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ARTICLE · 10 FEBRUARY 2020

FINRA Proposes Expanding Eligibility To Operate As A CAB

Hogan Lovells Cadwalader
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FINRA proposed amendments to the capital acquisition broker ("CAB") rules to widen the scope of firms eligible to operate as CABs and to make certain changes to the regulatory requirements applicable to CABs.

United StatesFinance and Banking
Mark Highman
Mark Highman
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FINRA proposed amendments to the capital acquisition broker ("CAB") rules to widen the scope of firms eligible to operate as CABs and to make certain changes to the regulatory requirements applicable to CABs.

According to FINRA, the proposed amendments would do the following.

  • Permit CABs to act as investment advisers if their only advisory clients are "institutional investors."
  • Permit a CAB that privately places an issuer's securities to agent secondary transactions of those securities between "institutional investors," in accordance with an exemption from registration under the Securities Act of 1933.
  • Expand the definition of "institutional investors" to include the "knowledgeable employees" of a private fund or issuer to which the firm provided CAB services. For this purpose, "knowledgeable employee" would be defined in accordance with Investment Company Act Rule 3c-5. Currently, "institutional investors" are defined in CAB Rule 016(i) to include

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