SEC Rule 15a-6 / “Chaperoning”

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Impact Capital Partners LLC is registered with Pinnacle Capital Securities, LLC, who is authorized by FINRA to act as a chaperoning US Broker-Dealer to Foreign entity Broker-Dealers (FBDs) wishing to effect unsolicited transactions in the US.

Background

Rule 15a-6 under the Securities Exchange Act of 1934 provides conditional exemptions from broker-dealer registration for foreign broker-dealers1 that engage in certain specified activities involving U.S. investors. These activities include:

1) Effecting unsolicited securities transactions;
2) Providing research reports to major U.S. institutional investors, and effecting transactions in the subject securities with or for those investors;
3) Soliciting and effecting transactions with or for U.S. institutional investors or major U.S. institutional investors through a “chaperoning broker-dealer”2; and
4) Soliciting and effecting transactions with or for registered broker-dealers, banks3 acting in a broker or dealer capacity, certain international organizations, foreign persons temporarily present in the U.S., U.S. citizens resident abroad, and foreign branches and agencies of U.S. persons.4
In adopting Rule 15a-6, the SEC sought “to facilitate access to foreign markets by U.S. institutional investors through foreign broker-dealers and the research that they provide, consistent with maintaining the safeguards afforded by broker-dealer registration,” and “to provide clear guidance to foreign broker-dealers seeking to operate in compliance with U.S. broker-dealer registration requirements.”5

Since that time, the staff has provided guidance on the operation of Rule 15a-6 in various no-action letters. For example, in a 1996 letter to counsel for seven registered broker-dealers, staff indicated that they would not recommend enforcement action to the SEC if a foreign broker-dealer affiliated with any of the firms named in the letter (each, a “U.S. Affiliated Foreign Broker-Dealer”) effected transactions in Foreign Securities (as defined therein) with a U.S. Resident Fiduciary (as defined therein) for Offshore Clients (as defined therein) without the U.S. Affiliated Foreign Broker-Dealer either registering with the SEC or effecting the transactions in accordance with Rule 15a-6.6 The following year, staff informed counsel to nine registered broker-dealers (including all of the firms party to the Seven Firms Letter) that they would not recommend enforcement action to the SEC if any U.S. Affiliated Foreign Broker-Dealer (as modified to reflect the addition of two additional firms party to the letter) engaged in certain activities without the U.S. Affiliated Foreign Broker-Dealer either registering with the SEC as a broker-dealer or effecting the transactions in accordance with Rule 15a-6.7 Among other things, the Nine Firms Letter:

1) Established an expanded interpretation of the definition of “major U.S. institutional investor” to include “any entity, including any investment adviser (whether or not registered under the Investment Advisers Act), that owns or controls (or, in the case of an investment adviser, has under management) in excess of $100 million in aggregate financial assets,” subject to certain limitations set forth in the letter;

2) Permitted a foreign broker-dealer or its agent, in reliance on Rule 15a-6(a)(3), to transfer funds or securities directly to a U.S. institutional investor or its agent so long as: (i) the transactions involve Foreign Securities (as defined in the Seven Firms Letter) or U.S. government securities; (ii) the foreign broker-dealer agrees to make available to the chaperoning broker-dealer all clearance and settlement information related to such transfers; (iii) the foreign broker‑dealer is not acting as a custodian of the funds or securities of the U.S. investor; and (iv) the foreign broker-dealer is not in default to any counterparty on any material financial market transaction; and

3) Permitted foreign associated persons of a foreign broker‑dealer, without the participation of an associated person of a chaperoning broker-dealer, to (i) engage in oral communications from outside the U.S. with U.S institutional investors (that do not qualify as major U.S. institutional investors) where such communications take place outside of the trading hours of the New York Stock Exchange, so long as the foreign associated persons do not accept orders to effect transactions other than those involving Foreign Securities, and (ii) have in-person contacts during visits to the U.S. with major U.S. institutional investors (as such definition was expanded in the letter), so long as the number of days on which such in-person contacts occur does not exceed 30 per year and the foreign associated persons engaged in such in‑person contacts do not accept orders to effect securities transactions while in the U.S.8

******************FOOTNOTES******************
1 Rule 15a-6(b)(3) defines foreign broker-dealer to include “any non‑U.S. resident person (including any U.S. person engaged in business as a broker or dealer entirely outside the United States, except as otherwise permitted by this rule) that is not an office or branch of, or a natural person associated with, a registered broker or dealer, whose securities activities, if conducted in the United States, would be described by the definition of ‘broker’ or ‘dealer’ in sections 3(a)(4) or 3(a)(5) of the [Exchange] Act.”
2 For purposes of these FAQs, the term “chaperoning broker-dealer” means a registered broker-dealer that satisfies all of the requirements set forth in Rule 15a-6(a)(3)(iii) including, among other things, effecting transactions, issuing confirmations, maintaining books and records, participating in oral communications, and obtaining certain representations and consents.
3 As explained in the release adopting Rule 15a-6, the term “bank” is defined in section 3(a)(6) of the Exchange Act to mean a bank directly regulated by U.S. state or federal bank regulators. Accordingly, a foreign bank is excluded from this term except to the extent that the “foreign bank establishes a branch or agency in the United States that is supervised and examined by a federal or state banking authority and otherwise meets the requirements of section 3(a)(6).” See Registration Requirements for Foreign Broker-Dealers, Exchange Act Release No. 27017 (July 11, 1989), 54 FR 30013, n.16 (July 18, 1989) (“Rule 15a-6 Adopting Release”) (noting, however, that the determination whether any particular financial institution meets the requirements of section 3(a)(6) is the responsibility of the financial institution and its counsel) (internal citations omitted).
4 17 C.F.R. § 240.15a-6.
5 Rule 15a-6 Adopting Release at 54 FR 30013; see also Registration Requirements for Foreign Broker-Dealers, Exchange Act Release No. 25801 (June 14, 1988), 53 FR 23645 (June 23, 1988).
6 See Letter re: Transactions in Foreign Securities by Foreign Brokers or Dealers with Accounts of Certain Foreign Persons Managed or Advised by U.S. Resident Fiduciaries from Catherine McGuire, Chief Counsel, Division of Market Regulation to Giovanni P. Prezioso, Cleary, Gottlieb, Steen & Hamilton, dated January 30, 1996 (“Seven Firms Letter”).
7 See Letter re: Securities Activities of U.S.-Affiliated Foreign Dealers from Richard R. Lindsey, Director, Division of Market Regulation to Giovanni P. Prezioso, Cleary, Gottlieb, Steen & Hamilton, dated April 9, 1997 (“Nine Firms Letter”), available HERE

About Impact Capital Partners

At Impact Capital Partners, our mission is to connect institutional capital with the growing impact investment market to address the world’s most pressing challenges. By utilizing impact investments, institutional investors are able to generate positive, measurable social and environmental impact alongside a financial return. We are constantly finding new impact investment opportunities in both emerging and developed markets, targeting market-rate returns. Schedule a call with us HERE if you’re interested in learning more about our impact opportunities.