FINRA proposes changes to regulatory regime for limited corporate financing brokers

By Edward J Johnsen

The Financial Industry Regulatory Authority (FINRA) has issued Regulatory Notice 14-09 soliciting comments on a proposed new regulatory structure for firms that limit their activities to advising companies and private equity funds on capital raising and corporate restructuring. The proposal, published on 26 February, is one of the most important advanced by FINRA in some time.

Many firms limit their business to corporate advisory services, but this nevertheless can fall within the broad definition of broker-dealer activity. Such firms advise companies on mergers and acquisitions, assist them in raising capital in private placements to institutional investors and/or help them assess strategic and financial options.

The Securities and Exchange Commission and FINRA (and, from time to time, the courts) have taken the position that such firms must register as broker-dealers because they are involved in key points in the distribution of securities. This is especially true when such firms receive transaction-based compensation for their services…

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