Dealing Without a License?: 5 Questions about the Series 79

The Series 79 has been a vague and confusing issue among M&A practitioners, especially business brokers, since the financial crisis and its ensuing increased regulatory scrutiny. Here are five questions, the answers to which we think you’ll find useful:

What is it?

In an attempt to streamline the regulatory environment, the SEC and FINRA decided to discontinue requiring all bankers to take the broader Series 7, and instead introduced the more role-specific Series 79 which pertains predominantly to M&A.

What does it cover?

There are a total of 175 questions, covering four areas: Collection, analysis and evaluation of data (75), Underwriting/new financing transactions, types of offerings and registration of securities (43), Mergers and acquisitions, tender offers and financial restructuring transactions (34), and General securities industry regulations (23).

How much does it cost?

The few hundred dollars that taking the actual exam costs is a fraction of the total. As many business brokers operate by themselves, the real cost comes with the associated licensing fees payable to the SEC and FINRA.

How has it been enforced?

Although the distinction between an asset sale (okay for business brokers) and a security sale (not okay for business brokers) has been the dividing line between a licensed deal and an unlicensed deal, the line was traditionally blurred and overlooked in past smaller transactions. Even since the tighter regulations have been implemented, the SEC has looked the other way on deals that technically violate the law, by sending “no action” letters. These letters basically acknowledge the fact that a broker is in violation of the law but will not be punished. However, this is literally and figuratively the exception to the rule, and by no means should the SEC looking the other way be taken for granted or even expected. In the event the regulatory bodies decide to take action, your commission can be rendered null and void (registration required for link).

Do I need to register with FINRA?

Yes, you must be registered with FINRA to take the test. This presents the aforementioned cost problem if you want to register with FINRA yourself. However, this requirement can be skirted by partnering with an already-registered broker-dealer to gain sponsorship.

To the best of our understanding, the Series 79 is not something to be overlooked. Whether you decide to pursue it or not is up to you, but serious consideration and research of the issue is prerequisite in light of the potential hazards dealing without a license entails.

This article is provided by Axial Inc. and its affiliates for educational and informational purposes only and is not intended to constitute, and should not be construed as, legal or business advice. This article is a summary that we believe may be of interest to you for general information. It is not a full analysis of the matters presented and should not be relied upon. Prior to acting upon any information set forth in this article or related to this article, you should consult independent legal counsel.