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3 Things You Should Know about the Series 79

The Series 79 has been a vague and confusing issue among M&A advisors since the financial crisis and its ensuing increased regulatory scrutiny. What is it? Do I need it? Is it all I need? After all these years without it?

In an attempt to streamline the regulatory environment in November 2009, the SEC and FINRA discontinued requiring all bankers to take the broader Series 7, and instead introduced the more role-specific Series 79 Investment Banker Limited Representative exam pertaining predominantly to M&A. There are a total of 175 questions covering four topics, but that’s besides the point. The most important thing is getting registered so as to avoid the pitfalls of dealing outside the scope of securities law.

You should know the following items about the Series 79:

1. It is the primary way to get registered for doing deals, but there are exceptions

The truly pressing issue is whether or not one needs to be registered with FINRA to do deals.  The Series 79 is the M&A child of the Series 7, and under FINRA Rule 1032 (i)(1) allows:

  • Advising on or facilitating debt or equity securities offerings through a private placement or a public offering, including but not limited to origination, underwriting, marketing, structuring, syndication, and pricing of such securities and managing the allocation and stabilization activities of such offerings
  • Advising on or facilitating mergers and acquisitions, tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions, including but not limited to rendering a fairness, solvency or similar opinion

However the next section, Rule 1032 (i)(2), does state that the 79 is not required for advisors for which participation in the above activities is limited to:

  • Advising on or facilitating the placement of direct participation program securities as defined in Rule 1022 (e)(2); these are securities associated with programs that provide for flow-through tax consequences such as oil and gas programs, cattle programs, condominium securities, Subchapter S corporate offerings and other programs
  • Effecting sales as part of a primary offering of securities not involving a public offering, pursuant to Section 3(b), 4(2) or 4(6) of the Securities Act of 1933 and the rules and regulations thereunder, provided, however, that such person shall not effect sales of municipal or government securities, or equity interests in or the debt of direct participation programs as defined in Rule 1022 (e)(2)
  • Retail or institutional sales and trading activities

Moreover, the SEC’s January 2014 no-action letter provides brokers relief from broker-dealer registration requirements in transactions involving the transfer of control of a private company to a buyer that will actively operate the company, as long as certain conditions are met.  For more details on the exception, read the full letter or our full article.

2. It is likely not the only license you need

Depending on exactly what you do or sell, you may also need either of the following licenses to be be fully compliant with FINRA/SEC guidelines:

Private Securities Offerings Limited Representative (Series 82) – A registered representative in this category may effect sales of private securities offerings only. The Series 82 Examination does not qualify a registered representative in this category to effect sales of municipal or government securities, or equity interests in or the debt of direct participation programs (DPP securities). Moreover, the Series 82 Examination permits a registered representative in this category only to effect sales of private placement securities as part of a primary offering. As such, representatives in this category will not be permitted to effect resales or engage in secondary market trading of private placement securities.

Corporate Securities Limited Representative (Series 62) – Registered representatives in this category of registration may trade common and preferred stocks, corporate bonds, rights, warrants, closed-end investment companies, money-market funds, privately issued mortgage-backed securities, other asset-backed securities, and REITs. This category, by itself, does not allow a registered representative to trade municipal securities, direct participation programs, other securities registered under the Investment Company Act of 1940, variable contracts, nor options. Candidates seeking to trade these latter products must also register in one or more of FINRA’s other limited representative categories, or as General Securities Registered Representatives.

3. Non-compliance is a slippery slope

There has been a precedent of the SEC sending, and even acquiescing requests from intermediaries for, “no-action” letters excusing acknowledged illegal activity in instances of brokers doing unlicensed deals under the size limit to be considered a small business by the Small Business Association, but there have also been cases of brokers and bankers being prosecuted and held liable for transactions later voided along with their commissions on the grounds of unlicensed dealing. Worse, sellers going through unlicensed intermediaries can also be placed on the hook for aiding and abetting fraudulent securities sales.

The Series 79 is the cornerstone of the M&A regulatory structure. If you don’t already have one, we recommend at least talking to a lawyer about whether or not you need one. After that, you may need to take other exams to be safe. While doing so may be tedious and inconvenient, it is likely a small price to pay for having a license to deal.

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