SEC Division of Trading and Markets no-action letter: Woodstock Financial Group, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

DIVISION OF
TRADING AND MARKETS
January 14,2008
Geoffrey T. Chalmers, Esq.
33 Broad Street
Suite 1 100
Boston, MA 02 109
Re: Revision of Prior Interpretation Provided to Woodstock Financial Group, Inc. Dear Mr. Chalmers:
By letter dated November 7, 2007, the staff of the Division of Trading and Markets responded to your inquiry regarding whether the transaction described more fully in your letter dated June 14,2007, on behalf of Woodstock Financial Group, Inc. wo wood stock^?), a registered broker-dealer, would require Woodstock to file a new application for registration on Form BD or an amendment to Woodstock's Fonn BD. As you describe the transaction, Woodstock, a Georgia corporation, would transfer all of its broker-dealer business to a wholly-owned Delaware subsidiary of Woodstock that is an unregistered entity. As you know, Rule 15bl-3(b) under the Securities Exchange Act of 1934 ("Exchange Act") provides that if an unregistered entity succeeds to the business of a registered broker-dealer and the "succession is based solely on a change in the predecessor's date or state of incorporation, form of organization, or composition of a partnership," then succession can be effected by amending the registration of the predecessor broker-dealer on Form BD. As the Commission stated in adopting Exchange Act Rule 15bl-3, "[a] succession that involves a change in control is not based solely upon an event enumerated in the rules, and therefore cannot be effected by amendment."' In the November 7,2007 letter, the staff expressed the view that the transaction described in your letter would result in a change in control because the direct shareholders of Woodstock and the unregistered entity would not be the same; rather Woodstock would become the direct shareholder of the unregistered entity. After additional reflection, the staff has reconsidered this interpretation based on representations contained in your letter including that (i) the officers, directors and key management personnel of the unregistered entity after the succession would be exactly the same as those of Woodstock and (ii) the shareholders of Woodstock, with no change in ownership or control, would become the indirect shareholders of the unregistered entity. As a result, the staff no longer believes that the transaction you describe would 1 See Securities Exchange Act Release No. 3 1661 (December 28, 1992),58 FR 7 (January 4, 1993). at note 21.

result in a change in control for purposes of Exchange Act Rule 15b1-3.2 For that reason, under the circumstances described more fully inyour letter, Exchange Act Rule 15bl-3 would permit the unregistered entity to succeed to the business of Woodstock by amending the registration of Woodstock, which would become the predecessor broker￾dealer, on Form BD. Sincerely, A &N& atherine McGuire Chief Counsel Ths letter does not affect the separate and distinct obligations that Woodstock would have as a result of the rules of a self-regulatory organization of which it is a member. See, e.g., Rule 1017of the Financial Industry Regulatory Authority (Wn National Association of Securities Dealers) rule book. 2

Geoffrey T. Chalmers, Esq. 33 Broad Street
Attorney at Law. Suite 1100 Fax (617) 227-3109 Boston, MA 02109 e-mail:chabn@w(>d6T~,ait.net Office of General Counsel

Division of Market Regulation

U.S. Securities and Exchange Commission

Washington, D.C. 20549

June.
Re:. . Woodstock. ~inancial-Group, Inc. @D No.. 38095).

SEC. Rule 15bl-3. and Release No. '3431661,

Successor Broker Dealer

Dear Sirs:
I represent a "full service" broker-dealer incorporated as a Georgia corporation which wishes to reorganize as follows:

1. It will establish a wholly-owned Delaware subsidiary.
2. It will transfer the broker dealer assets, liabilities, name, business,
   management, employees and other broker dealer operations to this new Delaware subsidiary.
3. The new unregistered entity will continue to be owned by the parent
   corporation, which will change its name and remain as a holding company with no change in ownership or control.
4. The business, management, operations and capital structure of the new
   entity will be exactly the same as they were before with no change in control.
5. The new successor entity proposes to comply with Rule 15b 1-3 by filing an
   amendment to the existing Form BD showing (a) a change in the state of incorporation and (b) a change in Schedule A to show the name of the parent company. SEC Rule 15bl-3 governs the registration of a successor to a registered broker dealer. Rule 15bl-3(e; requires that .a successor to an existing registered broker

dealer file a new application for registration on Form BD and that the predecessor shall file a notice of withdrawal. Rule 15bl-3fb) reads as follows (emphasis supplied:
'~ohuithstanding (a) of this section, if a brok or dealer succeeds to and continues the business of a registered predecessor broker or dealer, and the succession is based solelu on a chanqe in the predecessor's date or state of incomoration form of orqanization, or composition of a partnership, the successor may, within30 days after the succession, cunadthe re-n of the predecessor brok or dealer on Fonn BD to reflect these changes. This amendment shall be deemed an application for registration filed by the predecessor and adopted by the successor." (emphasis supplied) interpretingthe foregoing langua@EC. -.Release. - No.. 3431661, clearly states:. "In limited circumstances the successor rules permit the successor to file an amendment to the predecessor's Fonn BD..., rather than its oum oriqinal application for resistration. The only successions that may be, completed by filing an amendment are those that are the result of a fonnal change in the structure or legal status of the broker - de aler... ie. successions that involve the creation o a new leqal entitu but no practical chanqe in the control or operations of the broker-dealer. .. The successor rules provide that a succession that is based solelu upon certain em, suchas a chunqe in the form of orqanization, mazr be effected bzr amendment. See eq.Rule 15b13/b)underthe~Adasamended 'Temphasissupphi$). We. submit that the. proposed reorganization clearly fits within SEC. Rule. 15bl-. 3(b), as interpreted by SEC Release No.. 34-3 1661, This is. clearly a succession that. "involves. the creation .of a new legal entity but no. practical change in the control of operations. of the. broker-dealer." The officers, directors and key management personnel of the new subsidiary will be exactly the same as those for the parent. There is no change in "control" of the broker￾dealer within the meaning of the securities laws. For example, the SEC Rule dewng "control" describes it as "the possession, direct or indirect, of the power cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise." Clearly, no change in "control" will take place here. Accordingly, we believe that all we need to do to effect the succession of our wholly-owned subsidiary to the NASD broker-dealer license of the parent is to file an amendment to our Form BD, because a "succession that is based solely upon ...a change in the form of organization may be effected

by akendment.."(see. above..
The SEC pronouncements do make a lot of practical sense in this case. ill the required information about our broker dealer is already on file with the NASD and SEC. The firm has been in business as a NASD licensed broker-dealer for well over 12 years with no regulatory discipline. We are always current in our filings. Our last NASD Exam was in May, 2006 with no major deficiencies. It would make little sense to subject our firm to a duplicative, expensive and time￾consuming application for new membership, requiring submission of voluminous information already on file with, and in most cases already reviewed and approved by, the NASD. Please be kind enough to confi. to us that our interpretation of Rule 15bl-3(b) and SEC Release No. 34-31661 is cone~t-iihdthat we may establish a subsidiary as previously described to you and may cause it to succeed to the NASD-regulated business of Woodstock Financial Group, Inc. by a simple amendment to Form + BD and that the newly-established wholly-owned subsidiary may obtain the advantage of SEC Rule 15bl-3(b) by amendment to Form BD, without having to file an application as a new broker-dealer under Rule 10 1 3. / woodstock Financial Group, Inc..