FINRA Announces Effective Dates for Capital Acquisition Broker Rules

October 24, 2016

On October 17, 2016, the Financial Industry Regulatory Authority (“FINRA”) released Regulatory Notice 16-37, which specifies the highly anticipated effective dates for the new Capital Acquisition Broker (“CAB”) registration category.

Effective January 3, 2017 existing FINRA members or firms that are unregistered and meet the definition of a CAB may begin the FINRA CAB registration process in advance of the April 14, 2017, effective date.

Existing Member Firms
If an existing FINRA member is currently approved to engage in private placement or finder activities, the firm may request CAB status without filing a Continuing Membership Application (“CMA”). Such firms must not intend to change their ownership control or business operations, and must take the following actions:

  1. Submit a request to FINRA to amend the firm’s membership agreement. The request must explicitly indicate that the firm will no longer engage in any activity which falls outside of the scope of CAB registration.
  2. Amend the Form BD as follows:
    • Select “Other” under Item 12, and
    • Update Schedule D, Page 1, Section II, to indicate that the firm intends to operate solely as a CAB and pursuant to the CAB rules.

Existing member firms that elect to convert to CAB status will not incur any application fees.

FINRA will grant a 12-month grace period to firms that convert to CAB status. During this period, the firms may revert to their previous membership agreement without filing a CMA as long as they notify FINRA of the reversion through the Gateway System.

New Applicants
Firms not registered as broker-dealers must submit a New Membership Application through the Gateway System in order to request CAB designation.

New CAB Rules

As indicated in the Compliance Alert ACA issued on August 31, 2016, CABs continue to be subject to the current FINRA By-Laws and must maintain good standing as members of FINRA.

New CAB rules include the following:

  • General Standards (010 Series);
  • Member Application and Associated Person Registration (100 Series)
  • Duties and Conflicts (200 Series);
  • Supervision and Responsibilities Related to Associated Persons (300 Series);
  • Financial and Operational Rules (400 series);
  • Securities Offerings (500 Series); and
  • Investigations and Sanctions, Code of Procedure, and Arbitration and Mediation (Rules 800, 900, 1000).

For more information about the new CAB Rules, please contact your ACA consultant or Dee Stafford in the Los Angeles office at (310) 322-8840.