The staff of the SEC’s Division of Trading and Management took a no-action position allowing a wholly-owned subsidiary that was succeeding to the business of its registered broker-dealer parent to also succeed to its parent’s registration by amending the parent entity’s Form BD, rather than having to apply for its own broker-dealer registration. The SEC staff’s position reverses a prior interpretation provided to the parent entity in November 2007 that this succession would result in a change in control for purposes of Rule 15b1-3(b) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and therefore could not be effected by amendment to Form BD. (Rule 15b1-3(b) allows an unregistered entity to succeed to the business of a registered broker-dealer by amending the registered broker-dealer’s registration on Form BD, provided the succession is based solely on a change in the registered broker-dealer’s date or state of incorporation, form of organization or composition of a partnership.) As the basis for its former view that the proposed succession would result in a change of control, the SEC staff had pointed to the fact that the direct shareholders of the broker-dealer after the succession (i.e., the parent, the sole shareholder of its broker-dealer subsidiary) would be different from the direct shareholders of the broker-dealer prior to the succession (i.e., the parent’s shareholders). In granting the no-action relief, the SEC staff indicated that its revised position was based upon representations that: (1) the officers, directors and key management personnel of the subsidiary after the succession would be exactly the same as those of the parent entity; and (2) with no change in ownership or control, the parent entity’s shareholders would become the indirect shareholders of the subsidiary. The SEC staff noted that its no-action position did not affect the registered broker-dealer’s obligations as a member of a self-regulatory organization (e.g., FINRA).
Alert January 29, 2008