Since the SEC issued its “no-action” letter in January 2014 regarding merger and acquisition (M&A) brokers who did not register with the SEC as a broker and complied with certain conditions, observers wondered if state securities regulators would step-to-the-plate and provide similar regulatory relief for M&A brokers.

Further, since the SEC no-action letter, legislation has been introduced in Congress to exempt M&A brokers from SEC broker-dealer registration that would go even further, if made into law, in providing regulatory relief for such unregistered brokers.

NASAA has drafted a model rule to be implemented by the 50 state securities regulators and of the District of Columbia that would exempt an M&A broker from state broker-dealer licensing or registration to work side-by-side with the SEC’s no-action letter and possibly federal legislation that may be enacted. Even if this model rule is adopted by NASAA, it would still be up to each state to determine whether or not to adopt the rule by rule or order under its state securities law.

The model rule which is being considered by NASAA and for which it is asking for public comments until May 17, 2015, would serve to exempt from state broker-dealer licensing or registration, an M&A broker under the following conditions:

1. Excluded Activities.  a. The exemption would not be available if the M&A broker directly or indirectly takes custody of funds or securities of issuers involved in the M&A transaction; or

b. Engages on behalf of an issuer in a IPO or that is already a reporting company under Section 12 of the Securities Exchange Act of 1934; or engages on behalf of any party in a transaction involving a public shell company. In addition, the private company involved in the M&A transaction would need to meet either one or both of the following in the fiscal year ending immediately before the M&A transaction:

i. The earnings of the company before interest, taxes, depreciation, and amortization is less than $25,000,000;

ii. The gross revenues of the company are less than $250,000,000.

2. Disqualifications. The exemption would not be available if the M&A broker is subject to certain “bad-boy” provisions as specified.