Exemptions to Broker-Dealer Registration: Issuer, M&A Broker, and 15a-6 Chaperone Explained

The Securities Exchange Act of 1934 (“Exchange Act”) specifies numerous definitions and requirements for broker-dealers in the United States. It classifies a “broker” as anyone making security transactions on behalf of others and “dealer” as any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.

In certain circumstances, firms or people can be exempted from having to register as a broker dealer. This blog post will explore the most important exemptions that exist.

Broker-Dealer Registration Requirements

There are multiple factors to consider and forms to go through to register as a broker-dealer

Who needs to register as a broker-dealer?

When defining whether a person or a firm is acting as a broker, the U.S. Securities and Exchange Commission (“SEC”) applies a facts-and-circumstances analysis. They look at multiple factors, including: 

  • Assisting an issuer in structuring securities transactions
  • Identifying potential investors for a securities offering
  • Soliciting securities transactions (including advertising/marketing)
  • Screening potential participants in a transaction for creditworthiness
  • Negotiating between the issuer and the investor(s)
  • Making valuations as to the merits of an investment or giving advice
  • Taking “orders” or facilitating the execution of a securities transaction
  • Handling customer funds or securities.

Compensation Structures

Compensation that the person or firm receives from soliciting investors also plays an important role.

Receiving commissions, fees, or other forms of compensation tied to the success or completion of securities transactions is a strong indicator of broker activity. Indeed, compensation factors are among the most critical when it comes to classifying a person or a firm as a broker-dealer.

There are multiple factors related to a firm receiving a payment as transaction-based compensation, such as the size or completion of any securities transaction, commission, or success fee.

There may be occurrences when a person or firm does not receive transaction-based compensation, but can still be considered a “broker” due to their activities related to securities transactions, such as soliciting clients, negotiating on behalf of clients, etc.

Risks and Consequences for Unregistered Brokers

Engaging in broker activity without a broker-dealer license can cause serious consequences, ranging from reputational harm to criminal liabilities and harsh sanctions. The SEC can block the ability to enforce contracts and the companies may even face criminal prosecution under state and federal law.

Section 20 of the Exchange Act imposes liabilities on “control” persons, subject to a good faith defense, as well as persons who aid and abet anyone in violation of the Exchange Act. The securities laws of some states have similar liability provisions.

Exemptions to Broker-Dealer Registration

There are several exemptions to registering as a broker-dealer:

1. Issuer Exemption

Issuers generally don’t qualify as either brokers or dealers, and hence under specific circumstances are exempt from the broker-dealer registration requirement. They are generally not considered brokers because they don’t sell securities for other firms, and they are generally not considered dealers because while they do sell their own securities, they do not do so as part of their day-to-day business. 

SEC Rule 3a4-1: The Issuer Exemption

SEC Rule 3a4-1 outlines specific conditions under which an associated person of an issuer can be exempt from broker-dealer registration under the Exchange Act. To qualify for this exemption, the person must meet several criteria:

  • No Statutory Disqualification: The person must not have committed certain "bad actor" events as defined in Section 3(a)(39) of the Exchange Act, which includes specific disqualifying misconduct.
  • No Transaction-Based Compensation: The person must not receive compensation that is contingent on the transaction's success, such as commissions or bonuses based on the amount of funds raised.
  • No Association with a Broker-Dealer: The person must not be associated with a broker-dealer, such as being a registered representative engaged in sales activities outside the supervision of the broker-dealer.
  • Meeting One of Three Alternative Arrangements: Additionally, the associated person must satisfy the conditions of one of the following three exemptions:
    • First Exemption (Restricted Sales): The associated person may engage in sales to certain financial institutions, sell securities that are exempt from registration under specific sections of the Securities Act of 1933 (Sections 3(a)(7), 3(a)(9), or 3(a)(10)), conduct sales in connection with reorganizations, or sell securities as part of an employee benefit plan.
    • Second Exemption (Limited Sales): The associated person must primarily perform substantial duties for or on behalf of the issuer other than selling securities and has not been a broker or dealer, or an associated person of a broker-dealer, within the past twelve months; neither did he participate in the sale of securities for any issuer more than once every 12 months.
    • Third Exemption (Passive Sales): The associated person may only engage in passive sales activities, which include responding to unsolicited requests by prospective investors or performing clerical or ministerial work related to effecting any transaction.

Limitations and Additional Requirements

While SEC Rule 3a4-1 provides an exemption from broker-dealer registration under the Exchange Act, associated persons of an issuer must also consider whether they need to register under applicable state securities laws. State regulations can vary, and compliance with these laws is essential to ensure lawful operation in different jurisdictions.

2. M&A Broker Exemption

On March 29, 2023, a new federal exemption became effective under the Exchange Act (Section 15(b)(13)) for brokers facilitating merger and acquisition (M&A) transactions involving certain privately held companies. This M&A Broker Exemption codifies principles from the SEC's 2014 "M&A Broker" no-action letter but includes limitations on the size of the company involved in the transaction.

Federal and State Regulations

The M&A Broker Exemption does not preempt state broker-dealer registration requirements. M&A brokers must still comply with state securities laws, assessing whether they qualify for any exclusions or exemptions under those laws.

Definition of an M&A Broker

An M&A broker is a broker, including any associated persons, involved in effecting securities transactions related to the transfer of ownership of an eligible privately held company. This can involve various activities such as purchase, sale, exchange, issuance, repurchase, redemption, or business combinations involving securities or assets of the company.

Conditions for the Exemption

  • Control and Management: Upon transaction completion, any acquiring party must control the company and be active in its management. Control is presumed if the buyer can vote or sell 25% or more of a class of voting securities or, in partnerships or LLCs, has the right to 25% or more of the capital upon dissolution.
  • Access to Financial Information: Any person offered securities in exchange for assets must receive access to recent fiscal year-end financial statements and other relevant financial information before finalizing the transaction.
  • Eligible Privately Held Company: A privately held company with no registered securities under Section 12 of the Exchange Act and no requirement to file periodic reports under Section 15(d). In the fiscal year preceding the engagement of the M&A broker, the company must have less than $25 million in EBITDA or less than $250 million in gross revenues. These thresholds will adjust for inflation every five years.

Excluded Activities

  • Custody of Funds or Securities: M&A brokers cannot directly or indirectly handle the funds or securities exchanged in the transaction.
  • Public Offerings: M&A brokers cannot engage in public offerings of any securities registered under Section 12 or subject to Section 15(d) reporting.
  • Shell Companies: Transactions involving shell companies are generally excluded unless they are business combination-related shell companies.
  • Providing Financing: Brokers cannot provide financing for the transaction or assist in obtaining financing without complying with applicable laws and disclosing any compensation.
  • Dual Representation: Brokers must disclose and obtain consent if representing both buyer and seller.
  • Passive Buyers: Transactions involving passive buyers are not allowed.
  • Binding Parties: Brokers cannot bind parties to the transaction.


Brokers (including officers, directors, or employees) barred or suspended by the SEC, any state, or SRO from association with a broker-dealer cannot rely on this exemption.

3. 15a-6 chaperone 

Foreign broker dealers have an exemption from registering as a broker-dealer provided they work with a chaperone service under SEC Rule 15a-6. Such services provide an opportunity to save time and money by employing a licensed US chaperone. Marco Polo Exchange (MPX) is a leading provider of 15a-6 rule service and has experience serving over 100 clients from 50 countries via its revolutionary product called MPX Passport.

What is 15a-6?

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

  1. Unsolicited Transactions: Foreign broker-dealers can effect unsolicited securities transactions with U.S. investors. This means that the transaction must be initiated by the U.S. investor, not solicited by the foreign broker-dealer.
  2. Research Reports: They can provide research reports to major U.S. institutional investors (“MUSSIs”) and effect transactions in the subject securities with or for those investors. The research reports must comply with certain SEC requirements. Providing research reports to major U.S. institutional investors, and effecting transactions in the subject securities with or for those investors;
  3. Chaperoned Transactions: Foreign broker-dealers can solicit and effect transactions with or for U.S. institutional investors or major U.S. institutional investors (“MUSIIs”) if the transactions are conducted through a registered U.S. broker-dealer acting as a “chaperone.” The chaperone must ensure compliance with SEC regulations and take responsibility for certain activities of the foreign broker-dealer.
  4. Transactions with Certain Entities: Soliciting and effecting transactions with or for registered broker-dealers, banks 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.

MPX facilitates the chaperoning process for foreign broker-dealers through our technology platform, MPX Passport. This platform provides real-time tracking, compliance management, and data insights. The chaperoning is provided by Marco Polo Securities, Inc., the U.S. broker-dealer affiliate of MPX. 

Broker-Dealer Registration Requirements in the US: A Step-by-Step Guide to Registering a Broker-Dealer Firm

Broker-dealer firms are, simply put, what make the financial industry go ‘round.

Their services power the global economy by facilitating capital flow, enhancing liquidity, promoting price discovery, and providing market access for investors.

The United States capital markets are the deepest, most dynamic, and most liquid in the world. The US equity markets alone have a market cap of 52 trillion dollars, or 61% of the global total as of February 2024, according to Visual Capitalist. Not surprisingly, having a US broker dealer license can be a valuable asset

The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regulate broker-dealers in the US. The broker-dealer registration process can seem daunting at first but the consequences of engaging in broker-dealer activity without the requisite licenses can result in legal trouble with the regulatory authorities

This blog post will provide a general guide to broker dealer registration in the US, depict the services and benefits of a broker-dealer and introduce the broker dealer chaperoning service for foreign financial institutions. Note, however, that this is not to be construed as legal advice, and that firms should consult with an attorney regarding their specific situation. 

But first, 

What is a Broker Dealer in the US?

A US broker-dealer is a financial institution that is licensed to buy and sell securities on behalf of clients (as a broker) and for their own account (as a dealer). The term combines two key functions within the securities industry: 

  • Broker: Acts as an agent for clients in executing buy or sell orders. Brokers earn a commission or fee for this service. Their primary role is to facilitate transactions between buyers and sellers in the financial markets. 
  • Dealer: Acts as a principal, buying and selling securities for their own account. Dealers make a profit from the spread between the bid (buy) and ask (sell) prices. They may also hold an inventory of securities to facilitate trading and provide liquidity in the market. 

Broker-dealer functions and services

Broker-dealers execute trades, provide liquidity, and offer a wide array of services to investors.

Beyond transaction execution, broker-dealers offer advisory services, providing investment recommendations, financial planning, and portfolio management. They also underwrite new issues of securities, lend funds for margin trading, and offer custodial services.

Additionally, many broker-dealers provide online trading platforms, research and analysis, and educational resources to empower investors with the tools and knowledge needed for informed decision-making. 

Who needs to be registered as a broker-dealer?

Anyone engaged in the business of buying or selling securities for themselves or others must be registered as a broker-dealer.

This requirement applies to individuals or firms that execute trades on behalf of clients, facilitate securities transactions, or act as intermediaries in the trading process. Registration is mandatory for entities participating in underwriting new securities issues, market making, and providing investment advice in conjunction with securities transactions. This includes traditional brokerage firms, independent financial advisors, and even trading platforms. It is essential for individuals and companies engaged in transaction-based compensation to understand the complex rules regarding broker-dealer registration with the SEC.

Broker-dealer registration requirements

To become a registered broker-dealer in the United States, firms and individuals must comply with specific regulatory requirements, which include:

  • Exchange Act Registration: Section 15(a)(1) of the Exchange Act mandates that any broker or dealer using the mail or any other method of U.S. interstate commerce (such as telephone, email, or website) to effect transactions or to solicit the purchase or sale of securities must register with the SEC.
  • Self-Regulatory Organization (SRO) Membership: Besides SEC registration under the Exchange Act, broker-dealers are required to join an SRO. The Financial Industry Regulatory Authority, Inc. (FINRA) serves as the primary SRO for U.S. broker-dealers.
  • State Registration: Every U.S. state and territory has its own registration requirements for individuals conducting securities business as broker-dealers or on behalf of broker-dealers within their jurisdiction. For instance, Utah’s broker-dealer and related personnel licensing requirements are detailed in Sections 61-1-3(1) and (2) of the Utah Uniform Securities Act.
  • Associated Persons of Broker-Dealers: Certain "associated persons" of a broker-dealer must register as "representatives" and/or "principals" with FINRA (and possibly other SROs) and as "agents" or "salespersons" under state securities laws.
  • Net capital requirements: you’ll need to meet minimum net capital requirements set by the SEC and FINRA, which, depending on your specific business, could range. The minimum net capital requirements for registering a broker-dealer in the US are set by the SEC’s Rule 15c3-1. Net capital requirements can range from $5,000 to many millions. Services of a consultant that can help with FINRA registration are somewhere in the range of $40,000 to $60,000
  • Written Supervisory Procedures (WSP): Broker-dealers must establish comprehensive Written Supervisory Procedures to ensure all activities comply with regulatory standards and are properly supervised.
  • Anti-Money Laundering (AML) Program: Broker-dealers are required to implement an Anti-Money Laundering Program that includes customer identification, monitoring of transactions, and reporting of suspicious activities to prevent financial crimes.
  • Business Continuity Plan (BCP): A Business Continuity Plan must be in place for broker-dealers to ensure that critical business operations can continue during and after significant disruptions.
  • Employee Trading Policy: Broker-dealers need an Employee Trading Policy to regulate the personal trading activities of their employees, preventing conflicts of interest and ensuring compliance with securities laws.
  • Beneficiaries: Broker-dealers must disclose detailed information about all direct and indirect owners and beneficiaries to ensure transparency and compliance with regulatory requirements.
  • Organizational Structure: Broker-dealers are required to document their organizational structure, detailing the roles, responsibilities, and hierarchy within the firm to support effective governance and regulatory compliance.

US broker dealer registration can take several months or up to a year, although the exact duration can vary depending on the complexity of the application and the responsiveness of the regulatory authorities.  An example of a timeline can be found in this Medium article

A good first step is to put together a business plan including executive bios and proposed activities. Focus mainly on the technical business lines from a regulatory standpoint, the customer onboarding process, external partnerships, and the flow of customer securities and funds. This can be used as a blueprint to help prepare the other materials for your application. 

Broker-dealer registration: Application forms

  • Form BD: This is the primary application form that must be submitted to the SEC for broker-dealer registration. It requires detailed information about the firm’s business, ownership, and regulatory history.
  • Form U4: This form is used to register associated persons (representatives and principals) with FINRA and other SROs. It collects information about the individual’s background, including employment and disciplinary history.
  • FINRA New Member Application (NMA): In addition to the SEC’s Form BD, firms seeking FINRA membership must complete the NMA, which involves a comprehensive review process including a detailed business plan, supervisory procedures, and financial statements.
  • Form BR: This form is used to register branch offices of the broker-dealer with FINRA and relevant state securities regulators. It provides information about the locations and operations of the branch offices.
  • State-Specific Registration Forms: Individual states may have additional forms or specific requirements for broker-dealer registration. These forms vary by state and must be completed to comply with local regulations.
  • Form ADV (if applicable): If the broker-dealer also provides investment advisory services, they may need to register as an investment adviser and submit Form ADV to the SEC or state securities regulators.

FINRA exams for getting a broker-dealer license

To obtain a broker-dealer license, firms must ensure they have at least two General Securities Principals and one Financial and Operations Principal (FINOP), unless they are a sole proprietorship, in which case only one General Securities Principal is required.

To qualify as a General Securities Principal, individuals must pass the Series 24 exam, which has prerequisites including the Securities Industry Essentials (SIE) exam and the Series 7 exam.

The Series 27 exam qualifies individuals to oversee the financial and operational responsibilities of the broker-dealer.

Additionally, depending on the firm's business activities and roles, other exams may be necessary. To sit for any of these exams, except the SIE, candidates must be sponsored by a broker-dealer. Preparing for these exams requires substantial study time, and while the exams themselves are not particularly engaging, they are a crucial part of the licensing process. Many new firms start with the required Series 24 principals and often outsource their Series 27 responsibilities.

Chief Compliance Officer (CCO)

FINRA requires every broker-dealer to designate a Chief Compliance Officer (CCO). The CCO is tasked with developing, implementing, and overseeing the broker-dealer’s compliance program to ensure adherence to all regulatory requirements. 

Financial and Operations Principal (FINOP)

FINRA also requires broker-dealers to choose a Financial and Operations Principal (FINOP). The FINOP is responsible for managing the financial and operational aspects of the broker-dealer’s business, ensuring regulatory capital requirements are met and accurate financial records are maintained. 

Record retention

Under SEC Rule 17a-4, broker-dealers are required to retain various types of records, such as emails, trading records, customer account information, and financial documents, for specified periods, ranging from several years to the life of the firm. Retained data must be stored in Write Once Read Many (WORM) format and must be accessible by a Designated Third Party (D3P) that can provide it to FINRA upon request. 

Broker dealer registration costs

Registering as a broker-dealer involves fees that firms must consider as part of the application process. Readers are encouraged to go to FINRA’s website for updates on costs. Below is an overview of the fees associated with broker-dealer registration:

  • Membership Fees: New member application fees range from $7,500 to $55,000, depending on the size of the applicant firm and its intended activities. Additional surcharges may apply for firms engaging in clearing and carrying activities, mergers, material changes, ownership changes, transfers of assets, and acquisitions.
  • General Registration Fees: Registration fees for initial Form U4 filings and amendments are $125 per filing. Additional fees may apply for disclosure processing, late disclosures, terminations, and late terminations.
  • Branch Office Registration Fees: Branch office initial registration fees and system processing fees are $75 each per branch office.
  • Qualification Exam Fees: Fees for qualification examinations vary depending on the exam, but range from $60 to $350, and are listed separately by FINRA.
  • Renewal Fees: Renewal fees for broker-dealers encompass annual renewal fees for firm, individual and branches and are calculated based on several factors which are detailed on FINRA’s website.

The Membership Interview and Technology Demo

The Membership Interview is a crucial step in the broker-dealer registration application process, conducted by FINRA to evaluate the applicant firm's preparedness to operate in the securities industry in the US.

During this interview, FINRA reviews the firm's business plan, supervisory procedures, compliance programs, financial condition, and the qualifications of its principals and associated persons.

As part of the Membership Interview, the firm must also conduct a Technology Demo, demonstrating its technological systems and platforms for executing trades, managing customer accounts, monitoring compliance, and safeguarding data.

This comprehensive assessment ensures that the firm meets all regulatory requirements and is equipped to maintain operational integrity and protect investor interests.

Broker-dealer registration exemption for foreign institutions

Did you know that there is a way for foreign firms to avoid the whole broker-dealer registration process altogether?

Under SEC Rule 15a-6, you can hire a licensed US chaperone that will allow your financial institution to operate in the States without registering as a broker-dealer, all while still being compliant with the SEC and FINRA. Employing an experienced 15a-6 chaperone can safeguard your firm from potential legal issues you may encounter in the US. Not only that, but you will have access to expert guidance on how to navigate the intricacies of the US capital markets.

Introducing MPX’s Broker-Dealer Chaperoning Services

If you wish to navigate the registration process with trustworthy guidance, you can hire the professional services of Marco Polo Exchange (MPX). With over 100 clients from 50 countries, this technology company is at the forefront of transforming regulatory compliance and market access within the financial sector and will answer every question your firm may have about engaging in broker-dealer activities inside the US financial market.

MPX has streamlined the 15a-6 chaperoning process through our state-of-the-art platform, MPX Passport.

Passport enables foreign financial institutions to quickly and easily remain compliant by providing comprehensive regulatory and back-office solutions that ensure a smooth, compliant, and efficient experience. Passport is provided for foreign financial institutions that work within a 15a-6 chaperoning agreement with Marco Polo Securities Inc., MPX’s broker-dealer subsidiary.

Key Features of MPX Passport

  • Regulatory Compliance: Ensure full compliance with SEC Rule 15a-6 through a comprehensive suite of tools designed to meet U.S. securities laws.
  • Workflow Management: Manage all aspects of your business operations, including deal placements, trading blotters, research reports, and client interactions, in one centralized platform.
  • Distribution Capabilities: Seamlessly distribute your investment products to U.S. institutional investors through a compliant and efficient electronic environment.
  • Advanced Analytics: Gain insights into your market performance and client relationships with customizable dashboard tools and detailed reporting features.

Benefits of Using MPX Passport

  • Real-Time Tracking: Monitor all U.S. marketing activities in real time.
  • Compliance Management: Ensure all interactions comply with SEC Rule 15a-6 requirements.
  • Data Insights: Access detailed summary information and management dashboards for better business oversight.


In conclusion, navigating the broker-dealer registration process in the United States can be complex and time-consuming, but it is a critical step for any firm seeking to participate in the dynamic U.S. capital markets.

By understanding the requirements set forth by the SEC and FINRA, including registration, compliance, supervisory procedures, and net capital requirements, firms can ensure they meet regulatory standards and avoid potential legal issues.

For foreign institutions, leveraging the broker-dealer chaperoning services under SEC Rule 15a-6 offers a streamlined path to accessing U.S. markets without the full registration burden. MPX’s Broker-Dealer Chaperoning Services, facilitated through the MPX Passport platform and provided by Marco Polo Securities, Inc., the broker-dealer affiliate of MPX, provide comprehensive regulatory and back-office solutions, ensuring compliance and operational efficiency.

Whether you are a domestic firm embarking on the registration journey or a foreign institution seeking U.S. market access, understanding and adhering to these regulatory requirements is essential.

Consulting with legal experts and utilizing professional services like those offered by MPX can provide valuable guidance and support throughout the process, helping your firm to achieve its business objectives while maintaining compliance in the highly regulated U.S. financial landscape.

Marco Polo and Rosenblatt Ally to Offer Foreign Brokers Enhanced Trading Services and Distribution to US Institutional Customers

NEW YORKNov. 14, 2022 /PRNewswire/ -- Marco Polo Exchange ("MPX") is delighted to announce an agreement with Rosenblatt Securities to expand the distribution and execution services available to MPX's client base of foreign securities firms accessing US markets under SEC Exchange Act Rule 15a-6.   As part of the collaboration, MPX will offer its industry-leading chaperone and distribution automation solution to Rosenblatt's existing universe of chaperoned brokers.  In turn, Rosenblatt will offer MPX's customers privileged access to Rosenblatt's US and international equity trading services and extensive buy-side relationships.

"We have long been an advocate of expanding US institutional investor access to the universe of international investment opportunities and have offered bespoke services to a dozen or so leading foreign brokers for the past several years to foster that," said Joe Gawronski, CEO of Rosenblatt Securities.  "MPX has invested heavily in technology and created the industry-leading compliance and distribution solution for foreign brokers.  With the scale its portal has achieved through onboarding dozens of clients already, offering our foreign broker partners the opportunity to leverage MPX's centralized distribution and agile compliance platform is a no-brainer."

Rosenblatt's Head of Execution Services, Jourdain Frain, added: "And it's a perfect match as we can continue to serve our foreign broker partners' US and international equity execution needs, as well as open up Marco Polo's existing roster of broker offerings to our large US buy-side customer base."

Steve Carlson, President of Marco Polo Securities, noted: "This combination of Rosenblatt's buy-side relationships and leadership in high touch and electronic execution with our tracking, reporting, and deal management tools, creates the first true hub for foreign firms seeking to market their products to the world's largest market in a transparent, rules-driven framework. Over the past two years, we have invested in bringing a new level of automation and analytics to cross-border workflows, creating a destination for the buy side to see the products and transact with foreign securities firms in a compliant manner.  Today, hundreds of foreign firms seek to promote their products to US investors, either violating US compliance rules or simply avoiding the US altogether out of respect for our rules.  MPX is an invitation to bring that era to an end!"

Martin Hakker, Chief Revenue Officer of MPX, added: "I have known Rosenblatt Securities for a very long time and admired the care and intelligence with which they have built the largest NYSE floor broker and the leading global market structure intelligence product, as well as become one of the most respected and trusted equities boutiques overall in the US.  We look forward to incorporating Rosenblatt's trading capabilities and institutional reach as part of our offering to international securities firms."

About Marco Polo:  Marco Polo Exchange (MPX) is a Delaware-incorporated financial service and technology firm dedicated to expanding cross-border capital raising and investing. We leverage specialist regulatory licenses, blockchain, AI technologies, and ESG compliance to match global buyers with local issuance and investment opportunities. Our mission is to lower the cost of capital for SMEs around the world. Our broker-dealer, Marco Polo Securities, is the leading 15a-6 chaperone broker in the US markets.
For more information, please visit www.mpxchange.com.

About Rosenblatt Securities: Rosenblatt Securities is a boutique tech research firm, investment bank, and independent institutional brokerage founded in 1979 and headquartered in New York. The firm is the largest floor broker on the New York Stock Exchange and provides industry-leading market-structure analysis, global technology and fintech equity research, consulting and investment-banking services to a wide variety of clients globally, including institutional investors, exchanges, regulators, technology companies, banks, brokers and proprietary trading firms. In 2021 the firm was named Best Firm for Market Structure & Execution Consulting by Financial News. It also has been named two years running to Institutional Investor's FinTech Finance 40 list. For more information, please visit www.rosenblattsecurities.com.

David Snyder

SOURCE Marco Polo Exchange LLC

Alternative Asset Tokenization

Deloitte - The Dots Luxembourg - Alternative Asset Tokenization

Here’s a shoutout to Wednesday’s Finverse Forum at The Dots Luxembourg! It was a pleasure to sponsor this stellar metaverse event around alternative asset tokenization platforms and technology enablers.

Let’s give a hand to Thibault CholletJean-Paul ScheurenGabriel Übleis, CAIADominik KaraAntonio V., Otto NinoJohn Cronin and Florian Le Goff for providing lots of food for thought.

Blockchain startup to help SMEs access ESG capital

Blockchain startup to help SMEs access ESG capital

Blockchain startup to help SMEs access ESG capital

Small and medium enterprises are seen as the backbone of the net zero approach to the climate. But the vast majority of them lack the financing to implement their environmental, social, and governance ( ESG) programmes. A New York City based start-up named Marco Polo Exchange (MPX) is rolling out its POLO marketplace to help at least 150,000 SMEs overcome these challenges. 

As part of this, MPX has announced plans to invite this September a handful of global institutions such as investment banks, asset managers, impact capital funds and ESG standard boards to become early adopters of the solution.  The company has also announced the launching of the POLO platform at year end, with an initial focus on Brazil, which is a global leader in ESG products & issuance.

“SMEs or small and medium enterprises, as you may know, have big challenges in terms of accessing technology and appropriate infrastructure to access funding that will allow them to become ESG compliant and lower their carbon footprint,” said Otto Nino, MPX’s chief product officer, at the May Finverse Forum event in Luxembourg.

Lacking proper resources

Nino presented a survey from the SME Climate Hub that shows that almost 70% of world-wide SMEs “do not have the proper resources to implement their ESG compliance programmes.” Partly this is due to constraints involving regulatory barriers or adequate infrastructure to access liquidity from worldwide investors facing SMEs.

To resolve this problem, MPX has created a platform bringing together its regulatory licenses and blockchain. “This is the first online blockchain-driven platform that allows local investment managers or issuers of financial assets to embed, meaning incorporate the ESG criteria, and ESG compliance into the assets via the tokenisation of such assets.”

Nino outlined a use case involving and SME that wants to change its energy usage. “And they’re situated in Australia, but the main pool of funding that could be available or interest in investing in a project like that sits in Luxembourg or the US or the UK,” Nino explained. “Without the proper technology channels, those issuances or that need for capital and funding will not be seen by this by those investors.”

Cumbersome & costly

He explained that the SMEs also need help to overcome regulatory barriers that might impose many “cumbersome and costly” processes in order to access the funding.

What the POLO platform does, Nino explained, is streamline the primary issuance of the securities; capital issuance and their distribution. He said tokenisation adds a lot of value, and that later, secondary trading “will enable the liquidity for those financial assets issued by SMEs”.

“Basically what we’re doing is combining in one single environment online with the help of blockchain, the regulatory compliance, the ESG compliance and the reporting and distribution for the investor community around the world.”

Nino pointed out that ESG compliance has faced serious challenges as to the validity and certification of such assets. “Blockchain, via the decentralisation and consensus mechanism, allows us to secure that certainty for the investors.” He added that blockchain’s ability to enable fractional ownership, which makes it more efficient and less expensive to be able to access investments or asset classes.

Smart contracts

Smart contracts, another feature of blockchain platforms, Nino explained, allow the incorporation of the characteristics and attributes that certify ESG compliance without the cumbersome and costly processes of other approaches. “It allows us to, as the volume grows, standardise what any ESG-certified security will look like and how it will be traded.”

Nino said smart contracts play a big role in permitting Polo to lower barriers, but also provides redundancy and technical transparency in term of the certification of the transactions. Blockchain allows us to have an audit trail giving certainty as to the immutability of the records. “So when we are portraying in our platform for an ESG SME issuer that an asset is ESG certified . . . there is certainty that that quality and that information will not be tampered with and is secure and easily accessible.

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SC Lowy

BEIJING/HONG KONG (Reuters) -China will launch a real estate fund to help property developers resolve a crippling debt crisis, aiming for a warchest of up to 300 billion yuan ($44 billion) in a bid to restore confidence in the industry, according to a state bank official with direct knowledge of the matter.

The move would mark the first major step by the state to rescue the beleaguered property sector since the debt troubles became public last year.

The size of the fund would initially be set at 80 billion yuan through support from the central bank, the People’s Bank of China (PBOC), the person, who declined to be identified due to the sensitivity of the matter, told Reuters.

He said state-owned China Construction Bank (OTC:CICHF) will contribute 50 billion yuan into the 80 billion yuan fund, but the money will come from PBOC’s relending facility.

If the model works, other banks will follow suit with a target to raise up to 200 to 300 billion yuan, he added.

A key pillar of the world’s second-largest economy, China’s property sector has been lurching from one crisis to another, and has been a major drag on growth over the past year. A revolt by homebuyers this month heaped more headache for authorities.

Some analysts said a fund would only provide part of the solution.

“We don’t know details of the fund yet. If just 80 billion it’s not enough to solve the problem,” said Larry Hu, chief China economist at Macquarie. “I believe the fund would be part of the bigger package to solve the current debt and mortgage crisis, because it alone would not solve all the problems … we need a real estate recovery.”

Reuters has reached out for comment from China Construction Bank, the PBOC and China’s cabinet, the State Council.

Global investors are fixated on any twists and turns in China’s property market, which along with related sectors such as construction, accounts for more than a quarter of the country’s gross domestic product (GDP).

The source said the fund will be used to bankroll the purchases of unfinished home projects and complete their construction, and then rent them to individuals as part of the government’s drive to boost rental housing.

Such a move would underline the importance the central government attaches to providing more affordable homes for young people at a time when some local governments have been reluctant to build rental housing because land sales are a major source of income.

Henan-government backed Zhengzhou Real Estate, which set up one of the first local bailout funds in the country last week with state-owned Henan Asset Management amid the mortgage boycott, plans to use 20 billion yuan to acquire 50,000 units and turn them into rental housing, according to a notice by the Zhengzhou authorities this month seen by Reuters.

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LatAm Investor

How long can Latin America resist higher inflation and interest rates?

So far this year Latin America's economies have proved surprisingly resilient. Pollyanna De Lima, from S&P Global crunches the latest data and forecasts to explore the economic outlook for the region...


Latin American nations displayed considerable economic resilience during the second quarter of 2022, according to S&P Global’s PMI data, despite significant global headwinds. The outlook remains cloudy, however, as the war in Ukraine and sanctions imposed on Russia continue to exacerbate price pressures, thereby underpinning monetary policy tightening. Other challenges include ongoing disruptions to supply chains and political uncertainty, while the cost-of-living crisis and rising interest rates are expected to restrict consumption and investment.

In the opening quarter of the year, gross domestic product in Brazil, Colombia and Mexico all expanded by 1.0% from the preceding period, with only Mexico having failed to see a return to pre-pandemic levels. Since then, our timelier indicator — the Purchasing Managers’ Index (PMI) — strengthened and thereby signalled a more robust performance for the second quarter.

Despite a challenging global economic environment, and in line with stronger PMI results for Q2, our full-year forecasts for 2022 have been revised higher. GDP growth is expected to hit 6.2% in Colombia and 1.5% in both Brazil and Mexico. Included in the forecast assumptions are expectations of a slowdown in growth towards the end of the year, as higher borrowing costs and surging inflation dampen consumption and investment. On the monetary policy front, we anticipate year-end policy rates of 13.5%, 8.5% and 9.5% in Brazil, Colombia and Mexico respectively.

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Substantive Research LTD

After 5 years of no-action letters and extensions, the SEC has announced that from July 2023 US providers will no longer be able to accept hard dollar payments from asset managers for research (with the exception of those registered as investment advisors)

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SEC Staff Pulls Rug Out From Under ‘Hard Dollar’ Research Arrangements

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The Long and Winding Road to Financial Reporting Standards

2022 Review of Shareholder Activism

Mary Ann Deignan is Managing Director; Rich Thomas is Managing Director and Head of European Shareholder Advisory; and Christopher Couvelier is Managing Director at Lazard. This post is based on a Lazard memorandum by Ms. Deignan, Mr. Thomas, Mr. Couvelier, Emel Kayihan, Antonin Deslandes, and Leah Friedman.

Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) by Lucian Bebchuk, Alon Brav, and Wei JiangDancing with Activists (discussed on the Forum here) by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch; and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System (discussed on the Forum here) by Leo E. Strine, Jr.

Observations on Global Activism Environment H1 2022

Activity Slows vs. Q1 but Remains Robust

  • Despite a challenging investing environment in 2022, activity remains elevated—Q2 was the second most active quarter in the past five quarters
  • Global campaign activity for Q2 (53 campaigns) down 27% vs. Q1, in line with Q1/Q2 pattern of recent years
  • Regionally, the decline was most acute in the U.S., where activity materially declined by 50%
  • By contrast, Europe saw a strong Q2 with a 33% increase over Q1 levels

Technology Repositions as the Most Active Sector

  • Technology companies accounted for 1 out of every 4 activist targets in Q2, resulting in Technology being the most targeted sector in H1
  • Software, Services and Internet were the most active subsectors
  • Primary activist objectives in Technology campaigns are in line with key themes across other sectors, with M&A, strategy and capital allocation dominating the narrative 

First Timers Break Records and Diversify the Field

  • First time activists accounted for 37% of all activists launching campaigns in H1, the highest level in recent years
  • In addition, campaigns were more dispersed across the universe of activists, with the top 5 most prolific activists accounting for 19% of all campaigns in H1, which is below the concentration levels observed over the past 5 years
  • The H1 top activists feature a broad range of investor types including established global players, regional and sector focused funds, and increasingly active ESG specialists and occasional activists


Financial Regulation, Corporate Governance, and the Hidden Costs of Clearinghouses

Paolo Saguato is Assistant Professor of Law at George Mason University Antonin Scalia Law School. This post is based on his recent article, published in the Ohio State Law Journal.

Recent financial market events have splashed onto the front pages of newspapers the often-overlooked plumbing found in those markets: the clearinghouses that handle trillions of dollars’ worth of securities and derivatives trades. During the Robinhood and GameStop events, the National Securities Clearing Corporation, a securities clearinghouse, played a critical role when it required Robinhood to provide collateral to guaranty its open positions. And recently, FTX US Derivatives, a cryptocurrency exchange, brought further attention to the clearing business and the critical risk mitigation and containment function it provides to the financial system when it applied to the Commodity Futures Trading Commission to offer clearing services for non-intermediated margined crypto derivatives.

Given the magnitude of the trades crisscrossing clearinghouses every day, these vital market infrastructures warrant more scrutiny than they have received. My article calls for policymakers to focus on the existing governance and financial structure of clearinghouses and urges them to seriously address a critical open issue in their organization: the misaligned incentives across clearinghouses’ main stakeholders—particularly their shareholders and their members—and how that misalignment might affect clearinghouses’ risk profile and financial resilience.

Clearinghouses are, in fact, corporations with a unique financial structure. Clearing members are financial institutions that access clearing services. While such members are the ultimate risk bearers of the business, they lack any formal governance rights over the firm. Instead, clearinghouses are controlled by their shareholders, who are large publicly-listed for-profit financial infrastructure groups. These shareholders retain all governance rights, yet have extremely limited financial skin in the game.


Delaware M&A Developments

Andre BouchardKyle Seifried and Jaren Janghorbani are Partners at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss memorandum by Mr. Bouchard, Mr. Seifreid, Ms. Janghorbani, Laura C. Turano, and Ross A. Fieldston, and is part of the Delaware law series; links to other posts in the series are available here.

In Totta v. CCSB Financial Corp., the Delaware Court of Chancery, in an opinion by Chancellor McCormick, held that a charter provision that gave the board “conclusive and binding” authority to construe the charter’s terms did not alter the standard of review applicable to fiduciary duty claims related to those board decisions. The applicable charter provision prohibited a stockholder from exercising more than 10% of the company’s voting power. In the face of a proxy contest, the board adopted a new interpretation of that voting limitation allowing the board to aggregate the holdings of multiple stockholders that the board determined to be acting in concert. Relying on that new interpretation, the board instructed the inspector of elections not to count any votes above the 10% limit submitted by the insurgent, its affiliates or its nominees. This instruction was outcome determinative and the insurgents brought suit to invalidate the board’s instruction to the inspector of elections. The company argued that the court was required to uphold the instruction based on the board’s “conclusive and binding” interpretation of the charter provision. The court rejected that argument, reasoning that a corporate charter (unlike an alternative entity’s organizational documents) cannot modify the standards by which director actions are reviewed, and that the board’s self-serving and new interpretation of the voting limitation in the face of a live proxy contest was inequitable because the board did not have a “compelling justification” under the Blasius standard of review for their interference with the election. Because the board’s actions were inequitable, the court ordered the inspector of elections to disregard the board’s instruction and count the insurgent’s votes that had previously been excluded.

ESG Investing

WEBINAR | CFA ESG Exam Tips and Strategies

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Sat, Jul 30, 2022, 11:00 AM - 12:00 PM (your local time)