United States

FINRA's new Capital Acquisition Broker rules


On August 18, 2016, the SEC issued an order granting its approval of a new set of FINRA rules under which capital acquisition brokers can elect to be governed. The term “capital acquisition broker” (CAB) is defined by the new rules as any broker that solely engages in 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 a company 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 (a) on behalf of an issuer in connection with a sale of newly issued, unregistered securities to institutional investors, or (b) on behalf of an issuer or control person in connection with a change of control of a privately held company
  • 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, the company’s securities or assets, to a buyer that will actively operate the company or the business conducted with the company’s assets, 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-dealer under Section 15(b) of the Exchange Act

CABs may not engage in many of the types of activities typically associated with traditional broker-dealers, such as carrying or acting as an introducing broker with respect to customer accounts or handling customers’ funds or securities, etc. Under the new rules, firms that meet the narrow definition of a CAB, would be subject to the FINRA by-laws, as well as core FINRA rules that FINRA believes should apply to all of its members. The rule set applicable to CABs also includes other FINRA rules that are tailored to address CABs’ business activities.