Navigating SEC Rule 15a-6: A Guide for Canadian Exempt Market Dealers
The United States buy-side is the largest source of foreign capital for Canadian issuers, both primary and secondary. According to Pitchbook Data, about 44% of Canadian private equity deal value involves US investors. So far this year, that number is over 80%. As Canadian Exempt Market Dealers (EMDs) increasingly seek to expand their reach into the U.S. market, understanding and navigating SEC Rule 15a-6 becomes crucial. This rule provides a framework that allows foreign broker-dealers, including Canadian EMDs, to engage in certain activities with U.S. investors without full SEC registration. Marco Polo Exchange is here to guide you through the essentials of SEC Rule 15a-6 and ensure your cross-border transactions remain compliant and efficient.
Understanding SEC Rule 15a-6
What is SEC Rule 15a-6?
SEC Rule 15a-6, enacted under the U.S. Securities Exchange Act of 1934, offers exemptions from registration requirements for foreign broker-dealers. This rule aims to facilitate international securities transactions while ensuring that U.S. investors are protected.
Key Provisions of SEC Rule 15a-6
• Foreign Broker-Dealer Exemption: Allows Canadian EMDs to engage in certain limited activities with U.S. investors without full SEC registration.
• Intermediary Arrangements: Permits Canadian EMDs to operate through a registered U.S. broker-dealer, which acts as an intermediary.
• Chaperoning Requirements: Specifies situations where Canadian EMDs must be "chaperoned" by a registered U.S. broker-dealer.
How SEC Rule 15a-6 Applies to Canadian EMDs
Foreign Broker-Dealer Exemption
Canadian EMDs can leverage this exemption to interact with U.S. institutional investors and major U.S. institutional investors. Activities typically include unsolicited transactions and limited solicitations, provided they meet the rule's criteria.
Intermediary Arrangements
Under Rule 15a-6(a)(3), Canadian EMDs can partner with registered U.S. broker-dealers to facilitate transactions. This arrangement requires the U.S. broker-dealer to oversee compliance and supervisory functions, ensuring all activities adhere to SEC regulations.
Chaperoning Requirements
When engaging in solicitation or offering securities to U.S. institutional investors, Canadian EMDs need to be chaperoned by a U.S. broker-dealer.
Compliance and Regulatory Considerations
Record-Keeping Requirements
Canadian EMDs must maintain detailed records of transactions involving U.S. clients. This includes documentation of communications, trade confirmations, and compliance with regulatory requirements.
Anti-Money Laundering (AML) Compliance
Adhering to AML regulations is critical. Canadian EMDs should implement robust AML policies and procedures, ensuring they align with both Canadian and U.S. standards.
Reporting Obligations
Understanding and fulfilling reporting obligations under SEC Rule 15a-6 is essential. This includes timely submission of required documentation and regular updates to both Canadian and U.S. regulatory bodies.
Practical Tips for Canadian EMDs
Building Effective Intermediary Relationships
Select a reliable U.S. broker-dealer partner with a strong compliance track record. Regularly review and update partnership agreements to reflect current regulatory requirements and ensure mutual understanding of responsibilities.
Ensuring Smooth Operations
Stay informed about changes in both Canadian and U.S. regulations. Engage in continuous compliance training for your team and conduct regular internal audits to identify and address potential issues proactively.
Introducing Marco Polo Exchange's Passport: Your 15a-6 Compliance Tech Solution
Marco Polo Exchange provides 15a-6 chaperoning services through its cutting-edge reg tech platform, Passport. Passport allows Canadian EMDs to track their marketing activities to the U.S. buyside and provides comprehensive summary and management dashboard information about their business operations. MPX is able to provide chaperoning services on Passport through their US broker dealer affiliate, Marco Polo Securities, Inc.
Benefits of Using 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.
Conclusion
SEC Rule 15a-6 offers opportunities for Canadian EMDs to engage with U.S. investors even if they do not have a registered U.S. broker-dealer license. By understanding the rule's provisions, maintaining stringent compliance, and leveraging strategic partnerships, Canadian EMDs can expand their market presence while safeguarding their operations.
MPX offers a technology solution with embedded licenses to facilitate accessing US buy-side accounts via its Passport™ platform. Passport supports and facilitates Canadian Exempt Market Dealers’ marketing and compliance challenges, so that your sales team can focus on closing business.
For more information and personalized guidance, contact Marco Polo Exchange. Our team of experts is ready to help you navigate SEC Rule 15a-6 and achieve your cross-border business goals. With our Passport platform, you can ensure compliance, manage your marketing activities efficiently, and gain valuable insights into your business operations. By optimizing your understanding and application of SEC Rule 15a-6, you can confidently expand into the U.S. market and enhance your business growth.
15a-6 Chaperoning: Pathway to the US Capital Markets
The US Capital Markets
The U.S. capital markets are the deepest, most dynamic and most liquid in the world, offering tremendous opportunities for securities firms looking to raise capital for their clients. However, our robust securities regulations provide challenges for foreign financial institutions seeking access to the US capital markets.
US Regulatory Environment
The SEC and FINRA provide essential services to the US economy and our capital markets participants. In the process of providing oversight and protection, they have created rules and regulations that securities firms must comply with.
The Choices for Foreign Financial Institutions
For foreign financial institutions interested in doing business in the United States, there are two options: The first option is to establish their own US broker-dealer, and the second option is to enter the US with a chaperone under SEC Rule 15a-6. The process of establishing a US broker-dealer is complex and bureaucratic, involving a significant time and financial commitment.
The 15a-6 Chaperoning Solution
The SEC permits foreign financial institutions to operate in the US through a chaperone under Rule 15a-6. A 15a-6 chaperone, registered with the SEC and FINRA, oversees and supervises the activities of the foreign firm in the U.S, allowing them to remain compliant with the SEC and FINRA.
Benefits of 15a-6 Chaperoning
Employing a 15a-6 chaperone comes with several benefits. Most importantly, chaperones help foreign financial institutions remain compliant with all applicable U.S. laws and regulations, safeguarding them from potential legal issues. Moreover, they provide access to U.S. institutional investors, a valuable resource that may not be easily accessible to foreign firms. They also can provide expert guidance on navigating the intricacies of the U.S. capital markets.
Does 15a-6 Apply to Your Firm?
If you are considering accessing the U.S. capital markets, you might be wondering whether your organization qualifies as a Foreign Financial Institution (FFI) under Rule 15a-6. In general, a foreign financial institution refers to any non-U.S. entity that is engaged in the business of buying and selling securities. This can include investment banks, broker-dealers, asset managers, private equity firms, insurance companies, banks, financial services firms, government entities, and other specialized financial institutions involved in securities transactions.
MPX Passport
Marco Polo Exchange 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 exclusively for foreign financial institutions that work within a 15a-6 chaperoning agreement with Marco Polo Securities Inc., MPX’s broker-dealer subsidiary.
Conclusion
The U.S. capital markets offer immense opportunities, but the path to these can be complex for foreign firms. With 15a-6 chaperoning, this journey becomes significantly easier. By ensuring regulatory compliance, providing access to institutional investors, and delivering expert insights into the U.S. capital markets, 15a-6 chaperones serve as an invaluable ally for foreign financial firms.
Partner with Marco Polo
If your firm is a foreign financial institution with ambitions to grow in the United States, schedule a call with our team to discuss partnering with MPX and Marco Polo Securities for US chaperoning.