRA certifications deal primarily with the existence of transactions between broker-dealers and the company (or their respective affiliates) within the 180-day period prior to the filing of the shelf, and can be particularly time-consuming to prepare in the case of a company that is affiliated with a financial sponsor or broker-dealer.

Even so, companies without a FINRA filing exemption sometimes file shelf registration statements with the SEC but fail to file them with FINRA, or make the required FINRA filing but fail to provide the required certifications, and instead seek to complete the FINRA process at the time of an offering.  (This happens both with companies that are well-known seasoned issuers (WKSIs), and companies that are not.)

Other companies make the required FINRA filing on time, but receive no SEC review of their shelf registration statement and are ready to launch an offering before the FINRA review process is completed.  (This should not happen when the company is a WKSI and makes a complete FINRA filing on time, because FINRA's current policy is to clear the WKSI shelf on the same day it is simultaneously filed with the SEC and FINRA.)

In the situations described above, in the past FINRA would on occasion expedite its review and clear the filing in a manner consistent with the offering timetable.  However, FINRA has recently indicated that a non-WKSI company in one of the situations described above can expect the FINRA review process to take as long as two weeks to complete from the time FINRA receives all required certifications.

Once the required FINRA filing is complete, a non-WKSI company (and its underwriters) should count on waiting two weeks to launch a shelf offering, even without SEC review of the shelf.  To avoid an impact on the offering timetable, a shelf-eligible company that does not currently have a usable shelf on file should determine whether a FINRA filing will be necessary when a new shelf is filed.  If so, the company should consider filing a shelf (both with the SEC and with FINRA), providing the required FINRA certifications and seeking FINRA clearance well in advance of the time an offering is planned.  A company that has a shelf on file with the SEC that was (or should have been) filed with FINRA, but that hasn’t yet obtained FINRA clearance, should consider completing the required FINRA filings and certifications as quickly as possible.


* * *

If you have any questions regarding this newsflash, please contact any of the lawyers listed below or your regular Davis Polk contact.

Richard J. Sandler, Partner
212-450-4224 | richard.sandler@dpw.com

Richard D. Truesdell, Jr., Partner
212-450-4674 | richard.truesdell@dpw.com

Joseph A. Hall, Partner
212-450-4565 | joseph.hall@dpw.com

Michael Kaplan, Partner
212-450-4111 | michael.kaplan@dpw.com

Marcie A. Goldstein, Counsel
212-450-4739 | marcie.goldstein@dpw.com


Davis Polk & Wardwell