On 6 November 2017, FINRA issued rules on pay-to-play and capital acquisition brokers (cabs).
Rules become effective on 6 December 2017, the text of the rules is set forth in Attachment A.
Background:
Scope of Activity
- Applies to firms that are solely corporate financing firms that advise companies on M&A.
- Advise issuer on raising debt and equity in private placement with institutional investors.
- Or provide advice on consulting basis, to company analyzing their strategic alternatives.
- The firms often are registered broker-dealers as receive transaction-based compensation.
- However, the firms do not do many types of activities associated with traditional dealers.
- They do not act as introducing brokers for customer accounts, or handle customer funds.
- Do not take orders to purchase or sell securities either as principal or agent for customer.
- Or exercise investment discretion for customer, or proprietary trading or market-making.
Regulation
- CAB required to meet FINRA by-laws, and core rules that are seen as applying to all firms.
- Rule-set would include other FINRA rules that are tailored to address CAB business sector.
- On general standards CAB (Rule 010 Series) as well as duties and conflicts (CAB Rule 200).
- Includes registration rules, standard of admission, and for existing firms to change status.
- Streamlined set of conduct rules, including standards of honor, use of deceptive practices.
- Includes exception to the customer-specific suitability obligation to institutional investors.
- CABs only permitted act as agent in a securities transaction, in very narrow circumstances.
