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More Unaswered/Answered Broker-Dealer Registration Questions

Posted in Broker-Dealer Registration, Broker-Dealer Regulation, Mergers and Acquisitions

Recently, the SEC’s Division of Trading and Markets Staff issued no action relief allowing those persons and entities specializing in mergers and acquistions (“M&A Broker”) to avoid broker-dealer registration.  See http://www.sec.gov/divisions/marketreg/mr-noaction/2014/ma-brokers-013114.pdf.

The staff defined a M&A Broker as “a person engaged in the business of effecting 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…  .” Id.  However, the Staff did not permit unfettered non-registration for M&A Brokers.  Instead, the Staff limited the work these people and entities could perform to instances where the M&A Broker was not able to: (1) bind a party to any transaction; (2) hold funds or securities as part of the transaction;  (3) participate in a public offering; and (4) participate unless the buyer, ultimately, owned a private company.   As is typical, the Staff said the no-action letter only applied to the described transaction, however, it does shed light on the Staff’s thinking in this area.

In short, this no-action letter may prove to be a major opening into avoiding broker-dealer registration.  However, we caution our readers that it may be sometime before the effects are all played out, and please keep in mind that the Staff is notorious for providing inconsistent positions in subsequent no-action letters.