Comment Period Ends May 6, 2016 on the Proposed Capital Acquisition Broker Rules

The Financial Industry Regulatory Authority (“FINRA”) has proposed the creation of a separate rule set that would apply to firms that meet the definition of a ‘‘capital acquisition broker’’ (“CAB”) and elect to be governed under that rule set.  To address the rule making process with respect to the proposal, the Securities and Exchange Commission (“SEC”) has requested public comments on FINRA’s proposal, and that comment period ends on May 6, 2016.

The proposal establishes a separate rule set (collectively, the “CAB Rules”) that would apply exclusively to FINRA member firms that meet the definition of a CAB, and that elect to be governed by this rule set.  Ultimately, the intent of the CAB Rules are to mitigate the regulatory requirements that are imposed on FINRA member firms that are solely corporate financing firms who advise companies on mergers and acquisitions, advise issuers on raising debt and equity capital in private placements with institutional investors, or provide advisory services on a consulting basis to companies that need assistance analyzing their strategic and financial alternatives. These firms often are generally registered as broker-dealers because  they may receive transaction-based compensation as part of their services.

 Nevertheless, while these firms do not engage in many of the types of activities typically associated with traditional broker-dealers, they are currently subject to the full range of FINRA regulatory oversight.  That oversight includes being subject to the same rules as broker-dealers who carry or act as an introducing broker with respect to customer accounts, handle customer funds or securities, accept orders to purchase or sell securities either as principal or agent for the customer, exercise investment discretion on behalf of any customer, or engage in proprietary trading of securities or market-making activities.

Ultimately, if you are engaged in a business that would fall under the definition of a CAB and the CAB Rules could be of value to your organization, you should take this opportunity to provide your input to the SEC regarding the proposed rules, prior to the comment period ending.

For the full text regarding the proposed CAB Rules, read the Federal Register Notice.