Notice2025-19053
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Partial Amendment No. 1 to Proposed Rule Change To Amend the FINRA Capital Acquisition Broker (“CAB”) Rules
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Published
September 30, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 187 (Tuesday, September 30, 2025)</title>
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[Federal Register Volume 90, Number 187 (Tuesday, September 30, 2025)]
[Notices]
[Pages 47017-47020]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-19053]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104097; File No. SR-FINRA-2025-005]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Partial Amendment No. 1 to Proposed Rule
Change To Amend the FINRA Capital Acquisition Broker (``CAB'') Rules
September 26, 2025.
I. Introduction
On June 4, 2025, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend certain FINRA Capital
Acquisition Broker Rules (``CAB Rules''). Specifically, the proposed
rule change would amend the CAB Rules to: permit CABs to qualify,
identify, solicit, or act as placement agents or finders on behalf of
an issuer in connection with a sale of newly issued unregistered
securities to an expanded scope of investors; allow CABs, in limited
[[Page 47018]]
circumstances, to qualify, identify, solicit, or act as placement
agents or finders on behalf of an institutional investor that seeks to
sell unregistered securities that it owns; amend CAB Rule 328 to permit
CAB associated persons to participate in private securities
transactions, subject to the requirements of FINRA Rule 3280 (Private
Securities Transactions of an Associated Person); codify existing FINRA
guidance on CAB compensation; and replace a reference to a withdrawn
SEC no-action letter with a reference to a corresponding Exchange Act
provision.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Act Release No. 103216 (June 10, 2025), 90 FR
25396 (June 16, 2025) (File No. SR-FINRA-2025-005) (``Notice'').
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The proposed rule change was published for comment in the Federal
Register on June 16, 2025.\4\ The public comment period closed on July
7, 2025. The Commission received comment letters related to this
filing.\5\ On July 17, 2025, FINRA consented to extend until September
12, 2025, the time period in which the Commission must approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change.\6\ On September 11, 2025, the Commission filed an order
instituting proceedings to determine whether to approve or disapprove
the proposed rule change.\7\
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\4\ See id.
\5\ The comment letters are available at <a href="https://www.sec.gov/comments/sr-finra-2025-005/srfinra2025005.htm">https://www.sec.gov/comments/sr-finra-2025-005/srfinra2025005.htm</a>.
\6\ See letter from Joseph Savage, Vice President and Associate
General Counsel, FINRA (dated Jul. 17, 2025), <a href="https://www.finra.org/sites/default/files/2025-07/sr-finra-2025-005-extension1.pdf">https://www.finra.org/sites/default/files/2025-07/sr-finra-2025-005-extension1.pdf</a>.
\7\ Exchange Act Release No. 103945 (Sept. 11, 2025), 90 FR
44747 (Sept. 16, 2025) (File No. SR-FINRA-2025-005) (``OIP'').
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On September 24, 2025, FINRA responded to the comment letters
received in response to the Notice \8\ and filed a partial amendment to
the proposed rule change on the proposed rule change (``Partial
Amendment No. 1'').\9\ Partial Amendment No. 1 is described in Item II
below, which has been substantially prepared by FINRA.\10\ The
Commission is publishing this notice to solicit comments on Partial
Amendment No. 1 from interested persons.
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\8\ See letter from Lisa Horrigan, Associate General Counsel,
FINRA (dated Sept. 24, 2025), <a href="https://www.sec.gov/comments/sr-finra-2025-005/srfinra2025005-662647-1977754.pdf">https://www.sec.gov/comments/sr-finra-2025-005/srfinra2025005-662647-1977754.pdf</a>.
\9\ Partial Amendment No. 1 is available on FINRA's website at
<a href="https://www.finra.org/rules-guidance/rule-filings/sr-finra-2025-005">https://www.finra.org/rules-guidance/rule-filings/sr-finra-2025-005</a>.
\10\ The Commission has reformatted FINRA's presentation of its
proposed modifications to, and descriptions of, the proposed rule
change.
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II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Partial Amendment
FINRA is proposing the following amendments to the filing:
A. FINRA Proposes To Amend Proposed CAB Rule 016(c)(1)(F)(i) To Permit
a CAB to Also Act on Behalf of an Institutional Investor Buyer
Currently, CAB Rule 016(c)(1)(F)(i) allows a CAB to qualify,
identify, solicit, or act as a placement agent or finder on behalf of
an issuer in connection with a sale of newly issued unregistered
securities to institutional investors. Partial Amendment No. 1 would
amend this rule to provide that a CAB may represent an issuer or an
institutional investor buyer in connection with a sale of newly issued
unregistered securities. Thus, a CAB would no longer be expressly
limited to acting on behalf of an issuer under CAB Rule
016(c)(1)(F)(i).
One commenter stated that ``there is no material investor
protection or other policy rationale for limiting CABs to acting as
agent on the issuer/seller side of the market for institutional
investor private placements.'' FINRA agrees with this comment. FINRA
believes that allowing a CAB also to act on behalf of an institutional
investor buyer in connection with the sale of newly issued unregistered
securities is consistent with CABs' limited institutional business
model and would not materially impact investor protection.
Following are the changes proposed in Partial Amendment No. 1 with
the proposed changes in the original filing shown as if adopted.
Proposed new language in Partial Amendment No. 1 is italicized;
proposed deletions in Partial Amendment No. 1 are in brackets:
0.16. Definitions
* * * * *
(c) ``Capital Acquisition Broker''
(1) A ``capital acquisition broker'' is any broker that solely
engages in any one or more of the following activities:
* * * * *
(F) qualifying, identifying, soliciting, or acting as a placement
agent or finder:
(i) on behalf of an issuer or institutional investor buyer in
connection with a sale of newly-issued, unregistered securities to
institutional investors[,]; or
* * * * *
B. FINRA Proposes To Amend Proposed CAB Rule 016(c)(1)(H) To Permit a
CAB to Also Act on Behalf of an Institutional Investor Buyer
As originally proposed, proposed CAB Rule 016(c)(1)(H) would have
allowed CABs to act as a placement agent or finder on behalf of an
institutional investor that seeks to sell unregistered securities that
it owns where (i) the purchaser is an institutional investor and (ii)
the sale qualifies for an exemption from registration under the
Securities Act.
Partial Amendment No. 1 would revise the proposed rule to provide
that a CAB may engage in qualifying, identifying, soliciting, or acting
as a placement agent or finder on behalf of an institutional investor
that seeks to sell or buy unregistered securities. Thus, a CAB would no
longer be expressly limited to acting on behalf of a seller under
proposed CAB Rule 016(c)(1)(H). Partial Amendment No. 1 also would
revise subparagraph (i) to provide that both the seller and buyer \11\
of such securities must be institutional investors.
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\11\ FINRA also is revising proposed CAB Rule 016(c)(1)(H) to
refer to a ``buyer'' rather than a ``purchaser'' in order to use
consistent terms throughout paragraph (c).
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As with the sale of newly issued unregistered securities, one
commenter stated that the Proposal \12\ is intended to allow CABs to
provide a wider range of services to clients without materially
impacting investor protection (because the Proposal would not permit
acting as agent for sales to non-institutional investors) and to
promote capital formation. Thus, the commenter stated, the proposed
rule language limiting a CAB to acting for an institutional investor
only ``as seller'' in a permitted secondary market transaction seems
unnecessary. FINRA agrees with this comment. FINRA believes that
allowing a CAB also to act on behalf of an institutional investor buyer
in connection with secondary transactions of unregistered securities is
consistent with CABs' limited institutional business model and would
not materially impact investor protection.
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\12\ For purposes of this document, the ``Proposal'' is a
general reference to this proposed rule change (SR-FINRA-2025-005).
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Following are the changes proposed in Partial Amendment No. 1 with
the proposed changes in the original filing shown as if adopted.
Proposed new language in Partial Amendment No. 1 is italicized;
proposed deletions in Partial Amendment No. 1 are in brackets:
0.16. Definitions
* * * * *
[[Page 47019]]
(c) ``Capital Acquisition Broker''
(1) A ``capital acquisition broker'' is any broker that solely
engages in any one or more of the following activities:
* * * * *
(H) qualifying, identifying, soliciting, or acting as a placement
agent or finder on behalf of an institutional investor that seeks to
sell or buy unregistered securities [that it owns], provided that:
(i) the seller and [purchaser] buyer of such securities [is an] are
both institutional investors; and
(ii) the sale of such securities qualifies for an exemption from
registration under the Securities Act.
C. FINRA Proposes To Amend Proposed CAB Rule 016(c)(1)(F)(ii) To Make
Certain Amendments Related to Change-of-Control Transactions
CAB Rule 016(c)(1)(F)(ii) currently permits a CAB to qualify,
identify, solicit, or act as a placement agent or finder on behalf of
an issuer or control person in connection with the change of control of
a privately held company. This rule defines ``control person'' as a
person who has the power to direct the management or policies of a
company through ownership of securities, by contract, or otherwise.
This rule further specifies that 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. ``Privately held company'' is defined to mean a
company that does not have any class of securities registered, or
required to be registered, with the SEC under Exchange Act Section 12
or with respect to which the company files, or is required to file,
periodic information, documents, or reports under Exchange Act Section
15(d).
This rule text was in part modeled on the Commission staff's 2014
M&A Brokers no-action letter, which the Commission withdrew when the
M&A Brokers Exemption \13\ took effect.\14\ One key difference,
however, is that CAB Rule 016(c)(1)(F)(ii) only permits a CAB to act on
behalf of an issuer or control person. Pursuant to the M&A Brokers
Exemption (and prior to that, the M&A Brokers Letter), an M&A broker is
permitted to represent both buyers and sellers, and to the extent the
M&A broker represents both the buyer and seller in the same
transaction, the M&A broker must provide clear written disclosure as to
the parties it represents and obtain written consent from both parties
to the joint representation.\15\
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\13\ See 15 U.S.C. 78o(b)(13).
\14\ See M&A Brokers, 2014 SEC No-Act. LEXIS 92 (Jan. 31, 2014)
(``M&A Brokers Letter''); see also letter from Emily Westerberg
Russell, Chief Counsel and Associate Director, SEC Division of
Trading and Markets, to Faith Colish (dated Mar. 29, 2023)
(informing attorneys who previously had requested the M&A Brokers
Letter that the staff was withdrawing the letter due to Congress's
adoption of the M&A Brokers Exemption), <a href="https://www.sec.gov/divisions/marketreg/mr-noaction/2014/ma-brokers-013114.pdf">https://www.sec.gov/divisions/marketreg/mr-noaction/2014/ma-brokers-013114.pdf</a>.
\15\ See 15 U.S.C. 78o(b)(13)(B)(vi).
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In addition, the M&A Brokers Letter and the M&A Brokers Exemption
do not refer to a ``control person''; instead, they use the defined
term ``control'' and consider whether control exists upon completion of
the transaction.\16\ By contrast, as noted above, CAB Rule
016(c)(1)(F)(ii) considers whether control exists prior to the
transaction. Because the current CAB Rules use the defined term
``control person'' and permit a CAB to represent only an issuer or
control person selling their shares, ``control'' must be considered
prior to the transaction.
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\16\ See 15 U.S.C. 78o(b)(13)(E)(ii); M&A Brokers Letter, 2014
SEC No-Act. LEXIS 92, at *5-6.
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Finally, the M&A Brokers Letter and the M&A Brokers Exemption
define ``control'' as the power, directly or indirectly, to direct the
management or policies of a company, whether through ownership of
securities, by contract, or otherwise. Current CAB Rule
016(c)(1)(F)(ii) does not contain the language ``directly or
indirectly'' in reference to control under the rule.
CAB Rule 016(c)(1)(G), as proposed to be amended pursuant to the
Proposal, permits CABs to engage in M&A transactions to the same extent
as exempt broker-dealers under the M&A Brokers Exemption. To more
closely align the terms and conditions of these provisions, FINRA is
proposing to amend CAB Rule 016(c)(1)(F)(ii) to eliminate the key
differences described above. Specifically, Partial Amendment No. 1
would delete the term ``control person'' in CAB Rule 016(c)(1)(F)(ii)
and permit a CAB to represent the buyer or the seller in a change of
control transaction. In addition, the rule would be amended to define
the term ``control''--similar to the M&A Brokers Exemption--as the
power, directly or indirectly, to direct the management or policies of
a company, whether through ownership of securities, by contract, or
otherwise.
Control will be presumed to exist if, upon completion of the
transaction, the buyer or group of buyers 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. The proposed definition of ``control'' maintains
the 25% voting securities and capital thresholds under the current
definition of ``control person,'' which thresholds are also found in
the definition of ``control'' under the M&A Brokers Exemption.
FINRA believes that a CAB should be permitted to represent both the
buyer and seller in a transaction involving a change of control of a
privately held company. However, such joint representation could
present conflicts of interest for the CAB. Accordingly, FINRA is
proposing new CAB Rule 016(c)(1)(F)(ii)b. to provide that a CAB may
represent both the buyer and seller in the same transaction under
paragraph (c)(1)(F)(ii) after providing clear written disclosure as to
the parties the CAB represents and obtaining written consent from both
parties to the joint representation. The proposed rule text mirrors the
above-referenced language concerning joint representation found in the
M&A Brokers Exemption, which addresses the same potential conflicts of
interest that FINRA has identified and imposes the same disclosure and
consent requirements as proposed CAB Rule 016(c)(1)(F)(ii)b.\17\
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\17\ FINRA also is proposing that the definitions found in CAB
Rule 016(c)(1)(F)(ii) will appear in new subparagraph a. of the
rule.
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While the proposed changes to CAB Rule 016(c)(1)(F)(ii) are not in
direct response to a comment on the Proposal, FINRA nonetheless
believes they are appropriate for similar reasons to the proposed
changes to allow CABs to represent buyers in certain transactions
(specifically, to represent institutional investor buyers in sales of
newly issued unregistered securities and secondary unregistered
securities transactions). In addition, as noted above, CAB Rule
016(c)(1)(G) permits CABs to engage in merger and acquisition
transactions to the same extent as exempt broker-dealers under the M&A
Brokers Exemption. Given the overlap between these provisions, FINRA
believes that CAB Rule 016(c)(1)(F)(ii) should more closely align with
the terms and conditions of the M&A Brokers Exemption to avoid having
potentially confusing or conflicting requirements under the CAB Rules.
Although CABs would not be limited to representing buyers and
sellers that are institutional investors in a transaction involving a
change of control of a privately held company, FINRA believes that the
proposed changes are nonetheless consistent with
[[Page 47020]]
CABs' limited institutional business model and would not materially
impact investor protection.
Following are the changes proposed in Partial Amendment No. 1 with
the proposed changes in the original filing shown as if adopted.
Proposed new language in Partial Amendment No. 1 is italicized;
proposed deletions in Partial Amendment No. 1 are in brackets:
0.16. Definitions
* * * * *
(c) ``Capital Acquisition Broker''
(1) A ``capital acquisition broker'' is any broker that solely
engages in any one or more of the following activities:
* * * * *
(F) qualifying, identifying, soliciting, or acting as a placement
agent or finder:
* * * * *
(ii) [on behalf of an issuer or a control person] in connection
with a change of control of a privately-held company, regardless of
whether the capital acquisition broker acts on behalf of a seller or
buyer.
a. For purposes of this subparagraph, [a] ``control [person]''
means [is a person who has] the power, directly or indirectly, to
direct the management or policies of a company, whether through
ownership of securities, by contract, or otherwise. Control will be
presumed to exist if, [before] upon completion of the transaction, the
[person] buyer or group of buyers 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[;].
b. A capital acquisition broker may represent both the buyer and
the seller in the same transaction under this paragraph (c)(1)(F)(ii)
after providing clear written disclosure as to the parties the capital
acquisition broker represents and obtaining written consent from both
parties to the joint representation;
D. FINRA Proposes To Amend Proposed CAB Rule 016(m) To Make Conforming
Changes
Because this Partial Amendment No. 1 would delete the defined term
``control person'' under CAB Rule 016(c)(1)(F)(ii), FINRA also is
proposing a technical change to the proposed definition of ``eligible
employee'' under new CAB Rule 016(m), which was proposed in the
Proposal. Specifically, FINRA is proposing to replace ``a control
person'' with ``a person that controls the issuer.''
Following are the changes proposed in Partial Amendment No. 1 with
the proposed changes in the original filing shown as if adopted.
Proposed new language in Partial Amendment No. 1 is italicized;
proposed deletions in Partial Amendment No. 1 are in brackets:
0.16. Definitions
* * * * *
(m) ``Eligible Employee''
The term ``eligible employee'' means, with respect to an issuer for
which the capital acquisition broker has provided services to the
issuer or a [control] person that controls the issuer permitted under
subparagraphs (F) or (G) of Rule 016(c)(1):
* * * * *
E. FINRA Proposes To Amend Proposed CAB Rule 511 To Make Technical
Changes
FINRA also is proposing a technical change to CAB Rule 511
(Securities as Compensation), as proposed in the Proposal, to replace
``paragraphs (c)(1) of Rule 016'' with ``Rule 016(c)(1).'' This change
would correct the inadvertent plural form used in the original proposed
rule text and would be consistent with the format of the subsequent
reference to Rule 016(c)(2) in that sentence.
Following are the changes proposed in Partial Amendment No. 1 with
the proposed changes in the original filing shown as if adopted.
Proposed new language in Partial Amendment No. 1 is italicized;
proposed deletions in Partial Amendment No. 1 are in brackets:
511. Securities as Compensation
A capital acquisition broker may receive compensation in the form
of equity securities of a privately held issuer on behalf of which the
capital acquisition broker provided services permitted under
[paragraphs (c)(1) of] Rule 016(c)(1), provided that the receipt,
exercise or subsequent sale of such securities will not cause the
capital acquisition broker to engage in any activity prohibited under
Rule 016(c)(2).
III. 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. 1, is consistent with the
Act. Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4"><span class="__cf_email__" data-cfemail="9ceee9f0f9b1fff3f1f1f9f2e8efdceff9ffb2fbf3ea">[email protected]</span></a>. Please include
file number SR-FINRA-2025-005 on the subject line.
Paper Comments
<bullet> 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-2025-005. 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 website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the filing will be available for inspection and
copying at the principal office of FINRA. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection.
All submissions should refer to file number SR-FINRA-2025-005 and
should be submitted on or before October 21, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-19053 Filed 9-29-25; 8:45 am]
BILLING CODE 8011-01-P
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