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An Overview of FINRA Capital Acquisition Broker Rules

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  • Posted on: Nov 23 2016

The Financial Industry Regulatory Authority (“FINRA”) recently announced that the new Capital Acquisition Broker (“CAB”) Rules will become effective April 14, 2017. While CABs still must be registered with the Securities and Exchange Commission, they will be subjected to a reduced series of FINRA rules and compliance obligations.

Capital Acquisition Brokers at a Glance

Capital Acquisition Brokers are those solely involved in private placements and mergers and acquisitions involving institutional investors and qualified purchasers. CABs are barred from engaging in both proprietary trading and secondary sales and limited to the following activities:


  • Advising companies on mergers and acquisitions
  • Advising issuers on raising debt and equity capital in private placements
  • Acting as placement agent
  • Providing strategic and financial advisory services


It is important to note that FINRA emphasized the word “solely” in its announcement, which means for all intents and purposes that a CAB may engage only in business activities related to the securities industry and not other businesses, such as insurance or real estate. Moreover, in its capacity as a placement agent, a CAB can make offerings only to institutional investors, including:

  • Any bank, savings and loan association, insurance company or registered investment company
  • Any governmental entity or subdivision of a governmental entity
  • Certain employee benefit, stock bonus or profit-sharing plans
  • Any individual or entity having total assets of at least $50 million
  • Any “qualified purchaser” as defined under Investment Company Act

Broker-dealers that carry customer accounts, accept purchase and sale orders, hold or handle customer funds or that engage in a range of other activities specified in FINRA’s rule do not meet the definition of a CAB. At the same time, CABs may engage in activities in the normal course of conducting business, such as such as opening bank accounts, renting or owning office space and entering into arrangements with third-party vendors.

The Takeaway

While the FINRA By-Laws and other core rules will still apply to CABs, certain other rules will be tailored to the specific activities, dealings and communications with institutional investors. For example, CABs will be permitted to provide forecasts and projections in offering materials and there is no requirement to file advertising or sales literature with FINRA. Lastly, CABs will have reduced supervisory requirements with respect to annual meetings and internal inspections.

While the rule does not become effective until April 14, 2017, FINRA will begin accepting applications beginning January 3, 2017. If you further questions about the CAB rules or need assistance with the application process, you should engage the services of an attorney with expeience in FINRA rules and regulations.

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