On June 6, 2012, FINRA issued proposed amendments to Rule 5110 (the “Proposal”), commonly called the Corporate Financing Rule. The Corporate Financing Rule addresses commercial fairness in underwriting and other arrangements for the distribution of securities. Rule 5110 provides for review by FINRA of underwriting or other arrangements in connection with most public offerings in order to enable FINRA to assess the fairness and reasonableness of proposed underwriting compensation and arrangements.

Deferred Compensation Proposal

The Corporate Financing Rule currently limits the terms of deferred compensation provided in engagement letters between issuers and potential underwriters in connection with public offerings. As noted by FINRA, a deferred compensation arrangement responds to issuer concerns that up-front payment for financial advisory services could adversely affect the issuer’s business. The deferred compensation provisions, on the other hand, respond to the underwriter’s concern that an issuer may unreasonably terminate an engagement letter. FINRA has traditionally limited certain deferred compensation arrangements.