By John Filar Atwood
The SEC has issued an order approving a new set of rules drafted by the Financial Industry Regulatory Authority, Inc. (FINRA) to apply solely to firms that meet the definition of “capital acquisition broker.” FINRA created the separate rules because it believes that capital acquisition brokers do not engage in many of the types of activities typically associated with traditional broker-dealers.
Capital acquisition brokers. According to FINRA, capital acquisition brokers are firms that are solely corporate financing firms that 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. The firms often are registered as broker-dealers, FINRA noted, because of their activities and because they may receive transaction-based compensation as part of their services.
FINRA initially published the rules for comment in December 2015, and the SEC received 18 comment letters on the proposal. In response to the comments, FINRA amended the rules In March to clarify that the definition of “capital acquisition broker” does not include any broker or dealer that effects securities transactions that would require the broker or dealer to report the transaction under the FINRA Rules 6300 Series, 6400 Series, 6500 Series, 6600 Series, 6700 Series, 7300 Series or 7400 Series.
Another amendment. After the amendment, the rules were published again for public comment, and the Commission received one letter on the amended version of the rules. In response, FINRA amended proposed CAB Rule 016(c)(1)(F) regarding a CAB’s authority to engage in qualifying, identifying, soliciting, or acting as a placement agent or finder in connection with unregistered securities transactions.
The order granting approval covers the version of the rules that includes both FINRA amendments. FINRA said that the rules subject capital acquisition brokers to the FINRA bylaws, as well as core FINRA rules that FINRA believes should apply to all of its members. The new rules also include other FINRA rules that are tailored to address capital acquisition brokers’ business activities.