FINRA “Capital Acquisition Broker” Rules are a Solution for Private Equity and Hedge Funds and Private Investment Banking/M&A

November 02, 2016

The U.S. Securities and Exchange Commission (SEC) approved new FINRA rules on August 18, 2016, pertaining to the registration and regulation of “capital acquisition brokers” (CABs) that elect to be governed under this “broker-dealer-lite” rule set (CAB Rules). Registration as a CAB is a solution for broker-dealers with limited activities, including: capital raising through private placements of private fund interests; certain additional private placements to institutional investors; private equity fund portfolio transactions; and advice to companies regarding mergers and acquisitions (M&A) and corporate restructuring transactions. The CAB Rules were adopted in lieu of the “limited corporate financing broker” rules proposed by FINRA in early 2014, which included similar concepts, but received negative comments from the industry.

The CAB Rules will enter into force on April 14, 2017. On January 3, 2017, FINRA will begin accepting applications for CAB registration from new applicants and existing FINRA members that wish to be re-designated as CABs, and for CAB associated person registration and qualification.

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