Part 7.
STATE SECURITIES BOARD
Chapter 101.
GENERAL ADMINISTRATION
7 TAC §101.6
The State Securities Board adopts new §101.6, concerning
the historically underutilized business program, without changes to the proposed
text as published in the April 6, 2001, issue of the
Texas Register
(26 TexReg 2589).
The new rule satisfies the requirement in Texas Government Code §2161.003,
which requires an agency to adopt historically underutilized business ("HUB")
rules of the General Services Commission. Those HUB rules are contained in
1 TAC §§111.11- 111.28.
Vendors dealing with the agency will be aware of the HUB policy and program
at the agency applicable to the purchase of goods and services paid for with
appropriated funds.
No comments were received regarding adoption of the new rule.
The new rule is adopted under Texas Civil Statutes, Article 581-28-1
and Texas Government Code, §2161.003. Section 28-1 provides the Board
with the authority to adopt rules and regulations necessary to carry out and
implement the provisions of the Texas Securities Act, including rules and
regulations governing registration statements and applications; defining terms;
classifying securities, persons, and matters within its jurisdiction; and
prescribing different requirements for different classes. Section 2161.003
requires a state agency to adopt the General Services Commission's HUB rules
as the agency's own rules applicable to the agency's construction projects
and purchases of goods and services paid for with appropriated money.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on July 23, 2001.
TRD-200104242
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: August 12, 2001
Proposal publication date: April 6, 2001
For further information, please call: (512) 305-8300
7 TAC §107.2
The State Securities Board adopts an amendment to §107.2,
concerning definitions, to coordinate with new Chapters 115 and 116, which
are being concurrently adopted. The rule was adopted with changes to the proposed
text as published in the April 6, 2001, issue of the
Texas Register
(26 TexReg 2590). The amendment to the definition of
"rendering services as an investment adviser" was not adopted by the Board.
However, due to the bifurcation of the dealer and investment adviser rules
in new Chapters 115 and 116 that are being concurrently adopted, the cross-reference
in the existing definition is updated to reflect the location of the notice
filing provisions in the new Chapter 116, which is being concurrently adopted.
The rule updates terminology and takes into account the definitions that
are now contained in Chapters 115 and 116.
Persons seeking guidance about terms used in the Board's rules will find
defined terms used consistently throughout.
Comments on the proposal were received from the Investment Company Institute
("ICI") and the Investment Counsel Association of American, Inc. ("ICAA").
The ICI objected to the definition of "rendering services as an investment
adviser" as unduly broad. The Board concluded that the definition could be
improved and left the definition unchanged except to update a cross-reference
and will be proposing, in a future issue of the
Texas Register
, an amendment to this definition. The ICAA requested
that the Board incorporate an additional definition for "federal covered advisers."
The Board declined to add a definition at this time but will be proposing,
in a future issue of the
Texas Register
, a
definition for this term that comports with the intent of House Bill 2255,
recently enacted by the 77th Texas Legislature and effective September 1,
2001.
The amendment is adopted under Texas Civil Statutes, Article
581-28-1. Section 28-1 provides the Board with the authority to adopt rules
and regulations necessary to carry out and implement the provisions of the
Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes.
§107.2.Definitions.
The following words and terms, when used in Part VII of this title
(relating to the State Securities Board), shall have the following meanings,
unless the context clearly indicates otherwise.
(1)
Act or Securities Act or Texas Securities Act--The Texas
Securities Act, Texas Civil Statutes, Article 581-1 et seq., as amended.
(2)
Affiliate--An "affiliate" of, or person "affiliated" with
a specified person, is a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified.
(3)
APA or Administrative Procedure Act--The Administrative
Procedure Act, Texas Government Code, Title 10, Chapter 2001, as amended.
(4)
Applicant--A person who submits an application for registration
of securities, documents in connection with the offer and sale of federal
covered securities, or for registration as a dealer, investment adviser, or
salesman, or who files an application for an order of the Securities Commissioner.
(5)
Board or Securities Board--The State Securities Board of
the State of Texas.
(6)
Business days--For the purpose of filing Form 133.29 pursuant
to the requirements of §109.13(l) of this title (relating to Limited
Offering Exemptions), means ordinary business days and does not include Saturdays,
Sundays, or state holidays.
(7)
Certified--In conjunction with the term "financial statement(s),"
means financial statement(s) prepared in accordance with generally accepted
accounting principles and examined in accordance with generally accepted auditing
standards by independent certified public accountants or independent public
accountants for the purposes of expressing an opinion thereon. Such opinion
shall be one acceptable to the Securities Commissioner.
(8)
Code or Internal Revenue Code--The Internal Revenue Code
of 1986, as amended.
(9)
Commissioner or Securities Commissioner--The State Securities
Commissioner for the State of Texas.
(10)
Contested case--A proceeding in which the legal rights,
duties, or privileges of a party are to be determined by the Securities Commissioner,
or the Securities Board, after an opportunity for adjudicative hearing before
an administrative law judge of the State Office of Administrative Hearings.
(11)
Control--The possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a person
or company, whether through the ownership of voting securities, by contract,
or otherwise.
(12)
Credit union--For definition see the Texas Credit Union
Act (Texas Finance Code, Chapter 121, as amended), which regulates such credit
unions.
(13)
Detailed balance sheet--A balance sheet.
(14)
Detailed statement showing all assets and liabilities--A
balance sheet.
(15)
Domestic corporation--A corporation incorporated under
the laws of the State of Texas.
(16)
Employer--For purposes of the Texas Securities Act, §5.I(b),
includes a general partner of a limited partnership with respect to a security
sold or distributed by such limited partnership in a transaction otherwise
meeting the requirements of §5.I(b).
(17)
Federal covered securities--Any security or securities
described as a "covered security" or as "covered securities" in the Securities
Act of 1933, §18(b), or rules or regulations promulgated thereunder.
However, until October 11, 1999, or such other date Congress may authorize,
federal covered securities for which a fee has not been paid and promptly
remedied following written notification from the Securities Commissioner to
the applicant of the nonpayment or underpayment of such fees required by the
Texas Securities Act, shall be excluded from the definition of federal covered
securities.
(18)
Financial statement(s)--Balance sheet and related statements
of income, changes in stockholders' equity, and cash flows, all (consolidated,
if applicable) prepared in accordance with generally accepted accounting principles.
The information contained in the previously described statements may vary
according to presentation and titles as they relate to specific entities,
such as individuals, partnerships, and nonprofit organizations.
(19)
Investment adviser--Any person who, for compensation,
engages in the business of advising others, either directly or through publications
or writings, as to the value of securities or as to the advisability of investing
in, purchasing, or selling securities, or who, for compensation and as part
of a regular business, issues or promulgates analyses or reports concerning
securities; but does not include:
(A)
a bank, or any bank holding company as defined in the federal
Bank Holding Company Act of 1956, which is not an investment company;
(B)
any lawyer, accountant, engineer, teacher, or geologist,
whose performance of such services is solely incidental to the practice of
his or her profession;
(C)
any broker or dealer whose performance of such services
is solely incidental to the conduct of his business as a broker or dealer
and who receives no special compensation therefor;
(D)
the publisher of any bona fide newspaper, news magazine,
or business or financial publication of general and regular circulation; or
(E)
any person whose advice, analyses, or reports relate to
no securities other than securities which are direct obligations of or obligations
guaranteed as to principal or interest by the United States, or securities
issued or guaranteed by corporations in which the United States has a direct
or indirect interest which shall have been designated by the Secretary of
Treasury, pursuant to the Securities Exchange Act of 1934, §3(a)(12),
as exempted securities for the purposes of that Act.
(20)
Investment Advisers Act of 1940--The federal statute of
that name, as amended, 15 United States Code §80b-1, et seq.
(21)
Investment Company Act of 1940--The federal statute of
that name, as amended, 15 United States Code §80a-1, et seq.
(22)
License--The whole or part of any registration as a dealer,
salesman, or agent, or similar form of permission required by the Texas Securities
Act to sell securities or render investment advice.
(23)
Licensing--The process respecting the granting, denial,
renewal, revocation, suspension, withdrawal, or amendment of a license.
(24)
Managing agent or manager--One who is authorized to act
generally for an organization within a particular locality.
(25)
NASD--The National Association of Securities Dealers,
Inc., and NASD Regulation, Inc., a subsidiary of the National Association
of Securities Dealers, Inc.
(26)
Officer--A president, vice president, secretary, treasurer,
or principal financial officer, comptroller, or principal accounting officer,
or any other person occupying a similar status or performing similar functions
with respect to any organization or entity, whether incorporated or unincorporated.
(27)
Operating statement--An income statement.
(28)
Parent--A person controlling another person directly or
indirectly.
(29)
Profit and loss statement--An income statement.
(30)
Proposed plan of business--As used in the Texas Securities
Act, those aspects and only those aspects of the business set-up (other than
that done or proposed in respect to the pricing and selling of its securities)
which would materially affect the business relationship between the prospective
investor and those in control of the business as such relationship would exist
after the sale to the public of the securities sought to be registered.
(31)
Regulatory standards--All standards coming within the
meaning of "rule" as defined herein.
(32)
Rendering services as an investment adviser--Any person
coming within the designation cannot conduct such activity without first being
registered as an investment adviser/dealer under the provisions of the Act
or notice-filed under the provisions of §116.1(b)(2)(A) of this title
(relating to General Provisions). Likewise, every person employed or appointed,
or authorized by such person to render services which include the giving of
investment advice cannot conduct such activities unless registered as a dealer/investment
adviser, a salesman, or an agent under the provisions of the Act, or notice-filed
as a dealer/investment adviser, a salesman, or an agent under the provisions
of §116.1(b)(2)(B) of this title.
(33)
Rule--Any statement by the Board or the Securities Commissioner
of general applicability that implements, interprets, or prescribes law or
policy, or describes the procedure or practice requirements of the Board or
Securities Commissioner.
(34)
Savings and loan association--For definition see the Texas
Savings and Loan Act (Texas Finance Code, Chapter 61, as amended), which regulates
such savings and loan associations.
(35)
SEC--The United States Securities and Exchange Commission.
(36)
Securities Act of 1933--The federal statute of that name,
as amended, 15 United States Code §77a, et seq.
(37)
Securities Exchange Act of 1934--The federal statute of
that name, as amended, 15 United States Code §78a, et seq.
(38)
Security holders or purchasers of securities--As such
terms are used in the Texas Securities Act, §5.I, do not include holders
of any options granted pursuant to a plan which falls within the exemption
for employee plans provided by the Texas Securities Act, §5.I(b).
(39)
Staff--Personnel of the Securities Board, excluding the
members of the Board, the Securities Commissioner, and the Deputy Commissioner.
(40)
State, territory, or insular possession of the United
States--As used in the Texas Securities Act, includes a commonwealth.
(41)
Statement to reflect the financial condition--A balance
sheet.
(42)
Telephone or telegram--For purposes of the Texas Securities
Act, §7.C(2)(c), includes any means of electronic transmission such as,
but not limited to, telephone, telegraph, wireless, graphic scanning, modem,
or facsimile; provided, however, that the office of the State Securities Board
has the necessary equipment to accept such a transmission.
(43)
Within this state--
(A)
A person is a "dealer" who engages "within this state"
in one or more of the activities set out in the Texas Securities Act, §4.C,
if either the person or the person's agent is present in this state or the
offeree/purchaser or the offeree/purchaser's agent is present in this state
at the time of the particular activity. A person can be a dealer in more than
one state at the same time.
(B)
Likewise, a person is a "salesman" who engages "within
this state" in one or more of the activities set out in the Texas Securities
Act, §4.D, whether by direct act or through subagents except as otherwise
provided, if either the salesman or the salesman's agent is present in this
state or the offeree/purchaser or the offeree/purchaser's agent is present
in this state at the time of the particular activity. A person can be a salesman
in more than one state at the same time.
(C)
Offers and sales can be made by personal contact, mail,
telegram, telephone, wireless, electronic communication, or any other form
of oral or written communication.
This agency hereby certifies that the adoption
has been reviewed by legal counsel and found to be a valid exercise of the
agency's legal authority.
Filed with the Office of
the Secretary of State on July 23, 2001.
TRD-200104243
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: August 12, 2001
Proposal publication date: April 6, 2001
For further information, please call: (512) 305-8300
7 TAC §109.13
The State Securities Board adopts an amendment to §109.13,
concerning limited offering exemptions, with changes to the proposed text
as published in the April 6, 2001, issue of the
Texas Register
(26 TexReg 2591). The changes consist of the addition
of punctuation and the removal of the reference to "salesmen" in paragraph
(k)(17).
The amendment relocates a provision from §115.1(f), which is being
concurrently repealed.
Issuers utilizing the exemption provided in §109.13(k) will be apprised
of the exemption from dealer and agent registration for their officers, directors,
and employees who answer questions about a Regulation D Rule 505 or 506 offering.
No comments were received regarding adoption of the amendment.
The amendment is adopted under Texas Civil Statutes, Articles
581-28-1, 581-5.T, and 581-12.B. Section 28-1 provides the Board with the
authority to adopt rules and regulations necessary to carry out and implement
the provisions of the Texas Securities Act, including rules and regulations
governing registration statements and applications; defining terms; classifying
securities, persons, and matters within its jurisdiction; and prescribing
different requirements for different classes. Section 5.T provides that the
Board may prescribe new exemptions by rule. Section 12.B provides that the
Board may prescribe dealer/agent registration exemptions by rule.
§109.13.Limited Offering Exemptions.
(a)
Public solicitation, well-informed, and sophisticated investor.
The offer for sale or sale of the securities of the issuer would not involve
the use of public solicitation under the Act, §5.I, if the issuer, after
having made a reasonable factual inquiry has reasonable cause to believe,
and does believe, that the purchasers of the securities are sophisticated,
well-informed investors or well-informed investors who have a relationship
with the issuer or its principals, executive officers, or directors evincing
trust between the parties (namely close business association, close friendship,
or close family ties), and such purchasers acquire the securities as ultimate
purchasers and not as underwriters or conduits to other beneficial owners
or subsequent purchasers. The use of a registered dealer in a sale otherwise
meeting the requirements of §5.I does not necessarily mean that the transaction
involves the use of public solicitation. The offer without advertising to
a person who did not come within the class of persons described in this subsection
does not alone result in public solicitation if the issuer had a reasonable
cause to believe and did believe that such person fell within the class of
persons described, and that such offer was not made indiscriminately.
(1)
The term "well-informed" could be satisfied through the
dissemination of printed material to each purchaser prior to his or her purchase,
which by a fair and factual presentation discloses the plan of business, the
history, and the financial statements of the issuer, including material facts
necessary in order that the statements made, in the light of circumstances
under which they are made, not be misleading.
(2)
In determining who is a sophisticated investor at least
the following factors should be considered.
(A)
The financial capacity of the investor, to be of such proportion
that the total cost of that investor's commitment in the proposed investment
would not be material when compared with his total financial capacity. It
may be presumed that if the investment does not exceed 20% of the investor's
net worth (or joint net worth with the investor's spouse) at the time of sale
that the amount invested is not material.
(B)
Knowledge of finance, securities, and investments, generally.
This criteria may be met by the investor's purchaser representative if such
purchaser representative has such knowledge, so long as such purchaser representative:
(i)
has no business relationship with the issuer;
(ii)
represents only the investor and not the issuer; and
(iii)
is compensated only by the investor.
(C)
Experience and skill in investments based on actual participation.
This criteria may be met by the investor's purchaser representative if such
purchaser representative has such experience and skill, so long as such purchaser
representative:
(i)
has no business relationship with the issuer;
(ii)
represents only the investor and not the issuer; and
(iii)
is compensated only by the investor.
(b)
Advertisements. The term "advertisements" does not include
the use of the type of printed material as set out in subsection (a) of this
section under the discussion of the term "well-informed." Further, the main
concept to be considered in a definitional analysis of the term "advertisements,"
as it is used in §5.I, is the method of use of the printed material.
The following circumstances, though not intended to be exclusive, will be
considered in determining whether the method of use of any printed material
is within the limits of §5.I:
(1)
limited printing of the material;
(2)
limited distribution of the material only to persons who
the issuer, after having made a reasonable factual inquiry has reasonable
cause to believe and does believe are sophisticated investors, or to persons
who have a relationship with the issuer as set forth in subsection (a) of
this section, or to their purchaser representatives;
(3)
control of the printing and distribution of the printed
material;
(4)
recognition of the necessity of compliance with the requirements
set forth in this subsection on the part of the issuer and the investor. Such
recognition might consist of a printed prohibition on the front in large type
that the circular is for that individual's confidential use only, and may
not be reproduced; and, the use of a statement warning that any action contrary
to these restrictions may place such individual and the issuer in violation
of the Texas Securities Act.
(c)
Number of persons or security holders. In computing the
number of purchasers or security holders for §5.I, the following criteria
shall be used.
(1)
There shall be counted as one purchaser or security holder
any purchaser or security holder together with:
(A)
any relative or spouse of such purchaser or security holder
who has the same home as such purchaser or security holder; any relative of
such spouse who has the same home as such purchaser or security holder; any
relative or spouse or relative of such spouse who is a dependent of such security
holder;
(B)
any trust or estate in which such purchaser or security
holder or any of the persons related to him as specified in subparagraph (A)
or (C) of this paragraph collectively have more than 50% of the beneficial
interest (excluding contingent interests); and
(C)
any corporation or other organization of which such purchaser
or security holder or any of the persons related to him as specified in subparagraph
(A) or subparagraph (B) of this paragraph collectively are the beneficial
owners of more than 50% of the equity securities (excluding directors' qualified
shares) or equity interest.
(2)
There shall be counted as one purchaser or security holder
any corporation, partnership, association, joint stock company, trust, or
unincorporated association, organized and existing other than for the purpose
of acquiring securities of the issuer for which the exemption is claimed under §5.I.
(3)
Any general partner of a limited partnership who is subject
to general liability for the obligations of the limited partnership and actively
engages in the control and management of the business and affairs of the limited
partnership or of the managing general partner of the partnership shall not
be counted as a purchaser or security holder for purposes of §5.I.
(4)
The exemptions contained in the Act, §5.I(a) and (c),
as interpreted in subsections (a)-(j) of this section may not be combined
with the exemptions promulgated pursuant to the Act, §5.T, contained
in subsections (k) and (l) of this section to exceed sales to 35 unaccredited
investors in a 12-month period.
(d)
Total number of security holders. The phrase "the total
number of security holders of the issuer" in §5.I(a) includes all security
holders of the issuer without regard to their places of residence (within
or without the State of Texas) and without regard to where they acquired the
securities. In determining the number of persons for purposes of §5.I(c),
prior sales to persons residing outside the State of Texas and prior sales
to Texas residents consummated outside the State of Texas shall be included
unless such sales were made in compliance with §139.7 of this title (relating
to Sale of Securities to Nonresidents).
(e)
Other exemptions. The phrase "exempt under other provisions
of this §5" in §5.I(c) means exempt under any provisions of the
Act, other than §5.I(a), and subsections (k) and (l) of this section.
(f)
Employee plan advertising. No public solicitation or advertisement
under §5.I occurs by the distribution to eligible employees, officers,
or directors of the employer or its subsidiaries, parents, or subsidiaries
of such parents, of a prospectus filed under the Securities Act of 1933 with
the Securities and Exchange Commission for the plan or any other material
required or permitted to be distributed by the Securities Act of 1933 in connection
with such plan when the securities under the plan are sold or distributed
in a transaction otherwise meeting the requirements of §5.I(b).
(g)
Employee plan sales. Only the employer and its participating
subsidiaries, parents, or subsidiaries of such parents, if any, may offer
or sell securities in connection with the employee plan without registration
as dealers. An employee of the employer or participating subsidiary who aids
in offering or selling such securities in connection with the employee plan
is not required to be registered as an agent provided the employee meets all
of the following conditions:
(1)
the employee was not hired for the purpose of offering
or selling such securities;
(2)
the employee's activity involving the offer and sale of
such securities is strictly incidental to his bona fide primary nonsecurities-related
work duties; and
(3)
the employee's compensation is based solely on the performance
of such other duties, i.e., the employee does not receive any compensation
for offering for sale, selling, or otherwise aiding the sale of securities.
(h)
Employee plans for counting purposes. A noncontributory
employees stock ownership plan or employees stock ownership trust which holds
securities of the employer company for the benefit of that company's employees
shall be counted as one security holder under §5.I. Employee participants
in such an employee stock ownership plan or trust will not be deemed security
holders of the employer company for purposes of counting security holders
under §5.I solely because of their participation in the plan or trust.
However, employee participants receiving distributions of securities from
the plan or trust will be deemed security holders of the employer on receipt
of securities of the employer from the plan or trust.
(i)
Notices. There is no notice filing requirement for sales
made under the Act, §5.I(a), (b), or (c).
(j)
Limitations on disposition. The issuer and any person acting
on its behalf shall exercise reasonable care to assure that the purchasers
are acquiring the securities as an investment. Such reasonable care should
include, but not be limited to, the following:
(1)
making reasonable inquiry to determine if the purchaser
is acquiring the securities for his or her own account or on behalf of other
persons;
(2)
placing a legend on the certificate or other document evidencing
the securities to the effect that the securities have not been registered
under any securities law and setting forth or referring to the restrictions
on transferability and sale of the securities;
(3)
issuing stop transfer instructions to the issuer's transfer
agent, if any, with respect to the securities, or, if the issuer transfers
its own securities, making a notation in the appropriate records of the issuer;
(4)
obtaining from the purchaser a signed written agreement
to the effect that the securities will not be sold without registration under
applicable securities laws or exemptions therefrom; and
(5)
prior to sale, written disclosure to each purchaser, to
the effect that a purchaser of the securities must bear the economic risk
of the investment for an indefinite period of time because the securities
have not been registered under applicable securities laws and therefore cannot
be sold unless they are subsequently registered under such securities laws
or an exemption from such registration is available; and that the securities
are subject to the limitations set forth in paragraphs (2)-(4) of this subsection.
(k)
Uniform limited offering exemption. In addition to sales
made under the Texas Securities Act, §5.I, the State Securities Board,
pursuant to the Act, §5.T, exempts from the registration requirements
of the Act, §7, any offer or sale of securities offered or sold in compliance
with the Securities Act of 1933, Regulation D, Rules 230.505 and/or 230.506,
including any offer or sale made exempt by application of Rule 508(a), as
made effective in United States Securities and Exchange Commission Release
Number 33-6389 and as amended in Release Numbers 33-6437, 33-6663, 33-6758,
and 33-6825, and which satisfies the following further conditions and limitations.
(1)
No commission, fee, or other remuneration shall be paid
or given, directly or indirectly, to any person for soliciting any prospective
purchaser in this state unless such person is appropriately registered in
this state. It is a defense to a violation of this subsection if the issuer
sustains the burden of proof to establish that he or she did not know and
in the exercise of reasonable care could not have known that the person who
received a commission, fee, or other remuneration was not appropriately registered
in this state.
(2)
No exemption under this subsection shall be available for
the securities of any issuer if any of the parties described in the Securities
Act of 1933, Regulation A, Rule 230.262, as made effective in United States
Securities and Exchange Commission Release Number 33-6949:
(A)
has filed a registration statement which is subject of
a currently effective registration stop order entered pursuant to any state's
securities law within five years prior to the filing of the notice required
under this exemption;
(B)
has been convicted within five years prior to the filing
of the notice required under this exemption of any felony or misdemeanor in
connection with the offer, purchase, or sale of any security or any felony
involving fraud or deceit, including, but not limited to, forgery, embezzlement,
obtaining money under false pretenses, larceny, or conspiracy to defraud;
(C)
is currently subject to any state administrative enforcement
order or judgment entered by that state's securities administrator within
five years prior to the filing of the notice required under this exemption
or is subject to any state's administrative enforcement order or judgment
in which fraud or deceit, including, but not limited to, making untrue statements
of material facts and omitting to state material facts, was found and the
order or judgment was entered within five years prior to the filing of the
notice required under this exemption;
(D)
is subject to any state's administrative enforcement order
or judgment which prohibits, denies, or revokes the use of any exemption from
registration in connection with the offer, purchase, or sale of securities;
(E)
is currently subject to any order, judgment, or decree
of any court of competent jurisdiction temporarily or preliminary restraining
or enjoining, or is subject to any order, judgment, or decree of any court
of competent jurisdiction, permanently restraining or enjoining, such party
from engaging in or continuing any conduct or practice in connection with
the purchase or sale of any security or involving the making of any false
filing with the state entered within five years prior to the filing of the
notice required under this exemption.
(3)
The prohibitions of paragraph (2)(A)-(C) and (E) of this
subsection shall not apply if the person subject to the disqualification is
duly licensed or registered to conduct securities-related business in the
state in which the administrative order or judgment was entered against such
person or if the broker/dealer employing such party is licensed or registered
in this state and the Form BD filed with this state discloses the order, conviction,
judgment, or decree relating to such person. No person disqualified under
this subsection may act in a capacity other than that for which the person
is licensed or registered.
(4)
Any disqualification caused by this subsection is automatically
waived if the state securities administrator or Agency of the state which
created the basis for disqualification determines upon a showing of good cause
that it is not necessary under the circumstances that the exemption be denied.
It is a defense to a violation of this subsection if the issuer sustains the
burden of proof to establish that he or she did not know and in the exercise
of reasonable care could not have known that a disqualification under this
subsection existed.
(5)
The issuer shall file with the Securities Commissioner
a notice on Form D as made effective in United States Securities and Exchange
Commission Release Number 33-6663 (17 Code of Federal Regulations §239.500).
(A)
The notice shall be filed no later than 15 days after the
receipt of consideration or the delivery of a subscription agreement by an
investor in this state which results from an offer being made in reliance
upon this exemption and at such other times and in the form required under
Regulation D, Rule 230.503 to be filed with the Securities and Exchange Commission.
(B)
The notice shall contain an undertaking by the issuer to
furnish to the Securities Commissioner, upon written request, the information
furnished by the issuer to offerees.
(C)
Unless otherwise available, included with or in the initial
notice shall be a consent to service of process.
(D)
Every person filing the initial notice on Form D shall
pay a filing fee of 1/10 of 1.0% of the aggregate amount of securities described
as being offered for sale, but in no case more than $500.
(6)
In all sales to nonaccredited investors in this state,
one of the following conditions must be satisfied or the issuer and any person
acting on its behalf shall have reasonable grounds to believe and after making
reasonable inquiry shall believe that one of the following conditions is satisfied.
(A)
The investment is suitable for the purchaser upon the basis
of the facts, if any, disclosed by the purchaser as to the purchaser's other
security holdings, financial situation, and needs. For the purpose of this
condition only, it may be presumed that if the investment does not exceed
10% of the investor's net worth, it is suitable.
(B)
The purchaser either alone or with his/her purchaser representative(s)
has such knowledge and experience in financial and business matters that he/she
is or they are capable of evaluating the merits and risks of the prospective
investment.
(7)
A failure to comply with a term, condition, or requirement
of paragraphs (1) and (6) of this subsection will not result in loss of the
exemption from the requirements of the Act, §7, for any offer or sale
to a particular individual or entity if the person relying on the exemption
shows:
(A)
the failure to comply did not pertain to a term, condition,
or requirement directly intended to protect that particular individual or
entity; and
(B)
the failure to comply was insignificant with respect to
the offering as a whole; and
(C)
a good faith and reasonable attempt was made to comply
with all applicable terms, conditions, and requirements of paragraphs (1)
and (6) of this subsection.
(8)
Sales made pursuant to this subsection to nonaccredited
investors must comply with the disclosure requirements of subsection (a)(1)
of this section.
(9)
Transactions which are exempt under this subsection may
not be combined with offers and sales exempt under any other rule or section
of the Act; however, nothing in this limitation shall act as an election.
Should for any reason, the offer and sale fail to comply with all of the conditions
for this exemption, the issuer may claim the availability of any other applicable
exemption.
(10)
The Securities Commissioner may, by rule or order, increase
the number of purchasers or waive other conditions of this exemption.
(11)
This limited offering transactional exemption is designed
to further the objectives of compatibility with federal exemptions and uniformity
among the states.
(12)
Nothing in this exemption is intended to or should be
construed as in any way relieving issuers or persons acting on behalf of issuers
from providing disclosure to prospective investors adequate to satisfy the
anti-fraud provisions of the Texas Securities Act.
(13)
In view of the objective of this subsection and the purposes
and policies underlying the Texas Securities Act, the exemption is not available
to any issuer with respect to any transaction which, although in technical
compliance with this subsection, is part of a plan or scheme to evade registration
or the conditions or limitations explicitly stated in this subsection.
(14)
Nothing in this subsection is intended to relieve registered
dealers, salesmen, or agents from the due diligence, suitability, or know
your customer standards or any other requirements of law otherwise applicable
to such registered persons.
(15)
Review of Form D.
(A)
The staff of the State Securities Board will review all
notice filings made under this subsection for completeness of the information
required to be filed under this section. If the staff determines that a filing
is incomplete in any material respect, the staff will within five days of
receipt of the form issue a letter notifying the user of the form of the deficiency.
(B)
A user of this section who receives notice from the staff
of a deficiency in a form filed under this section may correct the deficiency
within 30 days of the date that the deficiency letter is issued by the staff.
If a timely correction is made, the filing shall be deemed to be complete
and in compliance with the filing requirements as of the date the original
filing was received.
(C)
In order to assist voluntary compliance within this subsection
and to aid users in filing notices required under paragraph (5) of this subsection,
the staff of the State Securities Board is available to answer questions about
this regulation. Inquiries should be addressed to the Director of Securities
Registration.
(16)
If the securities comply with this subsection (except
for paragraphs (1)-(6), (8), and (10) of this subsection) and are federal
covered securities, as that term is defined in §107.2 of this title (relating
to Definitions), the issuer should refer to Chapter 114 of this title (relating
to Federal Covered Securities) for the applicable filing and fee requirements.
(Issuers are advised of their obligation to comply with the dealer and agent
registration requirements of the Texas Securities Act and Board rules. See §114.4(g)
of this title (relating to Filings and Fees).)
(17)
Issuers in Regulation D offerings. When an offering is
made in compliance with Regulation D of the SEC and the offering will be made
by or through a registered securities dealer, the issuer and its directors,
officers, agents, and employees may make themselves available to answer questions
from offerees, as required by Rule 502(b)(2)(v) of Regulation D, without being
required to register as securities dealers or agents under the Act, §12.
(l)
Intrastate limited offering exemption. In addition to sales
made under the Securities Act, §5.I, the State Securities Board, pursuant
to the Securities Act, §5.T, exempts from the registration requirements
of the Securities Act, §7, any offer or sale of any securities by the
issuer itself, or by a registered dealer acting as agent for the issuer provided
all offers and sales are made pursuant to an offering made and completed solely
within this state and all the conditions in paragraphs (1)-(11) of this subsection
are satisfied.
(1)
The sale is made, without the use of any public solicitation
or advertisements, as set forth in subsection (a) and subsection (b) of this
section to:
(A)
not more than 35 new security holders of the issuer who
meet the criteria stated in subsection (a) of this section and who became
security holders during the period of 12 months ending with the date of the
sale in question (subject to paragraph (7) of this subsection); and
(B)
other well-informed investors who are "accredited investors"
as defined in paragraph (11) of this subsection. (For purposes of this subsection,
the term "well informed" shall have the same meaning as set out in subsection
(a)(1) of this section, and the term "5.I" in such subsection shall include
sales made pursuant to this subsection.)
(2)
Neither the issuer nor the registered dealer (as such terms
are defined in paragraph (4) of this subsection):
(A)
is currently subject to any administrative order issued
by state or federal authorities within five years of the expected offer and
sale of securities in reliance upon this exemption, which order:
(i)
is based upon a finding that such person has engaged in
fraudulent conduct; or
(ii)
has the effect of enjoining such person from activities
subject to federal or state statutes designed to protect investors or consumers
against unlawful or deceptive practices involving securities, insurance, commodities
or commodity futures, real estate, franchises, business opportunities, consumer
goods, or other goods and services;
(B)
has been convicted within five years prior to commencement
of the offering of any felony or misdemeanor of which fraud is an essential
element, or which is a violation of the securities laws or regulations of
this state, or of any other state of the United States, or of the United States,
or any foreign jurisdiction; or which is a crime involving moral turpitude;
or which is a criminal violation of statutes designed to protect consumers
against unlawful practices involving insurance, securities, commodities or
commodity futures, real estate, franchises, business opportunities, consumer
goods, or other goods and services;
(C)
is subject to any order, judgment, or decree entered within
five years prior to commencement of the offering by any court of competent
jurisdiction which temporarily or permanently restrains or enjoins such person
from engaging in or continuing any conduct or practice in connection with
the purchase or sale of any security or involving any false filing with any
state; or which restrains or enjoins such person from activities subject to
federal or state statutes designed to protect consumers against unlawful or
deceptive practices involving insurance, commodities or commodity futures,
real estate, franchises, business opportunities, consumer goods, or other
goods and services.
(3)
The prohibitions of subparagraphs (A)-(C) of paragraph
(2) shall not apply if the party subject to the disqualifying order is duly
licensed to conduct securities-related business in the state in which the
administrative order or judgment was entered against such party or, if the
order or judgment was entered by federal authorities, the prohibitions of
subparagraphs (A)-(C) of paragraph (2) shall not apply if the party subject
to the disqualifying order is duly licensed to conduct securities-related
business by the Securities and Exchange Commission. Any disqualification caused
by paragraph (2) is automatically waived if the state or federal authorities
which created the basis for disqualification determine upon a showing of good
cause that it is not necessary under the circumstances that the exemption
be denied.
(4)
For purposes of paragraphs (2) and (3) only, "issuer" includes
any directors, executive officers, general partners, or beneficial owners
of 10% or more of any class of its equity securities (beneficial ownership
meaning the power to vote or direct the vote and/or the power to dispose or
direct the disposition of such securities), and "registered dealer" shall
include any partners, directors, executive officers, or beneficial owner of
10% or more of any class of the equity securities of the registered dealer
(beneficial ownership meaning the power to vote or direct the vote and/or
the power to dispose or direct the disposition of such securities).
(5)
Upon application, and for good cause shown, the Commissioner
may waive a disqualification contained in paragraph (2).
(6)
The offering complies with subsections (a)-(d) and (j)
of this section. However, persons who are "accredited investors" as defined
in paragraph (11) of this subsection are deemed to be "sophisticated" as defined
in subsection (a)(2) of this section.
(7)
This subsection may not be combined with the Securities
Act, §5.I(a) or §5.I(c), or subsection (k) of this section to make
sales to more than 35 unaccredited security holders during a 12-month period.
Except for accredited investors who became security holders pursuant to this
subsection, security holders who purchase in sales made in compliance with
this subsection are included in the count of security holders under §5.I(a)
or purchasers under §5.I(c), but this subsection may be used to exceed
the numbers of security holders or purchasers allowed by such sections over
an extended period of time.
(8)
Issuers who offer and sell securities under this subsection
only through a securities dealer registered in Texas may do so without filing
any notice with the State Securities Board.
(9)
Notice filing requirements.
(A)
For sales under subparagraph (1)(B) of this subsection,
in whole or in part to accredited investors listed in paragraph (11) (E)-(H)
of this subsection of such definition of accredited investor issuers who are
not registered securities dealers and who do not sell securities by or through
registered securities dealers shall file a sworn notice on Form 133.29 or
a reproduction thereof not less than 10 business days before any sale claimed
to be exempt under this subsection may be consummated. However, no notice
is required for sales made under paragraph (1)(A) of this subsection or under
paragraph (1)(B) of this subsection where the sales are made exclusively to
accredited investors as defined in paragraph (11)(A)-(D) of this subsection
or to entities in which all of the equity owners are accredited investors
listed in paragraph (11)(A)-(D) of this subsection of such definition. The
issuer may be required by the Securities Commissioner to give details concerning
any information requested in Form 133.29 and may be required to furnish any
additional information deemed necessary by the Securities Commissioner to
determine the issuer's business repute and qualifications.
(B)
Every issuer filing a notice on Form 133.29 shall pay a
filing fee of 1/10 of 1.0% of the aggregate amount of securities described
as being offered for sale, but in no case more than $500.
(10)
Accredited investor security holders who purchase in sales
made under this exemption are not counted as security holders under §5.I(a)
or purchasers under §5.I(c) in determining whether any other sales to
other security holders or purchasers are exempt under §5.I. That is to
say, this exemption for sales to accredited investors is cumulative with and
in addition to the exemptions contained in §5.I, and sales made under
paragraph (1)(B) of this subsection are not considered in determining whether
sales made in reliance on the exemptions contained in §5.I would be within
the numerical limits on the number of security holders or purchasers contained
in §5.I.
(11)
For purposes of this subsection, accredited investor shall
mean any person who comes within any of the following categories, or who the
issuer reasonably believes comes within any of the following categories, at
the time of the sale of the securities to that person:
(A)
any bank as defined in the Securities Act of 1933, §3(a)(2),
whether acting in its individual or fiduciary capacity; insurance company
as defined in the Securities Act of 1933, §2(13); investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in that Act, §2(a)(48); small business investment
company licensed by the U.S. Small Business Administration under the Small
Business Investment Act of 1958, §301(c) or (d); employee benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974,
Title I, if the investment decision is made by a plan fiduciary, as defined
in such Act, §3(21), which is either a bank, insurance company, or investment
adviser registered under the Investment Advisers Act of 1940, or if the employee
benefit plan has total assets in excess of $5 million;
(B)
any private business development company as defined in
the Investment Advisers Act of 1940, §202(a)(22);
(C)
any organization described in the Internal Revenue Code, §501(c)(3),
with total assets in excess of $5 million;
(D)
any director, executive officer, or general partner of
the issuer of the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
(E)
any person who purchases at least $150,000 of the securities
being offered, where the purchaser's total purchase price does not exceed
20% of the purchaser's net worth at the time of sale, or joint net worth with
that person's spouse, for one or any combination of the following:
(i)
cash;
(ii)
securities for which market quotations are readily available;
(iii)
any unconditional obligation to pay cash or securities
for which market quotations are readily available which obligation is to be
discharged within five years of the sale of securities to the purchaser; or
(iv)
the cancellation of any indebtedness owed by the issuer
to the purchaser;
(F)
any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his purchase exceeds $1
million;
(G)
any natural person who had an individual income or joint
income with that person's spouse in excess of $200,000 in each of the two
most recent years and who reasonably expects an income in excess of $200,000
in the current year; and
(H)
any entity in which all of the equity owners are accredited
investors under subparagraphs (A)-(D), (F), or (G) of this paragraph.
This agency hereby certifies that the adoption
has been reviewed by legal counsel and found to be a valid exercise of the
agency's legal authority.
Filed with the Office of
the Secretary of State on July 23, 2001.
TRD-200104244
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: August 12, 2001
Proposal publication date: April 6, 2001
For further information, please call: (512) 305-8300
7 TAC §§115.1 - 115.7
The State Securities Board adopts the repeal of Chapter 115,
consisting of §§115.1 - 115.7, concerning Dealers and Salesmen,
without changes to the proposed text as published in the April 6, 2001, issue
of the
Texas Register
(26 TexReg 2592).
The repeal allows for the concurrent adoption of a new Chapter 115, concerning
dealers and agents, and a new Chapter 116, concerning investment advisers
and investment adviser representatives.
The chapter is being replaced with better organized and more easily understandable
provisions.
No comments were received regarding adoption of the repeal.
The repeal is adopted under Texas Civil Statutes, Articles 581-28-1
and 581-12.B. Section 28-1 provides the Board with the authority to adopt
rules and regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes. Section 12.B provides the Board with the authority
to prescribe new dealer/agent registration exemptions by rule.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on July 23, 2001.
TRD-200104245
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: August 12, 2001
Proposal publication date: April 6, 2001
For further information, please call: (512) 305-8300
7 TAC §§115.1 - 115.10
The State Securities Board adopts new chapter 115, consisting
of §§115.1 - 115.10, concerning securities dealers and agents. Section
115.3 and §115.5 were adopted with changes to the proposed text as published
in the April 6, 2001, issue of the
Texas Register
(26 TexReg 2592). Sections 115.1, 115.2, 115.4, and 115.6 - 115.10
were adopted without changes and will not be republished.
The change to §115.3 consisted of adding two commas in subsection
(b)(3)(G). In §115.5 the text in subsection (b)(5), and in subsections
(b)(11)(H) and (d)(3)(H), was made gender neutral and an unnecessary word
was eliminated in subsection (e)(3)(F).
The new chapter replaces the existing Chapter 115, concerning dealers
and salesmen, that is being concurrently repealed, with better organized and
more understandable provisions that related specifically to securities dealers
and their agents.
The new chapter will apprise dealers and their agents of their obligations
under the Texas Securities Act ("TSA") and Board rules.
Comments on the new Chapter were received from the Investment Counsel Association
of America, Inc. ("ICAA"), the Securities Industry Association ("SIA"), and
Wilkie Farr & Gallagher ("WFG"). The ICAA generally supported the separation
of the provisions relating to investment advisers, in new Chapter 116, from
those relating to dealers, contained in new Chapter 115. The Board agreed
and has adopted Chapter 115 substantially as published.
The SIA objected to the definition of "branch office" in §115.1 as
being too broad in light of pending Securities and Exchange Commission ("SEC")
changes in this area. The staff noted that making changes prior to the adoption
of final SEC revisions would be premature. The Board adopted the definition
without changes to the published proposal.
Regarding §115.2, the SIA urged the Board to consider eliminating
some of the items that must be filed in connection with an application and
renewal and to keep applications active for more than six months if the applicant
continues to respond to staff requests for additional information. The Staff
noted that certain items currently required could be eliminated once the provisions
of House Bill 2255, recently enacted by the 77th Texas Legislature, become
effective on September 1, 2001. The Board declined to eliminate items from
the listing at this time but will be proposing, in a future issue of the
The SIA commented generally in favor of certain examination waiver requirements
in §115.3. The Board agreed and has adopted the section substantially
as published.
Both the SIA and WFG commented generally in favor of temporary registration
of successor entities provided in §115.4. WFG suggested that the section
be expanded to accommodate successions by amendment. The staff noted that
the TSA, §13, requires organizational documents be submitted by applicants,
so documentation of structural changes are required by statute. Staff also
noted that the rule as drafted provides additional time to applicants when
necessary to complete a conversion. The Board adopted the section as published.
The SIA asked that differences between the record-keeping and record preservation
requirement in §115.5 and those of the SEC be eliminated. The staff noted
that making changes prior to the adoption of final SEC revisions would be
premature. The commenter also questioned the meaning of the terminology used
to describe staff access to records. The staff noted that inspections by Agency
staff are conducted in the presence of dealer personnel and that H.B. 2255,
effective September 1, 2001, provides statutory clarification to address the
commenter's concerns. The Board adopted the provision without changes to the
published proposal but will be proposing, in a future issue of the
Texas Register
, amending the section to conform to the language in
H.B. 2255.
The SIA questioned the ability of the Board to require that records be
maintained in certain locations and asked whether §115.7(c) was meant
to be an alternative to (a) or (b) or both. The staff noted that H.B. 2255,
effective September 1, 2001, provides statutory clarification to address the
commenter's concerns and explained that subsection (c) is an alternative to
subsection (b) only. The Board adopted the provision without changes to the
published proposal but will be proposing, in a future issue of the
Texas Register
, amending the section to conform to the language in
H.B. 2255 and to eliminate reference to Form 133.16, which the Board will
be proposing for repeal.
The SIA supported the discounted fee for small businesses in §115.8
and urged the Board to extend the discounted fee to all firms, large and small.
The staff noted that H.B. 2255 restricts the ability of the Board to adopt
reduced fees to small businesses only. The Board adopted the section as published.
The SIA objected to the requirement in §115.10 to create written supervisory
procedures and records of supervisory personnel as impermissible books and
records requirements. The staff explained that these are supervisory requirements,
not a books and records requirement and noted that the National Association
of Securities Dealers enforces similar rules and the SEC requires procedures
be in place to provide supervisory procedures. The Board disagreed with the
commenter and adopted the section as published.
The new chapter is adopted under Texas Civil Statutes, Articles
581-28-1 and 581-12.B. Section 28-1 provides the Board with the authority
to adopt rules and regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes. Section 12.B provides the Board with the authority
to prescribe new dealer/agent registration exemptions by rule.
§115.3.Examination.
(a)
Requirement. To determine the applicant's qualifications
and competency to engage in the business of dealing in and selling securities,
the State Securities Board requires a written examination on general securities
principles and on state securities law. The passing score for all applicants
on each examination is 70%.
(b)
Examinations accepted.
(1)
Each applicant must pass an examination on general securities
principles. This requirement may be satisfied by passing an examination on
general securities principles administered by the NASD. As set forth in paragraph
(3) of this subsection, applicants for restricted registrations may substitute
an examination dealing with a particular type of security for an examination
on general securities principles.
(2)
For purposes of this subsection, the Securities Commissioner
recognizes the following general examinations administered by the NASD:
(A)
Series 1 - General Securities Examination;
(B)
Series 2 - NASD Non-Member General Securities Examination;
and
(C)
Series 7 - General Securities Representative Examination.
(3)
In lieu of an examination on general securities principles,
the Securities Commissioner recognizes the following limited examinations,
administered by the NASD, for the corresponding restricted registrations:
(A)
for persons seeking a restricted registration to deal exclusively
in securities issued by open-end investment companies registered under the
Texas Securities Act or the Investment Company Act of 1940, the Series 6 --
Investment Company Products/Variable Contracts Representative Examination;
(B)
for persons seeking a restricted registration to accept
orders unsolicited by such person from existing customers of the dealer, the
Series 11 -- Assistant Representative/Order Processing Examination;
(C)
for persons seeking a restricted registration to deal exclusively
in direct participation program securities, the Series 22 -- Direct Participation
Programs Representative Examination;
(D)
for persons seeking a restricted registration to deal exclusively
in municipal securities, the Series 52 -- Municipal Securities Representative
Examination;
(E)
for persons seeking a restricted registration to deal exclusively
in corporate securities, the Series 62 -- Corporate Securities Representative
Examination;
(F)
for persons seeking a restricted registration to deal in
all general securities except municipal securities, either the Series 17 --
General Securities Representative Examination, the Series 37 -- General Securities
Representative Examination, the Series 38 -- General Securities Representative
Examination, or the Series 47 -- General Securities Representative Examination;
and
(G)
for persons seeking a restricted registration to deal exclusively
in government securities, the Series 72 -- Government Securities Representative
Examination. A person registered on or before September 1, 1998, for the purpose
of dealing exclusively in government securities, is not required to pass the
Series 72 examination.
(4)
Each applicant must pass an examination on state securities
law. This requirement may be satisfied by passing an examination on the Texas
Securities Act administered by this Agency or by passing the Uniform Securities
Agent State Law Examination (Series 63) or the Uniform Combined State Law
Examination (Series 66).
(c)
Waivers of examination requirements.
(1)
All persons who were registered in Texas on August 23,
1963, are not required to take any examinations.
(2)
A full waiver of the examination requirements of the Texas
Securities Act, §13.D, is granted by the Board to the following classes
of persons:
(A)
issuers offering securities in rights offerings to their
own securities holders;
(B)
issuers offering their own securities in exchange for outstanding
securities of another corporation, provided consummation of the offer is dependent
upon tender of at least 80% of such outstanding securities;
(C)
issuers restricting distribution of securities to security
holders of an affiliate company, a subsidiary, or a parent of the issuer,
provided the registration certificate is issued on a temporary basis and terminated
immediately after the offering;
(D)
officers and employees whose firms restrict their officers'
and employees' securities activities to acting as brokers between and among
principals for the sale of a majority of the stock or equity securities of
a privately held business pursuant to a privately negotiated purchase agreement,
where the managerial control of the business will devolve upon the purchaser(s)
and where compensation received by the firm will be payable for the brokerage
activities only; and
(E)
a person who completed the examinations required under
this subsection, but whose registration has lapsed for more than two years
and who has been continually employed in a securities- related position with
an entity which was not required to be registered.
(3)
A partial waiver of the examination requirements of the
Texas Securities Act, §13.D, is granted by the Board to the following
classes of persons:
(A)
applicants who have been continuously registered with the
Securities and Exchange Commission, National Association of Securities Dealers,
New York Stock Exchange, or any other exchange listed in §6.F of the
Texas Securities Act or recognized by the Board pursuant to §111.2 of
the rules for 10 years immediately preceding the application for registration
in Texas. These applicants are required to pass an examination on state securities
law as required by subsection (b)(4) of this section;
(B)
applicants who passed the "state securities examination"
promulgated and formerly administered by the Psychological Corporation, New
York, New York, now the Psychological Corporation, San Antonio, Texas, which
was an examination on general securities principles. These applicants are
required to pass an examination on state securities law as required by subsection
(b)(4) of this section;
(C)
applicants seeking registration for the purpose of dealing
exclusively in real estate syndication interests or condominium securities,
provided such persons are licensed, at the time of application, under the
Real Estate License Act (Texas Civil Statutes, Article 6573a et seq.). Such
persons are not required to take a general securities examination, but are
required to pass an examination on state securities law as required by subsection
(b)(4) of this section;
(D)
applicants seeking registration for the purpose of dealing
exclusively in oil and gas interests (other than interests in limited partnerships).
Such persons are not required to take the general securities examination,
but are required to pass an examination on state securities law as required
by subsection (b)(4) of this section. Provided, however, any persons registered
prior to January 1, 1976, for the purpose of dealing exclusively in oil and
gas interests, are not required to pass an examination; and
(E)
applicants who are officers, partners, or employees of
an issuer (other than an open-end investment company) if the issuer's securities
will be registered for sale in Texas. Such officers, partners, and employees
are not required to take the general securities examination, but are required
to pass an examination on state securities law as required by subsection (b)(4)
of this section. Evidences of registration granted pursuant to this subparagraph
are restricted to sales of the currently registered securities of the issuer.
Such evidences of registration must be surrendered to the State Securities
Board for cancellation immediately upon completion of the distribution of
securities for which the securities and dealer registrations have been obtained.
(4)
The Securities Commissioner in his or her discretion is
authorized by the Board to grant full or partial waivers of the examination
requirements of the Texas Securities Act, §13.D.
(d)
Texas securities law examination.
(1)
The fee for each filing of a request to take the Texas
securities law examination is $35. An admission letter issued by the Board
is required for all entrants. The examination is given at 9:00 a.m. on each
Tuesday at the office of the State Securities Board in Austin. The examination
may be taken at other locations near principal population centers across the
state. Testing centers require reservations and may charge an additional (monitor)
fee for administering the examination. A list of examination centers with
additional details may be obtained from the State Securities Board.
(2)
While taking the examination on the Texas Securities Act,
each applicant may use an unmarked copy of the Texas Securities Act as it
is printed and distributed by the State Securities Board. No other reference
materials are allowed to be used by applicants during the examination.
(3)
Reexamination. An applicant who fails the examination on
the Texas Securities Act may request reexamination. The applicant must bring
his or her application up to date before retaking an examination.
§115.5.Minimum Records.
(a)
Dealer records. Compliance with the record-keeping requirements
of the United States Securities and Exchange Commission, found in 17 Code
of Federal Regulations §240.17a-3 and §240.17a-4, will satisfy the
requirements of this section.
(b)
Records to be made by certain dealers. A person or company
registered in Texas as a general securities dealer or a dealer in municipal
securities shall make and keep current the following minimum records or the
equivalent thereof.
(1)
Blotters (or other records of original entry) containing
an itemized daily record of all purchases and sales of securities, all receipts
and deliveries of securities (including certificate numbers), all receipts
and disbursements of cash, and other debits and credits. Such records shall
show the account for which each such transaction was effected, the name and
amount of securities, the unit and aggregate purchase or sale price (if any),
the trade date, and the name or other designation of the person from whom
purchased or received or to whom sold or delivered.
(2)
Ledgers (or other records) that reflect all assets and
liabilities, income and expense, and capital accounts.
(3)
Ledger accounts (or other records) itemizing separately
as to each cash and margin account of every customer and of such dealer and
its partners, all purchases, sales, receipts, and deliveries of securities
and commodities for such account and all other debits and credits to such
account.
(4)
Ledgers (or other records) that reflect the following:
(A)
securities in transfer;
(B)
dividends and interest received;
(C)
securities borrowed and securities loaned;
(D)
monies borrowed and monies loaned (together with a record
of the collateral therefor and any substitutions in such collateral); and
(E)
securities failed to receive and failed to deliver.
(5)
A securities record or ledger that reflects separately
for each security as of the clearance dates all "long" or "short" positions
(including securities in safekeeping) carried by such dealer for his or her
account or for the account of his or her customers or partners and showing
the location of all securities long and the offsetting position of all securities
short, including long security count differences and short security count
differences classified by the date of the physical count and verification
in which they were discovered, and in all cases the name or designation of
the account in which each position is carried.
(6)
A memorandum of each brokerage order and of any other instruction
given or received for the purchase or sale of securities, whether executed
or unexecuted. Such memorandum shall show the terms and conditions of the
order or instructions and of any modifications or cancellation thereof, the
account for which entered, the time of entry, the price at which executed,
and, to the extent feasible, the time of execution or cancellation. Orders
entered pursuant to the exercise of discretionary power by such dealer or
any of its employees shall be so designated. The term "instruction" shall
be deemed to include instructions between partners and employees of a dealer.
The term "time of entry" shall be deemed to mean the time when such dealer
transmits the order or instruction for execution or, if it is not so transmitted,
the time when it is received.
(7)
A memorandum of each purchase and sale for the account
of such dealer showing the price, and, to the extent feasible, the time of
execution; and, in addition, where such purchase or sale is with a customer
other than a broker or dealer, a memorandum of each order received, showing
the time of receipt, the terms and conditions of the order, and the account
in which it was entered.
(8)
Copies of confirmations of all purchases and sales of securities
and copies of notices of all other debits and credits for securities, cash,
and other items for the account of customers and partners of such dealer.
(9)
A record in respect of each cash and margin account with
such dealer containing the name and address of the beneficial owner of such
account and, in the case of a margin account, the signature of such owner;
provided that, in the case of a joint account or an account of a corporation,
such records are required only in respect of the person or persons authorized
to transact business for such account.
(10)
A record of all puts, calls, spreads, straddles, standby
commitments, and other options in which such dealer has any direct or indirect
interest or which such dealer has granted or guaranteed, containing at least
an identification of the security and the number of units involved.
(11)
A questionnaire or application for employment executed
by each partner, officer, director, agent, trader, manager, and each employee
who handles funds or securities or who solicits transactions or accounts for
such dealer, which questionnaire or application shall be approved in writing
by an authorized representative of such dealer and shall contain at least
the following information with respect to such person (in the case of persons
registered with the State Securities Board, a copy of their application for
registration as an agent, officer, or partner will satisfy this requirement):
(A)
name, address, social security number, and the starting
date of employment or other association with the dealer;
(B)
date of birth;
(C)
the educational institutions attended and whether he or
she graduated therefrom;
(D)
a complete, consecutive statement of all business connections
for at least the preceding 10 years, including the reason for leaving each
prior employment, and whether the employment was part-time or full-time;
(E)
a record of any denial, suspension, expulsion, or revocation
of membership or registration of any dealer he or she was associated with
in any capacity when such action was taken;
(F)
a record of any denial of membership or registration, and
of any disciplinary action taken, or sanction imposed, on the person by any
federal or state agency, or by any national securities exchange or national
securities association, including any finding that he or she was a cause of
any disciplinary action or had violated any law;
(G)
a record of any permanent or temporary injunction entered
against the person or any dealer he or she was associated with in any capacity
at the time such injunction was entered;
(H)
a record of any arrest or indictment for any felony or
misdemeanor, and the disposition of any such arrest or indictment or further
explanation thereof, and a record of any conviction for any felony or any
misdemeanor, except minor traffic offenses, of which he or she has been the
subject; and
(I)
a record of any other name or names he or she has been
known by or has used.
(c)
Exemptions from the requirements of subsection (b) of this
section:
(1)
A dealer is not required to make or keep such records of
transactions cleared for such dealer by a member of the National Association
of Securities Dealers, Inc., the American Stock Exchange, the Boston Stock
Exchange, the Chicago Stock Exchange, the New York Stock Exchange, the Pacific
Stock Exchange, the Chicago Board Options Exchange, or any other recognized
and responsible stock exchange approved by the Securities Commissioner pursuant
to the Texas Securities Act, §6.F, where such records are customarily
made and kept by the clearing member.
(2)
A dealer is not required to make or keep such records that
reflect the sale of United States Tax Savings Notes, United States Defense
Savings Stamps, or United States Defense Savings Bonds, Series E, F, and G.
(3)
A dealer is not required to make or keep such records with
respect to any cash transaction of $100 or less involving only subscription
rights or warrants which by their terms expire within 90 days after the issuance
thereof.
(4)
For purposes of transactions in municipal securities by
municipal securities dealers, compliance with Rule G-8 of the Municipal Securities
Rulemaking Board will be deemed to be in compliance with subsection (b) of
this section.
(d)
Restricted dealers. Dealers registered in restricted categories,
other than municipal securities dealers, such as oil and gas dealers and real
estate dealers, etc., shall keep and maintain records adequate to accurately
reflect customer transactions, and the dealer's financial condition. Compliance
with the record-keeping requirements of the United States Securities and Exchange
Commission, found in 17 Code of Federal Regulations §240.17a-3 and §240.17a-4,
will satisfy the requirements of this section; provided such dealers shall
maintain at least the following information:
(1)
Blotters (or other records of original entry) containing
an itemized daily record of all purchases and sales of securities, all receipts
and deliveries of securities (including certificate numbers), all receipts
and disbursements of cash, and other debits and credits. Such records shall
show the account for which each such transaction was effected, the name and
amount of securities, the unit and aggregate purchase or sale price (if any),
the trade date, and the name or other designation of the person from whom
purchased or received or to whom sold or delivered;
(2)
Ledgers (or other records) that reflect all assets and
liabilities, income and expense, and capital accounts; and
(3)
A questionnaire or application for employment executed
by each partner, officer, director, agent, trader, manager, and each employee
who handles funds or securities or who solicits transactions or accounts for
such dealer, which questionnaire or application shall be approved in writing
by an authorized representative of such dealer and shall contain at least
the following information with respect to such person (in the case of persons
registered with the State Securities Board, a copy of their application for
registration as an agent, officer, or partner will satisfy this requirement):
(A)
name, address, social security number, and the starting
date of employment or other association with the dealer;
(B)
date of birth;
(C)
the educational institutions attended and whether he or
she graduated therefrom;
(D)
a complete, consecutive statement of all business connections
for at least the preceding 10 years, including the reason for leaving each
prior employment, and whether the employment was part-time or full-time;
(E)
a record of any denial, suspension, expulsion, or revocation
of membership or registration of any dealer he or she was associated with
in any capacity when such action was taken;
(F)
a record of any denial of membership or registration, and
of any disciplinary action taken, or sanction imposed, on the person by any
federal or state agency, or by any national securities exchange or national
securities association, including any finding that he or she was a cause of
any disciplinary action or had violated any law;
(G)
a record of any permanent or temporary injunction entered
against the person or any dealer he or she was associated with in any capacity
at the time such injunction was entered;
(H)
a record of any arrest or indictment for any felony or
misdemeanor, and the disposition of any such arrest or indictment or further
explanation thereof, and a record of any conviction for any felony or any
misdemeanor, except minor traffic offenses, of which he or she has been the
subject; and
(I)
a record of any other name or names he or she has been
known by or has used.
(e)
Records to be preserved by dealers.
(1)
Persons subject to subsection (b) of this section shall
preserve:
(A)
all records required to be made pursuant to paragraphs
(1), (2), (3), and (5) of subsection (b) of this section for a period of not
less than five years from the end of the fiscal year during which the last
entry was made on such record, the first two years in an easily accessible
place;
(B)
all records required to be made pursuant to paragraphs
(4) and (6) - (10) of subsection (b) of this section for a period of not less
than three years from the end of the fiscal year during which the last entry
was made on such record, the first two years in an easily accessible place;
and
(C)
all records required to be made pursuant to paragraph (11)
of subsection (b) of this section until at least three years following termination
of the employment or other relationship between the dealer and the person
to whom the records relate.
(2)
Persons subject to subsection (d) of this section shall
preserve all records required to be made pursuant to subsection (d) of this
section for a period of not less than five years from the end of the fiscal
year during which the last entry was made on such record, the first two years
in an easily accessible place.
(3)
Persons registered as dealers in Texas, including restricted
dealers, shall preserve for a period of not less than three years from the
end of the fiscal year during which the last entry was made on such record,
the first two years in an easily accessible place:
(A)
all checkbooks, bank statements, cancelled checks, and
cash reconciliations;
(B)
all bills receivable or payable (or copies thereof), paid
or unpaid, relating to the business of the dealer, as such;
(C)
originals of all communications received and copies of
all communications sent by the dealer (including interoffice memoranda and
communications) relating to the business of the dealer;
(D)
all trial balances, financial statements, branch office
reconciliations, and internal audit working papers relating to the business
of the dealer;
(E)
all guarantees of accounts and all powers of attorneys
and other evidence of the granting of any discretionary authority given in
respect of any account, and copies of resolutions empowering an agent to act
on behalf of a corporation;
(F)
all written agreements (or copies thereof) entered into
by the dealer relating to the business of the dealer, including agreements
with respect to any account;
(G)
all customer complaints received by the dealer relating
to the business of the dealer, and all documents relating to such complaints;
and
(H)
all information including but not limited to offering materials
and subscription agreements on any private placements offered by the dealer.
(4)
Persons registered as dealers in Texas shall preserve for
a period of not less than five years from the end of the fiscal year during
which a customer's account was closed, any account cards or records which
relate to the terms and conditions with respect to the opening and maintenance
of such account.
(5)
Persons registered as dealers in Texas shall preserve for
at least three years after the termination of the enterprise partnership articles
and any amendments thereto, articles of incorporation, charters, minute books,
and stock certificate books of the dealer and of any predecessor.
(6)
The records required to be maintained and preserved pursuant
to this section may be immediately produced or reproduced on microfilm or
other photograph and may be maintained and preserved for the required time
in that form provided that such microfilms or other photographs are arranged
and indexed in such a manner as to permit the immediate location of any particular
document, and that such microfilms or other photographs are at all times available
for inspection by representatives of the Securities Commissioner together
with facilities for immediate, easily readable projection of the microfilm
or other photograph and for the production of easily readable facsimile enlargements.
(7)
If a person ceases to be registered as a dealer in Texas,
such person shall for the remainder of the periods of time specified in this
section continue to preserve the records required herein.
(8)
For purposes of transactions in municipal securities by
municipal securities dealers, compliance with Rule G-9 of the Municipal Securities
Rulemaking Board will be deemed to be compliance with this subsection.
(9)
The records required to be maintained pursuant to this
section may be maintained by any electronic storage media available so long
as such records are available for immediate free access by representatives
of the Securities Commissioner. Any electronic storage media must preserve
the records exclusively in a non-rewriteable, non-erasable format; verify
automatically the quality and accuracy of the storage media recording process;
serialize the original and, if applicable, duplicate units of storage media,
and time-date for the required period of retention the information placed
on such electronic storage media; and have the capacity to download indexes
and records preserved on electronic storage media to an acceptable medium.
In the event that a records retention system commingles records required to
be kept under this section with records not required to be kept, representatives
of the Securities Commissioner may review all commingled records.
(f)
The Securities Commissioner has a right to review all records
maintained by registered dealers regardless of whether such records are required
to be maintained under any specific applicable rule provision.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on July 23, 2001.
TRD-200104246
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: August 12, 2001
Proposal publication date: April 6, 2001
For further information, please call: (512) 305-8300
7 TAC §§116.1 - 116.15
The State Securities Board adopts new chapter 116, consisting
of §§116.1 - 116.15, concerning investment advisers and investment
adviser representatives. Sections 116.1 - 116.3, 116.5, 116.13, and 116.14
were adopted with changes to the proposed text as published in the April 6,
2001, issue of the
Texas Register
(26 TexReg
2602). Sections 116.4, 116.6 - 116.12, and 116.15 were adopted without changes
and will not be republished.
Changes made in §116.1 include the use of consistent terminology in
subsection (a)(5); subsection (a)(6)(C) was made gender neutral; in subsection
(a)(7) an unnecessary phrase was removed; in subsection (a)(8) the definition
of "rendering services as an investment adviser" was conformed to the definition §107.2(32),
which was concurrently adopted; and in subsection (b)(2)(D) the reference
to dealer was removed and punctuation and grammar were adjusted.
Changes made in §116.2 include correcting typographical errors in
subsection (c) and adding punctuation in subsection (e)(1). Changes in §116.3
include renumbering the subdivisions under subsection (b); correcting a cross-reference
in subsection (b)(1)(B)(i); and removing a reference to an examination not
required of solicitor applicants in subsection (c)(4).
Changes in §116.5 consist of adding punctuation in subsection (b)
and subsection (b)(5); and correcting typographical errors in subsections
(b)(1) and (c)(2). Typographical errors were also corrected in §116.13,
subsection (b) and subsection (b)(2)(B) and (3)(B), and in §116.14.
The new chapter replaces the existing Chapter 115, concerning dealers and
salesmen, that is being concurrently repealed, with better organized and more
understandable provisions that relate specifically to investment advisers
and their representatives.
The new chapter will apprise investment advisers and their representatives
of their obligations under the Texas Securities Act ("TSA") and Board rules.
Comments on the new chapter were received from the Investment Company Institute
("ICI"), the Investment Counsel Association of America, Inc. ("ICAA"), the
Securities Industry Association ("SIA"), the Financial Planning Association
("FPA"), and Wilkie Farr & Gallagher ("WFG"). In the ICAA comment letter,
the ICAA noted its support for the comments contained in the ICI's comment
letter; however, in the discussion that follows, the ICAA is not listed separately
as a commenter, in addition to the ICI, unless the ICAA commented specifically
on a particular point in its own comment letter.
Both the ICAA and FPA generally supported the separation of the provisions
relating to investment advisers, in new Chapter 116, from those relating to
dealers, contained in new Chapter 115. The Board agreed and has adopted Chapter
116 substantially as published.
The ICI, ICAA, SIA, and FPA commented that various provisions in the new
Chapter 116, many of which also appear in the existing Chapter 115, are inconsistent
with or impermissible under federal law. The Board and the staff noted that
various of the commenters had proffered this interpretation previously before
the Board in connection with the existing Chapter 115, and it had been examined
again recently by the Sunset Advisory Commission and the 77th Texas Legislature.
In each of these forums the matter was reviewed and the position of the commenters
was rejected. Accordingly, the Board disagreed with the commenters and adopted
Chapter 116 substantially as published.
Both the ICAA and the FPA recommended a definition for "federal covered
adviser" be incorporated in §116.1. The Board declined to add a definition
at this time but will be proposing, in a future issue of the
Texas Register
, a definition for "federal covered investment adviser"
and "registered investment adviser" that comports with the intent of House
Bill 2255, recently enacted by the 77th Texas Legislature and effective September
1, 2001. The addition of these definitions will be helpful in making a number
of clarifications described below, where commenters suggested that a better
distinction needs to be made between investment advisers who register in Texas
and those who only file notices. The ICI objected to the definition of "rendering
services as an investment adviser" as unduly broad. The Board concluded that
the definition could be improved, left the definition unchanged except to
update a cross-reference, and will be proposing, in a future issue of the
The ICI requested clarification that branch office registration, referenced
in §116.1(b)(1)(B), apply only to branch offices of registered investment
advisers and, along with the FPA, requested that some of the paper documents
required for a notice filing by a federal covered investment adviser be eliminated.
The Board adopted the provision substantially as published but will be proposing,
in a future issue of the
Texas Register
, an
amendment to make this clarification and to amend the document listing to
reflect electronic filings made through the Investment Adviser Registration
Depository ("IARD"). The FPA recommended the use of "licensing" rather than
"registration" throughout the section when referring to investment adviser
representatives. The staff noted that H.B. 2255, consistently uses the term
"registration" rather than "licensing." The Board adopted the provision substantially
as published.
WFG suggested that §116.1 be modified to reference investment adviser
exemptions located elsewhere in the Board's rules. The staff noted that there
are numerous places where exemptions from registration are located in the
Act and the Board rules and it would create confusion, rather than alleviate
it, to include references to some but not others. It would also be an unnecessary
duplication. The Board agreed with staff and adopted the section substantially
as published and noted by way of clarification that §109.3(e) provides
an additional exemption for investment advisers and their representatives
when providing services to certain institutional and accredited investors.
Regarding §116.2, the SIA and FPA support the provisions mandating
the use of the IARD system for electronic filings by investment advisers.
The FPA also noted its support for the provisions eliminating the filing fee
for amendments to Form ADV. The Board agreed and adopted the section substantially
as proposed.
The ICI and SIA urged the Board to consider eliminating some of the items
to be filed in connection with an application and renewal from the list in §116.2.
Additionally, the SIA asked that the Board keep applications active for more
than six months if the applicant continues to respond to staff requests for
additional information. The ICAA and ICI suggested that the requirements for
applications of an investment adviser and an investment adviser representative
be separated to avoid confusion. The Board determined that separation is unnecessary.
The Staff noted that certain items currently required to be included with
applications and renewals could be eliminated once the provisions of House
Bill 2255 become effective on September 1, 2001. The Board declined to eliminate
items from the listing at this time but will be proposing, in a future issue
of the
Texas Register
, the elimination of
items that are no longer required due to changes made by H.B. 2255 and to
add clarifications to keep applications active so long as the applicant continues
to be responsive to information requests from staff.
The ICI and ICAA noted that some cross-references in §116.3(b) were
erroneous. The Board agreed and corrected them in the adopted rule.
WFG suggested that §116.4 be expanded to accommodate successions by
amendment. The staff noted that the TSA, §13, requires organizational
documents be submitted by applicants so documentation of structural changes
are required by statute. Staff also noted that the rule as drafted provides
additional time to applicants when necessary to complete a conversion. ICI
and SIA expressed concern that the section would be applicable to notice-filers.
The staff noted that the section refers specifically to "registration," so
by its terms it does not apply to notice-filers, and that notice filing requirements
are covered in §116.1(b)(2)(C). The Board agreed with the staff and adopted
the section as published.
The ICI expressed concern that §116.5 would impose greater record-keeping
requirements on an out-of-state investment adviser than those required by
the adviser's home state and impose record retention requirements on persons
not registered as investment advisers in Texas. The staff noted that the express
language of subsection (b) makes the home state record-keeping requirements
sufficient for investment advisers with no place of business in Texas. Similarly,
the express language of subsection (c) directs the preservation requirements
to persons registered as investment advisers in Texas. The SIA was concerned
that the section should apply only to investment advisers registered in Texas.
Staff noted that subsection (a) applies to all investment advisers, whether
registered or notice-filed, and does not exceed SEC requirements. The detailed
listing of records in subsection (b) provides an alternative record-keeping
structure and is, by its terms, applicable only to investment advisers registered
in Texas. The Board disagreed with the commenters and adopted the section
substantially as proposed.
Both the ICI and SIA questioned the meaning of the terminology used in §116.5
to describe staff access to records. The staff noted that H.B. 2255, effective
September 1, 2001, provides statutory clarification to address the concerns
of the commenters. The Board adopted the provision substantially as published
but will be proposing, in a future issue of the
Texas Register
, amending the section to conform to the language in
H.B. 2255.
The ICI expressed confusion over whether §116.7 applied to federal
covered investment advisers as well as Texas registered investment advisers.
The staff noted that, by its specific terms, it applies to registered investment
advisers. The SIA questioned the meaning of the terminology used in §116.7
to describe staff access to records. The staff noted that H.B. 2255, effective
September 1, 2001, provides statutory clarification to address the concerns
of the commenters. The Board adopted the provision as published but will be
proposing, in a future issue of the
Texas Register
, amending the section to conform to H.B. 2255.
The SIA supported the discounted fee for small businesses in §116.8
and urged the Board to extend the discounted fee to all firms, large and small.
The staff noted that H.B. 2255 restricts the ability of the Board to adopt
reduced fees to small businesses only. The ICI objected to the reduced fee
request to the Commissioner as inconsistent with the provisions of the TSA, §42.C,
and suggested a provision be added to address future amendments to the TSA
affecting fees. The staff noted that the ICI appeared to be confusing the
procedures provided for in the TSA, §§42.A and 42.B, with those
added by H.B. 2255 as §42.C. The Board disagreed with the commenters
and adopted the provision as published but will be proposing, in a future
issue of the
Texas Register
, amending the
section to add a provision to correspond with new §42.C, added by H.B.
2255.
The ICI and SIA expressed concern that §116.9 would apply to notice-filed
investment advisers as well as those registered in Texas. The staff noted
that the title of the section specifically addresses "post-registration" reporting
requirements and that inherently means that the section applies to entities
that are "registered" in Texas. The Board disagree with the commenters and
adopted the section as published.
The ICI, SIA, and FPA expressed concern that §116.10 applies to notice-filed
investment advisers as well as Texas- registered ones. The staff clarified
that the section applies only to investment advisers registered in Texas and
noted that H.B. 2255, effective September 1, 2001, provides statutory clarification
to address the concerns of the commenters. The Board adopted the provision
as published but will be proposing, in a future issue of the
Texas Register
, amending the section to make this clarification and
to conform to the language in H.B. 2255.
The SIA expressed concern that §116.11 applies to notice- filed investment
advisers as well as Texas-registered ones. The staff noted that, by its specific
terms, it applies to registered investment advisers and that H.B. 2255, effective
September 1, 2001, provides statutory clarification to address the commenter's
concern. The Board adopted the provision as published but will be proposing,
in a future issue of the
Texas Register
, the
addition of a definition of "registered investment adviser" to conform to
H.B. 2255.
The ICI, SIA, and FPA expressed concern that §116.12 applies to notice-filed
investment advisers as well as Texas- registered ones. The staff clarified
that the section applies only to investment advisers registered in Texas,
noting that §116.12 is derived from §116.2(a)(9), which concerns
Texas- registered advisers. The Board disagreed with the commenters and adopted
the provision as published.
The ICI, ICAA, SIA, and FPA expressed concern that §116.13 applies
to notice-filed investment advisers as well as Texas- registered ones. The
staff clarified that the section applies only to investment advisers registered
in Texas. The Board adopted the provision as published but will be proposing,
in a future issue of the
Texas Register
, amending
the section to make this clarification.
The ICI expressed concern that §116.14 imposes an impermissible record-keeping
requirement on out-of-state investment advisers. The staff responded that
this is an anti- fraud provision and does apply to all registered investment
advisers, whether in- or out-of-state but, as it does not constitute a "record,"
such a "procedural" requirement is permitted. The Board disagreed with the
commenter and adopted the section substantially as proposed.
The ICI, ICAA, and FPA expressed concern that §116.15 applies to notice-filed
investment advisers as well as Texas- registered ones. The staff clarified
that the specific provisions apply only to investment advisers registered
in Texas, but noted that the general provision, being in the nature of a anti-fraud
caution, applies equally to all investment advisers, whether notice-filed,
Texas-registered, or exempt from registration. The Board adopted the provision
as published but will be proposing, in a future issue of the
Texas Register
, amending the section to make the clarification.
The new chapter is adopted under Texas Civil Statutes, Articles
581-28-1 and 581-12.B. Section 28-1 provides the Board with the authority
to adopt rules and regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes. Section 12.B provides the Board with the authority
to prescribe new dealer/agent registration exemptions by rule.
§116.1.General Provisions.
(a)
Definitions. Words and terms used in this chapter are also
defined in §107.2 of this title (relating to Definitions). The following
words and terms, when used in this chapter, shall have the following meanings,
unless the context clearly indicates otherwise.
(1)
Applicant--A person who submits an application for registration
as an investment adviser or an investment adviser representative.
(2)
Branch office--Each office in Texas in which either records
are maintained or control over and review of the activities of registered
persons exists.
(3)
Branch office manager--The person named by the investment
adviser to supervise the activities of a branch office.
(4)
Control--The possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a person
or company, whether through the ownership of voting securities, by contract,
or otherwise.
(5)
In this state--As used in the Texas Securities Act, §12,
has the same meaning as the term "within this state" as defined in §107.2
of this title (relating to Definitions) and paragraph (10) of this subsection.
(6)
Investment adviser--Any person who, for compensation, engages
in the business of advising others, either directly or through publications
or writings, as to the value of securities or as to the advisability of investing
in, purchasing, or selling securities, or who, for compensation and as part
of a regular business, issues or promulgates analyses or reports concerning
securities; but does not include:
(A)
a bank, or any bank holding company as defined in the federal
Bank Holding Company Act of 1956, which is not an investment company;
(B)
any lawyer, accountant, engineer, teacher, or geologist,
whose performance of such services is solely incidental to the practice of
his or her profession;
(C)
any broker or dealer whose performance of such services
is solely incidental to the conduct of his or her business as a broker or
dealer and who receives no special compensation therefor;
(D)
the publisher of any bona fide newspaper, news magazine,
or business or financial publication of general and regular circulation; or
(E)
any person whose advice, analyses, or reports relate to
no securities other than securities which are direct obligations of or obligations
guaranteed as to principal or interest by the United States, or securities
issued or guaranteed by corporations in which the United States has a direct
or indirect interest which shall have been designated by the Secretary of
Treasury, pursuant to the Securities Exchange Act of 1934, §3(a)(12),
as exempted securities for the purposes of that Act.
(7)
Investment adviser representative--Any person or company
employed or appointed or authorized by an investment adviser who, for compensation,
solicits clients for the investment adviser or provides investment advice
on behalf of the investment adviser to clients of the investment adviser,
whether by direct act or through subagents; provided that the officers of
a corporation or other entity, or partners of a partnership, shall not be
deemed investment adviser representatives solely because of their status as
officers or partners, where such corporation, entity, or partnership is registered
as an investment adviser hereunder.
(8)
Rendering services as an investment adviser--Any person
coming within the designation cannot conduct such activity without first being
registered as an investment adviser/dealer under the provisions of the Act
or notice-filed under the provisions of subsection (b)(2)(A) of this section.
Likewise, every person employed or appointed, or authorized by such person
to render services which include the giving of investment advice cannot conduct
such activities unless registered as a dealer/investment adviser, a salesman,
or an agent under the provisions of the Act, or notice-filed as a dealer/investment
adviser, a salesman, or an agent under the provisions of subsection (b)(2)(B)
of this section.
(9)
Solicitor--Any investment adviser representative who limits
their activities to referring potential clients to an investment adviser for
compensation.
(10)
Within this state--
(A)
A person is an "investment adviser" who engages "within
this state" in rendering services as an investment adviser as set out in the
Texas Securities Act, §4.C, if either the person or the person's agent
is present in this state or the client/customer or the client/customer's agent
is present in this state at the time of the particular activity. A person
can be an investment adviser in more than one state at the same time.
(B)
Likewise, a person is an "investment adviser representative"
who engages "within this state" in rendering services as an investment adviser
as set out in the Texas Securities Act, §4.C, whether by direct act or
through subagents except as otherwise provided, if either the person or the
person's agent is present in this state or the client/customer or the client/customer's
agent is present in this state at the time of the particular activity. A person
can be an investment adviser representative in more than one state at the
same time.
(b)
Registration of investment advisers, investment adviser
representatives, and branch offices.
(1)
Requirements of registration.
(A)
Any person who renders services as an investment adviser,
including acting as a solicitor, may not engage in such activity for compensation
without first being registered as an investment adviser under the provisions
of the Texas Securities Act or notice-filed under the provisions of paragraph
(2) of this subsection. Likewise, every person employed or appointed, or authorized
by such person to render services, which include the giving of investment
advice or acting as a solicitor, cannot conduct such activities unless registered
as an investment adviser or an investment adviser representative under the
provisions of the Act, or notice-filed as an investment adviser or an investment
adviser representative under the provisions of paragraph (2) of this subsection.
(B)
Each branch office in Texas must be registered. A registered
officer, partner, or investment adviser representative must be named as branch
office manager.
(2)
Exemption from the registration requirements. The Board
pursuant to the Texas Securities Act, §§12.B and 5.T, exempts from
the registration provisions of the Act, §12, persons not required to
register as an investment adviser or an investment adviser representative
on or after July 8, 1997, by act of Congress in Public Law Number 104-290,
Title III.
(A)
Registration as an investment adviser is not required for
the following:
(i)
an investment adviser registered under the Investment Advisers
Act of 1940, §203;
(ii)
an investment adviser registered with the Securities and
Exchange Commission pursuant to a rule or order adopted under the Investment
Advisers Act of 1940, §203A(c);
(iii)
a person not registered under the Investment Advisers
Act of 1940, §203, because such person is excepted from the definition
of an investment adviser under the Investment Advisers Act of 1940, §202(a)(11);
or
(iv)
an investment adviser who does not have a place of business
located within this state and, during the preceding 12-month period, has had
fewer than six clients who are Texas residents.
(B)
Registration as an investment adviser representative of
an investment adviser described in subparagraph (A) of this paragraph is not
required for an investment adviser representative who does not have a place
of business located in Texas but who otherwise engages in the rendering of
investment advice in this state.
(C)
Notice filing requirements and fees for investment advisers
and investment adviser representatives exempted from registration pursuant
to this subsection only.
(i)
Initially, the provisions of subparagraphs (A) and (B)
of this paragraph are available provided that the investment adviser files:
(I)
a copy of its current Form ADV as filed with the SEC, if
a Form ADV is required to be filed by the investment adviser with the SEC;
(II)
a consent to service of process; and
(III)
an initial fee equal to the amount that would have been
paid had the investment adviser and each investment adviser representative
filed for registration in Texas.
(ii)
Upon amendment to its Form ADV, the investment adviser
files a copy of its amended Form ADV as filed with the SEC, if a Form ADV
is required to be filed by the investment adviser with the SEC.
(iii)
Annually, the investment adviser files:
(I)
a copy of its Form ADV as filed with the SEC, if a Form
ADV is required to be filed by the investment adviser with the SEC; and
(II)
renewal fees which would have been paid had the investment
adviser and each investment adviser representative been registered in Texas.
(D)
Persons not required to register with the Securities Commissioner
pursuant to subparagraphs (A) and (B) of this paragraph, are reminded that
the Texas Securities Act prohibits fraud or fraudulent practices in dealing
in any manner in any securities whether or not the person engaging in fraud
or fraudulent practices is required to be registered. The Agency has jurisdiction
to investigate and bring enforcement actions to the full extent authorized
in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct
by an investment adviser or investment adviser representative in connection
with transactions involving securities in Texas.
(c)
Types of registrations.
(1)
General registration. A general registration is a registration
to render advisory services regarding all categories of securities, without
limitation.
(2)
Restricted registration. A restricted registration as an
investment adviser or as an investment adviser representative may be issued
based upon the qualifying examination(s) passed by the investment adviser
or investment adviser representative.
(3)
In restricted registration, the evidence of registration
shall indicate that the holder thereof is entitled to act as an investment
adviser, investment adviser representative, or solicitor only in the restricted
capacity.
§116.2.Application Requirements.
(a)
Investment adviser and investment adviser representative
application requirements. A complete application consists of the following
and must be filed in paper form with the Securities Commissioner, except in
such time as the Investment Adviser Registration Depository System (IARD)
becomes available:
(1)
Form ADV;
(2)
Form U-4 for the designated officer and a Form U-4 for
each investment adviser representative or solicitor to be registered;
(3)
Form 133.16, an agreement for maintenance and inspection
of records;
(4)
a copy of articles of incorporation, partnership agreement,
articles of association, trust agreement, or other documents which indicate
the form of organization, certified by the jurisdiction or by an officer or
partner of the applicant;
(5)
all foreign corporations and other nonresident applicants
must also file an irrevocable written consent to service of process utilizing
Forms U-2 and U-2A, or Form 133.8;
(6)
assumed name certificate, if applicable. The improper use
by an applicant of an assumed name containing "incorporated," "corporation,"
"limited," or an abbreviation of one of those words, may be grounds for denying
registration of the applicant if such designation is thereby misleading;
(7)
a balance sheet prepared in accordance with generally accepted
accounting practices reflecting the financial condition of the investment
adviser as of a date not more than 90 days prior to the date of such filing.
The balance sheet should be prepared by independent certified public accountants
or independent public accountants, or must instead be attested by the sworn
notarized statement of the applicant's principal financial officer. If attested
by the principal financial officer of the applicant, such officer shall certify
as follows: I am the principal financial officer of (name of investment adviser).
The accompanying balance sheet has been prepared under my direction and control
and presents fairly its financial position on the dates indicated to the best
of my knowledge, belief, and ability. (Signature and Title).
(8)
Form 133.23, a franchise tax certification form;
(9)
disclosure document or Part II of Form ADV;
(10)
a copy of the investment adviser's standard advisory contract;
(11)
fee schedule;
(12)
any other information deemed necessary by the Securities
Commissioner to determine an investment adviser's financial responsibility
or an investment adviser's or investment adviser representative's business
repute or qualification; and
(13)
the appropriate registration fee(s).
(b)
Designated officer registration. Investment advisers, other
than an individual filing as a sole proprietor, must file a Form U-4 application
to register an officer or partner in connection with the registration of the
investment adviser. The officer or partner must be a control person of the
investment adviser. The officer or partner must complete the necessary registration
and examination requirements. If the officer or partner resigns or is otherwise
removed from his or her position, the firm shall make an application to register
another officer or partner within 30 days.
(c)
Branch office registration and inspection. A request for
registration of a branch office of an investment adviser may be made upon
initial application of the investment adviser or by amendment to a current
registration. No investment advisory activity may occur in any branch office
location until such time as the investment adviser receives notification from
the Securities Commissioner that such location has been approved as a branch
office. The request for registration of a branch office may be made in letter
form or by the submission of such information on the Form ADV. The fee for
registration of each branch office is $25. Simultaneous with the request for
registration of a branch office, a branch office manager must be named. The
manager must satisfy the examination qualifications required of the investment
adviser before the branch office may be registered. A branch office manager
is responsible for supervision of the activities of the branch office. Within
10 business days from when a branch office manager ceases to be employed or
registered in such capacity by the investment adviser, a new branch office
manager, qualified by passage of the appropriate examinations, must be named.
Absent the designation of a new branch manager to the Commissioner within
the 10 business day period, the registration of a branch office whose manager
ceases to be employed as such by an investment adviser shall be automatically
terminated. The branch office registration may be reinstated upon the designation
of a qualified branch office manager and payment of the branch office registration
fee. Each branch office registered with the Commissioner is subject to unannounced
inspections at any time during normal business hours.
(d)
Withdrawal and abandonment of an investment adviser or
investment adviser representative initial application for registration.
(1)
Any initial application for investment adviser or investment
adviser representative registration that fails to meet registration requirements
within six months of the filing date of the application will be considered
withdrawn without prejudice. A copy of this subsection will be mailed to the
applicant at least 30 days prior to the withdrawal of the application pursuant
to this subsection.
(2)
If an applicant for registration with the Securities Commissioner
as an investment adviser or investment adviser representative fails to make
any type of response to the most recent written request for information relating
to an application that has been pending for six months, the application will
be considered withdrawn. This withdrawal will occur automatically if the applicant
fails to respond to the most recent written request for information sent by
certified mail to the applicant's address as set forth in the application.
This certified written request shall inform the applicant that the application
will be considered withdrawn if a response to the request for information
is not received within 30 days from the date of the certified letter. A copy
of this subsection and the most recent written request for information will
be included with the certified letter.
(e)
Investment Adviser Registration Depository (IARD).
(1)
Whenever the Texas Securities Act or Board rules require
the filing of an application with the Securities Commissioner for investment
adviser or investment adviser representative registration, such application
must be filed electronically via the IARD, which is jointly operated by the
NASD, the North American Securities Administrators Association, Inc. (NASAA),
and the Securities and Exchange Commission (SEC). Applicants shall use the
applicable uniform forms for the submission of the filing in question and
shall supplement their electronic filing by filing, in paper form, the items
listed in paragraphs (3)-(12) of subsection (a) of this section, directly
with the Commissioner.
(2)
Uniform forms submitted through the IARD that designate
Texas as a jurisdiction in which the filing is to be made are deemed to be
filed with the Securities Commissioner and constitute official records of
the Board.
(f)
Implementation of IARD.
(1)
All investment advisers registered with the Securities
Commissioner as of July 31, 2001, must make a transitional filing with the
IARD no later than August 1, 2001.
(2)
All investment advisers seeking registration with the Securities
Commissioner after August 1, 2001, must file Part I of Form ADV and the filing
fee via the IARD.
(3)
All persons seeking registration as an investment adviser
representative must file the Form U-4 and the appropriate fee via IARD upon
the ability of the system to accept such filings.
§116.3.Examination.
(a)
Requirement. To determine the applicant's qualifications
and competency to engage in the business of rendering investment advice, the
State Securities Board requires written examinations. Applicants must make
a passing score on any required examination.
(b)
Examinations accepted.
(1)
Each applicant for registration as an investment adviser
or investment adviser representative must pass:
(A)
the Uniform Investment Adviser Law Examination (the new
entry level competency examination, Series 65, administered after December
31, 1999); or
(B)
the following combination of examinations:
(i)
a general securities representative examination as described
in §115.3(b)(2) of this title (relating to Examination) or a limited
examination as described in §115.3(b)(3) of this title; and
(ii)
the Uniform Combined State Law Examination (Series 66),
the Uniform Investment Advisers State Law Examination (Series 65, as it existed
and was administered on or before December 31, 1999), or an examination on
the Texas Securities Act administered by this Agency.
(2)
Each of these examinations (except the Texas Securities
Act examination) is administered by the NASD and can be scheduled by submitting
a Form U-10 to the NASD.
(c)
Waivers of examination requirements.
(1)
All persons who were registered in Texas on August 23,
1963, are not required to take any examinations.
(2)
A full waiver of the examination requirements of the Texas
Securities Act, §13.D, is granted by the Board to the following classes
of persons:
(A)
a person who was registered as an investment adviser or
investment adviser representative on or before December 31, 1999, provided
the person has maintained a registration as an investment adviser or investment
adviser representative with any state securities administrator that has not
lapsed for more than two years from the date of the last registration;
(B)
applicants who are certified by the Association for Investment
Management and Research, or its predecessors, the Federation of Chartered
Financial Analysts or by the Institute of Chartered Financial Analysts, to
be chartered financial analysts (CFA);
(C)
applicants who are certified by the Certified Financial
Planner Board of Standards, Inc., to use the mark "CERTIFIED FINANCIAL PLANNER"
(CFP);
(D)
applicants who are designated by the American Institute
of Certified Public Accountants as accredited personal financial specialists
(PFS);
(E)
applicants who are designated by the Investment Counsel
Association of America, Inc., as Chartered Investment Counsel (CIC);
(F)
applicants who are designated by the American College,
Bryn Mawr, Pennsylvania, as chartered financial consultants (ChFC); or
(G)
a person who completed the examinations required under
subsection (b) of this section, but whose registration has lapsed for more
than two years and who has been continually employed in a securities-related
position with an entity which was not required to be registered.
(3)
The Association for Investment Management and Research,
the Certified Financial Planner Board of Standards, Inc., the American Institute
of Certified Public Accountants, the American College, and the Investment
Counsel Association of America, Inc., are required to submit to the Securities
Commissioner any changes to their certification programs as such changes occur.
(4)
A partial waiver of the examination requirements of the
Texas Securities Act, §13.D, is granted by the Board to solicitor applicants.
Such persons are required to pass only an examination on state securities
law.
(5)
The Securities Commissioner in his or her discretion is
authorized by the Board to grant full or partial waivers of the examination
requirements of the Texas Securities Act, §13.D.
(d)
Texas securities law examination.
(1)
The fee for each filing of a request to take the Texas
securities law examination is $35. An admission letter issued by the Board
is required for all entrants. The examination is given at 9:00 a.m. on each
Tuesday at the office of the State Securities Board in Austin. The examination
may be taken at other locations near principal population centers across the
state. Testing centers require reservations and may charge an additional (monitor)
fee for administering the examination. A list of examination centers with
additional details may be obtained from the State Securities Board.
(2)
While taking the examination on the Texas Securities Act,
each applicant may use an unmarked copy of the Texas Securities Act as it
is printed and distributed by the State Securities Board. No other reference
materials are allowed to be used by applicants during the examination.
(3)
The passing score for all applicants on the examination
on the Texas Securities Act is 70%. An applicant who fails the examination
on the Texas Securities Act may request reexamination. The applicant must
bring his or her application up to date before retaking an examination.
§116.5.Minimum Records.
(a)
Investment adviser records. Compliance with the record-
keeping requirements of the United States Securities and Exchange Commission,
found in 17 Code of Federal Regulations §275.204-2, will satisfy the
requirements of this section.
(b)
Records to be made by investment advisers. Persons registered
as investment advisers whose principal place of business is located in another
state shall maintain records at least in accordance with the minimum record-keeping
requirements of that state. Persons registered as investment advisers whose
principal place of business is located in Texas shall make and keep current
the following minimum records or the equivalent thereof:
(1)
A journal or journals, including cash receipts and disbursements
records, and any other records of original entry forming the basis of entries
in any ledger.
(2)
General and auxiliary ledgers, (or other comparable records)
reflecting asset, liability, reserve capital, income and expense accounts.
(3)
A memorandum of each order given by the investment adviser
for the purchase or sale of any security, of any instruction received by the
investment adviser from the client concerning the purchase, sale, receipt
or delivery of a particular security, and of any modification or cancellation
of any such order or instruction. Such memoranda shall show the terms and
conditions of the order, instruction, modification or cancellation; shall
identify the person connected with the investment adviser who recommended
the transaction to the client and the person who placed such order; and shall
show the account for which entered, the date of entry, and the bank, broker,
or dealer by or through whom executed where appropriate. Orders entered pursuant
to the exercise of discretionary power shall be so designated.
(4)
A list or other record of all accounts in which the investment
adviser is vested with any discretionary power with respect to funds, securities,
or transactions of any client.
(5)
A copy of each notice, circular, advertisement, newspaper
article, investment letter, bulletin, or other communication recommending
the purchase or sale of a specific security, which the investment adviser
circulates or distributes, directly or indirectly, to 10 or more persons (other
than investment supervisory clients or persons connected with such investment
adviser), and if such notice, circular, advertisement, newspaper article,
investment letter, bulletin, or other communication does not state the reasons
for such recommendation, a memorandum of the investment adviser indicating
the reasons therefor.
(6)
In the case of any client receiving investment supervisory
or management service, to the extent that the information is reasonably available
to or obtainable by the investment adviser, records showing separately for
that client:
(A)
the client's current position in any security; and
(B)
all securities purchased and sold and the date, amount,
and price of each purchase and sale.
(7)
In the case of an investment adviser who has custody or
possession of the funds or securities of any client:
(A)
a journal or other record showing all purchases, sales,
receipts and deliveries of securities (including certificate numbers) for
such accounts and other debits and credits to such accounts;
(B)
a separate ledger account for each such client showing
all purchases, sales, receipts, and deliveries of securities, the date and
price of each such purchase and sale, and all debits and credits;
(C)
copies of confirmations of all transactions effected by
or for the account of any such client; and
(D)
a record for each security in which any client has a position,
which record shall show the name of each such client having any interest in
each security, the amount or interest of each such client, and the location
of each such security.
(8)
A record of every transaction in a security in which the
investment adviser or any investment adviser representative has, or by reason
of such transaction acquires any direct or indirect beneficial ownership,
except:
(A)
transactions effected in any account over which neither
the investment adviser nor any investment adviser representative has any direct
or indirect influence or control; and
(B)
transactions in securities which are direct obligations
of the United States. Such record shall state the title and amount of the
security involved; the date and nature of the transaction (i.e., purchase,
sale, or other acquisition or disposition); the price at which it was effected;
and the name of the broker, dealer, or bank with or through whom the transaction
was effected. A transaction shall be recorded not later than 10 days after
the end of the calendar quarter in which the transaction was effected.
(c)
Records to be preserved by investment advisers.
(1)
Persons registered as investment advisers in Texas shall
preserve all records required pursuant to subsection (b) of this section for
a period of not less than five years from the end of the fiscal year during
which the last entry was made on such record, the first two years in an easily
accessible place.
(2)
Persons registered as investment advisers in Texas shall
preserve for a period of not less than three years from the end of the fiscal
year during which the last entry was made on such record, the first two years
in an easily accessible place:
(A)
all checkbooks, bank statements, cancelled checks, and
cash reconciliations of the investment adviser;
(B)
all bills or statements (or copies thereof) paid or unpaid,
relating to the business of the investment adviser as such;
(C)
all trial balances, financial statements, and internal
audit working papers relating to the business of such investment adviser;
(D)
originals of all written communications received and copies
of all written communications sent by such investment adviser relating to:
(i)
any recommendation made or proposed to be made and any
advice given or proposed to be given;
(ii)
any receipt, disbursement, or delivery of funds or securities;
or
(iii)
the placing or execution of any order to purchase or
sell any security. Provided, however, that the investment adviser shall not
be required to keep any unsolicited market letters and other similar communications
of general public distribution not prepared by or for the investment adviser,
and that if the investment adviser sends any notice, circular, or other advertisement
offering any report, analysis, publication, or other investment advisory service
to more than 10 persons, the investment adviser shall not be required to keep
a record of the names and addresses of the persons to whom it was sent; except
that if such notice, circular, or advertisement is distributed to persons
named on any list, the investment adviser shall retain with the copy of such
notice, circular, or advertisement a memorandum describing the list and the
source thereof;
(E)
all powers of attorney and other evidences of the granting
of any discretionary authority by any client to the investment adviser or
copies thereof;
(F)
all written agreements (or copies thereof) entered into
by the investment adviser with any client or otherwise relating to the business
of such investment adviser as such; and
(G)
all complaints received from investment clients, and all
documents relating to such complaints.
(3)
Persons registered as investment advisers in Texas shall
preserve for at least three years after the termination of the enterprise
partnership articles and any amendments thereto, articles of incorporation,
charters, minute books, and stock certificate books of the investment adviser
and of any predecessor.
(4)
If a person ceases to be registered as an investment adviser
in Texas, such person shall, for the remainder of the time period specified
in this section, continue to preserve the records required in this section.
(5)
The records required to be maintained and preserved pursuant
to this section may be immediately produced or reproduced on microfilm or
other photograph and may be maintained and preserved for the required time
in that form, provided that such microfilms or other photographs are arranged
and indexed in such a manner as to permit the immediate location of any particular
document, and that such microfilms or other photographs are at all times available
for examination by representatives of the Securities Commissioner together
with facilities for immediate, easily readable projection of the microfilm
or other photograph and for the production of easily readable facsimile enlargements.
(d)
The records required to be maintained pursuant to this
section may be maintained by any electronic storage media available so long
as such records are available for immediate free access by representatives
of the Securities Commissioner. Any electronic storage media must preserve
the records exclusively in a non-rewriteable, non-erasable format; verify
automatically the quality and accuracy of the storage media recording process;
serialize the original and, if applicable, duplicate units of storage media,
and time-date for the required period of retention the information placed
on such electronic storage media; and have the capacity to download indexes
and records preserved on electronic storage media to an acceptable medium.
In the event that a records retention system commingles records required to
be kept under this section with records not required to be kept, representatives
of the Securities Commissioner may review all commingled records.
(e)
The Securities Commissioner has a right to review all records
maintained by registered investment advisers regardless of whether such records
are required to be maintained under any specific applicable rule provision.
§116.13.Advisory Fee Requirements.
(a)
Any investment adviser who wishes to charge 3.0% or greater
of the assets under management must disclose that such fee is in excess of
the industry norm and that similar advisory services can be obtained for less.
(b)
Any investment adviser who wishes to charge a fee based
on a share of the capital gains or the capital appreciation of the funds or
any portion of the funds of a client must comply with SEC Rule 205-3 (17 Code
of Federal Regulations §275.205-3), which prohibits the use of such fee
unless the client is a "qualified client." In general, a qualified client
may include:
(1)
a natural person or company who at the time of entering
into such agreement has at least $750,000 under the management of the investment
adviser;
(2)
a natural person or company who the adviser reasonably
believes at the time of entering into the contract:
(A)
has a net worth of jointly with his or her spouse of more
than $1,500,000; or
(B)
is a qualified purchaser as defined in the Investment Company
Act of 1940, §2(a)(51)(A) (15 U.S.C. 80a-2(51)(A)); or
(3)
a natural person who at the time of entering into the contract
is:
(A)
An executive officer, director, trustee, general partner,
or person serving in similar capacity of the investment adviser; or
(B)
An employee of the investment adviser (other than an employee
performing solely clerical, secretarial, or administrative functions with
regard to the investment adviser), who, in connection with his or her regular
functions or duties, participates in the investment activities of such investment
adviser, provided that such employee has been performing such functions and
duties for or on behalf of the investment adviser, or substantially similar
function or duties for or on behalf of another company for at least 12 months.
§116.14.Prevention of Misuse of Nonpublic Information.
All investment advisers registered under the Texas Securities Act are
required to establish, maintain, and enforce written policies and procedures
reasonably designed to prevent the misuse of material nonpublic information.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on July 23, 2001.
TRD-200104247
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: August 12, 2001
Proposal publication date: April 6, 2001
For further information, please call: (512) 305-8300
Chapter 107.
TERMINOLOGY
Chapter 109.
TRANSACTIONS EXEMPT FROM REGISTRATION
Chapter 115.
DEALERS AND SALESMEN
Chapter 115.
SECURITIES DEALERS AND AGENTS
Chapter 116.
INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES
Chapter 139.
EXEMPTIONS BY RULE OR ORDER