SEC Approves FINRA Rule Changes Easing Capital Rules for Non-Traded REITs and DPPs

On July 24, 2026, the SEC approved FINRA rule amendments to Rule 5110 and Rule 5123 that make it easier for underwriter affiliates to put capital into non-traded REITs and direct participation programs (DPPs), and that widen the list of accredited investors whose private placements skip FINRA's filing review entirely. The SEC order, Release No. 34-105987, is capital-formation streamlining for issuers and broker-dealers, not a new layer of investor protection. If you are reading a non-traded REIT or DPP private placement memorandum (PPM), the underlying due-diligence burden just shifted more heavily onto you.

Key Takeaways

• The SEC approved these FINRA amendments on July 24, 2026 (Release No. 34-105987); they are not yet effective, since FINRA still has to issue a regulatory notice announcing the effective date.
• New Rule 5110.01(b)(24) lets underwriter affiliates invest capital in non-traded REITs and DPPs without a case-by-case FINRA exemption, provided the investment is disclosed, priced at NAV, made under Rule 2310, and held for at least 180 days.
• Rule 5123 now exempts private placements sold only to entities with over $5 million in investments and family offices with over $5 million in AUM from FINRA's 15-day filing requirement.
• None of this changes how a fund performs, what fees it charges, or what conflicts exist inside the deal. It changes how much friction the issuer faces getting the deal to market, which is the opposite of new investor protection.

What FINRA Actually Changed

FINRA filed this rule change with the SEC on January 22, 2026, under the docket number SR-FINRA-2026-022. The SEC approved it on July 24, 2026, and the order was published in the Federal Register on July 29, 2026, at 91 FR 47903. That is the paper trail. What it means in practice is two separate but related fixes to how non-traded REITs, DPPs, and private placements get funded and reviewed.

The first fix touches Rule 5110, FINRA's underwriting compensation rule. The second touches Rule 5123, the rule that requires broker-dealers to file private placement offering documents with FINRA within 15 calendar days of the first sale. Both changes are part of FINRA's "Forward" initiative, its multi-year effort to modernize capital formation rules that industry groups like the Institute for Portfolio Alternatives have pushed for years, arguing the old rules created friction without adding investor safeguards.

Underwriting compensation, defined

Underwriting compensation is any payment, item of value, or benefit that a broker-dealer or its affiliates receive in connection with a securities offering. FINRA caps and scrutinizes underwriting compensation because excessive compensation can eat into what investors actually receive, and because undisclosed compensation can create conflicts of interest. If a payment or investment counts as underwriting compensation, it triggers disclosure requirements and compensation limits under Rule 5110.

Until this amendment, when an underwriter's affiliate wanted to invest its own capital into a non-traded REIT or DPP it was underwriting, that investment could be treated as underwriting compensation. To avoid that treatment, the underwriter had to file a case-by-case exemption request with FINRA, typically under Rule 5110(i) or through FINRA's Rule 9600 Series exemption process. That process took time, cost legal fees, and created uncertainty about whether any given deal structure would get approved.

The New Exclusion: Rule 5110.01(b)(24)

New Rule 5110.01(b)(24) removes that bottleneck. It excludes underwriter-affiliate capital investments in non-traded REITs and DPPs from the definition of underwriting compensation automatically, as long as four conditions are met, according to the SQX Alts summary of the SEC order:

• The investment is disclosed in the offering prospectus.
• The investment is priced on a net asset value (NAV) basis, not a discounted insider price.
• The offering is conducted under FINRA Rule 2310, the rule governing suitability and disclosure in DPP and unlisted REIT offerings.
• The affiliate's shares are subject to a 180-day holding restriction before resale.

Meet those four conditions and the affiliate no longer needs to file a separate exemption request. That is the entire point: FINRA codified what had become a routine outcome into a bright-line rule, so issuers do not have to ask permission every time.

Why does this matter for your reading of a PPM? Sponsor and underwriter affiliates seeding a new non-traded REIT or DPP with their own capital is a common and often reasonable practice. It can signal alignment. It also means the underwriter reviewing the deal for FINRA compliance purposes has its own money riding on the same NAV the fund reports to you. The four conditions above are the only real guardrails left on that arrangement, and all four live inside the PPM and prospectus disclosures you would otherwise skim past.

Rule 5123's Expanded Filing Exemption

The second change affects Rule 5123, which normally requires a broker-dealer selling a private placement to file the offering document and any retail communications with FINRA within 15 calendar days of the first sale, unless an exemption applies. Several categories of institutional and accredited investors were already exempt, including sales limited to qualified institutional buyers and institutional accounts.

The amendment adds two new exempt categories, aligning Rule 5123 with the SEC's August 2020 expansion of the accredited investor definition, per the AltsWire summary of the order:

• Entities not formed for the specific purpose of buying the securities in question, with more than $5 million in investments.
• Family offices with more than $5 million in assets under management, along with their "family clients" as defined under the Investment Advisers Act.

If a private placement is sold exclusively to investors in these categories, or the other already-exempt categories, the broker-dealer does not have to file the offering documents with FINRA at all. That is a meaningful expansion, since family offices and large institutional-style entities are exactly the kind of buyer non-traded REIT and DPP sponsors court for anchor capital.

Streamlining, Not Protection: Why the Distinction Matters

I want to be blunt about this because the framing in some coverage blurs it. These amendments do not add disclosure requirements, they remove procedural steps. FINRA's own Rule 5123 rulebook text still describes the filing requirement as a way for FINRA staff to review private placement documents for red flags, retroactively, after the deal has already closed to investors. That review was never a pre-sale approval process to begin with. Removing the filing obligation for a wider set of buyers just means FINRA staff will look at fewer of these deals, not that the deals themselves face less risk.

Think about what a FINRA filing review actually caught, historically: it gave FINRA staff a chance to flag misleading sales materials or missing risk disclosures after the fact, sometimes leading to enforcement action or amended filings. It was never a substitute for your own due diligence on distribution coverage ratios, redemption gates, or sponsor conflicts. So when that filing requirement disappears for large family offices and $5 million-plus entities, you lose a backstop that was already thin. The PPM itself, along with the prospectus and any Rule 2310 suitability disclosures, becomes the only place where the underwriting-compensation exclusion conditions and the deal's actual economics get spelled out.

This could go wrong in a specific way: a sponsor could structure an underwriter-affiliate investment that technically satisfies all four Rule 5110.01(b)(24) conditions, disclosed, NAV-priced, under Rule 2310, 180-day hold, while still creating a conflict that only shows up if you read the fine print on how NAV is calculated and by whom. NAV for non-traded REITs is typically set by the sponsor's own valuation process or a third-party appraiser the sponsor hires, not by a public market price. A NAV-basis investment by an affiliate is not the same protection as an arm's-length, market-priced investment by an unrelated third party.

What to Actually Check in the PPM Now

Given the streamlining, your checklist when reading a non-traded REIT or DPP PPM should get more specific, not less. Look for:

What to look for	Why it matters now
Disclosure of any underwriter-affiliate capital investment	Required under the new exclusion, but disclosure quality varies. Vague language ("an affiliate of the dealer manager may invest") is a yellow flag.
How NAV is calculated and who calculates it	Affiliate investments are priced at NAV. If the sponsor controls the valuation process, the "fair price" protection is only as good as that process.
The 180-day holding restriction language	Confirm it applies to the specific shares the affiliate is buying, not just a general statement elsewhere in the document.
Whether the offering relies on the new Rule 5123 exemption	If sold only to large family offices or $5 million-plus entities, the offering documents were never filed with FINRA. There is no regulatory second set of eyes beyond the broker-dealer's own supervisory review.
Distribution source and coverage ratio	Unchanged by this rule, still the single best indicator of whether a non-traded REIT's distributions come from operating cash flow or from investor capital and debt.

Frequently Asked Questions

Does this rule change mean non-traded REITs and DPPs are now safer investments?

No. The amendments streamline procedural and filing requirements for issuers and underwriters. They do not change disclosure standards for the underlying investment risks, fee structures, or redemption terms of any specific non-traded REIT or DPP. Your risk analysis of a given deal should be unchanged by this rule.

When do these changes take effect?

The SEC approved the amendments on July 24, 2026, but per the SEC order and coverage from JD Supra's summary of the approval, FINRA still needs to announce an effective date in a forthcoming regulatory notice. Deals in the market today are still operating under the prior rules until that notice is published.

Why would an underwriter's affiliate want to invest its own money into a REIT or DPP it is underwriting?

Sponsors often use affiliate capital to seed a new offering, meet minimum capitalization thresholds, or signal confidence to outside investors. It is not inherently improper, and the four conditions in Rule 5110.01(b)(24) exist specifically to keep the practice disclosed, fairly priced, and time-restricted. The concern is not that it happens, it is that investors may not read closely enough to see how it happens in any specific deal.

If a private placement is exempt from Rule 5123 filing, does that mean it received less regulatory scrutiny?

Yes, in a narrow but real sense. Rule 5123 filing exemptions mean the broker-dealer never has to submit the offering document and sales materials to FINRA staff for post-sale review. That is one fewer set of eyes on the paperwork. The broker-dealer's own supervisory and suitability obligations under other FINRA rules still apply regardless of the filing exemption.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.