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December 05, 2022

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FINRA Requests Comments on Proposed Amendments to the Capital Acquisition Broker Rules

On January 30, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-04 requesting comment on the proposed amendments to the Capital Acquisition Broker (CAB) rules.

CABs are firms that only engage in a limited number of activities, such as acting as placement agents for sales of unregistered securities to institutional investors and advising companies and private equity funds on capital raising and corporate restructuring. Firms electing CAB status are subject to fewer restrictions on specified activities such as advertising and have less burdensome supervisory requirements. However, CAB firms are not permitted to engage in other broker-dealer activities, such as accepting customers’ trading orders, carrying customer accounts, handling customers’ funds or securities, or engaging in proprietary trading or market-making.

The proposed amendments would:

  • allow CABs to register as investment advisers, so long as the advisory services are provided only to institutional investors;

  • broaden the definition of institutional investor to include “knowledgeable employees” under Rule 3c-5 of the Investment Company Act of 1940 and persons performing similar roles at other private issuers for which CABs act as placement agents;

  • expand the ability of CABs to act as placement agent for secondary trades of unregistered securities;

  • allow CABs to be compensated in the form of securities issued by a privately held client, rather than in cash, provided that the receipt, exercise or subsequent sale of such securities will not cause the CAB to engage in activities prohibited under CAB Rule 016(c)(2); and

  • require CABs whose business model creates potential insider trading risks to establish, maintain and enforce written policies and procedures that are reasonably designed to mitigate and prevent those risks.

Comments must be received by FINRA by March 30. The Notice is available here.

©2022 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 39

About this Author

Susan Light, Katten Law Firm, Finance Law Attorney, New York

Susan Light focuses her practice on financial services regulatory matters. She counsels broker-dealers, hedge funds, investment banks and financial services clients on enforcement issues involving the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), other self-regulatory organizations (SROs) and state and federal regulatory authorities. She has particular experience related to sales practice issues, financial and operational issues, anti-money laundering, crowdfunding, cybersecurity, and cryptocurrencies.

Michael T. Foley, Katten, Lawyer, Finance, FINRA, Chicago
Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange...


Adam Haft is an associate in the Financial Services practice.

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