The SEC recently approved a set of FINRA rules which creates a new category of broker-dealers known as Capital Acquisition Brokers or CABs. The rules were originally proposed in 2014 and will go into effect on the date set forth in FINRA’s regulatory notice regarding approval of the rules. The CAB rules are intended to provide regulatory relief for broker-dealers that limit their activities to investment banking. However, the relief provided is limited and the constraints on what business may be conducted by a CAB may diminish the interest of many broker-dealers in using this new category.

The Historical Problem -

FINRA has historically applied a single set of requirements for all broker-dealers. Many of these rules make little sense when applied to broker-dealers that limit their business to M&A advisory work or corporate financing transactions. For example, many FINRA rules are designed to protect retail customers who buy and sell securities through their broker-dealer. While the SEC Private M&A No-Action letter provided some relief,2 it does not apply to firms providing corporate financing services or M&A services for public companies.