What Are Capital Acquisition Brokers (CABs)?

by Julie Mendel, Senior Product Manager | Dec 11, 2019

CAB Rules and Supervisory Obligations

What Are Acquisition Brokers? CAB Rules & Supervisory Regulations

Capital Acquisition Brokers (CABs) engage in limited activities, including: 

  • advising companies and private equity funds on capital raising and corporate restructuring, and
  • acting as placement agents for sales of unregistered securities to institutional investors under limited conditions.

Firms that choose to be governed under CAB rules are not permitted to:

  • carry or maintain customer accounts,
  • handle customers’ funds or securities,
  • accept customers’ trading orders, or
  • engage in proprietary trading or market-making.

CAB rules[i] became effective in 2017 and provide that anyone approved for membership in FINRA as a capital acquisition broker and anyone associated with capital acquisition brokers are subject to both FINRA By-Laws, unless the context requires otherwise, and the Capital Acquisition Broker Rules.

The CAB rules require that firms adhere to certain FINRA rules including:

  • The standards of commercial honor and principles of trade;
  • Use of manipulative, deceptive or other fraudulent devices;
  • Know your customer;
  • Suitability; and
  • Communications with the Public.

In addition, CAB rules outline supervisory obligations including:

  • Designation of a chief compliance officer;
  • Borrowing from or lending to customers;
  • Outside business activities;
  • Private securities transactions of associated persons; and
  • Anti-money laundering compliance.

To assist you, FINRA provides a CAB Written Supervisory Procedures Checklist as an optional guide to assist them in fulfilling their obligations under the CAB Rules. The checklist outlines key topics representative of the business activities typically engaged in by CAB members and permissible under FINRA CAB Rules.