FINRA Proposes to Expand “Capital Acquisition Broker” Rules

On January 30, 2020, the Financial Industry Regulatory Authority (“FINRA”) proposed amendments to its “capital acquisition broker” rules (the “CAB Rules”) to broaden the coverage of the rules.  The CAB Rules were adopted in 2016 to allow a broker-dealer to comply with a lesser set of requirements if it is engaged in a limited set of activities including acting as a placement agent for a private placement to “institutional investors”.  The proposed amendments would, among other things,

* broaden “institutional investors” to include knowledgeable employees;

* allow CAB’s to also register as investment advisors for institutional investors; and

* allow CAB’s to undertake a secondary private placement where they undertook the primary and are acting under an exemption under the Securities Act of 1933.

Comments are due by March 30, 2020.