Engaging TOBIN as your Chaperoning Broker-Dealer for Private Market Securities

This article explains what SEC Rule 15a-6 chaperoning requires and helps foreign securities firms determine whether they are prepared to access U.S. institutional investors through TOBIN.

Is Your Firm Prepared to Access U.S. Institutional Investors?

The United States remains one of the most attractive capital markets in the world.

It is also one of the most exacting capital markets in the world.

Foreign firms, foreign finders, and even the sponsors they represent often approach TOBIN seeking “chaperoning” support under SEC Rule 15a-6 to access private capital in America. The request is often framed as casual. And administrative.

But it isn’t.

Chaperoning is a regulated relationship between two securities firms, each with defined responsibilities and an existing compliance infrastructure. It is not a mechanism for placing a U.S. broker-dealer between investors and an unstructured capital-raising operation.

Understand the Rule

SEC Rule 15a-6 provides conditional exemptions allowing foreign broker-dealers to solicit and effect securities transactions with U.S. institutional investors without formally registering with the SEC as a broker/dealer. The rule provides for “chaperoning” where a foreign firm partners with a registered U.S. broker-dealer to access American capital and deal flow.

Start Here: There Must Be a Firm

We are often asked whether individuals can be “chaperoned.”

They cannot be chaperoned independently.

Rule 15a-6 contemplates a relationship between:

• a foreign broker-dealer or equivalent firm
• a U.S. registered broker-dealer

Individuals participate only through a firm engaged in the securities business. Absent that structure, the Rule 15a-6 chaperoning framework does not apply.

For the Chaperoned Broker-Dealer, Form Is Secondary. Substance Is Not.

Not every country, or other jurisdiction outside of the United States, uses the term “broker-dealer.” Securities intermediaries are not regulated identically throughout the world.

Rule 15a-6 nevertheless applies only to a foreign broker-dealer or equivalent securities firm: an organization genuinely engaged in securities placement, intermediation or transaction activity. A business does not become a foreign broker-dealer merely because it wants to raise capital in the United States.

Beyond that fundamental requirement, TOBIN encourages a prospective foreign partner to demonstrate that it:

• maintains firm-level supervision and compliance controls
• conducts appropriate issuer and offering due diligence
• follows defined processes for investor communications, qualification and approval

Without those elements, there is nothing for TOBIN to chaperone. TOBIN cannot chaperone a car wash. Nor a loose collection of individuals, nor an entity with no defined securities business. The foreign firm must be a disciplined and compliant organization experienced in the business of selling securities. Otherwise, the construct of Rule 15a-6 doesn’t fit.

What a Chaperoning Broker-Dealer Actually Does

A U.S. broker-dealer acting in a chaperoning capacity is expected to:

• participate in communications with some U.S. institutional investors
• oversee U.S. securities activity conducted through the chaperoning arrangement
• effect securities transactions in accordance with Rule 15a-6
• maintain required books and records

These obligations are real, tangible and ongoing.

TOBIN expects its foreign broker-dealer partners, in the chaperoned offering, to initiate investor communications, drive the offering-related activity and produce the necessary records, particularly those relating to issuer and investor due diligence. A chaperoning broker-dealer does not replace the foreign firm’s own securities experience, compliance infrastructure or operational discipline.

The Readiness Test

Before entering into a chaperoning relationship, TOBIN evaluates whether a prospective counterparty operates with the discipline required for U.S. market participation.

That evaluation is straightforward.

• Organizational Integrity
  A defined legal entity engaged in securities activity, with clear leadership, ownership and accountability.
• Supervisory Structure
  Documented procedures governing communications, investor interaction, issuer due diligence, conflicts and escalation.
• Investor Onboarding
  A repeatable process for:
  • KYC, AML and Bad Actor review
  • investor qualification, including suitability and accreditation
  • internal investor approval and documentation
• Due Diligence
  A defined methodology for evaluating issuers and offerings, including the ability to document the review and decline unsuitable opportunities. Certainly, U.S. due diligence standards may be more rigorous than those to which some foreign firms are accustomed. TOBIN will assist its partner in elevating its protocols to meet U.S. standards.
• Books and Records
  Complete and retrievable records of due diligence, communications, investor approvals and transaction activity.

Where the Mismatch Can Occur

Some prospective foreign partners come to TOBIN as:

• informal networks of individuals
• an “introducer” or consultant
• a group of advisors compensated based on capital raised

These models, standing alone, do not meet U.S. regulatory expectations for broker activity. A chaperoning broker-dealer cannot transform individuals, introducers or an unstructured business into a foreign broker-dealer.

A Note on Standards

The U.S. regulatory framework for chaperoning is not designed to be adapted around informal practices. The relationship requires both firms to bring genuine securities experience, compliance discipline and operational capacity.

Firms that approach TOBIN with clarity of purpose, securities experience and operational discipline tend to move efficiently through our qualification and onboarding process. Others may need to establish that foundation before seeking access to the U.S. market through Rule 15a-6.

TOBIN as Your Chaperoning Broker-Dealer

TOBIN serves as a Managing Broker Dealer and Broker Dealer partner for domestic and cross-border private placements, with a focus on rigorous compliance, investor protection and a generous, high-touch approach to execution.

If you are considering raising capital in the United States, we are available to assess whether your structure is aligned with U.S. regulatory expectations. Just give us a call or drop us a line.