FINRA Capital Acquisition Broker Rules Out For Comment From SEC

The SEC has sent the FINRA propose rules for capital acquisition brokers out for comment.  Comments are due on April 13, 2016.  As you may remember these rules are the outcome of the No-Action letter previously issued by the SEC relating to the registration of a finder as a broker-dealer.

Under the proposed rules capital acquisition brokers or CABs would be required to register with FINRA under limited rules related to their activities.

CABs would be limited to the following activities:

  • Advising an issuer including a private fund, concerning its offerings or other capital raising activities
  • Advising a company regarding its purchase or sale of a business or corporate restructuring
  • Advising a company regarding the selection of an investment banker
  • Assisting in the preparation of offering materials on behalf of the issuer
  • Providing fairness opinions, valuation services, expert testimony, litigation support, and negotiation and structuring services
  • Qualifying, identifying, soliciting or acting as the placement agent or finder with respect to institutional investors in connection with purchases or sales of unregistered securities; and
  • Effecting securities transactions solely in connection with the transfer of ownership and control of a privately – held company through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the company.

Advisory services must be for privately-held companies. Offerings of securities must be in the form of private placements to an “institutional investor”, which has the same meaning as in FINRA Rule 2210.

FINRA maintains that the proposed rules are a streamlined version of rules applicable to all broker-dealers.  The CAB rules outline procedures for membership, supervision, and conduct.

CABs will be required to have written supervisory procedures, a chief compliance officer and a FinOp.  Persons associated with a CAB will be required to complete registration examinations and be subject to regulatory and firm element requirements.

While these rules take a good step toward limiting registration requirements for broker-dealers engaged solely in the capital formation and merger and acquisition areas, there are still open issues with respect to SEC rules and state securities rules.

Please click here to read the entire SEC release.

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