Happy Masters Friday!
End Game of Mini-Prime Consolidation? – earlier this week Cowen announced the acquisition of Convergex. For Cowen, this is the second introducing prime (mini-prime) acquisition in the last two years, the earlier coming when they acquired Concept Capital in July of 2015.
There are a number of interesting things about this transaction – first, it appears that final consolidation of the introducing prime space has occurred (Cowen and BTIG). Given the reluctance for any major prime to accept new introducing business, it seems unlikely we would see another group try to get into this space, at least in the current environment. Second, Cowen has been very active and aggressive with its expansion activities and its efforts to rebrand. Just last week Cowen announced it received a $100M investment from China Energy Company Limited along with a promise to provide up to $175M in debt financing (presumably this capital was for the purchase of Convergex). Additionally, we have heard small rumors that Cowen is in the process of rebranding their Ramius division to more align with the Cowen name.
FINRA Blockchain Report Comments Posted – in January FINRA published a report entitled Distributed Ledger Technology: Implications of Blockchain for the Securities Industry. The report provides an overview of blockchain technology and discusses, among other items, the regulatory considerations for groups who are implementing this technology in certain areas of the securities industry. FINRA asked for comments on the report and that comment period ended last Friday. There were a number of interesting comments from both regulatory groups as well as market participants. In the coming weeks we are planning to provide more analysis on FINRA and other regulatory body efforts in this space. An overview of the report and links to the comment letters can be found here.
Capital Acquisition Broker (CAB) rules effective April 14, 2017 – in our opinion, there have been a number of misguided attempts by FINRA to modernize and ease certain regulatory frameworks (see our earlier post on the proposal to scrap the Series 7 exam). Late last year the SEC approved a new category of broker-dealer called a Capital Acquisition Broker which could engage in certain private placement, investment banking and capital raising activities and be subject to a separate set of broker-dealer rules and regulations. In theory this might be a good thing, but there are a couple of issues with these new rules. First, the subset of potential groups these rules apply to are very limited (only firms raising money from very large institutions and qualified purchasers can be CABs). Second, the CAB rules really aren’t that different from the normal FINRA rules applicable to broker-dealers. The real issue is that FINRA does not have staff who are appropriately trained to understand all the various business models that broker-dealers may have. We do note that we (and many others) have brought these concerns to FINRA’s attention and we believe the new FINRA president is working to make this better.
In any event, the CAB rules will be effective next Friday and more information on CABs can be found here for those who are interested. We have not heard of any groups decided to go the CAB route instead of the traditional broker-dealer route, and we will be interested to hear if this changes in the future.
SEC Increases Crowdfunding Limits – pursuant to the requirements under the Dodd-Frank Act that the SEC increase the limits proscribed in the crowdfunding regulations, the SEC increased certain limits under those regulations. Among other increases, the maximum aggregate amount an issuer can sell in a 12-month period increases to $1,070,000 from $1,000,000 and the maximum amount that can be sold to an investor in a 12-month period increases to $107,000 from $100,000. More information on the adjustments can be found in the SEC press release on this topic.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP and focuses his legal practice on the investment management industry. He can be reached directly at 415-868-5345.