SEC Issues No-Action Letter Providing Relief to Private Company M&A Brokers

March 11, 2014
Harter Secrest & Emery LLP

The staff of the Division of Trading and Markets of the Securities and Exchange Commission issued a no-action letter1 dated January 31 and revised on February 4 that permits an M&A broker to effect securities transactions in connection with the transfer of ownership of a privately-held company without registering as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934. The no-action letter deviates substantially from prior SEC guidance and should provide relief for private company M&A brokers under certain circumstances.


Section 15(a) of the Exchange Act provides that any broker or dealer making use of any instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security (subject to certain exceptions) must register with the SEC. The Exchange Act denes the term “broker” to mean any person engaged in the business of effecting transactions in securities for the account of others. The SEC has long viewed transaction-based compensation as a key indicator of broker activity. Registration requires a lengthy application process and the application of Exchange Act regulations to the intermediary. Under these rules, intermediaries involved in M&A transactions have been required to register as broker-dealers in connection with their advisory role in transactions structured as stock sales or mergers. However, if an intermediary were involved in a transaction structured as an asset sale that did not involve the sale of securities, the intermediary could engage in the same types of activities without registering as a broker-dealer.

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