The Financial Industry and Regulatory Authority (“FINRA”) has filed a proposed rule change with the Securities and Exchange Commission (“SEC”) and is soliciting comments to amend the Capital Acquisition Broker (“CAB”) Rules governing qualification, registration and continuing education of associated persons of CABs (CAB Rules 119-125). The proposed amendment is intended to reflect new consolidated FINRA qualification and registration rules and changes to its continuing education requirements which took effect on October 1, 2018 (collectively, the “Consolidated Rules”).
As set out in SR-FINRA-2019-006, the proposed rule change would amend CAB Rules 119 (Foreign Members and Associates), 121 (Registration Requirements), 123 (Categories of Registration), 124 (Persons Exempt from Registration) and 125 (Continuing Education Requirements) to cross-reference the new FINRA rules governing these areas, and would delete CAB Rule 122 (Qualification Examinations) since this area is covered by other Consolidated Rules.
Existing Rules
CAB Rule 119
Currently CAB Rule 119 (Foreign Members and Associates) subjects CABs to NASD Rule 1090 (Foreign Members) and NASD Rule 1100 (Foreign Associates). The Consolidated Rule Filing deleted NASD Rule 1100 and eliminated the Foreign Associate registration category as of October 1, 2018. Accordingly, FINRA is proposing to amend CAB 119 to delete the provisions subjecting CABs to NASD Rule 1100.
CAB Rule 121
CAB Rule 121 (Registration Requirements) subjects CABs to NASD IM-1000-2 (Status of Persons Serving in the Armed Forces of the United States), NASD IM-1000-3 (Failure to Register Personnel), NASD Rule 1021 (Registration Requirements Principals), and NASD Rule 1031 (Registration Requirements – Representatives). The Consolidated Rule Filing deleted each of these NASD rules as of October 1, 2018. Accordingly, FINRA proposes to amend CAB Rule 121 by eliminating the references to NASD IMs 1000-2 and 1000-3 and NASD Rules 1021 and 1031, and providing that all CABs are subject to FINRA Rule 1210 (Registration Requirements).
CAB Rules 122 and 123
CAB Rule 122 (Qualification Examinations) currently subjects CABs to NASD Rule 1070 (Qualification Examinations and Waiver of Requirements) and NASD Rule 1080 (Confidentiality of Examinations). CAB Rule 123 (Categories of Registration) subjects CABs to NASD Rule 1022 (Categories of Principal Registration), NASD Rule 1032 (Categories of Representative Registration), and paragraph (b)(6) (Operations Professional) of FINRA Rule 1230 (Registration Categories). The Consolidated Rule Filing deleted NASD Rules 1022 and 1032 and paragraph (b)(6) of FINRA Rule 1230 as of October 1, 2018. As of October 1, 2018, FINRA Rule 1220 (Registration Categories) largely governs the substance of these rules, subject to a number of changes. Accordingly, FINRA proposes to eliminate the references to these NASD Rules and FINRA Rule 1230(b)(6) in CAB Rules 122 and 123, and to combine current CAB Rules 122 and 123 into a single CAB Rule 122 (Registration Categories), which will provide that all CABs are subject to FINRA Rule 1220.
New Registration Categories
FINRA Rule 1220 establishes three new principal registration categories: Compliance Officer, Investment Banking Principal and Private Securities Offering Principal. Of particular importance to CABs are the latter two principal registration categories, since they apply in part to the permissible activities of CABs.
CAB Rule 124
FINRA proposes to eliminate the reference to NASD Rule 1060 and to provide that all CABs are subject to FINRA Rule 1230. In addition, because FINRA proposes to combine current CAB Rules 122 and 123 as new CAB Rule 122, and because the rule subjects CABs to FINRA Rule 1230, FINRA proposes to renumber CAB Rule 124 as CAB Rule 123. FINRA also proposes to name CAB Rule 123 “Associated Persons Exempt from Registration.”
CAB Rule 125
CAB Rule 125 provides that all CABs are subject to FINRA Rule 1250 (Continuing Education Requirements). The Consolidated Rule Filing made amendments to FINRA Rule 1250 and renumbered the revised rule as FINRA Rule 1240. Accordingly, FINRA proposes to amend CAB Rule 125 to provide that all CABs are subject to FINRA Rule 1240. Because the rule subjects CABs to FINRA Rule 1240, FINRA proposes to renumber CAB Rule 125 as CAB Rule 124.
Effective Date and Solicitation of Comments
The proposed rule will become effective 30 days from the date on which it was filed, or such shorter time as the Commission may designate. Notwithstanding the timeline for the rule amendment to become effective, the SEC has also solicited comments regarding the amendments, including whether the proposed rule change is consistent with the Act.