Karen A. Steighner, MBA, Financial & Operations Principal
On January 3, 2017, The Securities and Exchange Commission (SEC) approved FINRA’s rule set for firms that meet the definition of “capital acquisition broker” (CAB) and that elect to be governed under this rule set. CAB’s are firms that engage in a limited range of activities, essentially advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions1. More specifically, this set of rules applies to firms engaged in capital raising through private placements; certain additional private placements to institutional investors; private equity fund portfolio transactions; and advice to companies regarding mergers and acquisitions (M&A) as well as corporate restructuring transactions. These Rules provide the basis for a regulatory system that parallels, but is simpler than, the standard FINRA rules for non-CAB broker-dealers.
The 400 Series of the CAB Rules became effective April 14 2017 and relate to the financial and operations obligations of CABs including capital compliance, audit, books and records, and reporting.. According to FINRA, they were designed to align with the particular activities of these firms and create a more efficient and streamlined set of rules that apply to them.
While CAB Rule 411 includes some, it does not include all of the capital compliance requirements of FINRA Rule 4110. More specifically, CAB Rule 411 excludes the provisions of FINRA Rule 4110 that apply to carrying or clearing firms, including those that authorize FINRA to prescribe greater net capital or net worth requirements than would otherwise be applicable. Likewise, the provisions regarding sale-and-leasebacks, factoring, financing, loans and similar arrangements are also excluded. Furthermore, CAB Rule 452(a) establishes a limited set of requirements for the supervision and review of a firm’s general ledger accounts. The requirements of FINRA Rules 4370 (Business Continuity Plans and Emergency Contact Information) or 4380 (Mandatory Participation in FINRA BC/DR Testing Under Regulation SCI) do not apply to CABs.
Karen Steighner is a Series 27 registered Financial and Operations Principal and the CEO of Compliance Advisers, Inc., a regulatory compliance consulting firm based in Denver, CO. For more information about compliance with these and other securities regulations and FINRA rules, please click here or contact us at (303) 795-0400 or by email at
1 FINRA Regulatory Notice 16-37