What Are Capital Acquisition Brokers (CABs)?

Capital Acquisition Brokers (CABs) are financial firms which only engage in a limited number of activities.

The activities practiced by firms who register with FINRA under CAB status may include:

• advising companies and private equity funds on raising capital and corporate restructuring

• acting as placement agents for sales of unregistered securities to institutional investors under limited conditions

Firms who register as Capital Acquisition Brokers (CABs) are subject to fewer restrictions on specific activities, such as advertising, and CABs have less burdensome supervisory requirements than other brokers.

However, firms governed by CAB rules are not permitted (among other things) to accept customers' trading orders, handle customer funds or securities, carry or maintain customer accounts, or engage in proprietary trading or market trading.

Capital Acquisition Broker (CAB) Rules

Capital Acquisition Broker (CAB) rules became effective on April 14, 2017. The CAB rules provide that anyone approved for FINRA membership as a Capital Acquisition Broker and anyone associated with Capital Acquisition Brokers are subject to both the 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. FINRA rules Capital Acquisition Broker firms must follow along with other firms include:

• Standards of commercial honor and principles of trade

• Use of manipulative, deceptive or other fraudulent devices

• Know your customer

• Suitability

• Communications with the public

In addition, Capital Acquisition Broker (CAB) rules outline specific supervisory obligations for CAB firms. These CAB supervisory obligations include:

• Designation of a chief compliance officer

• Borrowing from or lending to customers

• Outside business activities

• Private securities transactions of associated persons

• Anti-money laundering compliance

Capital Acquisition Broker Compliance With CAB & FINRA Rules

To assist Capital Acquisition Broker (CAB) firms, FINRA has provided a CAB Written Supervisory Procedures Checklist.

The checklist is an optional resource designed to assist firms in fulfilling 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.

The CAB Written Supervisory Procedures Checklist is available as a PDF file and Excel spreadsheet.

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