SEC Approves Change to NASD Rule 2790 Relating to Business Development Companies, Real Estate Investment Trusts and Direct Participation Programs.Originally published September 29, 2005 In August 2005, the SEC approved proposed changes to NASD NASD See: National Association of Securities Dealers NASD See National Association of Securities Dealers (NASD). Rule 2790 to exclude business development companies, real estate investment trusts and direct participation programs1 from the definition of "new issue" securities offerings. Once this rule change becomes effective, underwriters involved in an initial public offering ("IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ") by a business development company, a real estate investment trust or a direct participation program will not be required to obtain "IPO certifications" from their clients prior to selling them shares in the IPO. The SEC releases describing the rule change are available at http://www.sec.gov/rules/sro/nasd/34-52209.pdf and http://www.sec.gov/rules/sro/nasd/34-52209a.pdf. NASD Rule 2790 generally prohibits NASD member firms from selling a "new issue," as defined in NASD Rule 2790(i)(9), to an account in which a "restricted person" has a beneficial interest. "Restricted persons" include most broker-dealers and their personnel and most owners and affiliates of a broker-dealer, and certain institutional account portfolio managers. NASD Rule 2790 is intended to protect the integrity of the public offering process by: Ensuring that NASD members make bona fide [Latin, In good faith.] Honest; genuine; actual; authentic; acting without the intention of defrauding. A bona fide purchaser is one who purchases property for a valuable consideration that is inducement for entering into a contract and without suspicion of being public offerings of securities at the offering price so that industry insiders, including NASD members and their associated persons Associated Person The name given to participants within the futures market that are involved in the solicitation or facilitation of transacting customer orders, the maintenance of discretionary accounts, or the true participatory involvement in the futures market. , do not take advantage of their "insider" position to purchase new issues for their own benefit at the expense of public customers; and Ensuring that members do not withhold with·hold v. with·held , with·hold·ing, with·holds v.tr. 1. To keep in check; restrain. 2. To refrain from giving, granting, or permitting. See Synonyms at keep. 3. securities in a public offering in order to use such securities to direct compensation in a manner that is not consistent with the public interest and fair dealing, or to reward persons who are in a position to direct future business to members. In order to ensure compliance with NASD Rule 2790, an NASD member is required to obtain a representation from an account holder, or the person authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: to represent the beneficial owners Beneficial Owner A person who enjoys the benefits of ownership even though title is in another name. Notes: For example, when shares of a mutual fund are held by a custodian bank or when securities are held by a broker in street name, the true owner is the beneficial of the account, that the account is eligible to purchase securities of a "new issue" in compliance with the rule (such certification is typically referred to as an "IPO certification"). The IPO certification must be obtained within 12 months prior to the sale and must be in writing. In excluding business development companies, real estate investment trusts and direct participation programs from the definition of "new issue" under NASD Rule 2790, the SEC and the NASD determined that "including such offerings within the scope of NASD Rule 2790 would do little to further the purposes of the rule."2 Specifically, the SEC and NASD concluded that "these products historically commence trading at their public offering price and premiums, if any, tend to be very small."3 The NASD will announce the effective date of this rule change in a Notice to Members to be published no later than 60 days following SEC approval. The effective date will be no more than 30 days following publication of the Notice to Members announcing the SEC's approval of these changes. Thus far, the effective date has not been published. Footnotes 1 A "direct participation program" is defined in NASD Rule 2810(a)(4). 2 See SEC Release No. 34-55209 (August 4, 2005). 3 Id. [c] 2005 Sutherland Asbill & Brennan LLP LLP - Lower Layer Protocol . All Rights Reserved. This article is for informational purposes and is not intended to constitute legal advice. Mr Harry Pangas Sutherland Asbill & Brennan 1275 Pennsylvania Avenue Pennsylvania Avenue is a street in Washington, D.C. joining the White House and the United States Capitol. Called "America's Main Street," it is the location of official parades and processions, as well as protest marches and civilian protests. , NW Washington, DC 20004-2415 UNITED STATES United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Tel: 2023830100 Fax: 2026373593 E-mail: info@sablaw.com URL URL in full Uniform Resource Locator Address of a resource on the Internet. 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