Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The Broker-Dealer section of the North American Securities Administrators Association (NASAA) has proposed a model uniform state rule (the “Model Rule”) that would exempt parties that act only as deal brokers in M&A transactions from regulation under applicable state broker-dealer laws.

Last January, the SEC released a no-action letter (the “SEC Letter”) in which it outlined circumstances in which it would not recommend enforcement against a party for failing to register as a broker-dealer pursuant to Section 15(a) of the Exchange Act when the party acted as an M&A broker (shopping an M&A transaction, providing relating services, and earning a fee in connection with the closing of a successful transaction) (our prior coverage here). The SEC Letter defined the concept of an “M&A Broker” and provided that it would not seek enforcement action against an M&A Broker that engaged solely in M&A Transactions for privately held companies, subject to several condition and limitations.

The Model Rule would provide exemption from state broker-dealer registration requirements, but not from other provisions, such as anti-fraud measures.

Under the Model Rule, a “Merger and Acquisition Broker” is defined as a broker or person associated with a broker engaged in the business of effecting transactions in securities solely in connection with the transfer in ownership of an “eligible privately held company,” if the broker or person reasonably believes that (i) following the transaction the acquirer will control and be active in the management of the business of the target (or its assets), and (ii) any person receiving securities in exchange for securities or assets of the target will receive or have access to certain financial information of the issuer prior to becoming legally bound to consummate the transaction. An “eligible privately held company” for purposes of the Model Rule is a company that (i) does not have securities registered under the Exchange Act and is not required to file periodic reports under the Exchange Act, and (ii) in its prior fiscal year had revenue of less than $250 million and EBITDA of less than $25 million.

A Merger and Acquisition Broker is only eligible for the exemption under the Model Rule if it avoids engaging in certain “Excluded Activities” and is not subject to certain final orders or disqualifications under the federal securities laws. The Excluded Activities consist of (i) having custody or control of the funds or securities that are the subject of the transaction, (ii) engaging in any public offering, and (iii) engaging in a transaction involving a shell company.

Although the Model Rule generally tracks the SEC Letter closely, there are conditions that were of note to the SEC but that are not present in the Model Rule, such as:

  • The requirement that an M&A broker not have the ability to bind a party to an M&A transaction
  • The requirement that the M&A broker not provide direct or indirect financing to any party for an M&A transaction
  • Certain disclosure requirements if the M&A broker will represent both buyers and sellers in a transaction
  • The requirement that the M&A broker cannot have assisted in the formation of a buying group in an M&A transaction.

The NASAA is requesting comment on the Model Rule, including comments on a set of specific questions included with the rule, until February 16, 2015.


Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.