Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Exempt Specified Collective Trust Funds From FINRA Rules 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings) and 5131(b) (New Issue Allocations and Distributions)

Issuing agencies

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<title>Federal Register, Volume 91 Issue 193 (Wednesday, October 7, 2026)</title>
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[Federal Register Volume 91, Number 193 (Wednesday, October 7, 2026)]
[Notices]
[Pages 64205-64207]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20506]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-106576; File No. SR-FINRA-2026-007]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by 
Partial Amendment No. 1, To Exempt Specified Collective Trust Funds 
From FINRA Rules 5130 (Restrictions on the Purchase and Sale of Initial 
Equity Public Offerings) and 5131(b) (New Issue Allocations and 
Distributions)

October 2, 2026.

I. Introduction

    On March 30, 2026, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to exempt specified collective 
trust funds (``CTFs'') from FINRA Rule 5130 (Restrictions on the 
Purchase and Sale of Initial Equity Public Offerings) and from 
paragraph (b) (Spinning) of Rule 5131 (New Issue Allocations and 
Distributions). Specifically, the proposed rule change, as modified by 
Partial Amendment No. 1, would exempt CTFs provided that the fund was 
not formed or maintained for the specific purpose of permitting 
restricted persons to invest in new issues.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 105163 (Apr. 7, 2026), 91 FR 
18493 (Apr. 10, 2026) (File No. SR-FINRA-2026-007) (``Notice''); see 
also Exchange Act Release No. 105873 (July 9, 2026), 91 FR 43127 
(July 14, 2026) (File No. SR-FINRA-2026-007) (``Notice of Partial 
Amendment No. 1'').
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    The proposed rule change was published for comment in the Federal 
Register on April 10, 2026.\4\ The public comment period closed on May 
1, 2026. The Commission received two comment letters related to this 
filing.\5\ On May 14, 2026, pursuant to Section 19(b)(2) of the 
Exchange Act,\6\ the Commission designated a longer period within which 
to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change to July 9, 2026.\7\

[[Page 64206]]

On July 8, 2026, FINRA responded to the comment letters received in 
response to the Notice and filed a partial amendment to the proposed 
rule change (``Partial Amendment No. 1'').\8\
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    \4\ See Notice.
    \5\ The comment letters are available at: <a href="https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-007">https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-007</a>.
    \6\ 15 U.S.C. 78a(b)(2).
    \7\ See Securities Exchange Act Release No. 105487 (May 14, 
2026), 91 FR 29201 (May 19, 2026). The Commission designated July 9, 
2026, as the date which the Commission shall approve or disapprove 
or institute proceedings to determine whether to approve or 
disapprove, the proposed rule change.
    \8\ See Letter from Demetri Lambros, Associate General Counsel, 
Office of the General Counsel, FINRA (July 8, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-007/srfinra2026007-953499-2942307.pdf">https://www.sec.gov/comments/SR-FINRA-2026-007/srfinra2026007-953499-2942307.pdf</a>; see also Partial Amendment No. 1 on FINRA's website at 
<a href="https://www.finra.org/rules-guidance/rule-filings/sr-finra-2026-007">https://www.finra.org/rules-guidance/rule-filings/sr-finra-2026-007</a>.
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    On July 9, 2026, the Commission published a notice of filing of 
Partial Amendment No. 1 and an order instituting proceedings to 
determine whether to approve or disapprove the proposed rule change, as 
modified by Partial Amendment No. 1.\9\ This order approves the 
proposed rule change, as modified by Partial Amendment No. 1 
(hereinafter, the ``proposed rule change'' unless otherwise specified).
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    \9\ See Securities Exchange Release No. 105873 (July 9, 2026), 
91 FR 43127 (July 14, 2026) (File No. SR-FINRA-2026-007).
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II. Description of the Proposed Rule Change

    As described in more detail in the Notice and in Partial Amendment 
No. 1, the proposed rule change would extend the general exemptions 
under FINRA Rule 5130(c)(1) and, by reference, FINRA Rule 5131(b)(2) to 
specified CTFs. Under the proposed rule change, specified CTFs would be 
treated similarly to investment companies registered under the 
Investment Company Act of 1940 and common trust funds, both of which 
are exempt under paragraph (c)(1) and paragraph (c)(2) of Rule 5130, 
respectively, and under Rule 5131(b) by reference.\10\ The proposed 
rule change would exempt CTFs provided that the fund was not formed or 
maintained for the specific purpose of permitting restricted persons to 
invest in new issues.
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    \10\ See Rule 5131(b)(2).
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    FINRA stated its belief that the proposed rule change is consistent 
with the provisions of Section 15A(b)(6) of the Exchange Act \11\ 
because the proposed rule change would apply only to CTFs as described 
in Section 3(a)(12)(A)(iv) of the Exchange Act. FINRA stated that the 
safeguards include the regulatory oversight inherent in these vehicles 
as well as the express requirement that the CTF was not formed or 
maintained for the specific purpose of permitting restricted persons to 
invest in new issues. FINRA stated that the proposed rule change would 
maintain the integrity of the public offering process while 
facilitating vibrant capital markets by expanding access to initial 
public offerings (``IPOs'') through regulation pooled investment 
vehicles. FINRA also stated that this will benefit investors in CTFs by 
expanding the underlying investment options in their employer-sponsored 
retirement plans and promote capital formation by giving more investors 
access to IPOs through regulated entities that are not formed or 
maintained to circumvent the purposes of the new issue rules.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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    As originally proposed in the Notice, the exemption also would have 
included the condition that the fund have investments from 1,000 or 
more plan participants and beneficiaries of one of more employee 
retirement benefits plans. As discussed below, however, FINRA stated 
that such a condition would be difficult for CTFs to determine and is 
unnecessary in light of the regulatory oversight of CTFs and the 
express requirement that the CTF not be formed or maintained for the 
specific purpose of permitting restricted persons to invest in new 
issues. Accordingly, FINRA removed this originally proposed condition 
from the proposed rule change.

III. Discussion and Commission Findings

    After careful review of the proposed rule change, the comment 
letters, and FINRA's response to the comments, the Commission finds 
that the proposed rule change is consistent with the requirements of 
the Exchange Act and the rules and regulations thereunder that are 
appliable to a national securities association.\12\ As discussed in 
more detail below, the Commission finds that the proposed rule change 
is consistent with Section 15A(b)(6) of the Exchange Act, which 
requires, among other things, that FINRA rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest.\13\
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    \12\ In approving this rule change, the Commission has 
considered the rule changes' impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78o-3(b)(6).
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    The proposed rule change is reasonably designed to apply only to 
CTFs as described in Section 3(a)(12)(A)(iv) of the Exchange Act. In 
particular, the safeguards include the regulatory oversight inherent in 
these vehicles as well as the express requirement that the CTF not be 
formed or maintained for the specific purpose of permitting restricted 
persons to invest in new issues. The proposed rule change is thus 
designed to maintain the integrity of the public offering process while 
facilitating vibrant capital markets by expanding access to IPOs 
through regulated pooled investment vehicles.
    The originally proposed exemption also would have included the 
condition that the fund have investments from 1,000 or more plan 
participants and beneficiaries of one of more employee retirement 
benefits plans.\14\ Both commenters on the Notice identified practical 
difficulties of implementing this condition.\15\ Coalition stated that 
``the number of participants and beneficiaries who have selected the 
CIT as an investment alternative changes every day.'' \16\ ICI also 
stated that ``[p]articipant counts can fluctuate for reasons unrelated 
to any abuse risk (e.g., workforce changes, plan mergers, or 
recordkeeping practices).'' \17\ Both commenters stated that 
determining the number of plan participants and beneficiaries would be 
especially challenging where plan participants and beneficiaries invest 
in CTFs offered in their plans through omnibus arrangements.\18\
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    \14\ See Notice, 91 FR 18495.
    \15\ See Letter from Clifford Kirsch, Partner, Everland 
Sutherland (US) LLP, on behalf of the Coalition of Collective 
Investment Trusts (May 1, 2026) (``Coalition''); Letter from Tara R. 
Buckley, Deputy General Counsel, Investment Company Institute (May 
1, 2026) (``ICI''). Coalition refers to CTFs as collective 
investment trusts, or CITs. In Partial Amendment No. 1, FINRA stated 
that it uses the term CTF in the proposed rule change because the 
term aligns with terminology used in the Exchange Act.
    \16\ ICI, at 3.
    \17\ ICI, at 3.
    \18\ ICI, at 3; Coalition, at 2.
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    Both commenters on the originally proposed exemption discussed how 
CTFs operate under comprehensive regulatory and fiduciary frameworks 
that protect investors. Coalition identified the following applicable 
regulatory regimes: in the case of CITs with national bank trustees, 
the Office of the Comptroller of Currency (``OCC'') administers the OCC 
regulations; the Department of Labor administers the Employee 
Retirement Income Securities Act of 1974 (``ERISA''), which governs 
virtually all CIRs; and the state bank regulators oversee state-
chartered CIT trustees.\19\ ICI stated that CTFs maintained by banks 
are subject to banking supervision and examination,\20\ while Coalition 
stated that investment decisions regarding new offerings are made by 
professional investment fiduciaries who owe a duty of loyalty to

[[Page 64207]]

their investors and are prohibited from using the assets they manage to 
influence a broker-dealer's allocation of new offerings.\21\
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    \19\ Coalition, at 2.
    \20\ ICI, at 2.
    \21\ Coalition, at 3.
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    In response, FINRA stated that it generally agrees with the 
commenters that eliminating this condition would not impact the 
integrity of the public offering process because CTFs are subject to 
regulatory frameworks that impose fiduciary obligations on their 
trustees or managers.\22\ FINRA further stated that the Exchange Act's 
``exempted security'' definition includes ``any interest or 
participation in a single trust fund, or a collective trust fund 
maintained by a bank, or any security arising out of a contract issued 
by an insurance company, which interest, participation, or security is 
issued in connection with a qualified plan,'' as defined in Section 
3(a)(12)(C). Thus, by definition, CTFs can accept investments only from 
retirement plans meeting certain criteria,\23\ which FINRA stated 
further mitigates potential risks.\24\
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    \22\ Partial Amendment No. 1, 91 FR 43128.
    \23\ See 15 U.S.C. 78c(a)(12)(A)(iv).
    \24\ See Partial Amendment No. 1, 91 FR 43128.
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    The proposed rule change is reasonably designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest. As discussed above, the exemption's conditions 
are based on safeguards that include the regulatory oversight inherent 
in these vehicles as well as the express requirement that the CTF not 
be formed or maintained for the specific purpose of permitting 
restricted persons to invest in new issues. The proposed rule change is 
thus designed to maintain the integrity of the public offering process 
while facilitating vibrant capital markets by expanding access to IPOs 
through regulated pooled investment vehicles. This will benefit 
investors in CTFs by expanding the underlying investment options in 
their employer-sponsored retirement plans and promote capital formation 
by giving more investors access to IPOs through regulated entities that 
are not formed or maintained to circumvent the purposes of the new 
issue rules.

IV. Conclusion

    For the reasons set forth above, the Commission finds that the 
proposed rule change is consistent with Section 15A(b)(6) of the 
Exchange Act, which requires, among other things, that FINRA rules be 
designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, and, in general, 
protect investors and the public interest.\25\
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    \25\ 15 U.S.C. 78o-3(b)(6).
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    It Is therefore ordered pursuant to Section 19(b)(2) of the 
Exchange Act \26\ that the proposed rule change (SR-FINRA-2026-007) be, 
and hereby is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-20506 Filed 10-6-26; 8:45 am]
BILLING CODE 8011-01-P


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