Document ID: SEC-2016-1175-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial IndustryRegulatory Authority, Inc.
Posted Date: 2016-07-07T04:00Z

[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Notices]
[Pages 44372-44373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16110]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78220; File No. SR-FINRA-2015-054]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Partial Amendment No. 2 to 
Proposed Rule Change To Adopt FINRA Capital Acquisition Broker Rules

July 1, 2016.

I. Introduction

    On December 4, 2015, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (the 
``SEC'' or ``Commission'') proposed rule change SR-FINRA-2015-054, 
pursuant to which FINRA proposed to adopt a rule set that would apply 
exclusively to firms that meet the definition of ``capital acquisition 
broker'' (``CAB'') and that elect to be governed under this rule set 
(collectively, the ``CAB Rules'').
    The Commission published the proposed rule change for public 
comment in the Federal Register on December 23, 2015.\1\ The Commission 
received 17 comments in response to the proposed rule change.\2\ On 
March 23, 2016, the Commission published in the Federal Register an 
order to solicit comments on the proposed rule change and to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Securities Exchange 
Act of 1934 (the ``Exchange Act'') \3\ to determine whether to approve 
or disapprove the proposed rule change.\4\ The Commission received one 
comment in response to the Order Instituting Proceedings.\5\
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    \1\ Securities Exchange Act Release No. 76675 (December 17, 
2015), 80 FR 79969 (December 23, 2015) (Notice of Filing File No. 
SR-FINRA-2015-054).
    \2\ Letters from Roger W. Mehle, Chairman and CEO, Archates 
Capital Advisors LLC, dated December 29, 2015; Daniel H. Kolber, 
President/CEO, Intellivest Securities, Inc., dated December 30, 
2016; Arne Rovell, Coronado Investments, LLC, dated January 6, 2016; 
Donna DiMaria, Chairman of the Board of Directors, and Lisa Roth, 
Board of Directors, Third Party Marketers Association, dated January 
12, 2016; Frank P. L. Minard, Managing Partner, XT Capital Partners, 
LLC, dated January 12, 2016; Timothy Cahill, President, Compass 
Securities Corporation, dated January 13, 2016; Mark Fairbanks, 
President, Foreside Distributors, dated January 13, 2016; Dan 
Glusker, Perkins Fund Marketing, LLC, dated January 13, 2016; Steven 
Jafarzadeh, CAIA, Managing Director, CCO Partner, Stonehaven, dated 
January 13, 2016; Richard A. Murphy, Manager, North Bridge Capital 
LLC, dated January 13, 2016; Ron Oldenkamp, President, Genesis 
Marketing Group, dated January 13, 2016; Michael S. Quinn, Member 
and CCO, Q Advisors LLC, dated January 13, 2016; Lisa Roth, 
President, Monahan & Roth, LLC, dated January 13, 2016; Howard 
Spindel, Senior Managing Director, and Cassondra E. Joseph, Managing 
Director, Integrated Management Solutions USA LLC, dated January 13, 
2016; Sajan K. Thomas, President, and Stephen J. Myott, Chief 
Compliance Officer, Thomas Capital Group, Inc., dated January 13, 
2016; Judith M. Shaw, President, North American Securities 
Administrators Association, Inc., dated January 15, 2016; and Peter 
W. LaVigne, Esq., Chair, Securities Regulation Committee, Business 
Law Section, New York State Bar Association, dated January 22, 2016.
    \3\ 15 U.S.C. 78s(b)(2)(B).
    \4\ Securities Exchange Act Release No. 77391 (March 17, 2016), 
81 FR 15588 (March 23, 2016) (Order Instituting Proceedings on File 
No. SR-FINRA-2015-054).
    \5\ Letter from Howard Spindel, Senior Managing Director, and 
Cassondra E. Joseph, Managing Director, Integrated Solutions, dated 
April 8, 2016.
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    In response to comments on the Notice of Filing, on March 29, 2016, 
FINRA filed Partial Amendment No. 1, which amended proposed CAB Rule 
016(c)(2) to clarify that the definition of ``capital acquisition 
broker'' does not include any broker or dealer that effects securities 
transactions that would require the broker or dealer to report the 
transaction under the FINRA Rules 6300 Series, 6400 Series, 6500 
Series, 6600 Series, 6600 Series, 6700 Series, 7300 Series or 7400 
Series. The Commission published Partial Amendment No. 1 for comment in 
the Federal Register on April 15, 2016.\6\ The Commission received one 
comment in response to the Partial Amendment No. 1.\7\
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    \6\ Securities Exchange Act Release No. 77581 (April 11, 2016), 
81 FR 22333 (April 15, 2016) (Notice of Filing of Partial Amendment 
No. 1 to File No. SR-FINRA-2015-054).
    \7\ Letter from Anonymous dated May 3, 2016.
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    On June 28, 2016, FINRA filed Partial Amendment No. 2 to its 
proposed rule change in response to comments on the Notice of Filing. 
Partial Amendment No. 2 is described in Item II below, which has been 
prepared by FINRA. The Commission is publishing this notice to solicit 
comments on Partial Amendment No. 2 from interested persons.

II. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Amendment

    In response to comments on the Notice of Filing, the Order 
Instituting Proceedings, and Partial Amendment No. 1, FINRA filed this 
Partial Amendment No. 2 to amend proposed CAB Rule 016(c)(1)(F) 
regarding a CAB's authority to engage in qualifying, identifying, 
soliciting, or acting as a placement agent or finder in connection with 
unregistered securities transactions. As revised by Partial Amendment 
No. 2, a CAB would be permitted to engage in:

qualifying, identifying, soliciting, or acting as a placement agent 
or finder (i) on behalf of an issuer in connection with a sale of 
newly-issued, unregistered securities to institutional investors or 
(ii) on behalf of an issuer or a control person in connection with a 
change of control of a privately-held company. For purposes of this 
subparagraph a ``control person'' is a person who has the power to 
direct the management or policies of a company through ownership of 
securities, by contract, or otherwise. Control will be presumed to 
exist if, before the transaction, the person has the right to vote 
or the power to sell or direct the sale of 25% or more of a class of 
voting securities or in the case of a partnership or limited 
liability company has the right to receive upon dissolution or has 
contributed 25% or more of the capital. For purposes of this 
subparagraph a ``privately-held company'' is a company that does not 
have any class of securities registered, or required to be 
registered, with the Securities and Exchange Commission under 
Section 12 of the Exchange Act or with respect to which the company 
files, or is required to file, periodic information, documents, or 
reports under Section 15(d) of the Exchange Act.

    The purpose of this proposed rule change is to provide a rule set 
for member firms that advise companies on mergers and acquisitions, 
advise issuers on raising debt and equity capital in private placements 
with institutional investors, or provide advisory services on a 
consulting basis to companies that need assistance analyzing their 
strategic and financial alternatives. Consistent with this purpose, 
this amendment would narrow the range of activities that a CAB would be 
permitted to engage in with regard to securities transactions involving 
institutional investors. Previously proposed CAB Rule 016(c)(1)(F) 
would have permitted a CAB to engage in qualifying, identifying, 
soliciting, or acting as a placement agent or finder with respect to 
institutional investors in connection with purchases or sales of 
unregistered securities. This authority would have been limited by 
proposed CAB Rule 016(c)(2), which would have prohibited CABs from 
effecting securities transactions that would require the broker or 
dealer to report the transaction under the FINRA trade reporting 
rules.\8\
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    \8\ FINRA Rules 6300 Series, 6400 Series, 6500 Series, 6600 
Series, 6700 Series, 7300 Series and 7400 Series.
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    As amended, a CAB would be permitted to engage in qualifying, 
identifying, soliciting, or acting as a placement agent or finder (i) 
on behalf of an issuer in connection with a sale of

[[Page 44373]]

newly-issued, unregistered securities to institutional investors or 
(ii) on behalf of an issuer or a control person in connection with a 
change of control of a privately-held company. ``Control'' and 
``privately-held company'' would have the same meanings as those terms 
had in the SEC staff's 2014 M&A Brokers no-action letter.\9\
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    \9\ See M&A Brokers, 2014 SEC No-Act LEXIS 92 (January 31, 
2014).
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    Accordingly, under revised proposed CAB Rule 016(c)(1)(F), a CAB 
would be permitted to qualify, identify, solicit or act as a placement 
or agent only in two circumstances. First, a CAB could perform these 
functions on behalf of an issuer in connection with an initial offering 
of unregistered securities to institutional investors (as such term is 
defined in proposed CAB Rule 016(i)). Second, a CAB could perform these 
functions on behalf of an issuer or control person in connection with 
an initial or secondary securities transaction related to a change of 
control of a privately-held company. Except as described in proposed 
CAB Rules 016(c)(1)(F)(ii) and 016(c)(1)(G),\10\ a CAB would not 
otherwise be permitted to engage in qualifying, identifying, 
soliciting, or acting as a placement agent or finder in connection with 
secondary securities transactions.
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    \10\ Proposed CAB Rule 016(c)(1)(G) would allow a CAB to effect 
securities transactions solely in connection with the transfer of 
ownership and control of a privately-held company through the 
purchase, sale, exchange, issuance, repurchase, or redemption of, or 
a business combination involving, securities or assets of the 
company, to a buyer that will actively operate the company or the 
business conducted with the assets of the company, in accordance 
with the terms and conditions of an SEC rule, release, 
interpretation or no-action letter that permits a person to engage 
in such activities without having to register as a broker or dealer 
pursuant to Section 15(b) of the Exchange Act.
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    With this Partial Amendment No. 2, FINRA included (1) Exhibit 4, 
which reflects changes to the text of the proposed rule change pursuant 
to this Partial Amendment No. 2, marked to show additions to the text 
as proposed in the original filing as amended by Partial Amendment No. 
1; and (2) Exhibit 5, which reflects the changes to the current rule 
text that are proposed in the proposed rule change, as amended by this 
Partial Amendment No. 2.

III. Date of Effectiveness of the Proposed Rule Change as Modified by 
Partial Amendments No. 1 and No. 2 and Timing for Commission Action

    Within 180 days after the date of publication of the initial Notice 
of Filing in the Federal Register or within such longer period up to an 
additional 60 days (i) as the Commission may designate if it finds such 
longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will issue an order approving or disapproving such 
proposed rule change, as amended.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended by Partial Amendment No. 2, is consistent with the 
Exchange Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2015-054 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2015-054. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of FINRA.
    All comments received will be posted without change. The Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FINRA-2015-054 
and should be submitted on or before July 18, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16110 Filed 7-6-16; 8:45 am]
 BILLING CODE 8011-01-P