On February 23, the Financial Industry Regulatory Authority’s (FINRA) Regulatory Notice 26-04 announced amended Capital Acquisition Broker (CAB) rules will take effect March 25, 2026.
Under FINRA’s amendments, the CAB definition of “institutional investor” in CAB Rule 016(i) is expanded to include “eligible employees” – a newly defined term covering specified officers, directors and employees of an issuer, or a person controlling an issuer, for which the CAB provided permitted services under CAB Rule 016(c)(1)(F) and (G) – including “knowledgeable employees” under Investment Company Act Rule 3c-5. FINRA adds that where a CAB recommends a securities transaction to an eligible employee who qualifies as a retail customer under Regulation Best Interest or a retail investor for Form CRS, the CAB must comply with Reg BI and Form CRS.
FINRA also amends CAB Rule 016(c)(1)(F)(i) to permit CABs to act as placement agent or finder not only for an issuer but also for an institutional investor buyer in sales of newly issued, unregistered securities, and amends CAB Rule 016(c)(1)(F)(ii). Thus, CABs may represent buyers or sellers in change-of-control transactions for privately held companies, including joint representation of both sides, if the CAB provides clear written disclosure of the parties it represents and obtains written consent from both.
FINRA further defines “control” for these purposes, including a presumption of control upon completion of the transaction at a 25 percent voting-securities or capital threshold, and introduces new CAB Rule 016(c)(1)(H) to allow CABs to act as placement agent or finder for institutional investors buying or selling unregistered securities in secondary transactions where both sides are institutional investors and the sale qualifies for an exemption from registration under the Securities Act of 1933 (for example, Rule 144 or Rule 144A).
Separately, FINRA revises CAB Rule 328 to permit CAB-associated persons to engage in private securities transactions subject to the same written notice, firm approval/recordkeeping/supervision, and acknowledgement framework that applies under FINRA Rule 3280, and adopts new CAB Rule 511 to permit CABs to receive securities of a privately-held issuer client as compensation, subject to limits intended to avoid activities prohibited under CAB Rule 016(c)(2). Finally, FINRA amends CAB Rule 016(c)(1)(G) to reference the statutory M&A brokers exemption in Exchange Act Section 15(b)(13), alongside any SEC rule, release, interpretation or no-action position permitting materially similar activities without broker-dealer registration.
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