Insights and Analysis

SEC proposes narrow broker-dealer registration exemption for finders

15 December 2020

The U.S. Securities and Exchange Commission (SEC) proposed a new exemptive order on Wednesday, October 7, which would exempt certain "finders" from broker-dealer registration under Section 15(a) of the U.S. Securities Exchange Act of 1934 (the Exchange Act) that, if adopted, would provide a degree of clarity for intermediaries seeking to assist certain small and emerging private companies with capital formation.

The proposed order is available in full here and will be subject to a comment period that will end 30 days after publication in the Federal Register.

The SEC voted 3-2 to propose the exemption, arguing that it would facilitate capital formation for small and emerging private companies seeking investors, especially for small businesses seeking to locate relatively low amounts (e.g. less than US$5 million) that are beyond the scope of personal financing. Admitting the existence of a “gray market” where issuers have struggled to understand the broker-dealer rules for finders, the proposed exemption is designed to help issuers avoid, on the one hand, encouraging unregulated broker activity and, on the other hand, forgoing the use of finders altogether.