The Securities and Exchange Commission is seeking comments on a Financial Industry Regulatory Authority proposal to create a set of rules for FINRA member firms that meet the definition of “capital acquisition broker” (CAB) and elect to be governed by the rules. Under the proposed rules, qualifying firms would be eligible to receive transaction-based compensation and would be subject to reduced regulatory burdens. The reduced regulatory burdens under the proposed rule change include that CABs would not be subject to the provisions of FINRA’s supervision rule that require (1) annual compliance meetings, (2) review and investigation of transactions, and (3) supervisory procedures for supervisory personnel. In addition, the chief executive officer of a member firm that qualifies and elects to be treated as a CAB would not be required to certify the firm’s compliance program annually, and the proposed rules eliminate the requirement to maintain a business continuity plan. However, CABs still would need to comply with some FINRA rules that may be burdensome, including net capital requirements and obtaining audited financial statements.
Under the proposed rule, the term CAB means any broker that solely engages in any one or more of the following activities:
- advising an issuer, including a private fund, concerning its securities offerings or other capital raising activities;
- advising a company regarding its purchase or sale of a business or assets or regarding its corporate restructuring, including a going-private transaction, divestiture or merger;
- advising an issuer regarding its selection of an investment banker;
- assisting in the preparation of offering materials on behalf of an issuer;
- providing fairness opinions, valuation services, expert testimony, litigation support, and negotiation and structuring services;
- qualifying, identifying, soliciting or acting as a 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, in accordance with the terms and conditions of an SEC rule, release, interpretation or “no-action” letter that permits a person to engage in such activities without having to register as a broker or dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934.
Comments are due on January 16.
To see the notice of filing of the proposed rule change, click here.