ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 7. BANKING AND SECURITIES PART VII. State Securities Board CHAPTER 105.Rules of Practice in Contested Cases 7 TAC sec.sec.105.1-105.10 The State Securities Board adopts the repeals of sec.sec.105.1-105.10, concerning rules of practice in contested cases, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1005). Repeal of existing Chapter 105 will allow for the simultaneous adoption of a new Chapter 105. The repeal eliminates outdated procedures. No comments were received regarding adoption of the repeals. The repeals are 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703801 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31. 1997 For further information, please call: (512) 305-8300 7 TAC sec.sec.105.1-105.19 The State Securities Board adopts new Chapter 105, sec.sec.105.1-105.19, concerning rules of practice in contested cases. Sections 105.1, 105.3, 105.4, 105.7, 105.9, 105.11, 105.13, 105.15, and 105.17, are adopted with changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1006). Sections 105.2, 105.5, 105.6, 105.8, 105.10, 105.12, 105.14, 105.16, and 105.18, are adopted without changes and will not be republished. The following changes were made to the published proposals. Section 105.1 was modified as to the notice periods required before a hearing can be conducted, and to add a clarification in the last sentence. A new subsection (d) was added to sec.105.7 to clarify that a general denial by the respondent is sufficient to place the matters plead by the staff in issue. Section 105.9 was modified to clarify the effect of a failure to appear for a hearing and to include a facsimile number in the information to be provided by an attorney appearing for a party. Section 105.11 was changed to add a new subsection (b), providing for stipulations or agreements among the parties, and to redesignate published subsection (b) as subsection (c). Section 105.13 was changed to modify the title; subsection (b) of sec.105.13 was modified to clarify the matters that must be established before the Securities Commissioner issues a commission to require the deposition of a witness; subsection (c) of sec.105.13 was adjusted to alter the procedures for making a written application for a deposition; and an explanatory sentence was added at the end of sec.105.13(h)(4) to clarify that adverse persons are permitted to attend and cross-examine a deponent in a deposition conducted pursuant to subsection (h). A modification was made to sec.105.17 to require that specific grounds be stated in a motion for rehearing. Finally, a variety of nonsubstantive changes to grammar, punctuation, and terminology were made to sec.sec.105.3, 105.4, 105.7, 105.11, 105.15, and 105.19. The new chapter comports with recent changes to the Administrative Procedure Act ("APA") and requirements regarding hearings in contested cases conducted by the State Office of Administrative Hearings. It provides procedures for the efficient disposition of contested cases by adding and clarifying certain procedural requirements. The new chapter reflects the provisions of the APA and other requirements regarding hearings in contested cases originating with the agency and conducted by the State Office of Administrative Hearings. Two comment letters were received on the proposal. The first letter, from Kuperman, Orr, Mouer & Albers ("KOMA"), generally supported the proposal and recommended a variety of additional modifications. The commenter suggested that sec.105.2 be modified to require actual notice be received by the respondent. The Board disagreed. The notice required in the rule as adopted is consistent with notice provisions in the Texas APA and the Texas Rules of Civil Procedure. Second, the KOMA letter indicated that the Board should not adopt subsection (h) of sec.105.13, relating to taking a deposition to perpetuate testimony, without substantial modification. The Board disagreed. The procedure detailed in subsection (h) is expected to be used in rare cases only. However, the Board clarified that the deposition in such cases may be attended by adverse persons and the deponent is subject to cross-examination by such persons. Finally, the KOMA letter asked that additional sections be added to the contested case rules. The Board has agreed to give these submissions further consideration. The second letter, from the Investment Company Institute, supported, without comment, the published proposals. The Board agreed and adopted the rules substantially as published. The new rules are 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. sec.105.1.Scope. These rules of practice are applicable to contested cases under the Texas Securities Act (the "Act"). A "contested case" means a proceeding in which the legal rights, duties, or privileges of a party are to be determined after an opportunity for adjudicative hearing. A "party" means an applicant for registration as a dealer or salesman under the Act, sec.15 or sec.18, applicant for registration of securities under the Act, sec.7, or a person named in an administrative action taken, or proposed to be taken by the Securities Commissioner. In a contested case, each party is entitled to an opportunity for hearing after reasonable notice of not less than 30 days and to respond and present evidence and argument on each issue involved in the case. In the case of a hearing called pursuant to the Act, sec.23.A, however, notice given less than 30, but not less that 15, days will be deemed sufficient. Such hearings shall be open to the public in accordance with the Public Information Act, Texas Government Code, Chapter 551, and conducted in accordance with the Administrative Procedure Act, Texas Government Code, Chapter 2001, except as may be required by this Chapter. sec.105.3.Computation of Time. Unless otherwise required by law, in computing any period of time set forth in this chapter, the date of the act, event, or default after which the designated period of time begins to run is not to be included. The last day of the period so computed is to be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period runs until the end of the next day which is not a Saturday, Sunday, nor a legal holiday. sec.105.4.Request for Hearing. An applicant taking exception to the failure or refusal of the Securities Commissioner to register the applicant as a dealer or salesman under the Act, sec.15 or sec.18, or failure to register securities of the applicant under the Act, sec.7, may request a hearing pursuant to the Act, sec.24, by filing a written request with the Securities Commissioner. A party named in an ex parte order issued, or proposed to be issued, by the Securities Commissioner may request a hearing pursuant to the Act, sec.24, by filing a written request with the Securities Commissioner no later than the 30th day after the date on which the party is notified of such action or proposed action. sec.105.7.Written Response to Notice of Hearing. (a) If the notice of hearing provides for at least 30 days notice to a party prior to the hearing in a contested case, the respondent shall file with both the staff of the State Securities Board and the State Office of Administrative Hearings a written answer or other responsive pleading to the matters asserted in the notice of hearing no later than the 20th day after the date of service of notice to the respondent of the hearing. (1) Such a notice of hearing shall include the following disclosure language set forth in capital letters and 12-point boldface type: IF YOU DO NOT FILE A WRITTEN ANSWER OR OTHER WRITTEN RESPONSIVE PLEADING TO THIS NOTICE OF HEARING ON OR BEFORE THE 20TH DAY AFTER THE DATE ON WHICH THIS NOTICE WAS MAILED TO YOU, OR IF YOU FAIL TO ATTEND THE HEARING, THE SECURITIES COMMISSIONER MAY DISPOSE OF THIS CASE WITHOUT A HEARING AND GRANT THE RELIEF SET FORTH IN THIS NOTICE. THE RESPONSE MUST BE FILED IN AUSTIN, TEXAS, WITH THE STAFF OF THE STATE SECURITIES BOARD AND THE STATE OFFICE OF ADMINISTRATIVE HEARINGS. (2) Such a notice of hearing shall include the mailing addresses where the response may be filed with the staff of the State Securities Board and the State Office of Administrative Hearings. (b) The failure of a respondent to timely file a written response as provided in this section shall entitle the staff to the remedies relating to default set forth in sec.105.8 of this title (relating to Default). (c) If the notice of hearing provides for less than 30 days notice to a party prior to the hearing in a contested case, then no answer need be filed and all allegations will be deemed to be denied by the party. (d) A general denial of matters plead by the staff shall be sufficient to put the same in issue. When the respondent has plead a general denial, and the staff afterward amends its pleadings, the general denial shall be presumed to extend to all matters subsequently alleged by the staff. sec.105.9.Appearance. In order to promote speedy and orderly hearings, parties and their attorneys, if any, should arrive at the place designated for the hearing at least one hour prior to the time set for such hearing in order to provide the parties an opportunity to resolve procedural matters. However, failure to arrive at the place of hearing prior to the time set for such hearing shall not authorize a default judgment or cause any other prejudice to any party. (1) An individual may appear in his or her own behalf; a member of a partnership may represent the partnership; a bona fide officer of a corporation, trust, association, or other form of organization may represent that entity; and a duly authorized officer or employee of a state commission or of a department or political subdivision of the state may represent the state commission or the department or political subdivision of the state, in any proceeding. (2) A person may be represented in a contested case by an attorney-at-law duly admitted to practice in Texas under the rules of the Texas Supreme Court. Attorneys who are admitted to practice law in states other than Texas must comply with the Texas Supreme Court rules governing admission to the Bar of Texas. (3) When a respondent appears in his or her own behalf the respondent shall file with the staff of the State Securities Board or otherwise state on the record an address at which any notice or other written communication required to be served upon or furnished to the respondent may be sent. When an attorney appears in a representative capacity, the attorney shall file with the staff of the State Securities Board or otherwise state on the record a notice of such appearance, which shall state the attorney's name, address, telephone number, and facsimile number, and the name and address of the person or persons on whose behalf the attorney appears. Any additional notice or other written communication required to be served or furnished to the client may be sent to the attorney at the attorney's stated address. (4) Disruptive conduct at any hearing may be ground for exclusion of the person responsible therefor from said hearing for the duration of the hearing. sec.105.11.Stipulations, Agreed Settlements, and Consent Orders. (a) The parties to a hearing may, by stipulation in writing filed with the administrative law judge or by the making of a statement into the record, agree upon the facts or any portion of the facts involved in the pending controversy, which stipulation may be considered and used as evidence in the hearing. (b) The parties to a hearing may, by stipulation in writing filed with the administrative law judge or by the making of a statement into the record, make any other agreements, whether procedural or factual in nature, provided that such agreement is not contrary to any applicable statute or rule. (c) At any time, the parties to a contested case may agree to a settlement of all matters in controversy in connection with the case and the Securities Commissioner may make an informal disposition of the case by agreed settlement or consent order without further proceedings by the State Office of Administrative Hearings. sec.105.13.Subpoenas and Depositions. (a) On a showing of good cause, and on deposit of sums that will reasonably ensure payment of witness fees and mileage, the Securities Commissioner shall issue a subpoena addressed to the sheriff or any constable to require the attendance of witnesses and the production of books, accounts, records, papers, correspondence, or other objects as may be necessary and proper for the purposes of the proceedings. (b) On deposit of sums that will reasonably ensure payment of witness fees and mileage, the Securities Commissioner shall issue a commission, addressed to the several officers authorized by statute to take depositions, to require that the deposition of a witness be taken, which commission shall authorize the issuance of any subpoenas necessary. (c) Any party desiring to take a deposition shall make written application therefor, serve notice thereof on all parties, setting forth the name and address of the witness, and the time and place proposed for the taking of the deposition. (d) Depositions will be taken in the manner prescribed for depositions in the Administrative Procedure Act. (e) A witness or deponent who is not a party and who is subpoenaed or otherwise compelled to attend any hearing or proceeding to give a deposition or to produce books, accounts, records, papers, correspondence, or other objects that may be necessary and proper for the purposes of the proceeding is entitled to receive: (1) mileage allowance as required by law, for going to and returning from the place of the hearing or the place where the deposition is taken, if the place is more than 25 miles from the person's place of residence; and (2) a fee as required by law, for each day or part of a day the person is necessarily present as a witness or deponent. (f) Mileage and fees to which a witness is entitled shall be paid by the party at whose request the witness appears or the deposition is taken, on presentation of proper vouchers sworn by the witness and approved by the Securities Commissioner. (g) Reimbursement of travel expenses for witnesses whose presence is required by the Securities Commissioner at hearings and investigative proceedings shall be at the same rate as is paid to state employees traveling on state business. (h) When the staff of the State Securities Board anticipates the commencement of a contested case and determines that it is necessary to perpetuate testimony to prevent a failure or delay of justice due to the risk of unavailability of the testimony after the action is commenced, such as with the acute illness of a potential witness or receipt of information that the potential witness intends to leave the subpoena jurisdiction of the Securities Commissioner, the staff may file a request with the Securities Commissioner for a commission to take a deposition as set forth in subsection (b) of this section. (1) The request shall show: (A) the staff anticipates the commencement of a contested case; (B) the subject matter of the anticipated action and the jurisdiction therein; (C) the names and addresses, if known, of the persons expected to be interested adversely to the staff; and (D) the names and addresses of the persons to be examined, the substance of the testimony which the staff expects to elicit from each, and the reasons why the testimony is necessary to prevent a failure or delay of justice. (2) Upon filing a request with the Securities Commissioner, a notice and copy of the request shall be served upon the witness, or witnesses, and upon each person named in the request as an expected adverse party. Each person served with a copy of the request shall have the right to respond to the request within 10 days of service of notice by filing a response with the staff and the Securities Commissioner. (3) In any case where justice or necessity so requires, the Securities Commissioner may permit the taking of such depositions upon shorter notice than required by paragraph (2) of this subsection, or may extend such time in order to permit service on any adverse party. (4) If satisfied that the perpetuation of testimony may prevent a failure or delay of justice, the Securities Commissioner may issue a commission authorizing the taking of such deposition. At which deposition the parties identified by the staff as adverse persons or other parties identified shall have the right to attend and pose questions to the deponent. sec.105.15.Proposal for Decision. (a) At the conclusion of a hearing in a contested case, the administrative law judge assigned to hear the case at the State Office of Administrative Hearings will issue orders: (1) setting appropriate deadlines for the filing of the parties' Proposed Findings of Fact and Conclusions of Law in the case, if any, and the responses thereto, if any; and (2) setting appropriate deadlines for the filing of exceptions, if any, to the administrative law judge's Proposal for Decision, and replies thereto, if any. (b) In the event exceptions to the administrative law judge's Proposal for Decision are not filed, the State Office of Administrative Hearings loses jurisdiction over the case upon the expiration of the deadline for the filing of such exceptions. (c) In the event exceptions to the administrative law judge's Proposal for Decision are filed, the State Office of Administrative Hearings loses jurisdiction over the case upon the issuance of the administrative law judge's ruling on the said exceptions. sec.105.17.Motion for Rehearing. A motion for rehearing must set forth the particular finding(s) of fact, conclusion(s) of law, ruling(s), or other action(s) which the complaining party asserts were in error, such as violation of a constitutional or statutory provision(s), lack of authority, unlawful procedure(s), lack of substantive evidence, abuse of discretion or other error(s) of law, or other good cause specifically described in the motion. In the absence of specific grounds in the motion, the Securities Commissioner shall presume that the motion should be overruled. A motion for rehearing must be filed with the Securities Commissioner not later than the 20th day after the date on which the respondent or the party's attorney of record is notified of a decision. A reply to a motion for rehearing must be filed not later than the 30th day after the date on which the party or the party's attorney of record is notified of the decision. The Securities Commissioner shall act on a motion for rehearing not later than the 45th day after the date on which the party or the party's attorney of record is notified of the decision or the motion for rehearing is overruled by operation of law. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703802 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 107.Terminology 7 TAC sec.107.2 The State Securities Board adopts an amendment to sec.107.2, concerning definitions. The rule is adopted with changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1009). The following six changes were made to the published proposals. First, the definition of "applicant" was modified to remove the reference to an authorization in the context of federal covered securities. Second, the proposed changes to "detailed balance sheet" and "profit and loss statement" were abandoned and the definition of those terms was left as they currently appear in existing Board rules. The Texas Securities Act (the "Act") requires that financial statements be prepared in accordance with generally accepted accounting principles and generally accepted auditing standards in some instances, while allowing reviewed financials in other circumstances. The definitions were left neutral so as to cover both situations. Third, the definition of "federal covered securities" was modified to bring it closer to a proposed uniform definition under consideration by other states. Fourth, a reference was added to the definition of "NASD" to include its new subsidiary, NASD Regulation, Inc. Fifth, the definition for "statement of surplus" was eliminated entirely since this outdated term no longer appears in the Act or the Board's rules. Finally, the word "wireless" was added to the definitions of "telephone or telegram" and "within this state" to include transmissions by that technological means. The amendment adds a definition for federal covered securities, necessitated by the passage of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Public Law No. 104-290, and modernizes other definitions. The rule updates and adds definitions of terms used in the Texas Securities Act and elsewhere in the Board's rules. Two comment letters were received on the proposal. The first letter, from Kuperman, Orr, Mouer & Albers, commented favorably on the proposals. The Board agreed and adopted the amendments substantially as published. The second letter, from the Investment Company Institute ("ICI"), supported the changes with two modifications. The ICI suggested changing the definition of "applicant," to remove the reference to obtaining an "authorization" to offer and sell federal covered securities. The Board agreed and modified the definition accordingly. The ICI also suggested omitting the second sentence in the definition of "federal covered securities." The Board disagreed. The agency takes the position that all appropriate filings and fees (detailed in Chapter 114 of the Board's rules) must be received by the agency before the securities meet the agency's definition of "federal covered securities." Subsequently, the agency will issue an authorization, acknowledging receipt of the filings and fee. The second sentence of the definition helps to explain this position. 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. sec.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. Act or Securities Act or Texas Securities Act-The Texas Securities Act, Texas Civil Statutes, Article 581-1 et seq., as amended. 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. 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. Business days-For the purpose of filing Form 133.29 pursuant to the requirements of sec.109.13(l) of this title (relating to Limited Offering Exemptions), means ordinary business days and does not include Saturdays, Sundays, or state holidays. 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. Employer-For purposes of the Texas Securities Act, sec.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 sec.5.I(b). Federal covered securities-Any security or securities described as a "covered security" or as "covered securities" in the Securities Act of 1933, sec.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. 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. Investment adviser-Every person or company who for compensation engages in this state in the business of providing personalized analyses, advice, and/or recommendations to others, either directly or through publications or writings, as to the advisability of investing in, purchasing, or selling securities. However, this interpretation is deemed not to apply to: (A) (No change.) (B) any lawyer, accountant, engineer, or geologist, whose performance of such services is solely incidental to the practice of his or her profession; or (C) (No change.) Investment Advisers Act of 1940-The federal statute of that name, as amended, 15 United States Code sec.80b-1, et seq. Investment Company Act of 1940-The federal statute of that name, as amended, 15 United States Code sec.80a-1, et seq. NASD-The National Association of Securities Dealers, Inc., and NASD Regulation, Inc., a subsidiary of the National Association of Securities Dealers, Inc. 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. 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. Savings and loan association-For definition see the Texas Savings and Loan Act (Texas Civil Statutes, Article 852a, as amended), which regulates such savings and loan associations. Securities Act of 1933-The federal statute of that name, as amended, 15 United States Code sec.77a, et seq. Securities Exchange Act of 1934-The federal statute of that name, as amended, 15 United States Code sec.78a, et seq. Security holders or purchasers of securities-As such terms are used in the Texas Securities Act, sec.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, sec.5.I(b). Staff-Personnel of the Securities Board, excluding the members of the Board, the Securities Commissioner, and the Deputy Commissioner. State, territory, or insular possession of the United States-As used in the Texas Securities Act, includes a commonwealth. Telephone or telegram-For purposes of the Texas Securities Act, sec.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. 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, sec.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, sec.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. Issued in Austin, Texas, on March 19, 1997. TRD-9703803 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 109.Transactions Exempt Registration 7 TAC sec.109.13 The State Securities Board adopts an amendment to sec.109.13, concerning the uniform limited offering exemption. The rule is adopted with changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1001). Changes to the published proposal are as follows. Subsection (k)(16) was modified to include additional paragraphs to the list of requirements not applicable to federal covered securities in light of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Public Law No. 104-290. In addition to the requirements published previously as inapplicable, Securities and Exchange Commission ("SEC") Rule 506 users will no longer be required to comply with paragraph (6) "suitability" standards for nonaccredited investors, paragraph (8) "disclosure" requirements for nonaccredited investors, and paragraph (10) "waiver" of other conditions of the exemption. Paragraph (1), which restricts payment of commissions to registered persons, was also added to the list to avoid confusion by more closely conforming the state exemption with the corresponding federal exemption for federal covered securities and clarifying that additional state restrictions, prohibited by NSMIA, are not being placed on SEC Rule 506 federal covered securities. To apprise readers that the dealer and agent registration provisions of the Texas Securities Act (the "Act") continue to apply to persons offering or selling SEC Rule 506 securities, an explanatory parenthetical was added at the end of subsection (k)(16). The amendment makes clarifications necessitated by the passage of NSMIA. The amendment will eliminate confusion over the requirements in Texas relating to the offer and sale of federal covered securities offered pursuant to SEC Regulation D, Rule 506, and Board rule sec.109.13(k). Two comment letters were received on the proposal. The first letter, from Kuperman, Orr, Mouer & Albers, commented that paragraph (1) should also be added to the list of paragraphs made inapplicable by NSMIA. The Board agreed and made that change and added an explanatory sentence to clarify that the dealer and agent registration requirements of the Act continue to apply to such an offering of federal covered securities. The second letter, from the Investment Company Institute, recommended making the published changes to sec.109.13. The Board agreed and adopted the proposal substantially as published. The amendment is adopted under Texas Civil Statutes, Articles 581-28-1 and 581- 5.T. 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. sec.109.13.Limited Offering Exemptions. (a)-(j) (No change.) (k) Uniform limited offering exemption. In addition to sales made under the Texas Securities Act, sec.5.I, the State Securities Board, pursuant to the Act, sec.5.T, exempts from the registration requirements of the Act, sec.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)-(15) (No change.) (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 sec.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 sec.114.4(b)(5) (relating to Filings and Fees).) (l) (No change.) 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703804 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 113.Registration Securities 7 TAC sec.113.2, sec.113.12 The State Securities Board adopts amendments to sec.113.2, concerning registration by coordination, and sec.113.12, concerning applicability of guidelines. Section 113.2 was adopted without changes and will not be republished. Section 113.12 was adopted with changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1012). An explanatory phrase was added to sec.113.12 in response to a comment received. The amendments reflect changes in the law necessitated by the passage of the National Securities Markets Improvement Act of 1996, Public Law No. 104-290. The amendments clarify the applicability of these sections to federal covered securities offered and sold in Texas. Two comment letters were received on the proposal. The first letter, from Kuperman, Orr, Mouer & Albers, commented favorably on the proposals. The letter asked the Board to add the phrase "or an exemption by Board rule pursuant to the Texas Securities Act, sec.5.T" following the phrase "sec.5 or sec.6" in sec.113.12. The Board agreed, and the rule as adopted incorporates this change. The second letter, from the Investment Company Institute, supported, without comment, the adoption of the proposed amendments. The Board agreed and adopted the amendments substantially as published. The amendments are 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. sec.113.12.Applicability of Guidelines. The guidelines listed in this section do not apply to offerings made pursuant to an exemption under either the Texas Securities Act, sec.5 or sec.6, or an exemption by Board rule pursuant to the Texas Securities Act, sec.5.T, or to an offering of federal covered securities, as that term is defined in sec.107.2 of this title (relating to Definitions). In other words, the requirements contained in one of the following guidelines would apply only to an offering for which an application for registration is filed with the Securities Commissioner: (1)-(3) (No change.) (4) Chapter 124 of this title (relating to Administrative Guidelines for Registration of Periodic Payment Plans); (5) Chapter 129 of this title (relating to Administrative Guidelines for Registration of Asset-Backed Securities); (6)-(8) (No change.) 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703805 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 114.Federal Covered Securities 7 TAC sec.sec.114.1-114.4 The State Securities Board adopts new Chapter 114, sec.sec.114.1-114.4, concerning federal covered securities. Sections 114.1 and 114.4 were adopted with changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1012). Sections 114.2 and 114.3 were adopted without changes and will not be republished. The changes to the published proposals are as follows. Subsection (b) of sec.114.1 was modified to clarify that the exemptions referenced include those contained in Board rules adopted pursuant the Texas Securities Act (the "Act"), sec.5.T. Several changes were made to the published proposal creating new sec.114.4. Subsections (a) and (b) of sec.114.4 were modified to require that the specified notice filings be verified under oath by the applicant and to clarify that it is unnecessary to file multiple consents to service of process if one is already on file with the Securities Commissioner. Subsection (b)(2) of sec.114.4 was modified to clarify that no consent to service is required to be filed by an issuer offering listed securities. Subsection (b) of sec.114.4 was modified to add: paragraph (4) to address filing and fee requirements in connection with secondary market transactions in federal covered securities, paragraph (5) to apprise readers that the dealer and agent registration provisions of the Act continue to apply to persons offering or selling federal covered securities, and paragraph (6) reminding readers that the antifraud provisions of the Act apply to the offer and sale of federal covered securities. Finally, a variety of nonsubstantive grammatical, punctuation, and format changes were also made to sec.114.4. The new chapter is necessitated by the passage of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Public Law No. 104-290. The chapter will apprise issuers of, and persons dealing in, federal covered securities, of the filing and fee requirements associated with the offer and sale of such securities in Texas. Two comment letters were received on the proposal. The first letter, from Kuperman, Orr, Mouer & Albers, commented favorably on the proposals. The Board agreed and adopted the chapter substantially as published. The second letter, from the Investment Company Institute (the "ICI"), objected to the use of the term "authorized" throughout the chapter as confusing after the passage of NSMIA. The Board disagreed and continues to use the term since the document an applicant will receive when all filing and fee requirements are met is designated as an "authorization" on its face. The term is simply a designation of the document rather than an attempt by the state to impose restrictions or conduct review in a preempted area. In connection with sec.114.3, the ICI asked that a provision be added to clarify that the consent to service not be filed annually, and to permit consents to be filed through "an electronic filing service" rather than through the Securities Registration Depository System. On the first point, the Board agreed and this change was made in the section as adopted. On the second point, the Board disagreed, but indicated its willingness to consider adding other specific electronic filing services in the future. In connection with sec.114.4, the ICI had three comments. First, that subsection (a)(1) should be modified to permit a copy of the registration statement filed with the Securities and Exchange Commission be filed in lieu of the Form U-1 or similar document. The Board disagreed since, in many cases, the registration statement does not contain the same information and staff would lack the information it needs to issue the authorization to the applicant. Second, the ICI asked for clarification of the interplay between subsection (d)(1)(A)(i) and the definition of "federal covered security" proposed in sec.107.2. The Board disagreed that conflict or ambiguity exists between the sections and made no clarification in the section. Finally, the ICI asked that subsection (f)(1) be modified to reference "receipt" of the notice filing, rather than its "acceptance." The Board disagreed since this is consistent with sec.107.2 and the requirement that both required fees and filings be made before an authorization is issued by the agency. The new rules are adopted under Texas Civil Statutes, Articles 581-28-1 and 581- 5.T. 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. sec.114.1.Introduction. (a) Scope. This chapter covers filings and fees required to be paid in connection with the issuance of an authorization to offer and sell federal covered securities. (b) Availability of a corresponding state exemption. Except as otherwise provided herein, the filing and fee requirements detailed in this chapter do not apply to federal covered securities that are exempt from registration pursuant to the Texas Securities Act, sec.5 or sec.6, or by Board rule pursuant to the Texas Securities Act, sec.5.T. sec.114.4.Filings and Fees. (a) Generally. Unless otherwise provided in subsection (b) of this section, prior to the initial offer of the federal covered securities in this state, the issuer shall provide to the Securities Commissioner: (1) a notice filing, verified under oath by the applicant, consisting of page 1 of a Form U-1, Uniform Application to Register Securities, with items 1-6 completed, or a document providing substantially the same information; (2) a consent to service of process signed by the issuer, if required by sec.114.3 of this title (relating to Consents to Service of Process), if, previously, such a consent to service has not been filed with the Securities Commissioner; and (3) a fee of $10, plus one-tenth of 1.0% of the aggregate amount of federal covered securities proposed to be sold to persons located within this state based on the price at which such securities are to be offered to the public, as provided in the Texas Securities Act, sec.sec.35.D and 35.E. (b) Special circumstances. (1) SEC Regulation D, Rule 506 offerings. In connection with an offering described in both sec.109.13(k)(16) of this title (relating to Limited Offering Exemptions) and SEC Regulation D, Rule 506, at the time the Form D is filed with the SEC, but no later than 15 days after the first sale of the federal covered securities in this state, the issuer shall provide to the Securities Commissioner: (A) a notice on Form D; (B) a consent to service of process signed by the issuer, if required by sec.114.3 of this title (relating to Consents to Service of Process), if, previously, such a consent to service has not been filed with the Securities Commissioner; and (C) a fee of one-tenth of 1.0% of the aggregate amount of federal covered securities described as being offered for sale, but in no case more than $500, as provided in the Texas Securities Act, sec.35.J. (2) Listed securities. No filing, consent to service, or fee shall be required of an issuer offering federal covered securities that are also "listed securities" as defined in sec.114.2 of this title (relating to Definitions). (3) Money market status approved. In connection with an offering of securities of an issuer that has applied for and been granted money market status as provided in sec.123.3 of this title (relating to Conditional Exemption for Money Market Funds), the issuer shall provide to the Securities Commissioner: (A) a consent to service of process signed by the issuer, if required by sec.114.3 of this title (relating to Consents to Service of Process), if such a consent to service has not previously been filed with the Securities Commissioner; and (B) the fee provided for in sec.123.3 of this title (relating to Conditional Exemption for Money Market Funds). (4) Secondary trading. A registered dealer or issuer who chooses to comply with the Texas Securities Act, sec.5.O(9), by filing a form that shall provide to the Securities Commissioner: (A) a notice filing, verified under oath by the applicant, consisting of page 1 of a Form U-1, Uniform Application to Register Securities, with items 1-6 completed, or a document providing substantially the same information; (B) a consent to service of process signed by the dealer, if such a consent to service has not previously been filed with the Securities Commissioner; (C) a fee of $500, as provided in the Act, sec.35.I; and (D) a written statement confirming that the issuer of such securities is in compliance with the reporting requirements of the Securities Exchange Act of 1934, sec.13 or sec.15(d), as applicable. (5) In conducting sales in this chapter, dealer and agent registration requirements of the Texas Securities Act and Board rules must be complied with. (6) Applicability of antifraud provisions. With regard to this chapter, the Texas Securities Act prohibits fraud or fraudulent practice in connection with the sale or offer for sale of federal covered securities. (c) Supplemental reports. Each applicant required to pay a fee in connection with federal covered securities offered in this state shall submit to the Securities Commissioner annual reports showing the amount of federal covered securities authorized to be sold in Texas, the actual amount sold in Texas, the consideration received therefor, and the amount of unsold securities authorized to be sold in Texas. Upon completion of all offerings of federal covered securities authorized for sale in Texas, a final sales report must be filed with the Securities Commissioner showing the total aggregate amount of federal covered securities authorized and sold in Texas and the total consideration received therefor. (d) Excess sales. (1) Except as provided in paragraph (2) of this subsection, an offeror who sells securities in this state in excess of the amount of federal covered securities authorized may do the following. (A) If the authorization is still in effect an offeror may: (i) request authorization for the excess securities by paying three times the difference between the initial fee paid and one-tenth of 1.0% of the aggregate amount of the securities sold to persons in this state, as provided in the Texas Securities Act, sec.35-1.A; and (ii) pay an amendment fee of $10, as provided in the Texas Securities Act, sec.35.D. (B) If the authorization is no longer in effect an offeror may: (i) request authorization of the excess securities in accordance with subparagraph (A)(i) of this paragraph, plus interest on the amount of fees owed computed at the rate of 6.0% from the date the authorization was no longer in effect until the date the subsequent request is made; and (ii) pay an amendment fee of $10, as provided in the Texas Securities Act, sec.35.D. (C) The authorization for the excess securities shall be effective retroactively to the effective date of the initial authorization for the offering. (2) An offeror in an SEC Regulation D, Rule 506 offering, who paid less than the maximum fee prescribed in subsection (b)(1) of this section and sells securities in excess of the amount of federal covered securities authorized may do the following: (A) file an amended Form D disclosing the amount of federal covered securities offered; and (B) pay three times the difference between the initial fee paid and the fee which should have been paid, plus interest on the fee owed computed at the rate of 6.0% from the date the original Form D was received by the Securities Commissioner until the date the amended notice is received by the Securities Commissioner, as provided in the Texas Securities Act, sec.35-1.B. (3) After compliance with paragraph (2) of this subsection, the amended Form D shall be effective retroactively to the date of the initial filing. (e) Requests for additional documents. The Securities Commissioner may, upon written request, require a copy of any document required to be filed with the SEC in connection with the offering or sale of the federal covered securities. (f) Period of effectiveness. (1) The initial authorization for federal covered securities of an open-end investment company, as defined in the Investment Company Act of 1940, shall be effective until two months after the end of the issuer's fiscal year. After the initial authorization, the issuer or its agent may renew the authorization by submitting, within two months after the end of the issuer's fiscal year: (A) a notice filing, consisting of page 1 of a Form U-1, Uniform Application to Register Securities, with items 1-6 completed, or a document providing substantially the same information; and (B) payment of the appropriate fees. (2) The authorization for federal covered securities of a unit investment trust, as defined in the Investment Company Act of 1940, shall be effective until one year from the date of effectiveness granted by the SEC. (3) Any other authorization of federal covered securities shall be effective for one year from the date the authorization is accepted by the Securities Commissioner. (4) The renewal of an authorization for federal covered securities under this chapter may be renewed for additional periods of one year if the notice filing and renewal fees are received prior to the expiration date of the existing authorization. Failure to tender the renewal fee prior to the expiration date may subject the issuer to higher fees, pursuant to the Texas Securities Act, sec.sec.35-1 or 35-2. (g) Money market fund determinations pursuant to sec.123.3. A fund offering federal covered securities that is determined to be a money market fund pursuant to sec.123.3 of this title (relating to Conditional Exemption for Money Market Funds) shall pay the fees provided for in that section. (h) Preservation of fees. The fees provided in this section correspond to the filing or registration fees that would be collected pursuant to the Texas Securities Act in effect on the day before the effectiveness of the National Securities Markets Improvement Act of 1996, Public Law Number 104-290. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703806 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 115.Dealers and Salesmen 7 TAC sec.sec.115.1-115.7 The State Securities Board adopts amendments to sec.sec.115.1-115.7, concerning dealers, investment advisers, agents, and salesmen. Sections 115.1-115.2, and 115.5-115.6 are adopted with changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1015). Sections 115.3, 115.4, and 115.7 are adopted without changes and will not be republished. The following changes were made to the published proposal. In sec.115.1, "employee" was removed from the list of persons in the first sentence of subsection (g)(1); the date in subsection (i) was changed to account for the possibility of delayed effectiveness of Title III of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Public Law No. 104-290; the language in subsection (i)(1)(A) was streamlined; explanatory language was added in subsection (j) to define "ineligible to register with this state" and "registered securities association" and its subdivisions were redesignated; and subsection (k) was shortened, the phrase "fraud or fraudulent practice" replaces "the use of false or misleading statements", and "engaging in fraud or fraudulent practices" replaces "making the false or misleading statements". In sec.115.2(c)(2)(A), some unnecessary and confusing verbiage was eliminated. In sec.115.5, subsection (a)(2)(A) was modified to recognize the name change by the Midwest Stock Exchange, now the Chicago Stock Exchange, and the correct name of the Chicago Board Options Exchange; and part of subsection (b)(2)(E), concerning electronic records and commingled records, was redesignated as subsection (c), so it would be applicable to both dealer and investment adviser records. Finally, a variety of nonsubstantive changes were also made to grammar, terminology, and format in sec.sec.115.1, 115.2, and 115.6. The amendments to the dealer and investment adviser registration requirements respond to changes in the law resulting from enactment of NSMIA. Other amendments to the chapter clarify and modify existing dealer and investment adviser requirements. The amendments avoid confusion by reflecting the parameters set by NSMIA and clarifying requirements applicable to dealers and investment advisers, and their salesmen and agents. Four comment letters were received on the proposal. The first letter, from The Institute of Certified Financial Planners (the "ICFP"), generally supported the amendments conforming the rules to changes made by NSMIA. The second letter, from the Houston Society of The ICFP (the "HSICFP"), espoused support of the letter from the ICFP and made the same comments. The following discussion and the Board's responses to the ICFP letter are applicable to the HSICFP letter as well. In connection with sec.115.1, the ICFP recommended that the Board adopt a definition for "client" in connection with its interpretation of subsection (i)(1)(C), and opposed the notice filing and fee requirement in subsection (i)(3) for de minimis investment advisers and investment adviser representatives. The Board agreed that a definition for "client" is needed and contemplates amending this section when such a definition emerges or is finalized by the Securities and Exchange Commission (the "SEC"). The Board disagreed with the second point, noting that NSMIA was intended to be revenue neutral to the states and the section as proposed and adopted reflects the pre- NSMIA fee practice in Texas. The related filings also reflect pre-NSMIA practice in Texas and provide the agency with a way to monitor and assure that the persons claiming the benefit of the national de minimis exemption are qualified to do so. In connection with sec.115.2, The ICFP strongly supported the use of Part II of Form ADV, or a similar document, for making required disclosures. The Board agreed and adopted the rule with this requirement. Finally, in connection with sec.115.5, the ICFP supported the provisions of the proposal allowing out- of-state advisers with a principal place of business in another state to rely on that state's law for record keeping requirements. The Board agreed and adopted the proposals with that provision intact. Finally, the ICFP questioned what financial requirements would be used for out-of-state investment advisers. This point was not addressed in the published proposals, but may be a topic for additional rule making in the future. The third letter, from Kuperman, Orr, Mouer & Albers ("KOMA"), generally supported the proposals and recommended a variety of additional modifications. First, in connection with sec.115.1, the KOMA letter opposed the amendment to subsection (a)(3) indicating that persons who solicit clients on behalf of investment advisers be registered with the Agency without further consideration and clarification of persons included within the provision. The Board agreed and will shortly be proposing a definition for solicitor in response to the this comment. The KOMA letter also suggested changing the reporting requirements in subsection (g). The Board disagreed with the first point as the Texas rules are consistent with what is required under the Central Registration Depository system and by other states. The KOMA letter requested clarification that reports and amendments required by subsection (g) are required only for agents or salesmen registered in Texas and on the fee and filing requirements for persons already registered with the agency but covered by subsection (i). Clarification was provided by the Board and the staff to the commenter at the meeting so the Board determined that no change to the section was needed. In connection with sec.115.2, the KOMA letter suggested that action on the section be deferred and opposed any unique Texas requirements. The Board disagreed, determining that the section should be adopted and did not contain unique Texas requirements that were not also subject to waiver by the Securities Commissioner in appropriate circumstances. In connection with sec.115.3, the KOMA letter suggested that another form of disclosure document be permitted in addition to Part II of Form ADV. The Board disagreed and left the language as proposed. The KOMA letter also asked the Board to consider other new rule proposals outside the scope of the published proposals, including amendments to other sections of the Board's rules not the subject of the published proposals. In response to these comments the Board will be proposing a definition for "solicitor" for inclusion in sec.107.2 and an amendment to sec.109.3 to clarify the position, taken in numerous interpretative letters, that persons rendering investment advice to institutions named in sec.109.3 or the Act, sec.5.H, are not required to register as dealers. The fourth letter, from the Investment Company Institute (the "ICI"), generally supported adoption of the rules as proposed, with some minor changes to address substantive or technical concerns. In connection with sec.115.1, the commenter suggested: modifying subsection (i) regarding filing requirements of agents; changing a cross-reference in subsection (j); and permitting the filing of proposed SEC Form ADV-T or a similar form. The Board disagreed. The filing of the Form ADV is appropriate, the cross-reference is correct as it appeared in the proposal, and SEC Form ADV-T has not yet been finalized and adopted by the SEC. The ICI suggested that sec.115.2 be modified to refer only to investment advisers registered with the Board. The Board disagreed; the meaning of the sections is clear as proposed and interpreted by staff. The ICI also asked the Board to consider other new rule proposals outside the scope of the published proposals, including amendments to other sections of the Board's rules not the subject of the published proposals. In response to these comments the Board will be proposing a definition for "solicitor" in sec.107.2 and an amendment to sec.109.3. The amendments are 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 that the Board may prescribe dealer/agent registration exemptions by rule. sec.115.1.General Provisions. (a) Registration. (1)-(2) (No change.) (3) Except as provided in subsection (i) of this section, investment advisers and their agents who solicit clients or who are involved in the rendering of investment advice must be registered with the Securities Commissioner. Officers of a corporation or partners of a partnership shall not be deemed salesmen or agents solely because of their status as officers or partners. (4)-(5) (No change.) (b) Restricted registration. (1) Any person or company may apply for, and the Securities Commissioner may grant, restricted registration for the purpose of rendering advice regarding or effecting transactions in a particular type or category of securities, or securities representing interests in one or more types or categories of businesses. The restricted registrations are as follows: (A)-(F) (No change.) (G) registration with other restrictions which the Securities Commissioner may impose based upon the facts; (H)-(J) (No change.) (K) registration to accept orders unsolicited by such person from existing customers of the dealer; and (L) registration to deal exclusively in corporate securities. (2) (No change.) (c) Availability of records. All applicants for dealer and/or investment adviser registration must execute a Form 133.16 agreement that records will be made available in accordance with the provisions of sec.115.7 of this title (relating to Maintenance and Inspection of Records). (d) Officer or partner registration. Dealer or investment adviser applicants other than individuals must make an application to register an officer or partner in connection with the registration, and any such officer or partner must complete the necessary registration requirements. An applicant may designate as its officer or partner a control person registered in Texas via the Central Registration Depository System maintained by the National Association of Securities Dealers. 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. (e) Multiple registration. (1) Any individual, partnership, corporation, or more than one business entity substantially controlled by the same persons seeking multiple registration shall: (A) undertake to the Securities Commissioner to disclose to each client or prospective client the applicant's affiliation(s) with other securities dealers or investment advisers, the nature of such affiliation(s), and the potential conflicts of interest arising out of such affiliation(s); (B) (No change.) (2) (No change.) (f) (No change.) (g) Reporting requirements. (1) Each person registered as a dealer or investment adviser or as an agent thereof shall report to the Securities Commissioner within 30 days after its entry any action by a self-regulatory organization, any state or federal administrative order, criminal conviction, or court judgment, order, or decree described in paragraph (2) of this subsection which is entered against that person or an officer or agent thereof. Upon request by the Securities Commissioner, that person may be required to furnish to the Securities Commissioner copies of the order, conviction, or decree, or other documents, as applicable. (2) The following matters must be reported: (A) any administrative order issued by state or federal authorities, which order: (i) (No change.) (ii) was entered after notice and opportunity for a hearing, denying, suspending, or revoking the person's registration as a dealer, agent, salesman, or investment adviser, or the substantial equivalent of those terms; (B) any felony criminal action or conviction, or any misdemeanor action or conviction based on fraud, deceit, or wrongful taking of property; (C)-(D) (No change.) (E) any change in any other information previously disclosed to the Securities Commissioner on any application form or filing. (3) For purposes of this subsection, "dealer" shall include any partners, directors, executive officers, or beneficial owners of 10% or more of any class of the equity securities of the registered dealer or investment adviser (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities). (h) (No change.) (i) Persons not required to register as an investment adviser or an agent of an investment adviser on or after April 9, 1997, or such later effectiveness date created by act of Congress for Public Law Number 104-290, Title III. (1) Registration as an investment adviser is not required for the following: (A) an investment adviser registered under the Investment Advisers Act of 1940, sec.203; (B) a person not registered under the Investment Advisers Act of 1940, sec.203, because such person is excepted from the definition of an investment adviser under the Investment Advisers Act of 1940, sec.202(a)(11); or (C) 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. (2) Registration as an agent of an investment adviser is not required for an investment adviser agent who does not have a place of business located in Texas but who otherwise engages in the rendering of investment advice in this state. (3) Preservation of filing requirements and fees for investment advisers and agents exempted from registration pursuant to this subsection only. (A) Initially, the provisions of paragraphs (1) and (2) of this subsection are available provided that the investment adviser or agent files: (i) a copy of its current Form ADV as filed with the Securities and Exchange Commission, if a Form ADV is required to be filed by the investment adviser or agent with the Securities and Exchange Commission; (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 or agent filed for registration in Texas. (B) Upon amendment to its Form ADV, the investment adviser or agent files: (i) a copy of its amended Form ADV as filed with the Securities and Exchange Commission, if a Form ADV is required to be filed by the investment adviser or agent with the Securities and Exchange Commission; and (ii) an amendment fee of $25, as provided in the Texas Securities Act, sec.35.C. (C) Annually, the investment adviser or agent files: (i) a copy of its Form ADV as filed with the Securities and Exchange Commission, if a Form ADV is required to be filed by the investment adviser or agent with the Securities and Exchange Commission; and (ii) renewal fees which would have been paid had the investment adviser or agent been registered in Texas. (j) Persons not required to register as an agent or salesman. (1) Registration as an agent or salesman is not required for a person, associated with a dealer registered in Texas, who effects a transaction pursuant to the Securities Exchange Act of 1934, sec.15(h)(3), provided such person is: (A) not ineligible to register with this state for any reason other than such a transaction; and (B) registered with a registered securities association and at least one other state. (2) For purposes of this subsection, a person is "ineligible to register with this state," if the person: (A) has been convicted of a securities-related felony; or (B) has been convicted of a theft-related felony. (3) For purposes of this subsection, a "registered securities association" is one currently recognized as such by the SEC pursuant to the Securities Exchange Act of 1934, sec.15A. (k) Applicability of antifraud provisions. With regard to subsections (i) and (j) of this section, 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 a dealer, investment adviser, or agent in connection with transactions involving securities in Texas. sec.115.2.Application. (a)-(b) (No change.) (c) Investment advisers--additional requirements. (1) In addition to the information required to be submitted by subsection (b) of this section, each applicant for registration as an investment adviser must furnish to the Securities Commissioner a copy of its standard advisory contract. (2) All registered investment advisers must deliver to all clients or prospective clients a written disclosure statement which may be: (A) either Part II of Form ADV (Uniform Application for Investment Adviser Registration) or another disclosure statement which contains at least the information disclosed on Part II of Form ADV (17 C.F.R. sec.279.1) as made effective in Release Number IA-991 and corrected in Release Number IA-991A; or (B) a disclosure statement containing at least the information required by Schedule H of Form ADV, Uniform Application for Investment Adviser Registration, if the investment adviser is the sponsor, or the sponsor and the portfolio manager, of a wrap fee program which the client will enter into. (3) The disclosure statement required by paragraph (2) of this subsection shall be delivered to a client or prospective client either: (A) not less than 48 hours prior to entering into any written or oral investment advisory contract with such client or prospective client; or (B) at the time of entering into any such contract, if the advisory client has the right to terminate the contract without penalty within five business days after entering into the contract. (4) Each advisory contract entered into within the State of Texas must contain the following provision: "Client acknowledges receipt of Part II of Form ADV, a disclosure statement containing the equivalent information, or a disclosure statement containing at least the information required by Schedule H of Form ADV if the client is entering into a wrap fee program sponsored by the investment adviser. If the appropriate disclosure statement was not delivered to the client at least 48 hours prior to the client entering into any written or oral advisory contract with this investment adviser, then the client has the right to terminate the contract without penalty within five business days after entering into the contract. For the purposes of this provision, a contract is considered entered into when all parties to the contract have signed the contract, or in the case of an oral contract otherwise signified their acceptance, any other provisions of this contract notwithstanding." (5) Investment advisers are free to provide a time period longer than five business days for penalty free termination by their clients. If the client chooses to terminate the contract within the five business day period, the adviser can only charge for fees incurred prior to the termination excluding administrative fees, account set-up fees, and minimum quarterly fees. (6) Nothing in this section shall relieve an investment adviser from any obligation pursuant to any provision of the Investment Advisers Act of 1940 or the rules and regulations thereunder or other federal case law, interpretative opinions, and administrative actions by the Securities and Exchange Commission (as in existence on April 8, 1997) or state law to disclose any information to its clients not specifically required by this section. (d) (No change.) sec.115.5.Minimum Records. (a) Dealer records. (Compliance with the record-keeping requirements of the United States Securities and Exchange Commission (17 Code of Federal Regulations sec.240.17a-3 and sec.240.17a-4) will satisfy the following requirements.) (1) (No change.) (2) Exemptions from the requirements of paragraph (1) of this subsection: (A) Paragraph (1) of this subsection shall not be deemed to require a dealer 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, sec.6.F, where such records are customarily made and kept by the clearing member. (B)-(D) (No change.) (3) (No change.) (4) Records to be preserved by dealers. (A)-(E) (No change.) (F) 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. (G)-(H) (No change.) (b) Investment adviser records. (Compliance with the record-keeping requirements of the United States Securities and Exchange Commission (17 Code of Federal Regulations sec.275.204-2) will satisfy the following requirements.) (1) 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: (A)-(H) (No change.) (2) Records to be preserved by investment advisers. (A)-(D) (No change.) (E) 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. (c) The records required to be maintained pursuant to this section may be maintained by any electronic medium available so long as such records are available for immediate free access by representatives of the Securities Commissioner. 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. sec.115.6.Registration of Persons with Criminal Backgrounds. (a) The application for registration may be denied, suspended, or revoked if the Securities Commissioner finds that the person has been convicted of a felony or misdemeanor offense which directly relates to its duties and responsibilities. In determining whether a prior criminal conviction directly relates to such duties and responsibilities, the Securities Commissioner shall consider: (1)-(2) (No change.) (3) the extent to which the registration applied for might offer an opportunity to engage in further criminal activity of the same type as that in which the applicant previously had been involved; and (4) (No change.) (b) In addition to the factors stated in subsection (a) of this section, the Securities Commissioner shall consider the following evidence in determining the present fitness of an applicant who has been convicted of a crime: (1)-(6) (No change.) (7) It shall be the responsibility of the applicant to the extent possible to secure and provide to the Securities Commissioner the recommendation of the prosecution, law enforcement, and correctional authorities as required under this section. The applicant shall also furnish proof to the Securities Commissioner that he or she has maintained a record of steady employment and has supported his or her dependents and has otherwise maintained a record of good conduct and has paid all outstanding court costs, supervision fees, fines, and restitution as may have been ordered in all criminal cases in which he or she has been convicted. (c) The State Securities Board considers that the following crimes directly relate to the duties and responsibilities of securities dealers, agents, and salesmen: (1) any felony or misdemeanor of which fraud is an essential element or which involves wrongful taking of property; (2) any criminal violation of the securities laws or regulations of this state, or of any other state in the United States, or of the United States, or any foreign jurisdiction; and (3) any 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. (d) (No change.) (e) The following procedures shall apply in the event of a denial, suspension, or revocation of registration under this section. (1) Upon the Securities Commissioner's denial of registration to an applicant, the applicant may exercise his or her right to a hearing in accordance with the Texas Securities Act, sec.24 (Texas Civil Statutes, Article 581-24). (2) Upon the Securities Commissioner's suspension or revocation of a registration on the grounds specified in subsection (d) of this section, the person whose registration has been suspended or revoked may exercise his or her right to a hearing in accordance with the Texas Securities Act, sec.24 (Texas Civil Statutes, Article 581-24). (3) Nothing in this section shall be construed as affecting the statutory bases or procedures for denial, suspension, or revocation of registrations for dealers, agents, or salesmen, as set out in the Texas Securities Act (Texas Civil Statutes, Article 581-1 et seq.), as this section relates only to such actions based upon the matters stated in this section. (4) If the Securities Commissioner denies, suspends, or revokes a registration under this section, the Securities Commissioner shall notify the person affected in writing: (A) (No change.) (B) that a person whose registration has been denied, suspended, or revoked, after exhausting administrative appeals, may file an action in Travis County, Texas, for review of the evidence presented to the Securities Commissioner and his or her decision, in accordance with the Texas Securities Act, sec.27 (Texas Civil Statutes, Article 581-27); and (C) that the person seeking judicial review must file a petition with the court within 30 days after the Securities Commissioner's decision is final and appealable. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703807 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 9, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 123.Administrative Guidelines for Registration of Open-End Investment Companies 7 TAC sec.123.1, sec.123.2 The State Securities Board adopts the repeal of sec.123.1 and sec.123.2, concerning guidelines for registration of open-end investment companies, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1020). The repeals are necessitated by the passage of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Public Law No. 104-290, which removed most securities issued by open-end investment companies from the registration requirements of state law. After NSMIA, most investment companies will no longer be subject to the provisions of sec.123.1 or sec.123.2, so those provisions are no longer needed. Investment company securities that do not come within the parameters of the exemption created by NSMIA will proceed under the auspices of Chapter 113, registration of securities, and be subject to general fairness standards. One comment letter was received on the proposal. The letter, from the Investment Company Institute, expressed concern over applying general fairness standards, following the repeal, to investment company securities that do not come within the parameters of the exemption provided by NSMIA, as violative of the prohibition in NSMIA of applying fairness standards to "covered securities." The Board disagreed. As specified in the preamble to the published proposal, only securities not coming within the parameters of the exemption created by NSMIA are subject to general fairness standards. Accordingly, general fairness standards will not apply if the securities are within the parameters of the NSMIA exemption. The repeals are 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703808 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 7 TAC sec.123.3 The State Securities Board adopts an amendment to sec.123.3, concerning a conditional exemption for money market funds, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1021). The amendment reflects changes necessitated by the passage of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Public Law No. 104-290, and add a reference to an additional securities and Exchange Commission ("SEC") release in subsection (b)(2). The amendment reflects that money market funds operating under this exemption are not required to register but are required to file for determination, unless a prior determination has been made, and to make regular reports on sec.133.26 and sec.133.27. Updated sec.133.26, concerning request for determination of money market fund, and sec.133.27, year-end report of sales, reflecting the changes to sec.123.3, are being simultaneously adopted. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Articles 581-28-1, and 581- 5.T. 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703809 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 133.Forms 7 TAC sec.133.2 The State Securities Board adopts the repeal of sec.133.2, concerning the form on public records charges - billing detail, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1023). Repeal of sec.133.2 will allow for the simultaneous adoption of a new form which is being concurrently adopted. The repeal eliminates an outdated form. No comments were received regarding adoption of the repeal. The repeal is adopted under Texas Civil Statutes, Articles 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703810 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 The State Securities Board adopts new sec.133.2, concerning the form on public information charges - billing detail, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1023). The new section adopts by reference a form to replace existing sec.133.2, which is being simultaneously repealed. The new form accurately apprises requestors of the new fees for public information established by the General Services Commission in accordance with the Public Information Act. No comments were received regarding adoption of the repeal. The new form 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703811 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 7 TAC sec.133.26, sec.133.27 The State Securities Board adopts the repeals of sec.133.26, concerning the form on request for determination of money market fund status, and sec.133.27, concerning the form on year-end report of sales, both concerning money market funds, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1024). Repeal of the existing forms will allow for the simultaneous adoption of new revised forms which are being concurrently adopted. The repeal eliminates two outdated forms. No comments were received regarding adoption of the repeals. The repeals are adopted under Texas Civil Statutes, Articles 581-28-1 and 581- 5.T. 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703812 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 The State Securities Board adopts new sec.133.26, concerning the form on request for determination of money market fund status, and sec.133.27, concerning the form on year-end report of sales, both concerning federal covered securities, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1024). The new sections adopt by reference forms reflecting changes concurrently adopted to sec.123.3, concerning a conditional exemption for money market funds. The changes were necessitated by the passage of the National Securities Markets Improvement Act of 1996, Public Law No. 104-290. The new forms replace existing sec.133.26 and sec.133.27, which are being simultaneously repealed. No comments were received regarding adoption of the new forms. The new forms are adopted under Texas Civil Statutes, Articles 581-28-1 and 581- 5.T. 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703813 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 7 TAC sec.133.33 The State Securities Board adopts an amendment to sec.133.33, concerning uniform forms accepted, required, or recommended, without changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1025). The amendment coordinates with changes in other chapters, which are being simultaneously adopted. The amendment updates a form name and terminology and adds cross-references. No comments were received regarding adoption of the amendment. 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. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703814 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 CHAPTER 137.Administrative Guidelines for Regulation of Offers 7 TAC sec.137.1 The State Securities Board adopts an amendment to sec.137.1, concerning guidelines for regulation of offers. The rule is adopted with changes to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1025). Three changes were made to the published proposal. First, the word "prohibits" is left as it appears in the current rule text. Second, the phrase "fraud or fraudulent practices" replaces "the use of false or misleading statements" in the fourth sentence of the section. Finally, a clarifying phrase was added in the last sentence. The amendment makes clarifications necessitated by the passage of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Public Law No. 104-290. The amendment eliminates confusion and uncertainty over filing requirements connected with the offer of federal covered securities in the state. Two comment letters were received on the proposal. The first letter, from Kuperman, Orr, Mouer & Albers, commented favorably on the published proposal. The second letter, from the Investment Company Institute, also commented favorably on the proposed amendment. The Board agreed with the comments and adopted the amendment substantially as published. 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. sec.137.1.Application. This chapter relates to offers to sell securities which must be filed with the Commissioner under the Texas Securities Act, sec.22. This chapter does not apply to advertising for sales made in reliance upon exemptions contained in the Act, sec.5 or sec.6, including exemptions by rule adopted by the State Securities Board pursuant to the Texas Securities Act, sec.5.T. This chapter does not require the filing of any offering documents, prepared by or on behalf of the issuer, in connection with the offer of federal covered securities, as that term is defined in sec.107.2 of this title (relating to Definitions). The Act, sec.sec.29, 32, and 33, prohibits fraud or fraudulent practices in connection with the purchase or sale of any security, whether exempt or not. The Agency has jurisdiction to investigate and bring enforcement actions with respect to fraud or deceit, or unlawful conduct by a dealer or agent, in connection with any securities subject to the Texas Securities Act, including federal covered securities or transactions involving federal covered securities. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703815 Denise Voigt Crawford Securities Commissioner State Securities Board Effective date: April 8, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 305-8300 TITLE 22. EXAMINING BOARDS PART III. Texas Board of Chiropractic Examiners CHAPTER 71. Applications and Applicants 22 TAC sec.71.6 The Texas Board of Chiropractic Examiners adopts amendments to sec.71.6, regarding Time, Place and Scope of Examination without changes to the proposed text as published in the October 18, 1996, issue of the Texas Register (21 TexReg 10265). Section 71.6 establishes the examination process and procedures administered by the Board, the scope of the examination, restrictions on examinees during testing, sanctions against examinees caught in a fraudulent act, or in a violation of rules, and custody of records retention for examination papers. The amendments change the examination requirements effective January 1, 1997. Beginning January 1, 1997, applicants will be required to take and pass Parts I, II, III, IV, and Physiotherapy of the National Board examination, and the Board's jurisprudence examination. The Board believes that these parts of the National Board examination meet the Chiropractic Act's examination requirements and serve the Act's purpose to assure that only properly trained and educated individuals are eligible for license by the Board. A transition period is provided. Applicants may comply with current requirements or the new requirements through December 31, 1996. Other amendments delete provisions in Subsections (a) and (h) relating to other examinations and when they may be held and responsibility of individual Board members for test papers. The Board does not contemplate other examinations so this provision is not necessary. Present examination procedures do not require individual board members to have physical control over examination papers. Subsection (d) relating to identity of examinees during examination is also deleted. These procedures are not consistent with present administration of tests and are not necessary. Passing grade requirements are added to this section as well as the requirement for applicants to submit scores to the board, presently provided by sec.71.12 which is being repealed. Other non-substantive changes to remove redundant language and for style and format have been made. No comments were received concerning adoption of this rule. The amendment is adopted under Texas Civil Statutes, Article 4512b, sec.4a, which authorize the board to adopt rules necessary for performance of its duties, to regulate the practice of chiropractic and for the enforcement of the Act. 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. Issued in Austin, Texas, on March 21, 1997. TRD-9703961 Patte B. Kent Executive Director Texas Board of Chiropractic Examiners Effective date: April 10, 1997 Proposal publication date: October 18, 1996 For further information, please call: (512) 305-6700 22 TAC sec.71.12 The Texas Board of Chiropractic Examiners adopts the repeal of sec.71.12 regarding the National Board Examination without changes to the proposed text as published in the October 18, 1996, issue of the Texas Register (21 TexReg 10267). The repeal of sec.71.12 is adopted in conjunction with amendments to sec.71.6. Section 71.12 recognizes the examination of the National Board of Chiropractic Examiners as meeting the Chiropractic Act's examination requirements. The section sets out the parts of the national board examination required for applicants and the passing score and requires applicants to provide the board with a true and correct copy of the exam results. The information on passing score, the required parts and the requirement for applicants to submit scores to the board in this section have been placed in sec.71.6. The remaining text in subsection (a) is not necessary. No comments were received concerning adoption of this repeal. The repeal is adopted under Texas Civil Statutes, Article 4512b, sec.4a, which authorize the board to adopt rules necessary for performance of its duties, to regulate the practice of chiropractic and for the enforcement of the Act. 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. Issued in Austin, Texas, on March 21, 1997. TRD-9703962 Patte B. Kent Executive Director Texas Board of Chiropractic Examiners Effective date: April 10, 1997 Proposal publication date: October 18, 1996 For further information, please call: (512) 305-6700 CHAPTER 78. Chiropractic Radiologic Technologists 22 TAC sec.78.1 The Texas Board of Chiropractic Examiners adopts an amendment to sec.78.1, regarding Registration of Chiropractic Radiologic Technologists without changes to the proposed text as published in the October 18, 1996, issue of the Texas Register (21 TexReg 10267). Section 78.1 establishes the process for registration of non-certified technicians by the Texas Board of Chiropractic Examiners. Non-certified technicians (NCT's) are defined by the Texas Department of Health as persons performing radiologic procedures (x-rays) for medical purposes who are not Texas Department of Health certified medical radiologic technologists (MRT's) or limited medical radiologic technologists (LMRT's). No comments were received concerning adoption of this rule. The amendment is adopted under Texas Civil Statutes, Article 4512b, sec.4a, which authorize the board to adopt rules necessary for performance of its duties and to regulate the practice of chiropractic. 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. Issued in Austin, Texas, on March 21, 1997. TRD-9703963 Patte B. Kent Executive Director Texas Board of Chiropractic Examiners Effective date: April 10, 1997 Proposal publication date: October 18, 1996 For further information, please call: (512) 305-6700 PART XXIII. Texas Real Estate Commission CHAPTER 535.Provisions of the Real Estate License Act Education, Experience, Educational Programs, Time Periods and Type of License 22 TAC sec.535.66 The Texas Real Estate Commission adopts an amendment to sec.535.66, concerning schools accredited by the commission, without changes to the proposed text as published in the January 21, 1997, issue of the Texas Register (22 TexReg 884). The amendment requires core real estate courses to be updated by accredited schools to ensure that the course content is accurate and current. Schools will be required to file copies of revised course materials and course content outlines with the commission prior to implementation of the changes. The amendment also adopts an evaluation form for use in measuring the performance of instructors and the presentation of a core course. Adoption of the amendment helps the commission ensure that the core real estate courses offered by schools accredited by the commission contain current and accurate subject matter and are properly taught. The commission received one comment opposing adoption of the amendment. The comment urged the commission not to adopt the amendment because it would add thousands of dollars in costs to the commission, add greatly to the cost of doing business as a school, create an unneeded censorship body, be an unreasonable burden on a small school, make the commission the sole determinator of what is proper and correct real estate knowledge, create a division between the commission and the schools on what is proper curriculum and what are proper texts, and create a great deal of unnecessary work for the enforcement division of the commission. The commission determined that it was obligated to ensure that outdated materials and inaccurate information were not contained in the courses previously approved for licensees and that the obligations imposed upon schools would not be unreasonable or unnecessary. Although a school's obligation to notify the commission of its use of texts and the commission's authority to require change of texts have been stated in the section for a number of years, adoption of the section was necessary to provide a clear provision requiring schools to update their materials as changes in law or the business make them outdated and inaccurate. The amendment is adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which authorize the Texas Real Estate Commission to make and enforce all rules and regulations necessary for the performance of its duties. 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. Issued in Austin, Texas, on March 19, 1997. TRD-9703922 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: April 10, 1997 Proposal publication date: January 21, 1997 For further information, please call: (512) 465-3900 TITLE 30. ENVIRONMENTAL QUALITY PART I. Texas Natural Resource Conservation Commission CHAPTER 335.Industrial Solid Waste and Municipal Hazardous Waste SUBCHAPTER K.Hazardous Substance Facilities Assessment and Remediation 30 TAC sec.335.344 The Texas Natural Resource Conservation Commission (commission) adopts amendments to sec.335.344, concerning delisting of facilities from the State Superfund Registry with changes to the proposed text as published in the December 6, 1996, issue of the Texas Register (21 TexReg 11749). EXPLANATION OF ADOPTED RULE. The amendment is intended to streamline the delisting process to make it easier to remove sites from the State Registry when available information shows that the site does not pose an imminent and substantial endangerment to human health or the environment or that such endangerment has been eliminated. The commission has identified three issues to be addressed in order to effect this change. Section 335.344(a) provides that a potentially responsible party or an interested person may request the executive director to delete a facility from the State Registry, modify the facility's priority ranking within the registry, or modify any information regarding such facility. In many cases there are no identified responsible parties and the term interested party is not defined. The commission proposes to clarify sec.335.344(a) by revising it to explicitly state that the executive director of the commission may initiate delisting. Secondly, sec.335.344(b) provides that the commission shall hold a public contested case hearing within the meaning of Texas Government Code, Chapter 2001. Texas Health and Safety Code (THSC), sec.361.189 requires the commission to establish procedures including public hearings for delisting facilities. The commission believes that a public meeting to receive comment complies with this statutory requirement. This is consistent with public participation requirements when listing State Superfund sites and when selecting remedies. The commission further proposes to add sec.335.344(c)(5) allowing the executive director to consider remediation of a site under the Voluntary Cleanup Program (VCP) (30 TAC Chapter 330) in making a delisting decision. The intent of this language is to encourage third parties to remediate State Registry sites which have development potential, allowing state cleanup funds to be used elsewhere. Purchasers of sites remediated under the VCP receive a release from State Superfund liability. This change, by removing what is perceived by many as the stigma of listing as a State Superfund site, should help to make sites more commercially marketable. TAKINGS IMPACT ASSESSMENT. The commission has prepared a Takings Impact Assessment for these rules pursuant to Texas Government Code Annotated, sec.2007.043. The following is a summary of that assessment. The specific purpose of the rule is to streamline the procedures for delisting and modification of sites on the state superfund registry. The rules will substantially advance this specific purpose by amending the procedures for delisting and modification of sites on the state superfund registry, thus allowing the executive director to remove completed sites from registry, which frees resources to be focused on sites that require more immediate action. The proposed rules would also create incentives for moving sites from the registry to the VCP, which frees additional resources. Promulgation and enforcement of these rules will not burden private real property which is the subject of the rules because the proposed changes are procedural in nature and do not change any regulatory requirements that are imposed on owners of private real property. The proposed changes only affect the procedures by which the executive director and the commission conduct delisting and modification of sites on the state superfund registry. Also, the following exceptions to the application of Texas Government Code, Chapter 2007 listed in Texas Government Code, sec.2007.003(b) apply to these rules: Section 2007.003(b)(13) - an action that is taken in response to a real and substantial threat to public health and safety, that is designed to significantly advance the health and safety purpose, and that does not impose a greater burden than is necessary to achieve the health and safety purpose. HEARING AND COMMENTERS. A public hearing was not requested or held. Written comments were received from one commenter. The Texas Chemical Council (TCC) generally supported the amendment with two comments. "First, regarding the proposed new sec.335.344(c)(5) which would allow the executive director to consider remediation of a site under the VCP in making a delisting decision, ...that the Texas Natural Resource Conservation Commission rules be amended to make it easier to delist sites by...adding language to allow the executive director to consider acceptance into the VCP in making a delisting decision...' The TCC understands that the agency does not believe that the THSC currently allows the executive director to use the criteria of acceptance into' the VCP as a reason for proposing delisting. Changes to the law are expected to be pursued in the upcoming session of the Legislature, and the TCC encourages the agency to amend this provision to incorporate the acceptance into' concept as soon as the law will allow." The commission agrees with this comment and intends to implement this concept as soon as the statute allows. The TCC also suggested that the word "hearing" be replaced with "the meeting" in sec.335.344(b) for the purposes of consistency with other changes. The commission agrees and has made this change. STATUTORY AUTHORITY. The amendment is adopted under Texas Water Code, sec.5.103, which provides the commission the authority to adopt any rules necessary to carry out its powers and duties under the code and other laws of the State of Texas, and to establish and approve all general policy of the commission; and under the Texas Solid Waste Disposal Action (the Act), THSC sec.361.024, which gives the commission the authority to regulate solid and hazardous wastes and to adopt and promulgate rules consistent with the general intent and purposes of the Act. sec.335.344.Delisting and Modifications. (a) Any Potentially Responsible Party (PRP) of a facility listed or proposed for listing on the State Registry or any interested person may request the executive director to delete such facility from the registry, modify the facility's priority ranking within the registry, or modify any information regarding such facility by submitting a written statement setting forth the grounds of the request. The PRP or interested person shall submit to the executive director any information as may be reasonably required to enable the executive director to further evaluate the facility including, but not limited to, information on all factors used to develop a state superfund HRS score and to make a determination on the request. The executive director may also initiate the delisting procedures described in this section. (b) The commission shall hold a public meeting to receive comment. This meeting is not a contested case hearing within the meaning of Texas Government Code, Chapter 2001. This meeting shall be held upon requests filed with or initiated by the executive director under subsection (a) of this section. At least 30 days prior to the date set for the meeting, notice shall be provided by first class mail to all other PRPs and other interested persons, and by publication in a newspaper of general circulation in the county where the facility is located. The person submitting the request, if any, shall bear the cost of publication of the notice. (c) In making a determination under subsection (a) of this section, the executive director or the commission will consider the following: (1) the extent to which the facility has been remediated under the terms of the remedial action plan agreed to by the executive director; (2) (No change.) (3) whether the release no longer poses an imminent and substantial endangerment to public health and safety or the environment and, therefore, taking further action is not appropriate; (4) whether, because of the nature of the remedial action implemented at the facility, it is not yet feasible to make a determination that the remedial action has effectively remediated the release or threat of release of hazardous substances; or (5) whether the site has been remediated under the voluntary cleanup program as set out in 30 TAC Chapter 333 of this title (relating to Voluntary Cleanup Program). (d) No requests for the delisting of a facility from the state registry or requests to modify information about a facility eligible for listing on the registry will be granted unless, at a minimum, the facility has been investigated under the terms of an RI/FS or other similar study approved by the executive director. 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. Issued in Austin, Texas, on March 24, 1997. TRD-9704033 Kevin McCalla Director, Legal Division Texas Natural Resource Conservation Commission Effective date: April 14, 1997 Proposal publication date: December 6, 1996 For further information, please call: (512) 239-6087 TITLE 40. SOCIAL SERVICES AND ASSISTANCE PART XX. Texas Workforce Commission CHAPTER 801.Local Workforce Development Boards 40 TAC sec.801.2 The Texas Workforce Commission adopts amendments to sec.801.2, Waiver Requirements, now referred to as sec.801.2 Waivers, concerning waivers that may be granted regarding service delivery, board staffing and developmental services, with one change to the proposed text as published in the January 31, 1997, issue of the Texas Register (22 TexReg 1089). Specifically, in Subsection (a), the final two sentences are deleted and replaced with the sentence "Only under circumstances that fit the criteria specified in those statutes will requests for waivers be granted." The Texas Labor Code, as amended by Chapter 655, Acts of the 74th Legislature, 1995, requires the Commission to establish rules for the formation of local workforce development boards to plan and oversee the delivery of all workforce training programs in local workforce development areas. The Act restricts the delivery of workforce training and services and developmental services and requires that local workforce development boards have an independent staff. The rule reiterates that waivers may be granted based on one or more of the three statutory prohibitions if a board can show that a waiver is necessary for the delivery of workforce training programs in the local workforce development area. The adopted amendment clarifies that operational functions such as intake, eligibility determination, assessment and referral, are included within the meaning of "workforce training and services." The adopted amendment also clarifies the criteria for granting a waiver. The amendment deletes statutory definitions from the rule as such information is repetitive and unnecessary. The amendment also clarifies that the Commission will issue a recommendation on submitted waiver requests to the Texas Council on Workforce and Economic Competitiveness. The adopted amendment replaces the requirement that certain documentation be submitted with a provision granting the Commission discretion in identifying what documents may be needed to support a request for a waiver. Finally, the adopted amendment eliminates the procedure of the Commission reviewing its decision prior to the expiration of a waiver once a waiver has been granted. The Commission held a public hearing on the proposed amended rule on February 28, 1997. Oral comments received at the hearing and by telephone, e-mail and facsimile are replicated in substance within the 67 written comments received. Of the total comments received, 60 commenters are in support of the proposed amended rule, while 32 commenters are opposed to the proposed changes. The following parties submitted written and/or oral comments prior to, and/or following publication of the proposed rule: Ray L. Laughter, North Harris Montgomery Community College District; Monty McLaurin, St. Joseph's Hospital and Health Center; Earl Joy, Business Development Corporation of Vernon; Ronda Bauman, Texas Association of Business and Chamber of Commerce; Ramon Dovalina, Laredo Community College; Gerald Burson, Navarro College; Carl M. Nelson, Texarkana College; Cheyl T. Sparks, Howard College; Dennis Michaelis, McLennan Community College; Tom Dressler, Panhandle Regional Planning Commission; Norm Haley, Upper Rio Grande Private Industry Council; Jackson N. Sasser; Frank E. Carelli, North American Energy Service; Gary R. O'Connor, O'Connor Insurance; Mike Swanson, Earthgrains; Mary Ann Grams, Blinn College; Dr. Ronnie Glasscock, North Central Texas College; Judge Chuck Superville, Lamar County; Kim Kirchoff, Director of HHS, Representing the Texas Association of Regional Councils; Judge Charles D. Johnson, Dimmit County; Janet Gott, Chair of Texoma Workforce Development Board; Judge Billy J. Gilbert, Cottle County; J.W. Martin, Chairman of Executive Committee of Nortex Regional Planning Commission; Paul Edwards; Alan Miller, former Executive Director of Capital Area Workforce Development Board; Judge William R. Mitchell, Uvalde County; Judge Ron Harris, North Central Texas; Walter Glenn, Deep East Texas Council of Governments; Judge L.D. Williamson, Red River County; Mayor Kelly Couch, City of Vernon; Mayor Pat Norris, City of Burkburnett; Judge Nick Gipson, Wichita County; John Wroten, Chair, North Central Texas Workforce Development Board; Arthur Pine, Board Chairman of Middle Rio Grande Development Council; Gary Vest, Lamar County Chamber of Commerce; Bonnie Woodfin, Lamar County Coalition of Education, Business and Industry; Curtis Fendley, President of Paris Economic Development Corporation; Robert L. Parker, Parker Agribusiness; Carl Cecil, Liberty National Bank, Max Graxiola, "The Paris News"; JoAnn Parkman, TV Electric; Hip Harper, Harrison, Walker and Harper; Donald G. Wilson, President, Rogers Wade Quality Manufacturers; William R. Gibson, Vice President, We Pack Logistics; Eleanor V. Maddox, Campbell Soup Company; Gary W. Short, Kimberly-Clark; Mike Creamer, Phillips Lighting Company; Richard E. Thomas, Babcock & Wilcox, Gary Cunningham & Ike Jewett, Paris Central Labor Council (AFL-CIO-CLC); State Senator Tom Haywood; Barry Murdock, Texarkana College; Ray Garcia, Texas Association of Community Colleges; Tom Wilkinson, Jr., Brazos Valley Development Council; James F. Ray, Executive Director of Texas Association of Regional Councils; Mr. Walter Diggles, Deep East Texas Council of Governments; Steve Hardy, Dean of Continuing Education at Collin County Community College; Carol LaFleur, El Paso Community College; Julie Fowler, Kilgore Community College; Billy Junge, Deep East Texas Workforce Development Board, Linda K. Davis, Manager of Workforce Development; and Judge Floyd A. (Dock) Watson, Shelby County; JoAnn F. Minnfee, Region 08, and the Workforce Development Legislative Oversight Committee members. The majority of commenters in support of the amended rule, including Rep. Rene Oliveira and Senator Rodney Ellis, expressed the concern that boards must remain independent and free from undue influence so that the integrity of the workforce development system envisioned by House Bill (HB)1863 was maintained. They wanted to insure that proper checks and balances were in place so that the board could make decision without any conflicts of interest. The commenters wanted the Commission to take all necessary actions to strengthen and give effect to the limitations found within HB 1863. Three commenters were concerned that if the administrative and fiscal functions are separate from service delivery, the administrator does not have control over services which would result in performance problems. The Commission believes that the structure contemplated by HB 1863 requires the board to be responsible for ensuring that service providers achieve appropriate standards. To accomplish this the board should ensure adequate procedures are in place to monitor service delivery to identify deficiencies and to require appropriate corrective action. Thirteen groups and individuals indicated that changing the rule undermines the flexibility and intent of legislation to return control of government to the local leaders of a community. A resolution signed by the 29 members of the Panhandle Workforce Development Board and the governing body of the Panhandle Workforce Development Consortium were also concerned that proposed changes would infringe on local authority and limit the options available to local workforce development boards and chief elected officials for structuring efficient and effective service delivery systems. In addition, Senator Tom Haywood expressed concern that the proposed rule would require the board to obtain a waiver if a single entity provides both the staffing and other functional operations. The Commission acknowledges that one purpose of the legislation is to grant to local leaders greater flexibility and the authority to determine what services delivery systems best suit their needs. However, the legislation also clearly indicates that some structures are unacceptable unless a waiver is granted by the Texas Council on Workforce and Economic Competitiveness. The waiver rule clarifies and reinforces these statutory provisions. The rule does not prohibit boards from utilizing certain workforce delivery structures; the rule merely sets forth the procedure to meet the statutory criteria for obtaining a waiver before implementing such structures and clarifies what types of delivery systems require a waiver. One commenter proposed adding the following language: " A waiver allowing a local workforce board to contract with a singular entity to provide: 1) staffing support to the board, 2) management of the career development center, and 3) operational functions, limited to intake, eligibility determination, assessment, referral, and case management, will be granted for a period equal to that covered by the partnership agreement of the workforce area seeking the waiver as long as an independent evaluation of those operational functions is obtained and conditions described within subsection (e) of this rule are met." The Commission believes that this language is contrary to statutory provisions which require that waivers be granted based on a detailed justification which supports the waiver request. One commenter proposed the deletion of the sentence "Only under exceptional circumstances will waivers from such prohibitions be allowed[.]" in subsection (a) because there may be an inconsistency within the rules as to the appropriate standard for obtaining a waiver. The Commission agrees and amends the rule accordingly and reiterated that the statutory criteria will be utilized. The commenter also proposed the deletion of proposed subsection (e)(3) relating to the Commission's authority to request documents supporting the waiver request. The commenter was concerned that any additional information required in planning guidelines or workforce development letters, which are not subject to any public review and comment, would be extra, unnecessary work for local boards; and that subsection (e)(1) and (2) are sufficient to determine whether a waiver request is justified and in the best interest of the area served. The Commission's intent in adopting subsection (e)(3) was to incorporate the original subsection (f)(2)(B), which identifies documents that must be submitted with the waiver request, into Commission directive and issuances. This would allow the Commission to elaborate in further detail the types of documents that a board could submit to support its waiver request. It also gives the Commission and boards greater flexibility in identifying and submitting documentation that would be needed to support a waiver request based on the statutory criteria. Five commenters discussed the fact that limited resources in an area may be the driving force behind having one entity performing the three functions: service delivery, board staffing and developmental services, the general sentiment being that allowing one entity to control all facets of the workforce system will save tax dollars and allow for a streamlined system. One commenter believes that use of a single entity is conducive to consolidation of programs. The Commission acknowledges that consolidation, limited resources and efficiencies are a primary concern for local workforce development areas. However, the legislation creating workforce development areas was premised on a checks and balances system of service delivery. By prohibiting boards from providing workforce training and services and requiring an independent staff, the board will not be subject to even appearances of conflicts of interest and undue influences in fulfilling its responsibilities under the legislation. Some commenters were concerned that the Commission was changing its rule too soon after publication of the original rule and that too many changes undermine the credibility of the Commission. It is the desire of the Commission to provide clear guidance to the boards regarding applicable requirements. However, if there is confusion as to a rule, the Commission must act quickly to clarify the confusion. The Commission notes that the waiver rule is not a new rule, but merely a clarification of an existing rule. The rule had been interpreted by some inconsistently with the Commission's intent in passing the original waiver rule. To ensure there is no confusion in the future, the rule is amended to clarify that intake, eligibility determinations, assessment and referral are within the definition of workforce training and services. Several commenters were concerned that boards had agreed to form and were moving forward based on their belief that the entity administering or providing one-stop services could also provide board staffing. They stated that this could impact a board's desire to move forward and that it could cause some boards to decertify. Two commenters suggested allowing boards that already have contracts with one entity to keep those contracts in place. They maintain that partnership agreements under current rules designate a single entity to provide the three basic functions. Given their concern on this issue, some of these commenters suggested that a "grandfather" clause be included. The Commission recognizes that the original rule may have been misinterpreted and was the cause of some confusion. However, while some negative ramifications may occur due to this clarification, the Commission may not act beyond statutory limitations. Sections 2308.264, 2308.267 and 2308.312, Government Code, set forth what actions are prohibited unless a waiver is obtained in accordance with the statutory criteria. The Commission is without authority to adopt or interpret a rule contrary to these provisions. One commenter noted that the definitions of "workforce services" and "operational functions" should be clarified. The Commission agrees and believes that the rule clarifies that "operational functions" are a part of "workforce services." One commenter indicated that if the effective term of an approved plan and budget is more than one year, then the waiver approval should be for a period of one year or less. The Commission believes that waivers should be reviewed and determined on a case-by-case basis and, therefore, does not want to limit its ability to recommend an appropriate duration for a waiver. The Commission believes that this suggestion would be too restrictive and notes that the current language in the rule, which states that "a waiver may be granted for a period less than, but not to exceed, the effective term of an approved plan and budget" allows for greater flexibility. One commenter suggested that the Commission should maintain an interpretation of the rule that would minimize the potential for conflicts of interest between the board as an administrator and as service provider. Another commenter with a similar view stated that it would lessen the potential for conflict of interest to allow a board to perform "operational function" than to allow those functions to remain with a training provider. The Commission believes that allowing a board to also perform "operational functions" increases the potential for conflicts of interest and, therefore, is adopting the amendments to clarify that a waiver is needed before a board may perform "operational functions." The Commission believes that the amended rule minimizes such potential conflicts of interest. Several commenters indicated opposition to the rule because they did not want an administrative entity to deliver training, educational and assessment services to community colleges. The Commission agrees and believes the amended rule addresses those concerns. The amendment is adopted under Texas Labor Code, Title 4, sec.302.061(a) and sec.302.063, as amended by Chapter 655, Acts of the 74th Legislature, 1995, which provide the Texas Workforce Commission with the authority to develop objective criteria for the granting of waivers under Texas Civil Statutes, Government Code, sec.sec.2308.264, 2308.267, and 2308.312. No other statute, article or code will be affected by this adoption. sec.801.2.Waivers. (a) Purpose of Rule. The Workforce and Economic Competitiveness Act, sec.sec.2308.264, 2308.267, and 2308.312, Government Code, Vernon's Texas Codes Annotated, sets forth prohibitions regarding service delivery, board staffing, and developmental services. Only under circumstances that fit the criteria specified in those statutes will requests for waivers be granted. (b) Independent Service Delivery. A board is prohibited from directly providing workforce training and services, including operational functions normally associated with such services such as intake, eligibility determination, assessment, and referral, unless a waiver is obtained. (c) Separate Staffing. The board's staff must be employed separately and independently of any person that provides workforce training and services, as described in subsection (b) of this section, unless the board arranges for independent evaluation of any other workforce services provided by the staffing organization and obtains a waiver. (d) Developmental Services. A person who provides "one-stop" services at a Career Development Center may not also provide developmental services unless a waiver is obtained. (e) Requesting a Waiver. (1) Waiver requests should be submitted to the Commission and contain detailed justification as specified in the respective statutes. The Commission will forward a recommendation to the Texas Council on Workforce and Economic Competitiveness for a determination. (2) In recommending action on such requests, the Commission will apply only the criteria specified in the respective statutes. (3) The Commission may require a board to submit documentation as outlined in the Texas Workforce Planning Guidelines and/or Workforce Development Letters to support its waiver request. (f) Duration of Waiver. (1) A waiver may be granted for a period less than, but not to exceed, the effective term of an approved plan and budget. (2) A waiver may be conditioned upon the board's completion of measures taken to eliminate the need for a waiver. 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. Issued in Austin, Texas, on March 24, 1997. TRD-9704040 Esther L. Hajdar Director of Legal Services Texas Workforce Commission Effective date: April 14, 1997 Proposal publication date: January 31, 1997 For further information, please call: (512) 463-8812