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Broker Dealer Mergers & Acquisitions

Broker Dealer Mergers & Acquisitions

Broker Dealer Mergers & Acquisitions (M&A) are transactions in which the ownership of a Broker Dealer is transferred or consolidated with another entity. Often used as a tool for strategic management, Broker Dealer M&A can allow growth or downsizing, change the nature of a firm’s business, or improve competitive positioning.

  • An acquisition is the purchase of one company or business by another company or other business entity.
  • A merger is the legal union of two or more corporations into a single entity, normally liabilities and assets being assumed by the buying party

Related to Broker Dealers, both types of transactions generally result in the consolidation of assets and liabilities under one entity. A deal structured as an acquisition may place one firm’s business under the indirect ownership of the other firm’s shareholders, while a transaction structured as a merger may give each firm’s shareholders partial ownership and control of the combined company.

Similar to Buying a Broker Dealer and Selling a Broker Dealer, M&A transactions often require Financial Industry Regulatory Authority (FINRA) approval under NASD Rule 1017.

Firms involved in asset transfers, acquisitions, and/or mergers, which may include customer accounts, registered representatives, and other operational changes must fulfill various investor-protection and regulatory requirements.

FINRA requires firms to report to their FINRA coordinator when undergoing these changes. By considering these proposals well in advance of executing them, firms may discover it helps them address any operational problems that could occur.

The following transactions and changes will require a firm to take actions, which are described below.

  • Mergers and/or acquisitions of other Broker Dealers.
  • Customers changing firms on their own initiative.
  • The transfer of Brokers and/or customers as a result of an acquisition.
  • When Registered representatives move from one firm to another and brings an established customer base & customer assets along with them.

When planning material business changes, firms should review and understand the following areas:

Continuing Membership Application (CMA) & Membership Agreement Changes (MAC)

You should evaluate how your firm’s merger and transfer related changes will impact its membership status via FINRA. Rule 1017 requires firms to file a CMA whenever they seek to substantially expand their activities or operations. And a MAC whenever they seek to remove or modify restrictions applied to a membership agreement.

M&A Policies and Procedures

When planning operational or organizational changes, firms should review each entity’s procedures and policies. Merging firms should analyze a top-to-bottom comparison. While a limited review may be appropriate if a firm acquires just a portion of a business. The combined and/or revised procedures policies should be thorough and sufficiently reflect the new business model.


Firms should put into place a governance structure for the business organization and composition of the modified or new entity. This structure should provide a clear pathway for the assessment, approval, and review of the new firm’s business activities.

Annual Compliance Certification

A firm’s compliance personnel should perform an essential role in establishing the general structure of the post-transition business entity. Collaboration with compliance officials should be adequately robust throughout each step of the integration process.

M&A Supervision

Firms must assure that they have well-established clear lines of oversight for the post-transition business entity.  Licensed supervisory principals must have access to information and systems adequate to execute their duties.

Customer Account Transfer

During business transitions, both the receiving firm and the releasing firm must coordinate plans to facilitate customer account transfers, as is required by FINRA Rule 11870. They also must protect customers interests and treat them fairly throughout the transition.

Books and Records Retention

FINRA encourages firms to thoroughly review and catalog processes for retrieving and retaining required records and books. Be ready to maintain legacy database systems in order to run them in correspondence with new or combined systems, to guarantee records remain accessible.

Communications with the Public

FINRA encourages merging firms to create interim guidelines for referrals or other joint communications throughout the integration process. These guidelines should address issues such as sharing information with the different business partners involved in the merging entities (e.g., Investment Bankers, trading, research analysts, and salespeople).

Back Office and Operations

You should evaluate how a merger or transfer related changes will impact your firm’s operational and financial status. This includes forecasting the influence of a merger or acquisition on the net capital with the use of reserve capital and pro forma calculations.

Systems and Technology

Firms should consider developing a comprehensive systems migration plan, which can assist in facilitating a seamless transition to the final infrastructure in an acquisition or merger. FINRA urges firms to inform them when planning a notable electronic data processing system change, including changes that are part of a business transfer.