A More Practical Approach to Broker-Dealer Registration

Recent SEC no-action letter provides business brokers relief from federal broker-dealer registration requirement.

On January 31, 2014, the Division of Trading and Markets of the U.S. Securities and Exchange Commission (SEC) issued a no-action letter (Letter) permitting certain “M&A Brokers” (defined below) to facilitate securities transactions in connection with the purchase and sale of privately-held companies and receive transaction-based compensation without registering as broker-dealers under Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act).

While the Letter is focused on the activities of so-called “business brokers,” it is noteworthy beyond this limited context. First, the Letter follows the trend begun in no-action letters issued last year to AngelList and FundersClub that indicates a certain thawing of the Trading and Markets staff’s views on what constitutes broker-dealer activity for purposes of the registration requirements of Section 15(a) of the Exchange Act. In those letters, however, the critical element upon which relief was granted was that no compensation received by the investment advisers could be deemed “transaction-based.” The Letter marks one of the very few times the staff has permitted transaction-based compensation to be received by persons who arguably fall within the definition of “broker” under the Exchange Act, but are not registered as such.

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Topics:  Broker-Dealer, Brokers, No-Action Letters, SEC, Securities Exchange Act

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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