Guidance on Rule 15a-6 and Foreign Broker-Dealers

The staff of the SEC’s Division of Trading and Markets recently released answers to frequently asked questions (“FAQs”) about Securities Exchange Act Rule 15a-6, which are available here.  While the FAQs largely do not break new ground, they do provide some useful clarifications and confirmations of existing interpretations.

Among other things, the FAQs:

• clarify that a foreign person with whom a foreign broker-dealer has a bona fide, pre-existing relationship before the person entered the United States generally will be considered "temporarily present in the United States" for purposes of Rule 15a-6(a)(4)(iii) so long as such person is not a U.S. citizen or a lawful permanent resident;
• confirm that a foreign broker-dealer chosen by a foreign issuer to administer a global employee stock option or other employee benefit plan can rely on Rule 15a-6(a)(1) (known as the "unsolicited exemption") to transmit communications regarding the plan to, and effect transactions in the foreign issuer's securities for, U.S. employees of the foreign issuer or its U.S. subsidiaries, subject to conditions;
• state that the relief contained in the staff's principal no-action letters under Rule 15a-6 (i.e., the so-called "Seven Firms Letter" and "Nine Firms Letter") are available to foreign broker-dealers that are not affiliated with the chaperoning registered broker-dealer;
• elucidate the minimum net capital requirements applicable to registered broker-dealers that act as chaperones under Rule 15a-6(a)(3), solely with respect to their chaperoning activities, including:

1. chaperones for foreign broker-dealers whose activities under Rule 15a-6 are limited to merger and acquisition advice provided to a U.S. institutional investor or a major U.S. institutional investor – $5,000;   
2. chaperones that maintain a fully disclosed carrying agreement with another broker-dealer that has agreed in writing to comply with the financial responsibility rules with respect to the chaperoning arrangement – $5,000;
3. chaperones that do not maintain such a fully-disclosed carrying agreement with another registered broker-dealer (including where the foreign broker-dealer engages solely in DVP/RVP transactions with institutional investors) – $250,000; and
• while maintaining the staff’s long-held position that the scope of the “unsolicited exemption” should be construed narrowly, clarify that a foreign broker-dealer is not precluded from relying upon Rule 15a-6(a)(1) solely by virtue of having effected more than one otherwise unsolicited securities transaction for a U.S. investor.  At the same time, however, staff would view a series of frequent transactions or a significant number of transactions between a foreign broker-dealer and a U.S. investor as being indicative of solicitation through the establishment of an “ongoing securities business relationship.”