FINRA Notifies Firms of Upcoming Effective Date for Capital Acquisition Broker Pay-to-Play Rules

FINRA notified firms that the SEC approved Capital Acquisition Broker ("CAB") Rule 203 "Engaging in Distribution and Solicitation Activities with Government Entities," and Rule 458 "Books and Records Requirements for Government Distribution and Solicitation." The rules apply established "pay-to-play" and related recordkeeping requirements to the activities of member firms that are regulated as CABs. The rules will become effective December 6, 2017.

The CAB rules are a separate set of FINRA rules adopted for firms that meet the definition of a "capital acquisition broker" and that elect to be governed under the CAB rule set. CABs are firms engaging in a limited range of activities, advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for the sales of unregistered securities to institutional investors. CABs are not permitted to, among other things, carry or maintain customers' accounts, handle customers' funds or securities, accept customers' trading orders, or engage in proprietary trading or market-making.

The new rules were adopted because existing capital acquisition broker rules did not "expressly provide that [FINRA pay-to-play rules] apply to CABs."