Part 1.
FINANCE COMMISSION OF TEXAS
Chapter 1.
CONSUMER CREDIT COMMISSIONER
Subchapter I. INSURANCE
7 TAC §1.802
The Finance Commission of Texas (the commission) proposes
an amendment to 7 TAC §1.802, concerning single interest insurance for
an automobile.
The purpose of the amendment is to exempt automobile property insurance
from the provisions of the property insurance rule. Prior to 1997 most loans
on automobiles were governed by Chapter 4 of the Credit Code. When Chapter
342 was adopted, it merged the old Chapter 3 and Chapter 4 provisions. The
rule §1.802 was adopted in May 1999 based upon the property insurance
provisions as they had been applied under the old Chapter 3. Although no comments
were received at the time the rule was adopted it has become apparent that
writing property insurance on automobiles at non-standard rates was formerly
permissible, but has been restricted by the adoption of 7 TAC §1.802.
This amendment would remove the restriction and allow automobile property
insurance to be written at non-standard rates. Removing the restriction would
furthermore restore parity between financing of automobiles under the loan
chapter and the retail sales chapter.
Leslie L. Pettijohn, Consumer Credit Commissioner has determined that for
the first five-year period the rules are in effect, there will be no fiscal
implications for state or local government as a result of administering the
rules.
Commissioner Pettijohn also has determined that for each year of the first
five years the rules are in effect, the public benefit anticipated as a result
of the new rules will be enhanced compliance with the credit laws and consistency
in credit contracts. No net economic cost will result to persons affected
by the rules. There is no adverse impact to small business. No difference
will exist between the cost of compliance for small businesses and the cost
of compliance for the largest businesses affected by this section.
Comments on the proposed amendments may be submitted in writing to Leslie
L. Pettijohn, Consumer Credit Commissioner, Office of Consumer Credit Commissioner,
2601 North Lamar Boulevard, Austin, Texas 78705-4207.
The amendments are proposed under the Texas Finance Code §11.304,
which authorizes the Finance Commission to adopt rules to enforce Title 4
of the Texas Finance Code. Additionally, Texas Finance Code §342.551
grants the Consumer Credit Commissioner and the Finance Commission the authority
to interpret the provisions of Title 4, Subtitle B, in which Chapter 342 is
located.
These rules affect Chapter 342, Texas Finance Code.
§1.802.Authorized Property Insurance.
(a)
Property insurance
, other than insurance covering
an automobile,
written in connection with a loan made under Chapter
342 must be written at rates not in excess of the rates fixed or approved
by the Texas Department of Insurance if a rate structure has been fixed or
approved for that particular type of coverage.
(b)
If property insurance
, other than insurance covering
an automobile,
requested or required on a loan is sold or obtained by
a licensee at a rate that is not fixed or approved by the Texas Department
of Insurance, the licensee must first obtain prior acknowledgment from the
commissioner that the coverage and the rate bear a reasonable relationship
to:
(1)
the amount, term, and conditions of the loan;
(2)
the value of the collateral; and
(3)
the existing hazards or risk of loss, damage, or destruction.
(c)
Insurance
, other than insurance covering an automobile,
written at rates not fixed or approved by the Texas Department of Insurance
is subject to cancellation or adjustment if the insurance is not otherwise
approved by the commissioner.
(d)
If a licensee is seeking authority from the commissioner
under subsection (b) of this section for a rate not fixed or approved by the
Texas Department of Insurance, a copy of the relevant policy that is to be
issued shall be filed with the Office of Consumer Credit Commissioner, together
with any evidence that is probative on the factors listed in subsection (b)
of this section.
(e)
Property insurance written in connection with a Chapter
342 loan must be provided by a company authorized to do business in this state.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101677
Leslie L. Pettijohn
Consumer Credit Commissioner
Finance Commission of Texas
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 936-7640
7 TAC §1.805
The Finance Commission of Texas (the commission) proposes
an amendment to 7 TAC §1.805, concerning authorized credit insurance.
The purpose of the amendment is to add the appropriate references under
the Insurance Code that govern group debtor life and accident and health insurance.
These are equivalent products to credit life and credit disability insurance,
and thus are eligible to be written under Chapter 342. The rule simply acknowledges
that authority.
Leslie L. Pettijohn, Consumer Credit Commissioner has determined that for
the first five-year period the rules are in effect, there will be no fiscal
implications for state or local government as a result of administering the
rules.
Commissioner Pettijohn also has determined that for each year of the first
five years the rules are in effect, the public benefit anticipated as a result
of the new rules will be enhanced compliance with the credit laws and consistency
in credit contracts. No net economic cost will result to persons affected
by the rules. There is no adverse impact to small business. No difference
will exist between the cost of compliance for small businesses and the cost
of compliance for the largest businesses affected by this section.
Comments on the proposed amendment may be submitted in writing to Leslie
L. Pettijohn, Consumer Credit Commissioner, Office of Consumer Credit Commissioner,
2601 North Lamar Boulevard, Austin, Texas 78705-4207.
The amendment is proposed under the Texas Finance Code §11.304
and §342.551, which authorizes the Finance Commission to adopt rules
to enforce Title 4 of the Texas Finance Code.
These rules affect Chapter 342, Texas Finance Code.
§1.805.Authorized Credit Insurance.
(a)
Credit insurance written in connection with a Chapter 342
loan shall be decreasing term insurance.
(b)
Credit life insurance and credit accident and health insurance
shall be written in compliance with Texas Insurance Code Article
3.42,
3.50, 3.51-6, and
3.53 and any regulations issued by the Texas Department
of Insurance under the authority of that provision.
(c)
Involuntary unemployment insurance shall be written in
compliance with Texas Insurance Code Article 21.79E and any regulations issued
by the Texas Department of Insurance under the authority of that provision.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101678
Leslie L. Pettijohn
Consumer Credit Commissioner
Finance Commission of Texas
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 936-7640
Chapter 101.
GENERAL ADMINISTRATION
7 TAC §101.6
The State Securities Board proposes new §101.6, concerning
the historically underutilized business program. The new rule satisfies the
requirement in Texas Government Code §2161.003, which requires an agency
to adopt historically underutilized business ("HUB") rules of the General
Services Commission. Those HUB rules are contained in 1 TAC §§111.111-111.28.
Don Raschke, Director of Staff Services, and Tom Spradlin, Director of
Information Resources and Planning, have determined that for the first five-year
period the rule is in effect there will be no fiscal implications for state
or local government as a result of enforcing or administering the rule.
Mr. Raschke and Mr. Spradlin also have determined that for each year of
the first five years the rule is in effect the public benefit anticipated
as a result of enforcing the rule will be that vendors dealing with the agency
will be aware of the HUB policy and program at the agency applicable to the
purchase of goods and services paid for with appropriated funds. There will
be no effect on small businesses. There is no anticipated economic cost to
persons who are required to comply with the rule as proposed.
Comments on the proposal to be considered by the Board should be submitted
in writing within 45 days after publication of the proposed section in the
The new rule is proposed under Texas Civil Statutes, Article
581-28-1 and Texas Government Code, §2161.003. Section 28-1 provides
the Board with the authority to adopt rules and regulations necessary to carry
out and implement the provisions of the Texas Securities Act, including rules
and regulations governing registration statements and applications; defining
terms; classifying securities, persons, and matters within its jurisdiction;
and prescribing different requirements for different classes. Section 2161.006
requires a state agency to adopt the General Services Commission's HUB rules
as the agency's own rules applicable to the agency's construction projects
and purchases of goods and services paid for with appropriated money.
Statutes and codes affected: none applicable.
§101.6.Historically Underutilized Business Program.
The State Securities Board adopts by reference the rules established
by the General Services Commission relating to the Historically Underutilized
Business Program, contained in Title 1, Part 5, Chapter 111, Subchapter B,
of the Texas Administrative Code.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101680
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 305-8300
7 TAC §107.2
The State Securities Board proposes an amendment to §107.2,
concerning definitions, to coordinate with new Chapters 115 and 116, which
are being concurrently proposed. Specifically, paragraph (23) is being modified
to eliminate "annulment" of a license; the definition of "rendering services
as an investment adviser" is being shortened to comport to the equivalent
definition contained in the new §116.1(a)(8); and the definition of "solicitor"
is being moved to new §116.1(a)(9), eliminating old paragraph (39), and
the remaining definitions are being renumbered accordingly.
Michael S. Gunst, Director, Dealer Registration Division, has determined
that for the first five-year period the rule is in effect there will be no
fiscal implications for state or local government as a result of enforcing
or administering the rule.
Mr. Gunst also has determined that for each year of the first five years
the rule is in effect the public benefit anticipated as a result of enforcing
the rule will be that persons seeking guidance about terms used in the Board's
rules will find defined terms used consistently throughout. There will be
no effect on small businesses. There is no anticipated economic cost to persons
who are required to comply with the rule as proposed.
Comments on the proposal to be considered by the Board should be submitted
in writing within 45 days after publication of the proposed section in the
The amendment is proposed 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.
The proposed amendment affects Texas Civil Statutes, Articles 581-13 through
581-15, 581-17 through 581-19, and 581-25.
§107.2.Definitions.
The following words and terms, when used in Part VII of this title
(relating to the State Securities Board), shall have the following meanings,
unless the context clearly indicates otherwise.
(1)-(22)
(No change.)
(23)
Licensing--The process respecting the granting, denial,
renewal, revocation, suspension, [
(24)-(31)
(No change.)
(32)
Rendering services as an investment adviser--
Any
act that results in the providing of investment advisory services for compensation.
[
(33)-(38)
(No change.)
[
Solicitor--Any person or
entity who, for compensation, acts as an agent of an investment adviser in
referring potential clients.]
(39)
[
(40)
[
(41)
[
(42)
[
(43)
[
(A)
A person is a "dealer" who engages "within this state"
in one or more of the activities set out in the Texas Securities Act, §4.C,
if either the person or the person's agent is present in this state or the
offeree/purchaser or the offeree/purchaser's agent is present in this state
at the time of the particular activity. A person can be a dealer in more than
one state at the same time.
(B)
Likewise, a person is a "salesman" who engages "within
this state" in one or more of the activities set out in the Texas Securities
Act, §4.D, whether by direct act or through subagents except as otherwise
provided, if either the salesman or the salesman's agent is present in this
state or the offeree/purchaser or the offeree/purchaser's agent is present
in this state at the time of the particular activity. A person can be a salesman
in more than one state at the same time.
(C)
Offers and sales can be made by personal contact, mail,
telegram, telephone, wireless, electronic communication, or any other form
of oral or written communication.
This agency hereby certifies that the proposal
has been reviewed by legal counsel and found to be within the agency's legal
authority to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101681
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 305-8300
7 TAC §109.13
The State Securities Board proposes an amendment to §109.13,
concerning limited offering exemptions. A provision is being relocated from §115.1(f),
which is being concurrently proposed for repeal.
Michael S. Gunst, Director, Dealer Registration Division, and Micheal
Northcutt, Director, Securities Registration Division, have determined that
for the first five-year period the rule is in effect there will be no fiscal
implications for state or local government as a result of enforcing or administering
the rule.
Mr. Gunst and Mr. Northcutt also have determined that for each year of
the first five years the rule is in effect the public benefit anticipated
as a result of enforcing the rule will be that issuers utilizing the exemption
provided in §109.13(k) will be apprised of the exemption from dealer
and agent registration for their officers, directors, and employees who answer
questions about a Regulation D Rule 505 or 506 offering. There will be no
effect on small businesses. There is no anticipated economic cost to persons
who are required to comply with the rule as proposed.
Comments on the proposal to be considered by the Board should be submitted
in writing within 45 days after publication of the proposed section in the
The amendment is proposed under Texas Civil Statutes, Articles
581-28-1, 581-5.T, and 581-12.B. Section 28-1 provides the Board with the
authority to adopt rules and regulations necessary to carry out and implement
the provisions of the Texas Securities Act, including rules and regulations
governing registration statements and applications; defining terms; classifying
securities, persons, and matters within its jurisdiction; and prescribing
different requirements for different classes. Section 5.T provides that the
Board may prescribe new exemptions by rule. Section 12.B provides the Board
with the authority to prescribe new dealer/agent registration exemptions by
rule.
The proposed amendment affects Texas Civil Statutes, Articles 581-5, 581-7,
and 581-12.
§109.13.Limited Offering Exemptions.
(a)-(j)
(No change.)
(k)
Uniform limited offering exemption. In addition to sales
made under the Texas Securities Act, §5.I, the State Securities Board,
pursuant to the Act, §5.T, exempts from the registration requirements
of the Act, §7, any offer or sale of securities offered or sold in compliance
with the Securities Act of 1933, Regulation D, Rules 230.505 and/or 230.506,
including any offer or sale made exempt by application of Rule 508(a), as
made effective in United States Securities and Exchange Commission Release
Number 33-6389 and as amended in Release Numbers 33-6437, 33-6663, 33-6758,
and 33-6825, and which satisfies the following further conditions and limitations.
(1)-(16)
(No change.)
(17)
Issuers in Regulation D offerings.
When an offering is made in compliance with Regulation D of the SEC and the
offering will be made by or through a registered securities dealer, the issuer
and its directors, officers, agents, and employees may make themselves available
to answer questions from offerees as required by Rule 502(b)(2)(v) of Regulation
D without being required to register as securities dealers, agents, or salesmen
under the Act, §12.
(l)
(No change.)
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101682
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 305-8300
7 TAC §§115.1 - 115.7
(Editor's note: The text of the following sections proposed for
repeal will not be published. The sections may be examined in the offices
of the State Securities Board or in the Texas Register office, Room 245, James
Earl Rudder Building, 1019 Brazos Street, Austin.)
The State Securities Board proposes the repeal
of Chapter 115, consisting of §§115.1-115.7, concerning Dealers
and Salesmen. In related rulemaking, the Board is proposing the creation of
a new Chapter 115, concerning dealers and agents, and a new Chapter 116, concerning
investment advisers and investment adviser representatives.
Michael S. Gunst, Director, Dealer Registration Division, and David Grauer,
Director, Enforcement Division, have determined that for the first five-year
period the repeals are in effect there will be no fiscal implications for
state or local government as a result of enforcing or administering the repeals.
Mr. Gunst and Mr. Grauer also have determined that for each year of the
first five years the repeals are in effect the public benefit anticipated
as a result of enforcing the repeals will be the replacement of the chapter
with better organized and more easily understandable provisions. There will
be no effect on small businesses. There is no anticipated economic cost to
persons who are required to comply with the repeals as proposed.
Comments on the proposal to be considered by the Board should be submitted
in writing within 45 days after publication of the proposed repeal in the
The repeal is proposed under Texas Civil Statutes, Articles
581-28-1 and 581-12.B. Section 28-1 provides the Board with the authority
to adopt rules and regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes. Section 12.B provides the Board with the authority
to prescribe new dealer/agent registration exemptions by rule.
The statutes and codes affected by the proposed new chapter are Texas
Occupations Code, §53.025, and Texas Civil Statutes, Articles 581-12
through 581-13, 581-15 through 581-21, and 581-25.
§115.1.General Provisions.
§115.2.Application.
§115.3.Examination.
§115.4.Evidences of Registration.
§115.5.Minimum Records.
§115.6.Registration of Persons with Criminal Backgrounds.
§115.7.Maintenance and Inspection of Records.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101683
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 305-8300
7 TAC §§115.1 - 115.10
The State Securities Board proposes new chapter 115, consisting
of §§115.1-115.10, concerning securities dealers and agents. In
related rulemaking, the Board is proposing the concurrent repeal of existing
Chapter 115, concerning dealers and salesmen, and the creation of a new Chapter
116, concerning investment advisers and investment adviser representatives.
The new chapter 115 has been substantially reorganized and relates only
to dealers and their agents. New §115.1, concerning general provisions,
contains definitions; sets forth the registration requirements for dealers,
issuers, agents, and branch offices; and sets out the types of registrations.
New §115.2, concerning applications, provides a detailed listing
of the documents submitted with applications for dealer and agent registration;
clarifies an existing requirement that the designated officer or partner of
a dealer must be a control person of the dealer and must complete examination
requirements; clarifies that activity at a branch office is not permitted
until the location has been approved as a branch; sets out the procedure for
requesting registration of a branch office; sets up a 10-day grace period
to designate a replacement branch office manager, rather than requiring it
immediately as is the case under the existing rules; provides for the automatic
withdrawal and abandonment of dealer and agent registration applications;
and provides for filing through the Central Registration Depository System.
New §115.3, concerning examinations, sets forth examination requirements
and waivers therefrom.
New §115.4, concerning evidences of registration, provides for the
issuance of an evidence of registration or certificate or registration, when
an amendment is required, termination of agents, and renewal procedures. It
also sets out a new procedure regarding successor entities. The existing rule
requires a request to obtain a temporary registration. The new rule makes
the temporary registration automatic. An extension of the automatic temporary
registration may be granted by the Securities Commissioner on request.
New §115.5, concerning minimum records, sets out the records to be
maintained by dealers, the retention periods for those records, and provides
for the Commissioner's review of records.
New §115.6, concerning registration of persons with criminal backgrounds,
contains rulemaking required by the Texas Occupations Code, §53.025.
It sets out the factors for determining when a misdemeanor conviction directly
relates to the duties and responsibilities of the applicant or registrant
and matters to be considered in determining an applicant's fitness following
a felony or misdemeanor conviction. Separate and apart from the provisions
of this rule, the Texas Securities Act, §14, permits denial, suspension,
or revocation of a license for any felony, not just ones that are directly
related to the duties and responsibilities of the licensee.
New §115.7, concerning maintenance and inspection of records, codifies
the agency's long-standing position that immediate access is required to all
records kept in the normal course of the dealer's business, not just those
records that are required to be kept pursuant to Board rules.
New §115.8, concerning fee requirements, contains provisions related
to determining the appropriate filing fee and, when appropriate, applying
for a reduction in fees.
New §115.9, concerning post registration reporting requirements,
sets out the events that a registered dealer must report to the Securities
Commissioner. Its provisions are based on current Form U-4 reporting requirements.
New §115.10, concerning supervisory requirements, requires each dealer
to establish and maintain a system to supervise the activities of its agents.
The provision is reflective of requirements imposed by the National Association
of Securities Dealers.
Michael S. Gunst, Director, Dealer Registration Division, and David Grauer,
Director, Enforcement Division, have determined that for the first five-year
period the rules are in effect there will be no fiscal implications for state
or local government as a result of enforcing or administering the rules.
Mr. Gunst and Mr. Grauer also have determined that for each year of the
first five years the rules are in effect the public benefit anticipated as
a result of enforcing the rules will be to apprise dealers and their agents
of their obligations under the Texas Securities Act and Board rules. There
will be no effect on small businesses. There is no anticipated economic cost
to persons who are required to comply with the rules as proposed.
Comments on the proposal to be considered by the Board should be submitted
in writing within 45 days after publication of the proposed sections in the
The new rules are proposed under Texas Civil Statutes, Articles
581-28-1 and 581-12.B. Section 28-1 provides the Board with the authority
to adopt rules and regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes. Section 12.B provides the Board with the authority
to prescribe new dealer/agent registration exemptions by rule.
The statutes and codes affected by the proposed new chapter are Texas
Occupations Code, §53.025, and Texas Civil Statutes, Articles 581-12
through 581-13, 581-15 through 581-19, and 581-25.
§115.1.General Provisions.
(a)
Definitions. Words and terms used in this chapter are also
defined in §107.2 of this title (relating to Definitions). The following
words and terms, when used in this chapter, shall have the following meanings,
unless the context clearly indicates otherwise.
(1)
Applicant--A person who submits an application for registration
as a dealer or an agent.
(2)
Branch office--Each office in Texas in which either records
are maintained or control over and review of the activities of registered
persons exists.
(3)
Branch office manager--The person named by a dealer to
supervise the activities of a branch office.
(4)
Control--The possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a person
or company, whether through the ownership of voting securities, by contract,
or otherwise.
(5)
In this state--As used in the Texas Securities Act, §12,
has the same meaning as the term "within this state" as defined in §107.2
of this title (relating to Definitions) and paragraph (8) of this subsection.
(6)
NASDR--The National Association of Securities Dealers Regulation,
Inc.
(7)
Officer--A president, vice president, secretary, treasurer,
or principal financial officer, comptroller, or principal accounting officer,
or any other person occupying a similar status or performing similar functions
with respect to any organization or entity, whether incorporated or unincorporated.
(8)
Within this state--
(A)
A person is a "dealer" who engages "within this state"
in one or more of the activities set out in the Texas Securities Act, §4.C,
if either the person or the person's agent is present in this state or the
offeree/purchaser or the offeree/purchaser's agent is present in this state
at the time of the particular activity. A person can be a dealer in more than
one state at the same time.
(B)
Likewise, a person is an "agent" who engages "within this
state" in one or more of the activities set out in the Texas Securities Act, §4.D,
whether by direct act or through subagents except as otherwise provided, if
either the 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 an agent 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.
(b)
Registration Requirements of Dealers, Issuers, Agents,
and Branch Offices.
(1)
Requirements of registration.
(A)
No dealer, issuer, or agent of a dealer or issuer shall
sell or offer for sale any securities within this state without first being
registered as a dealer or agent, or exempt from registration.
(B)
Each branch office in Texas must be registered. A registered
officer, partner, or agent must be named as branch office manager.
(2)
Persons not required to register as an agent.
(A)
Registration as an agent 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, §15(h)(3), provided such person
is:
(i)
not ineligible to register with this state for any reason
other than such a transaction; and
(ii)
registered with a registered securities association and
at least one other state.
(B)
For purposes of this paragraph, a person is "ineligible
to register with this state," if the person:
(i)
has been convicted of a securities-related felony; or
(ii)
has been convicted of a theft-related felony.
(C)
For purposes of this paragraph, a "registered securities
association" is one currently recognized as such by the SEC pursuant to the
Securities Exchange Act of 1934, §15A.
(D)
Persons not required to register with the Securities Commissioner
pursuant to subparagraph (A) of this paragraph, are reminded that the Texas
Securities Act prohibits fraud or fraudulent practices in dealing in any manner
in any securities whether or not the person engaging in fraud or fraudulent
practices is required to be registered. The Agency has jurisdiction to investigate
and bring enforcement actions to the full extent authorized in the Texas Securities
Act with respect to fraud or deceit, or unlawful conduct by a dealer or agent
in connection with transactions involving securities in Texas.
(c)
Types of registrations.
(1)
General registration. A general registration is a registration
to deal in all categories of securities, without limitation.
(2)
Restricted registration. The restricted registrations are
as follows:
(A)
registration to deal exclusively in the sale of interests
(other than interests in limited partnerships) in oil, gas, and mining leases,
fees, or titles or contracts relating thereto;
(B)
registration to deal exclusively in municipal securities;
(C)
registration to deal exclusively in real estate syndication
interests and/or condominium securities, including interests in real estate
limited partnerships;
(D)
registration to deal exclusively in sales of securities
to the dealer's own employees;
(E)
registration to deal exclusively in securities issued by
open-end investment companies registered under the Texas Securities Act and
the Investment Company Act of 1940;
(F)
registration for an issuer to deal exclusively in its own
securities;
(G)
registration to deal exclusively in options on foreign
currencies;
(H)
registration to deal exclusively in sales of securities
in direct participation programs;
(I)
registration to deal exclusively in government securities;
(J)
registration to accept orders unsolicited by such person
from existing customers of the dealer;
(K)
registration to deal exclusively in corporate securities;
(L)
registration to deal in all general securities except municipal
securities; and
(M)
registration with other restrictions which the Securities
Commissioner may impose based upon the facts.
(3)
In restricted registrations, the evidence of registration
shall indicate that the holder thereof is entitled to act as a dealer only
in the specified issue or category of securities.
§115.2.Application Requirements.
(a)
Securities dealer application requirements. A complete
application consists of the following and must be filed in paper form with
the Securities Commissioner:
(1)
Form BD;
(2)
Form U-4 for the designated officer and a Form U-4 for
each agent to be registered (officers of a corporation or partners of a partnership
shall not be deemed agents solely because of their status as officers or partners);
(3)
Form 133.16, an agreement for maintenance and inspection
of records;
(4)
a copy of articles of incorporation, partnership agreement,
articles of association, trust agreement, or other documents which indicate
the form of organization, certified by the appropriate jurisdiction or by
an officer or partner of the applicant;
(5)
all foreign corporations and other nonresident applicants
must file an irrevocable consent to service of process utilizing Forms U-2
and U-2A, or Form 133.8;
(6)
assumed name certificate, if applicable. The improper use
by an applicant of an assumed name containing "incorporated," "corporation,"
"associates," "limited," or an abbreviation of one of those words, may be
grounds for denying registration of the applicant if such designation is thereby
misleading;
(7)
a balance sheet prepared in accordance with generally accepted
accounting practices reflecting the financial condition of the dealer as of
a date not more than 90 days prior to the date of such filing. The balance
sheet should be prepared by independent certified public accountants or independent
public accountants, or must instead be attested by the sworn notarized statement
of the applicant's principal financial officer. If attested by the principal
financial officer of the applicant, such officer shall certify as follows:
I am the principal financial officer of (name of dealer). The accompanying
balance sheet has been prepared under my direction and control and presents
fairly its financial position on the dates indicated to the best of my knowledge,
belief, and ability. (Signature and Title).
(8)
Form 133.23, a franchise tax certification form;
(9)
any other information deemed necessary by the Securities
Commissioner to determine a dealer's financial responsibility or a dealer's
or agent's business repute or qualifications; and
(10)
the appropriate registration fee(s).
(b)
Designated officer registration. Dealers must file a Form
U-4 application to register an officer or partner in connection with the registration
of the dealer. The officer or partner must be a control person of the dealer.
The officer or partner must complete the necessary registration and examination
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.
(c)
Branch office registration and inspection. A request for
registration of a branch office of a dealer may be made upon initial application
of the dealer or by amendment to a current registration. No sales-related
activity may occur in any branch office location until such time as the dealer
receives notification from the Securities Commissioner that such location
has been approved as a branch office. The request for registration of a branch
office may be made in letter form or by the submission of Schedule E of Form
BD. The fee for registration of each branch office is $25. Simultaneous with
the request for registration of a branch office, a branch office manager must
be designated. The manager must satisfy the examination qualifications required
of the dealer before the branch office may be registered. A branch office
manager is not required to be registered as a NASD principal, but must be
registered in Texas as an agent and is responsible for supervision of the
activities of the branch office. Within 10 business days from when a branch
office manager ceases to be employed or registered in such capacity by the
dealer, a new branch office manager, qualified by passage of the appropriate
examinations, must be designated. Absent the designation of a new branch manager
to the Securities Commissioner within the 10 business day period, the registration
of a branch office whose manager ceases to be employed as such by a dealer
may be automatically terminated. The branch office registration may be reinstated
upon the designation of a qualified branch office manager and payment of the
branch office registration fee. Each branch office registered with the Securities
Commissioner is subject to unannounced inspections at any time during normal
business hours.
(d)
Withdrawal and abandonment of a dealer or agent initial
application for registration.
(1)
Any initial application for dealer or agent registration
that fails to meet registration requirements within six months of the filing
date of the application will be considered withdrawn. A copy of this subsection
will be mailed to the applicant at least 30 days prior to the withdrawal of
the application pursuant to this subsection.
(2)
If an applicant for registration with the Securities Commissioner
as a dealer or agent fails to make any type of response to the most recent
written request for information relating to an application that has been pending
for six months, the application will be considered withdrawn. This withdrawal
will occur automatically if the applicant fails to respond to the most recent
written request for information sent by certified mail to the applicant's
address as set forth in the application. This certified written request shall
inform the applicant that the application will be considered withdrawn if
a response to the request for information is not received within 30 days from
the date of the certified letter. A copy of this subsection and the most recent
written request for information will be included with the certified letter.
(e)
Central Registration Depository System (CRD).
(1)
Whenever the Texas Securities Act or Board rules require
the filing of an application with the Securities Commissioner for dealer or
agent registration, members of the National Association of Securities Dealers,
Inc. (NASD) or applicants for membership in the NASD shall make such filing
electronically through the CRD which is jointly operated by the NASD and the
North American Securities Administrators Association, Inc. (NASAA). Applicants
shall use the applicable uniform form for the submission of the filing in
question and shall supplement their electronic filing by filing, in paper
form, the items listed in paragraphs (3)-(10) of subsection (a) of this section,
directly with the Commissioner. With regard to the items listed in paragraphs
(1) and (2) of subsection (a) of this section, only page 1 of Form BD and
page 1 of Form U-4 for designated officer must be filed in paper form directly
with the Commissioner.
(2)
Uniform forms submitted through the CRD that designate
Texas as a jurisdiction in which the filing is to be made are deemed to be
filed with the Securities Commissioner and constitute official records of
the Board.
§115.3.Examination.
(a)
Requirement. To determine the applicant's qualifications
and competency to engage in the business of dealing in and selling securities,
the State Securities Board requires a written examination on general securities
principles and on state securities law. The passing score for all applicants
on each examination is 70%.
(b)
Examinations accepted.
(1)
Each applicant must pass an examination on general securities
principles. This requirement may be satisfied by passing an examination on
general securities principles administered by the NASD. As set forth in paragraph
(3) of this subsection, applicants for restricted registrations may substitute
an examination dealing with a particular type of security for an examination
on general securities principles.
(2)
For purposes of this subsection, the Securities Commissioner
recognizes the following general examinations administered by the NASD:
(A)
Series 1 - General Securities Examination;
(B)
Series 2 - NASD Non-Member General Securities Examination;
and
(C)
Series 7 - General Securities Representative Examination.
(3)
In lieu of an examination on general securities principles,
the Securities Commissioner recognizes the following limited examinations,
administered by the NASD, for the corresponding restricted registrations:
(A)
for persons seeking a restricted registration to deal exclusively
in securities issued by open-end investment companies registered under the
Texas Securities Act or the Investment Company Act of 1940, the Series 6 --
Investment Company Products/Variable Contracts Representative Examination;
(B)
for persons seeking a restricted registration to accept
orders unsolicited by such person from existing customers of the dealer, the
Series 11 -- Assistant Representative/Order Processing Examination;
(C)
for persons seeking a restricted registration to deal exclusively
in direct participation program securities, the Series 22 -- Direct Participation
Programs Representative Examination;
(D)
for persons seeking a restricted registration to deal exclusively
in municipal securities, the Series 52 -- Municipal Securities Representative
Examination;
(E)
for persons seeking a restricted registration to deal exclusively
in corporate securities, the Series 62 -- Corporate Securities Representative
Examination;
(F)
for persons seeking a restricted registration to deal in
all general securities except municipal securities, either the Series 17 --
General Securities Representative Examination, the Series 37 -- General Securities
Representative Examination, the Series 38 -- General Securities Representative
Examination, or the Series 47 -- General Securities Representative Examination;
and
(G)
for persons seeking a restricted registration to deal exclusively
in government securities, the Series 72 -- Government Securities Representative
Examination. A person registered on or before September 1, 1998 for the purpose
of dealing exclusively in government securities is not required to pass the
Series 72 examination.
(4)
Each applicant must pass an examination on state securities
law. This requirement may be satisfied by passing an examination on the Texas
Securities Act administered by this Agency or by passing the Uniform Securities
Agent State Law Examination (Series 63) or the Uniform Combined State Law
Examination (Series 66).
(c)
Waivers of examination requirements.
(1)
All persons who were registered in Texas on August 23,
1963, are not required to take any examinations.
(2)
A full waiver of the examination requirements of the Texas
Securities Act, §13.D, is granted by the Board to the following classes
of persons:
(A)
issuers offering securities in rights offerings to their
own securities holders;
(B)
issuers offering their own securities in exchange for outstanding
securities of another corporation, provided consummation of the offer is dependent
upon tender of at least 80% of such outstanding securities;
(C)
issuers restricting distribution of securities to security
holders of an affiliate company, a subsidiary, or a parent of the issuer,
provided the registration certificate is issued on a temporary basis and terminated
immediately after the offering;
(D)
officers and employees whose firms restrict their officers'
and employees' securities activities to acting as brokers between and among
principals for the sale of a majority of the stock or equity securities of
a privately held business pursuant to a privately negotiated purchase agreement,
where the managerial control of the business will devolve upon the purchaser(s)
and where compensation received by the firm will be payable for the brokerage
activities only; and
(E)
a person who completed the examinations required under
this subsection, but whose registration has lapsed for more than two years
and who has been continually employed in a securities-related position with
an entity which was not required to be registered.
(3)
A partial waiver of the examination requirements of the
Texas Securities Act, §13.D, is granted by the Board to the following
classes of persons:
(A)
applicants who have been continuously registered with the
Securities and Exchange Commission, National Association of Securities Dealers,
New York Stock Exchange, or any other exchange listed in §6.F of the
Texas Securities Act or recognized by the Board pursuant to §111.2 of
the rules for 10 years immediately preceding the application for registration
in Texas. These applicants are required to pass an examination on state securities
law as required by subsection (b)(4) of this section;
(B)
applicants who passed the "state securities examination"
promulgated and formerly administered by the Psychological Corporation, New
York, New York, now the Psychological Corporation, San Antonio, Texas, which
was an examination on general securities principles. These applicants are
required to pass an examination on state securities law as required by subsection
(b)(4) of this section;
(C)
applicants seeking registration for the purpose of dealing
exclusively in real estate syndication interests or condominium securities,
provided such persons are licensed, at the time of application, under the
Real Estate License Act (Texas Civil Statutes, Article 6573a et seq.). Such
persons are not required to take a general securities examination, but are
required to pass an examination on state securities law as required by subsection
(b)(4) of this section;
(D)
applicants seeking registration for the purpose of dealing
exclusively in oil and gas interests (other than interests in limited partnerships).
Such persons are not required to take the general securities examination,
but are required to pass an examination on state securities law as required
by subsection (b)(4) of this section. Provided, however, any persons registered
prior to January 1, 1976, for the purpose of dealing exclusively in oil and
gas interests, are not required to pass an examination; and
(E)
applicants who are officers, partners, or employees of
an issuer (other than an open-end investment company) if the issuer's securities
will be registered for sale in Texas. Such officers, partners, and employees
are not required to take the general securities examination, but are required
to pass an examination on state securities law as required by subsection (b)(4)
of this section. Evidences of registration granted pursuant to this subparagraph
are restricted to sales of the currently registered securities of the issuer.
Such evidences of registration must be surrendered to the State Securities
Board for cancellation immediately upon completion of the distribution of
securities for which the securities and dealer registrations have been obtained.
(4)
The Securities Commissioner in his or her discretion is
authorized by the Board to grant full or partial waivers of the examination
requirements of the Texas Securities Act, §13.D.
(d)
Texas Securities Law Examination.
(1)
The fee for each filing of a request to take the Texas
securities law examination is $35. An admission letter issued by the Board
is required for all entrants. The examination is given at 9:00 a.m. on each
Tuesday at the office of the State Securities Board in Austin. The examination
may be taken at other locations near principal population centers across the
state. Testing centers require reservations and may charge an additional (monitor)
fee for administering the examination. A list of examination centers with
additional details may be obtained from the State Securities Board.
(2)
While taking the examination on the Texas Securities Act,
each applicant may use an unmarked copy of the Texas Securities Act as it
is printed and distributed by the State Securities Board. No other reference
materials are allowed to be used by applicants during the examination.
(3)
Reexamination. An applicant who fails the examination on
the Texas Securities Act may request reexamination. The applicant must bring
his or her application up to date before retaking an examination.
§115.4.Evidences of Registration.
(a)
Issuance. An evidence of registration or certificate of
registration shall be issued for each registered securities dealer reflecting
the registered officer or partner. An evidence of registration shall be issued
for each registered branch office reflecting the registered branch office
manager.
(b)
Amendments and successor entities.
(1)
Any changes in the information reflected on the evidence
of registration must be submitted to the Securities Commissioner within 30
days of such change, in order that amendments may be made to the evidence
of registration or certificate of registration. The fee for filing to amend
the evidence of registration is $25.
(2)
Structural changes to a currently registered securities
dealer, including reorganizations, mergers, or consolidations, that result
in a surviving entity that is not currently registered, will require the filing
of a new application and fees for registration. Upon registration of the surviving
entity, the registration of the predecessor securities dealer will be terminated.
(3)
The application for the successor entity should be filed
far enough in advance that the application can be reviewed and approved prior
to the successor entity taking over the business of the registered dealer.
If a successor entity has taken over the business of a registered dealer before
the application of the successor entity has been reviewed and approved, the
registration of the successor entity will be automatically granted a temporary
registration for 60 days from the date of succession to complete the registration
for the new entity. If the successor entity fails to complete the registration
requirements within the 60-day temporary registration period, it may submit
a written request to the Securities Commissioner to grant an extension of
the temporary registration for up to 30 additional days. If the Commissioner,
in the exercise of his or her discretion, declines to grant the extension
request, the registration will terminate for the dealer and all its agents
on the expiration of the 60-day temporary registration. Any sales by the dealer
and/or its agents after termination of the temporary registration are subject
to the sanctions provided by the Texas Securities Act for selling securities
while unregistered. An additional fee of $25, as required in paragraph (1)
of this subsection, must be submitted since it will involve an amendment to
the evidence of registration if the application is approved.
(c)
Termination. A securities dealer is required to notify
the Securities Commissioner upon termination of any registered agent from
its employ. Upon receipt of such notification, the Commissioner may terminate
the registration. Dealers who are members of the NASD must file through the
CRD a Form U-5, Uniform Termination Notice for Securities Industry Registration,
to comply with this subsection.
(d)
Renewal.
(1)
Procedures for renewing expired and unexpired registrations
are set forth in the Texas Securities Act, §19.C.
(2)
A notice of impending expiration of registration (renewal
application) will be sent to a currently registered dealer at least 30 days
before the expiration of its registration. The renewal application should
be returned to the State Securities Board for processing, along with the appropriate
fee.
(3)
If a person's registration is not renewed in a timely manner
because such person is or was on active duty with the armed forces of the
United States of America serving outside Texas, such person may renew the
registration pursuant to this paragraph.
(A)
Renewal of the registration may be requested by such person,
such person's spouse, or an individual having power of attorney from such
person. The renewal application shall include a current address and telephone
number for the individual requesting the renewal.
(B)
Renewal may be requested before or after expiration of
the registration.
(C)
A copy of the official orders or other official military
documentation showing that such person is or was on active duty serving outside
Texas shall be submitted to the Securities Commissioner along with the renewal
application.
(D)
A copy of the power of attorney from such person, if any,
shall be filed with the Securities Commissioner along with the renewal application
if the individual having the power of attorney executes any of the documents
required in this paragraph.
(E)
A renewal application submitted to the Securities Commissioner
pursuant to this paragraph shall be accompanied by the applicable renewal
fee set out in §115.8 of this title (relating to Fee Requirements).
(F)
The State Securities Board will not assess any increased
fee or other penalty against the person for failure to timely renew such person's
registration if such person establishes to the satisfaction of the Securities
Commissioner that all requirements of this paragraph have been met.
§115.5.Minimum Records.
(a)
Dealer records. Compliance with the record-keeping requirements
of the United States Securities and Exchange Commission, found in 17 Code
of Federal Regulations §240.17a-3 and §240.17a-4, will satisfy the
requirements of this section.
(b)
Records to be made by certain dealers. A person or company
registered in Texas as a general securities dealer or a dealer in municipal
securities shall make and keep current the following minimum records or the
equivalent thereof.
(1)
Blotters (or other records of original entry) containing
an itemized daily record of all purchases and sales of securities, all receipts
and deliveries of securities (including certificate numbers), all receipts
and disbursements of cash, and other debits and credits. Such records shall
show the account for which each such transaction was effected, the name and
amount of securities, the unit and aggregate purchase or sale price (if any),
the trade date, and the name or other designation of the person from whom
purchased or received or to whom sold or delivered.
(2)
Ledgers (or other records) that reflect all assets and
liabilities, income and expense, and capital accounts.
(3)
Ledger accounts (or other records) itemizing separately
as to each cash and margin account of every customer and of such dealer and
its partners, all purchases, sales, receipts, and deliveries of securities
and commodities for such account and all other debits and credits to such
account.
(4)
Ledgers (or other records) that reflect the following:
(A)
securities in transfer;
(B)
dividends and interest received;
(C)
securities borrowed and securities loaned;
(D)
monies borrowed and monies loaned (together with a record
of the collateral therefor and any substitutions in such collateral); and
(E)
securities failed to receive and failed to deliver.
(5)
A securities record or ledger that reflects separately
for each security as of the clearance dates all "long" or "short" positions
(including securities in safekeeping) carried by such dealer for his account
or for the account of his customers or partners and showing the location of
all securities long and the offsetting position of all securities short, including
long security count differences and short security count differences classified
by the date of the physical count and verification in which they were discovered,
and in all cases the name or designation of the account in which each position
is carried.
(6)
A memorandum of each brokerage order and of any other instruction
given or received for the purchase or sale of securities, whether executed
or unexecuted. Such memorandum shall show the terms and conditions of the
order or instructions and of any modifications or cancellation thereof, the
account for which entered, the time of entry, the price at which executed,
and, to the extent feasible, the time of execution or cancellation. Orders
entered pursuant to the exercise of discretionary power by such dealer or
any of its employees shall be so designated. The term "instruction" shall
be deemed to include instructions between partners and employees of a dealer.
The term "time of entry" shall be deemed to mean the time when such dealer
transmits the order or instruction for execution or, if it is not so transmitted,
the time when it is received.
(7)
A memorandum of each purchase and sale for the account
of such dealer showing the price, and, to the extent feasible, the time of
execution; and, in addition, where such purchase or sale is with a customer
other than a broker or dealer, a memorandum of each order received, showing
the time of receipt, the terms and conditions of the order, and the account
in which it was entered.
(8)
Copies of confirmations of all purchases and sales of securities
and copies of notices of all other debits and credits for securities, cash,
and other items for the account of customers and partners of such dealer.
(9)
A record in respect of each cash and margin account with
such dealer containing the name and address of the beneficial owner of such
account and, in the case of a margin account, the signature of such owner;
provided that, in the case of a joint account or an account of a corporation,
such records are required only in respect of the person or persons authorized
to transact business for such account.
(10)
A record of all puts, calls, spreads, straddles, standby
commitments, and other options in which such dealer has any direct or indirect
interest or which such dealer has granted or guaranteed, containing at least
an identification of the security and the number of units involved.
(11)
A questionnaire or application for employment executed
by each partner, officer, director, agent, trader, manager, and each employee
who handles funds or securities or who solicits transactions or accounts for
such dealer, which questionnaire or application shall be approved in writing
by an authorized representative of such dealer and shall contain at least
the following information with respect to such person (in the case of persons
registered with the State Securities Board, a copy of their application for
registration as an agent, officer, or partner will satisfy this requirement):
(A)
name, address, social security number, and the starting
date of employment or other association with the dealer;
(B)
date of birth;
(C)
the educational institutions attended and whether he or
she graduated therefrom;
(D)
a complete, consecutive statement of all business connections
for at least the preceding 10 years, including the reason for leaving each
prior employment, and whether the employment was part-time or full-time;
(E)
a record of any denial, suspension, expulsion, or revocation
of membership or registration of any dealer he or she was associated with
in any capacity when such action was taken;
(F)
a record of any denial of membership or registration, and
of any disciplinary action taken, or sanction imposed, on the person by any
federal or state agency, or by any national securities exchange or national
securities association, including any finding that he or she was a cause of
any disciplinary action or had violated any law;
(G)
a record of any permanent or temporary injunction entered
against the person or any dealer he or she was associated with in any capacity
at the time such injunction was entered;
(H)
a record of any arrest or indictment for any felony or
misdemeanor, and the disposition of any such arrest or indictment or further
explanation thereof, and a record of any conviction for any felony or any
misdemeanor, except minor traffic offenses, of which he has been the subject;
and
(I)
a record of any other name or names he or she has been
known by or has used.
(c)
Exemptions from the requirements of subsection (b) of this
section:
(1)
A dealer is not required to make or keep such records of
transactions cleared for such dealer by a member of the National Association
of Securities Dealers, Inc., the American Stock Exchange, the Boston Stock
Exchange, the Chicago Stock Exchange, the New York Stock Exchange, the Pacific
Stock Exchange, the Chicago Board Options Exchange, or any other recognized
and responsible stock exchange approved by the Securities Commissioner pursuant
to the Texas Securities Act, §6.F, where such records are customarily
made and kept by the clearing member.
(2)
A dealer is not required to make or keep such records that
reflect the sale of United States Tax Savings Notes, United States Defense
Savings Stamps, or United States Defense Savings Bonds, Series E, F, and G.
(3)
A dealer is not required to make or keep such records with
respect to any cash transaction of $100 or less involving only subscription
rights or warrants which by their terms expire within 90 days after the issuance
thereof.
(4)
For purposes of transactions in municipal securities by
municipal securities dealers, compliance with Rule G-8 of the Municipal Securities
Rulemaking Board will be deemed to be in compliance with subsection (b) of
this section.
(d)
Restricted dealers. Dealers registered in restricted categories,
other than municipal securities dealers, such as oil and gas dealers and real
estate dealers, etc., shall keep and maintain records adequate to accurately
reflect customer transactions, and the dealer's financial condition. Compliance
with the record-keeping requirements of the United States Securities and Exchange
Commission, found in 17 Code of Federal Regulations §240.17a-3 and §240.17a-4,
will satisfy the requirements of this section; provided such dealers shall
maintain at least the following information:
(1)
Blotters (or other records of original entry) containing
an itemized daily record of all purchases and sales of securities, all receipts
and deliveries of securities (including certificate numbers), all receipts
and disbursements of cash, and other debits and credits. Such records shall
show the account for which each such transaction was effected, the name and
amount of securities, the unit and aggregate purchase or sale price (if any),
the trade date, and the name or other designation of the person from whom
purchased or received or to whom sold or delivered;
(2)
Ledgers (or other records) that reflect all assets and
liabilities, income and expense, and capital accounts; and
(3)
A questionnaire or application for employment executed
by each partner, officer, director, agent, trader, manager, and each employee
who handles funds or securities or who solicits transactions or accounts for
such dealer, which questionnaire or application shall be approved in writing
by an authorized representative of such dealer and shall contain at least
the following information with respect to such person (in the case of persons
registered with the State Securities Board, a copy of their application for
registration as an agent, officer, or partner will satisfy this requirement):
(A)
name, address, social security number, and the starting
date of employment or other association with the dealer;
(B)
date of birth;
(C)
the educational institutions attended and whether he or
she graduated therefrom;
(D)
a complete, consecutive statement of all business connections
for at least the preceding 10 years, including the reason for leaving each
prior employment, and whether the employment was part-time or full-time;
(E)
a record of any denial, suspension, expulsion, or revocation
of membership or registration of any dealer he or she was associated with
in any capacity when such action was taken;
(F)
a record of any denial of membership or registration, and
of any disciplinary action taken, or sanction imposed, on the person by any
federal or state agency, or by any national securities exchange or national
securities association, including any finding that he or she was a cause of
any disciplinary action or had violated any law;
(G)
a record of any permanent or temporary injunction entered
against the person or any dealer he or she was associated with in any capacity
at the time such injunction was entered;
(H)
a record of any arrest or indictment for any felony or
misdemeanor, and the disposition of any such arrest or indictment or further
explanation thereof, and a record of any conviction for any felony or any
misdemeanor, except minor traffic offenses, of which he has been the subject;
and
(I)
a record of any other name or names he or she has been
known by or has used.
(e)
Records to be preserved by dealers.
(1)
Persons subject to subsection (b) of this section shall
preserve:
(A)
all records required to be made pursuant to paragraphs
(1), (2), (3), and (5) of subsection (b) of this section for a period of not
less than five years from the end of the fiscal year during which the last
entry was made on such record, the first two years in an easily accessible
place;
(B)
all records required to be made pursuant to paragraphs
(4) and (6)-(10) of subsection (b) of this section for a period of not less
than three years from the end of the fiscal year during which the last entry
was made on such record, the first two years in an easily accessible place;
and
(C)
all records required to be made pursuant to paragraph (11)
of subsection (b) of this section until at least three years following termination
of the employment or other relationship between the dealer and the person
to whom the records relate.
(2)
Persons subject to subsection (d) of this section shall
preserve all records required to be made pursuant to subsection (d) of this
section for a period of not less than five years from the end of the fiscal
year during which the last entry was made on such record, the first two years
in an easily accessible place.
(3)
Persons registered as dealers in Texas, including restricted
dealers, shall preserve for a period of not less than three years from the
end of the fiscal year during which the last entry was made on such record,
the first two years in an easily accessible place:
(A)
all checkbooks, bank statements, cancelled checks, and
cash reconciliations;
(B)
all bills receivable or payable (or copies thereof), paid
or unpaid, relating to the business of the dealer, as such;
(C)
originals of all communications received and copies of
all communications sent by the dealer (including interoffice memoranda and
communications) relating to the business of the dealer;
(D)
all trial balances, financial statements, branch office
reconciliations, and internal audit working papers relating to the business
of the dealer;
(E)
all guarantees of accounts and all powers of attorneys
and other evidence of the granting of any discretionary authority given in
respect of any account, and copies of resolutions empowering an agent to act
on behalf of a corporation;
(F)
all written agreements (or copies thereof) entered into
by the dealer relating to the business of the dealer, including agreements
with respect to any account; and
(G)
all customer complaints received by the dealer relating
to the business of the dealer, and all documents relating to such complaints;
and
(H)
all information including but not limited to offering materials
and subscription agreements on any private placements offered by the dealer.
(4)
Persons registered as dealers in Texas shall preserve for
a period of not less than five years from the end of the fiscal year during
which a customer's account was closed, any account cards or records which
relate to the terms and conditions with respect to the opening and maintenance
of such account.
(5)
Persons registered as dealers in Texas shall preserve for
at least three years after the termination of the enterprise partnership articles
and any amendments thereto, articles of incorporation, charters, minute books,
and stock certificate books of the dealer and of any predecessor.
(6)
The records required to be maintained and preserved pursuant
to this section may be immediately produced or reproduced on microfilm or
other photograph and may be maintained and preserved for the required time
in that form provided that such microfilms or other photographs are arranged
and indexed in such a manner as to permit the immediate location of any particular
document, and that such microfilms or other photographs are at all times available
for inspection by representatives of the Securities Commissioner together
with facilities for immediate, easily readable projection of the microfilm
or other photograph and for the production of easily readable facsimile enlargements.
(7)
If a person ceases to be registered as a dealer in Texas,
such person shall for the remainder of the periods of time specified in this
section continue to preserve the records required herein.
(8)
For purposes of transactions in municipal securities by
municipal securities dealers, compliance with Rule G-9 of the Municipal Securities
Rulemaking Board will be deemed to be compliance with this subsection.
(9)
The records required to be maintained pursuant to this
section may be maintained by any electronic storage media available so long
as such records are available for immediate free access by representatives
of the Securities Commissioner. Any electronic storage media must preserve
the records exclusively in a non-rewriteable, non-erasable format; verify
automatically the quality and accuracy of the storage media recording process;
serialize the original and, if applicable, duplicate units of storage media,
and time-date for the required period of retention the information placed
on such electronic storage media; and have the capacity to download indexes
and records preserved on electronic storage media to an acceptable medium.
In the event that a records retention system commingles records required to
be kept under this section with records not required to be kept, representatives
of the Securities Commissioner may review all commingled records.
(f)
The Securities Commissioner has a right to review all records
maintained by registered dealers regardless of whether such records are required
to be maintained under any specific applicable rule provision.
§115.6.Registration of Persons with Criminal Backgrounds.
(a)
An application for registration may be denied, or a registration
may be revoked or suspended, if the Securities Commissioner finds that the
person has been convicted of any felony, or of a misdemeanor offense that
directly relates to its duties and responsibilities. In determining whether
a misdemeanor directly relates to such duties and responsibilities, the Securities
Commissioner shall consider:
(1)
the nature and seriousness of the crime;
(2)
the relationship of the crime to the purposes for requiring
registration of dealers and agents;
(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)
the relationship of the crime to the ability, capacity,
or fitness required to perform the duties and discharge the responsibilities
of a registered dealer or agent.
(b)
The Securities Commissioner shall consider the following
evidence in determining the present fitness of an applicant who has been convicted
of a crime:
(1)
The extent and nature of the person's past criminal activity.
(2)
The age of the applicant at the time of the commission
of the crime.
(3)
The amount of time that has elapsed since the applicant's
last criminal activity.
(4)
The conduct and work activity of the applicant prior to
and following the criminal activity.
(5)
Evidence of the applicant's rehabilitation or rehabilitative
effort while incarcerated or following release.
(6)
Other evidence of the applicant's present fitness, including
letters of recommendation from prosecution, law enforcement, and correctional
officers who prosecuted, arrested, or had custodial responsibility for the
applicant; the sheriff and chief of police in the community where the applicant
resides; and any other persons in contact with the applicant.
(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
misdemeanors directly relate to the duties and responsibilities of securities
dealers and agents:
(1)
any criminal violation of which fraud is an essential element
or that involves wrongful taking or possession of property or services;
(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;
(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; and
(4)
any criminal violation involving an assault on a person.
§115.7.Maintenance and Inspection of Records.
(a)
All records required to be maintained by registered dealers
shall be maintained at the location designated in Form 133.16 and at other
locations registered as branch offices with the Securities Commissioner.
(b)
The Securities Commissioner or his or her authorized representative
may conduct on-site inspections of registered dealers without notice and shall
be entitled to immediate and free access to all records, required to be maintained
pursuant to Board rules or maintained in the normal course of business of
the dealer, and to all locations where such records are kept. The Commissioner
or his or her authorized representative shall be permitted to make photostatic
or computer copies of such records.
(c)
In the alternative, the Securities Commissioner or his
or her authorized representative may require that all records required to
be maintained pursuant to Board rules or maintained in the normal course of
business of the dealer be made available in any office of the State Securities
Board designated by the Commissioner or his or her representative within 48
hours of a request or within a greater time period as the Commissioner or
his or her authorized representative deems reasonable.
§115.8.Fee Requirements.
(a)
Registration and notice filing fees. Registration and notice
filing fees are as follows:
(1)
Securities Dealer - $275 for original applications and
$240 for renewal applications.
(2)
Agent, Officer, or Partner of Securities Dealer - $235
for original applications and $220 for renewal applications.
(b)
Reduced fees for certain person registered in multiple
capacities.
(1)
In general. A person may request reduced fees under paragraph
(2) of this subsection, provided they are registered or are seeking registration
in Texas:
(A)
as either an agent of a securities dealer or as a sole
proprietor securities dealer; and
(B)
as either an investment adviser representative of an investment
adviser that has less than five investment adviser representatives or as a
sole proprietor investment adviser with less than five investment adviser
representatives.
(2)
Procedure. Persons meeting the requirements of paragraph
(1) of this subsection may request reduced registration fees by filing Form
133.36, Request for Reduced Fees for Certain Persons Registered in Multiple
Capacities. Form 133.36 must be filed at the time the original application
for investment adviser representative or sole proprietor investment adviser
registration is filed, or at least 30 days before the person's existing investment
adviser representative or sole proprietor investment adviser registration
will expire. On review of Form 133.36, the Securities Commissioner may, in
his or her discretion, grant or deny the request for reduced fees or direct
the person to supply additional information.
(3)
Reduced fees. If the Securities Commissioner grants a person's
request, the person must pay all applicable fees for securities agent or dealer
registration as specified in the Texas Securities Act, §§35.A, 35.B,
and 41(a), but is exempt from the fees specified in the Texas Securities Act, §41(a),
in connection with original and renewal applications for investment adviser
representative or sole proprietor investment adviser registration, as applicable
at the time Form 133.36 is filed. The reduction in fees granted by the Securities
Commissioner under this subsection shall continue in force, without any further
filings, as long as a person remains registered in a multiple capacity status.
§115.9.Post-Registration Reporting Requirements.
(a)
Each person registered as a securities dealer shall report
to the Securities Commissioner within 30 days after its entry against the
registered person or an agent thereof, the matters described in this subsection.
Likewise, each person registered as an agent of a securities dealer shall
report to the Commissioner within 30 days after its occurrence or entry against
the agent the matters described in this subsection. The following matters
must be reported:
(1)
any administrative order issued by state or federal authorities,
which order:
(A)
is based upon a finding that such person has engaged in
fraudulent conduct; or
(B)
was entered after notice and opportunity for a hearing,
denying, suspending, or revoking the person's registration as a dealer, agent,
investment adviser, or investment adviser representative, or the substantial
equivalent of those terms;
(2)
any felony criminal action or conviction;
(3)
any misdemeanor action or conviction based on fraud, deceit,
or wrongful taking of property;
(4)
any order, judgment, or decree entered by any court of
competent jurisdiction which temporarily or permanently restrains or enjoins
such person from engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security or involving any false filing with
any state; or which restrains or enjoins such person from activities subject
to federal or state statutes designed to protect consumers against unlawful
or deceptive practices involving insurance, commodities or commodity futures,
real estate, franchises, business opportunities, consumer goods, or other
goods and services;
(5)
any expulsion, bar, suspension, censure, fine, or penalty
imposed by a self-regulatory organization;
(6)
any change in any other information previously disclosed
to the Securities Commissioner on any application form or filing; and
(7)
the filing of any voluntary or involuntary bankruptcy petition.
(b)
Upon request by the Securities Commissioner, a securities
dealer or agent is required to furnish to the Commissioner copies of the order,
conviction, or decrees, or other documents which evidence events disclosable
pursuant to subsection (a) of this section.
(c)
For purposes of this section, a securities "dealer" shall
include any partners, directors, executive officers, or beneficial owners
of 10% or more of any class of the equity securities of a registered dealer
(beneficial ownership meaning the power to vote or direct the vote of and/or
the power to dispose or direct the disposition of such securities).
§115.10.Supervisory Requirements.
(a)
Supervisory system. Each dealer shall establish and maintain
a system to supervise the activities of its agents that is reasonably designed
to achieve compliance with the Texas Securities Act and Board rules. A dealer's
supervisory system shall provide, at a minimum, for the following:
(1)
the establishment and maintenance of written procedures;
and
(2)
the appointment of one or more registered agents to carry
out the supervisory responsibilities of the dealer.
(b)
Written procedures.
(1)
Each dealer shall establish, maintain, and enforce written
procedures to supervise the activities of its agents that are reasonably designed
to achieve compliance with the Texas Securities Act and Board rules.
(2)
The dealer's written supervisory procedures shall set forth
the supervisory system established by the dealer and shall include the titles
and locations of supervisory personnel and the responsibilities of each supervisory
person.
(3)
The dealer shall maintain on an internal record the names
of all persons who are designated as supervisory personnel and the dates for
which such designation is or was effective. Such record shall be preserved
by the dealer for a period of not less than three years, the first two years
in an easily accessible place.
(4)
A current copy of a dealer's written supervisory procedures,
or the relevant portions thereof, shall be kept and maintained in each branch
office and at each location where supervisory activities are conducted on
behalf of the dealer. Each dealer shall amend its written supervisory procedures
as appropriate within a reasonable time after changes occur in applicable
securities laws and regulations.
(c)
Internal inspections. Each dealer shall conduct a review,
at least annually, of the businesses in which it engages, which review shall
be reasonably designed to assist in detecting and preventing violations of
and achieving compliance with applicable securities laws and regulations.
The dealer shall document this review and provide the documentation to the
Securities Commissioner upon request. Each dealer shall review the activities
of each office, including the periodic examination of customer accounts to
detect and prevent violations of applicable securities laws and regulations.
Each branch office of the dealer shall be inspected according to a cycle which
shall be set forth in the dealer's written supervisory and inspection procedures.
In establishing such cycle, the dealer shall give consideration to the nature
and complexity of the securities activities for which the location is responsible,
the volume of business done, and the number of associated persons assigned
to the location. Each dealer shall retain a written record of the dates upon
which each review and internal inspection is conducted.
(d)
Review of transactions and correspondence. Each dealer
shall establish and implement procedures for the review and endorsement by
a designated supervisor or branch office manager, in writing on an internal
record, of all transactions and for the review by a designated supervisor
or branch office manager of incoming and outgoing written and electronic correspondence
of its registered agents with the public relating to the securities activities
of such dealer. Such procedures should be in writing and be designed to reasonably
supervise each agent. Evidence that these supervisory procedures have been
implemented and carried out must be maintained and made available to the Securities
Commissioner upon request.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101684
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 305-8300
7 TAC §§116.1 - 116.15
The State Securities Board proposes new Chapter 116, consisting
of §§116.1-116.15, concerning investment advisers and investment
adviser representatives. In related rulemaking, the Board is proposing the
concurrent repeal of existing Chapter 115, concerning dealers and salesmen,
and the creation of a new Chapter 115, concerning dealers and agents.
The new chapter 116 relates only to investment advisers and investment
adviser representatives. Many of its provisions are derived from existing
Chapter 115 provisions covering investment advisers and investment adviser
representatives. New §116.1, concerning general provisions, contains
definitions; sets forth the registration or notice filing requirements for
investment advisers, investment adviser representatives, and branch offices;
sets forth certain exemptions from registration; and sets out the types of
registrations.
New §116.2, concerning application requirements, provides a detailed
listing of the documents submitted with applications for investment adviser
and investment adviser representative registration; clarifies an existing
requirement that the designated officer or partner of an investment adviser
must be a control person of the adviser and must complete examination requirements;
clarifies that activity at a branch office is not permitted until the location
has been approved as a branch; sets out the procedure for requesting registration
of a branch office; sets up a 10-day grace period to designate a replacement
branch office manager, rather than requiring it immediately as is the case
under the existing rules; provides for the automatic withdrawal and abandonment
of investment adviser and investment adviser representative registration applications;
and provides for filing through the Investment Adviser Registration Depository
System.
New §116.3, concerning examinations, sets forth examination requirements
and waivers therefrom.
New §116.4, concerning evidences of registration, provides for the
issuance of an evidence of registration or certificate or registration, when
an amendment is required, termination of representatives, and renewal procedures.
It also sets out a new procedure regarding successor entities. The existing
rule requires a request to obtain a temporary registration. The new rule makes
the temporary registration automatic. An extension of the automatic temporary
registration may be granted by the Securities Commissioner on request.
New §116.5, concerning minimum records, sets out the records to be
maintained by investment advisers, the retention periods for those records,
and provides for the Commissioner's review of records.
New §116.6, concerning registration of persons with criminal backgrounds,
contains rulemaking required by the Texas Occupations Code, §53.025.
It sets out the factors for determining when a misdemeanor conviction directly
relates to the duties and responsibilities of the applicant or registrant
and matters to be considered in determining an applicant's fitness following
a felony or misdemeanor conviction. Separate and apart from the provisions
of this rule, the Texas Securities Act, §14, permits denial, suspension,
or revocation of a license for any felony, not just ones that are directly
related to the duties and responsibilities of the licensee.
New §116.7, concerning maintenance and inspection of records, codifies
the agency's long-standing position that immediate access is required to all
records kept in the normal course of the investment adviser's business, not
just those records that are required to be kept pursuant to Board rules.
New §116.8, concerning fee requirements, contains provisions related
to determining the appropriate filing fee and, when appropriate, applying
for a reduction in fees.
New §116.9, concerning post registration reporting requirements sets
out the events that a registered investment adviser must report to the Securities
Commissioner. These requirements are based on current Form U-4 reporting requirements
and are currently imposed on investment advisers and investment adviser representatives.
New §116.10, concerning supervisory requirements, requires each investment
adviser to establish and maintain a system to supervise the activities of
its investment adviser representatives.
New §116.11, concerning disclosure requirement/brochure rule, sets
out the written disclosure statement all registered investment advisers must
deliver to all clients or prospective clients. Its provisions are almost identical
to the current requirements contained in existing §115.2(c).
New §116.12, concerning advisory contract requirements, sets out
provisions required in advisory contracts. Its provisions are almost identical
to the current requirements contained in existing §115.2(c).
New §116.13, concerning advisory fee requirements, sets out disclosures
about and limitations on fees. It generally tracks requirements imposed by
the Securities and Exchange Commission ("SEC") in Rule 205-3.
New §116.14, concerning prevention and misuse of nonpublic information,
reflects provisions in the federal Insider Trading Act that are required of
investment advisers regulated by the SEC.
New §116.15, concerning advertising restrictions, tracks SEC restrictions
on advertising.
Michael S. Gunst, Director, Dealer Registration Division, and David Grauer,
Director, Enforcement Division, have determined that for the first five-year
period the rules are in effect there will be no fiscal implications for state
or local government as a result of enforcing or administering the rules.
Mr. Gunst and Mr. Grauer also have determined that for each year of the
first five years the rules are in effect the public benefit anticipated as
a result of enforcing the rules will be to apprise investment adviser and
investment adviser representatives of their obligations under the Texas Securities
Act and Board rules. There will be no effect on small businesses. There is
no anticipated economic cost to persons who are required to comply with the
rules as proposed.
Comments on the proposal to be considered by the Board should be submitted
in writing within 45 days after publication of the proposed sections in the
The new rules are proposed under Texas Civil Statutes, Articles
581-28-1 and 581-12.B. Section 28-1 provides the Board with the authority
to adopt rules and regulations necessary to carry out and implement the provisions
of the Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes. Section 12.B provides the Board with the authority
to prescribe new dealer/agent registration exemptions by rule.
The statutes and codes affected by the proposed new chapter are Texas
Occupations Code, §53.025, and Texas Civil Statutes, Articles 581-12
through 581-13, 581-15 through 581-19, and 581-25.
§116.1.General Provisions.
(a)
Definitions. Words and terms used in this chapter are also
defined in §107.2 of this title (relating to Definitions). The following
words and terms, when used in this chapter, shall have the following meanings,
unless the context clearly indicates otherwise.
(1)
Applicant--A person who submits an application for registration
as an investment adviser or an investment adviser representative.
(2)
Branch office--Each office in Texas in which either records
are maintained or control over and review of the activities of registered
persons exists.
(3)
Branch office manager--The person named by the investment
adviser to supervise the activities of a branch office.
(4)
Control--The possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a person
or company, whether through the ownership of voting securities, by contract,
or otherwise.
(5)
In this state--As used in the Securities Act, §12,
has the same meaning as the term "within this state" as defined in §107.2
of this title (relating to Definitions) and paragraph (10) of this subsection.
(6)
Investment adviser--Any person who, for compensation, engages
in the business of advising others, either directly or through publications
or writings, as to the value of securities or as to the advisability of investing
in, purchasing, or selling securities, or who, for compensation and as part
of a regular business, issues or promulgates analyses or reports concerning
securities; but does not include:
(A)
a bank, or any bank holding company as defined in the federal
Bank Holding Company Act of 1956, which is not an investment company;
(B)
any lawyer, accountant, engineer, teacher, or geologist,
whose performance of such services is solely incidental to the practice of
his or her profession;
(C)
any broker or dealer whose performance of such services
is solely incidental to the conduct of his business as a broker or dealer
and who receives no special compensation therefor;
(D)
the publisher of any bona fide newspaper, news magazine,
or business or financial publication of general and regular circulation; or
(E)
any person whose advice, analyses, or reports relate to
no securities other than securities which are direct obligations of or obligations
guaranteed as to principal or interest by the United States, or securities
issued or guaranteed by corporations in which the United States has a direct
or indirect interest which shall have been designated by the Secretary of
Treasury, pursuant to the Securities Exchange Act of 1934, §3(a)(12),
as exempted securities for the purposes of that Act.
(7)
Investment Adviser Representative--Any person or company
employed or appointed or authorized by an investment adviser who, for compensation,
solicits clients for the investment adviser or provides investment advice
on behalf of the investment adviser to clients of the investment adviser,
whether by direct act or through subagents as may be further defined by Board
rule; provided that the officers of a corporation or other entity, or partners
of a partnership, shall not be deemed investment adviser representatives solely
because of their status as officers or partners, where such corporation, entity,
or partnership is registered as an investment adviser hereunder.
(8)
Rendering services as an investment adviser--Any act that
results in the providing of investment advisory services for compensation.
(9)
Solicitor--Any investment adviser representative who limits
their activities to referring potential clients to an investment adviser for
compensation.
(10)
Within this state--
(A)
A person is an "investment adviser" who engages "within
this state" in rendering services as an investment adviser as set out in the
Texas Securities Act, §4.C, if either the person or the person's agent
is present in this state or the client/customer or the client/customer's agent
is present in this state at the time of the particular activity. A person
can be an investment adviser in more than one state at the same time.
(B)
Likewise, a person is an "investment adviser representative"
who engages "within this state" in rendering services as an investment adviser
as set out in the Texas Securities Act, §4.C, whether by direct act or
through subagents except as otherwise provided, if either the person or the
person's agent is present in this state or the client/customer or the client/customer's
agent is present in this state at the time of the particular activity. A person
can be an investment adviser representative in more than one state at the
same time.
(b)
Registration of investment advisers, investment adviser
representatives, and branch offices.
(1)
Requirements of registration.
(A)
Any person who renders services as an investment adviser,
including acting as a solicitor, may not engage in such activity for compensation
without first being registered as an investment adviser under the provisions
of the Texas Securities Act or notice-filed under the provisions of paragraph
(2) of this subsection. Likewise, every person employed or appointed, or authorized
by such person to render services, which include the giving of investment
advice or acting as a solicitor, cannot conduct such activities unless registered
as an investment adviser or an investment adviser representative under the
provisions of the Act, or notice-filed as an investment adviser or an investment
adviser representative under the provisions of paragraph (2) of this subsection.
(B)
Each branch office in Texas must be registered. A registered
officer, partner, or investment adviser representative must be named as branch
office manager.
(2)
Exemption from the registration requirements. The Board
pursuant to the Texas Securities Act, §§12.B and 5.T, exempts from
the registration provisions of the Act, §12, persons not required to
register as an investment adviser or an investment adviser representative
on or after July 8, 1997, by act of Congress in Public Law Number 104-290,
Title III.
(A)
Registration as an investment adviser is not required for
the following:
(i)
an investment adviser registered under the Investment Advisers
Act of 1940, §203;
(ii)
an investment adviser registered with the Securities and
Exchange Commission pursuant to a rule or order adopted under the Investment
Advisers Act of 1940, §203A(c);
(iii)
a person not registered under the Investment Advisers
Act of 1940, §203, because such person is excepted from the definition
of an investment adviser under the Investment Advisers Act of 1940, §202(a)(11);
or
(iv)
an investment adviser who does not have a place of business
located within this state and, during the preceding 12-month period, has had
fewer than six clients who are Texas residents.
(B)
Registration as an investment adviser representative of
an investment adviser described in subparagraph (A) of this paragraph is not
required for an investment adviser representative who does not have a place
of business located in Texas but who otherwise engages in the rendering of
investment advice in this state.
(C)
Notice filing requirements and fees for investment advisers
and investment adviser representatives exempted from registration pursuant
to this subsection only.
(i)
Initially, the provisions of subparagraphs (A) and (B)
of this paragraph are available provided that the investment adviser files:
(I)
a copy of its current Form ADV as filed with the SEC, if
a Form ADV is required to be filed by the investment adviser with the SEC;
(II)
a consent to service of process; and
(III)
an initial fee equal to the amount that would have been
paid had the investment adviser and each investment adviser representative
filed for registration in Texas.
(ii)
Upon amendment to its Form ADV, the investment adviser
files a copy of its amended Form ADV as filed with the SEC, if a Form ADV
is required to be filed by the investment adviser with the SEC.
(iii)
Annually, the investment adviser files:
(I)
a copy of its Form ADV as filed with the SEC, if a Form
ADV is required to be filed by the investment adviser with the SEC; and
(II)
renewal fees which would have been paid had the investment
adviser and each investment adviser representative been registered in Texas.
(D)
Persons not required to register with the Securities Commissioner
pursuant to subparagraphs (A) and (B) of this paragraph, are reminded that
the Texas Securities Act prohibits fraud or fraudulent practices in dealing
in any manner in any securities whether or not the person engaging in fraud
or fraudulent practices is required to be registered. The Agency has jurisdiction
to investigate and bring enforcement actions to the full extent authorized
in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct
by a dealer, investment adviser, or investment adviser representative in connection
with transactions involving securities in Texas.
(c)
Types of registrations.
(1)
General registration. A general registration is a registration
to render advisory services regarding all categories of securities, without
limitation.
(2)
Restricted registration. A restricted registration as an
investment adviser or as an investment adviser representative may be issued
based upon the qualifying examination(s) passed by the investment adviser
or investment adviser representative.
(3)
In restricted registration, the evidence of registration
shall indicate that the holder thereof is entitled to act as an investment
adviser, investment adviser representative, or solicitor only in the restricted
capacity.
§116.2.Application Requirements.
(a)
Investment adviser and investment adviser representative
application requirements. A complete application consists of the following
and must be filed in paper form with the Securities Commissioner, except in
such time as the Investment Adviser Registration Depository System (IARD)
becomes available:
(1)
Form ADV;
(2)
Form U-4 for the designated officer and a Form U-4 for
each investment adviser representative or solicitor to be registered;
(3)
Form 133.16, an agreement for maintenance and inspection
of records;
(4)
a copy of articles of incorporation, partnership agreement,
articles of association, trust agreement, or other documents which indicate
the form of organization, certified by the jurisdiction or by an officer or
partner of the applicant;
(5)
all foreign corporations and other nonresident applicants
must also file an irrevocable written consent to service of process utilizing
Forms U-2 and U-2A, or Form 133.8;
(6)
assumed name certificate, if applicable. The improper use
by an applicant of an assumed name containing "incorporated," "corporation,"
"limited," or an abbreviation of one of those words, may be grounds for denying
registration of the applicant if such designation is thereby misleading;
(7)
a balance sheet prepared in accordance with generally accepted
accounting practices reflecting the financial condition of the investment
adviser as of a date not more than 90 days prior to the date of such filing.
The balance sheet should be prepared by independent certified public accountants
or independent public accountants, or must instead be attested by the sworn
notarized statement of the applicant's principal financial officer. If attested
by the principal financial officer of the applicant, such officer shall certify
as follows: I am the principal financial officer of (name of investment adviser).
The accompanying balance sheet has been prepared under my direction and control
and presents fairly its financial position on the dates indicated to the best
of my knowledge, belief, and ability. (Signature and Title).
(8)
Form 133.23, a franchise tax certification form;
(9)
disclosure document or Part II of Form ADV;
(10)
a copy of the investment adviser's standard advisory contract;
(11)
fee schedule;
(12)
any other information deemed necessary by the Securities
Commissioner to determine an investment adviser's financial responsibility
or an investment adviser's or investment adviser representative's business
repute or qualification; and
(13)
the appropriate registration fee(s).
(b)
Designated officer registration. Investment advisers, other
than an individual filing as a sole proprietor, must file a Form U-4 application
to register an officer or partner in connection with the registration of the
investment adviser. The officer or partner must be a control person of the
investment adviser. The officer or partner must complete the necessary registration
and examination requirements. If the officer or partner resigns or is otherwise
removed from his or her position, the firm shall make an application to register
another officer or partner within 30 days.
(c)
Branch office registration and inspection. A request for
registration of a branch office of an investment adviser may be made upon
initial application of the investment adviser or by amendment to a current
registration. No investment advisory activity may occur in any branch office
location until such time as the investment adviser receives notification from
the Securities Commissioner that such location has been approved as a branch
office. The request for registration of a branch office may be made in letter
form or by the submission such information on the Form ADV. The fee for registration
of each branch office is $25. Simultaneous with the request for registration
of a branch office, a branch office manager must be named. The manager must
satisfy the examination qualifications required of the investment adviser
before the branch office may be registered. A branch office manager is responsible
for supervision of the activities of the branch office. Within 10 business
days from when a branch office manager ceases to be employed or registered
in such capacity by the investment adviser, a new branch office manager, qualified
by passage of the appropriate examinations, must be named. Absent the designation
of a new branch manager to the Commissioner within the 10 business day period,
the registration of a branch office whose manager ceases to be employed as
such by a investment adviser shall be automatically terminated. The branch
office registration may be reinstated upon the designation of a qualified
branch office manager and payment of the branch office registration fee. Each
branch office registered with the Commissioner is subject to unannounced inspections
at any time during normal business hours.
(d)
Withdrawal and abandonment of an investment adviser or
investment adviser representative initial application for registration.
(1)
Any initial application for investment adviser or investment
adviser representative registration that fails to meet registration requirements
within six months of the filing date of the application will be considered
withdrawn without prejudice. A copy of this subsection will be mailed to the
applicant at least 30 days prior to the withdrawal of the application pursuant
to this subsection.
(2)
If an applicant for registration with the Securities Commissioner
as an investment adviser or investment adviser representative fails to make
any type of response to the most recent written request for information relating
to an application that has been pending for six months, the application will
be considered withdrawn. This withdrawal will occur automatically if the applicant
fails to respond to the most recent written request for information sent by
certified mail to the applicant's address as set forth in the application.
This certified written request shall inform the applicant that the application
will be considered withdrawn if a response to the request for information
is not received within 30 days from the date of the certified letter. A copy
of this subsection and the most recent written request for information will
be included with the certified letter.
(e)
Investment Adviser Registration Depository (IARD).
(1)
Whenever the Texas Securities Act or Board rules require
the filing of an application with the Securities Commissioner for investment
adviser or investment adviser representative registration such application
must be filed electronically via the IARD, which is jointly operated by the
NASD, the North American Securities Administrators Association, Inc. (NASAA),
and the Securities and Exchange Commission (SEC). Applicants shall use the
applicable uniform forms for the submission of the filing in question and
shall supplement their electronic filing by filing, in paper form, the items
listed in paragraphs (3)-(12) of subsection (a) of this section, directly
with the Commissioner.
(2)
Uniform forms submitted through the IARD that designate
Texas as a jurisdiction in which the filing is to be made are deemed to be
filed with the Securities Commissioner and constitute official records of
the Board.
(f)
Implementation of IARD.
(1)
All investment advisers registered with the Securities
Commissioner as of July 31, 2001, must make a transitional filing with the
IARD no later than August 1, 2001.
(2)
All investment advisers seeking registration with the Securities
Commissioner after August 1, 2001, must file Part I of Form ADV and the filing
fee via the IARD.
(3)
All persons seeking registration as an investment adviser
representative must file the Form U-4 and the appropriate fee via IARD upon
the ability of the system to accept such filings.
§116.3.Examination.
(a)
Requirement. To determine the applicant's qualifications
and competency to engage in the business of rendering investment advice, the
State Securities Board requires written examinations. Applicants must make
a passing score on any required examination.
(b)
Examinations accepted. Each applicant for registration
as an investment adviser or investment adviser representative must pass:
(1)
the Uniform Investment Adviser Law Examination (the new
entry level competency examination, Series 65, administered after December
31, 1999); or
(2)
the following combination of examinations:
(A)
a general securities representative examination as described
in paragraph (1)(A) of this subsection or a limited examination as described
in paragraph (1)(B) of this subsection; and
(B)
the Uniform Combined State Law Examination (Series 66),
the Uniform Investment Advisers State Law Examination (Series 65, as it existed
and was administered on or before December 31, 1999), or an examination on
the Texas Securities Act administered by this Agency.
(3)
Each of these examinations (except the Texas Securities
Act examination) is administered by the NASD and can be scheduled by submitting
a Form U-10 to the NASD.
(c)
Waivers of examination requirements.
(1)
All persons who were registered in Texas on August 23,
1963, are not required to take any examinations.
(2)
A full waiver of the examination requirements of the Texas
Securities Act, §13.D, is granted by the Board to the following classes
of persons:
(A)
A person who was registered as an investment adviser or
investment adviser representative on or before December 31, 1999, provided
the person has maintained a registration as an investment adviser or investment
adviser representative with any state securities administrator that has not
lapsed for more than two years from the date of the last registration;
(B)
applicants who are certified by the Association for Investment
Management and Research, or its predecessors, the Federation of Chartered
Financial Analysts or by the Institute of Chartered Financial Analysts, to
be chartered financial analysts (CFA);
(C)
applicants who are certified by the Certified Financial
Planner Board of Standards, Inc., to use the mark "CERTIFIED FINANCIAL PLANNER"
(CFP);
(D)
applicants who are designated by the American Institute
of Certified Public Accountants as accredited personal financial specialists
(PFS);
(E)
applicants who are designated by the Investment Counsel
Association of America, Inc., as Chartered Investment Counsel (CIC);
(F)
applicants who are designated by the American College,
Bryn Mawr, Pennsylvania, as chartered financial consultants (ChFC); or
(G)
a person who completed the examinations required under
subsection (b) of this section, but whose registration has lapsed for more
than two years and who has been continually employed in a securities-related
position with an entity which was not required to be registered.
(3)
The Association for Investment Management and Research,
the Certified Financial Planner Board of Standards, Inc., the American Institute
of Certified Public Accountants, the American College, and the Investment
Counsel Association of America, Inc., are required to submit to the Securities
Commissioner any changes to their certification programs as such changes occur.
(4)
A partial waiver of the examination requirements of the
Texas Securities Act, §13.D, is granted by the Board to solicitor applicants.
Such persons are not required to take the general securities examination,
but are required to pass an examination on state securities law.
(5)
The Securities Commissioner in his or her discretion is
authorized by the Board to grant full or partial waivers of the examination
requirements of the Texas Securities Act, §13.D.
(d)
Texas Securities Law Examination.
(1)
The fee for each filing of a request to take the Texas
securities law examination is $35. An admission letter issued by the Board
is required for all entrants. The examination is given at 9:00 a.m. on each
Tuesday at the office of the State Securities Board in Austin. The examination
may be taken at other locations near principal population centers across the
state. Testing centers require reservations and may charge an additional (monitor)
fee for administering the examination. A list of examination centers with
additional details may be obtained from the State Securities Board.
(2)
While taking the examination on the Texas Securities Act,
each applicant may use an unmarked copy of the Texas Securities Act as it
is printed and distributed by the State Securities Board. No other reference
materials are allowed to be used by applicants during the examination.
(3)
The passing score for all applicants on the examination
on the Texas Securities Act is 70%. An applicant who fails the examination
on the Texas Securities Act may request reexamination. The applicant must
bring his or her application up to date before retaking an examination.
§116.4.Evidences of Registration.
(a)
Issuance. An evidence of registration or certificate of
registration shall be issued for each registered investment adviser reflecting
the registered officer or partner. An evidence of registration shall be issued
for each registered branch office reflecting the registered branch office
manager.
(b)
Amendments and successor entities.
(1)
Changes in the information reflected on the evidence of
registration must be submitted to the Securities Commissioner within 30 days
of such change, in order that amendments may be made. Upon receipt of the
amended evidence of registration, the investment adviser must surrender the
original to the Commissioner. The fee for filing to amend the evidence of
registration is $25.
(2)
Structural changes to a currently registered investment
adviser, including reorganizations, mergers, or consolidations, that result
in a surviving entity that is not currently registered, will require the filing
of a new application and fees for registration. Upon registration of the surviving
entity, the registration of the predecessor investment adviser will be terminated.
(3)
The application for the successor entity should be filed
far enough in advance that the application can be reviewed and approved prior
to the successor entity taking over the business of the registered investment
adviser. If a successor entity has taken over the business of a registered
investment adviser before the application of the successor entity has been
reviewed and approved, the registration of the successor entity will be automatically
granted a temporary registration for 60 days from the date of succession to
complete the registration for the new entity. If the successor entity fails
to complete the registration requirements within the 60-day temporary registration
period, it may submit a written request to the Securities Commissioner to
grant an extension of the temporary registration for up to 30 additional days.
If the Commissioner, in the exercise of his or her discretion, declines to
grant the extension request, the registration will terminate for the investment
adviser and all its investment adviser representatives on the expiration of
the 60-day temporary registration. Any investment advisory services rendered
by the investment adviser and/or its investment adviser representatives after
termination of the temporary registration are subject to the sanctions provided
by the Texas Securities Act for rendering investment advice while unregistered.
An additional fee of $25, as required in paragraph (1) of this subsection,
must be submitted since it will involve an amendment to the evidence of registration
if the application is approved.
(4)
All procedures set forth in this subsection shall also
apply to investment advisers and investment adviser representatives who have
submitted a notice filing and fee to the Securities Commissioner.
(c)
Termination. An investment adviser is required to notify
the Securities Commissioner upon termination of any registered investment
adviser representative from its employ. Upon receipt of such notification,
the Securities Commissioner may terminate the registration.
(d)
Renewal.
(1)
Procedures for renewing expired and unexpired registrations
are set forth in the Texas Securities Act, §19.C.
(2)
A notice of impending expiration of registration (renewal
application) will be sent to a currently registered investment adviser at
least 30 days before the expiration of its registration. The renewal application
should be returned to the State Securities Board for processing, along with
the appropriate fee.
(3)
If a person's registration is not renewed in a timely manner
because such person is or was on active duty with the armed forces of the
United States of America serving outside Texas, such person may renew the
registration pursuant to this paragraph.
(A)
Renewal of the registration may be requested by such person,
such person's spouse, or an individual having power of attorney from such
person. The renewal application shall include a current address and telephone
number for the individual requesting the renewal.
(B)
Renewal may be requested before or after expiration of
the registration.
(C)
A copy of the official orders or other official military
documentation showing that such person is or was on active duty serving outside
Texas shall be submitted to the Securities Commissioner along with the renewal
application.
(D)
A copy of the power of attorney from such person, if any,
shall be filed with the Securities Commissioner along with the renewal application
if the individual having the power of attorney executes any of the documents
required in this paragraph.
(E)
A renewal application submitted to the Securities Commissioner
pursuant to this paragraph shall be accompanied by the applicable renewal
fee set out in §116.8 (relating to Fee Requirements).
(F)
The State Securities Board will not assess any increased
fee or other penalty against the person for failure to timely renew such person's
registration if such person establishes to the satisfaction of the Securities
Commissioner that all requirements of this paragraph have been met.
§116.5.Minimum Records.
(a)
Investment adviser records. Compliance with the record-keeping
requirements of the United States Securities and Exchange Commission, found
in 17 Code of Federal Regulations §275.204-2, will satisfy the requirements
of this section.
(b)
Records to be made by investment advisers. Persons registered
as investment advisers whose principal place of business is located in another
state shall maintain records at least in accordance with the minimum record
keeping requirements of that state. Persons registered as investment advisers
whose principal place of business is located in Texas shall make and keep
current the following minimum records or the equivalent thereof:
(1)
A journal or journals, including cash receipts and disbursements
records, and any other records or original entry forming the basis of entries
in any ledger.
(2)
General and auxiliary ledgers, (or other comparable records)
reflecting asset, liability, reserve capital, income and expense accounts.
(3)
A memorandum of each order given by the investment adviser
for the purchase or sale of any security, of any instruction received by the
investment adviser from the client concerning the purchase, sale, receipt
or delivery of a particular security, and of any modification or cancellation
of any such order or instruction. Such memoranda shall show the terms and
conditions of the order, instruction, modification or cancellation; shall
identify the person connected with the investment adviser who recommended
the transaction to the client and the person who placed such order; and shall
show the account for which entered, the date of entry, and the bank, broker,
or dealer by or through whom executed where appropriate. Orders entered pursuant
to the exercise of discretionary power shall be so designated.
(4)
A list or other record of all accounts in which the investment
adviser is vested with any discretionary power with respect to funds, securities,
or transactions of any client.
(5)
A copy of each notice, circular, advertisement, newspaper
article, investment letter, bulletin, or other communication recommending
the purchase or sale of a specific security, which the investment adviser
circulates or distributes, directly or indirectly to 10 or more persons (other
than investment supervisory clients or persons connected with such investment
adviser), and if such notice, circular, advertisement, newspaper article,
investment letter, bulletin, or other communication does not state the reasons
for such recommendation, a memorandum of the investment adviser indicating
the reasons therefor.
(6)
In the case of any client receiving investment supervisory
or management service, to the extent that the information is reasonably available
to or obtainable by the investment adviser, records showing separately for
that client:
(A)
the client's current position in any security; and
(B)
all securities purchased and sold and the date, amount,
and price of each purchase and sale.
(7)
In the case of an investment adviser who has custody or
possession of the funds or securities of any client:
(A)
a journal or other record showing all purchases, sales,
receipts and deliveries of securities (including certificate numbers) for
such accounts and other debits and credits to such accounts;
(B)
a separate ledger account for each such client showing
all purchases, sales, receipts, and deliveries of securities, the date and
price of each such purchase and sale, and all debits and credits;
(C)
copies of confirmations of all transactions effected by
or for the account of any such client; and
(D)
a record for each security in which any client has a position,
which record shall show the name of each such client having any interest in
each security, the amount or interest of each such client, and the location
of each such security.
(8)
A record of every transaction in a security in which the
investment adviser or any investment adviser representative has, or by reason
of such transaction acquires any direct or indirect beneficial ownership,
except:
(A)
transactions effected in any account over which neither
the investment adviser nor any investment adviser representative has any direct
or indirect influence or control; and
(B)
transactions in securities which are direct obligations
of the United States. Such record shall state the title and amount of the
security involved; the date and nature of the transaction (i.e., purchase,
sale, or other acquisition or disposition); the price at which it was effected;
and the name of the broker, dealer, or bank with or through whom the transaction
was effected. A transaction shall be recorded not later than 10 days after
the end of the calendar quarter in which the transaction was effected.
(c)
Records to be preserved by investment advisers.
(1)
Persons registered as investment advisers in Texas shall
preserve all records required pursuant to subsection (b) of this section for
a period of not less than five years from the end of the fiscal year during
which the last entry was made on such record, the first two years in an easily
accessible place.
(2)
Person registered as investment advisers in Texas shall
preserve for a period of not less than three years from the end of the fiscal
year during which the last entry was made on such record, the first two years
in an easily accessible place:
(A)
all checkbooks, bank statements, cancelled checks, and
cash reconciliations of the investment adviser;
(B)
all bills or statements (or copies thereof) paid or unpaid,
relating to the business of the investment adviser as such;
(C)
all trial balances, financial statements, and internal
audit working papers relating to the business of such investment adviser;
(D)
originals of all written communications received and copies
of all written communications sent by such investment adviser relating to:
(i)
any recommendation made or proposed to be made and any
advice given or proposed to be given;
(ii)
any receipt, disbursement, or delivery of funds or securities;
or
(iii)
the placing or execution of any order to purchase or
sell any security. Provided, however, that the investment adviser shall not
be required to keep any unsolicited market letters and other similar communications
of general public distribution not prepared by or for the investment adviser,
and that if the investment adviser sends any notice, circular, or other advertisement
offering any report, analysis, publication, or other investment advisory service
to more than 10 persons, the investment adviser shall not be required to keep
a record of the names and addresses of the persons to whom it was sent; except
that if such notice, circular, or advertisement is distributed to persons
named on any list, the investment adviser shall retain with the copy of such
notice, circular, or advertisement a memorandum describing the list and the
source thereof;
(E)
all powers of attorney and other evidences of the granting
of any discretionary authority by any client to the investment adviser or
copies thereof;
(F)
all written agreements (or copies thereof) entered into
by the investment adviser with any client or otherwise relating to the business
of such investment adviser as such; and
(G)
all complaints received from investment clients, and all
documents relating to such complaints.
(3)
Persons registered as investment advisers in Texas shall
preserve for at least three years after the termination of the enterprise
partnership articles and any amendments thereto, articles of incorporation,
charters, minute books, and stock certificate books of the investment adviser
and of any predecessor.
(4)
If a person ceases to be registered as an investment adviser
in Texas, such person shall, for the remainder of the time period specified
in this section, continue to preserve the records required in this section.
(5)
The records required to be maintained and preserved pursuant
to this section may be immediately produced or reproduced on microfilm or
other photograph and may be maintained and preserved for the required time
in that form, provided that such microfilms or other photographs are arranged
and indexed in such a manner as to permit the immediate location of any particular
document, and that such microfilms or other photographs are at all times available
for examination by representatives of the Securities Commissioner together
with facilities for immediate, easily readable projection of the microfilm
or other photograph and for the production of easily readable facsimile enlargements.
(d)
The records required to be maintained pursuant to this
section may be maintained by any electronic storage media available so long
as such records are available for immediate free access by representatives
of the Securities Commissioner. Any electronic storage media must preserve
the records exclusively in a non-rewriteable, non-eraseable format; verify
automatically the quality and accuracy of the storage media recording process;
serialize the original and, if applicable, duplicate units of storage media,
and time-date for the required period of retention the information placed
on such electronic storage media; and have the capacity to download indexes
and records preserved on electronic storage media to an acceptable medium.
In the event that a records retention system commingles records required to
be kept under this section with records not required to be kept, representatives
of the Securities Commissioner may review all commingled records.
(e)
The Securities Commissioner has a right to review all records
maintained by registered investment advisers regardless of whether such records
are required to be maintained under any specific applicable rule provision.
§116.6.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 any felony, or of a misdemeanor offense that directly relates to its duties
and responsibilities. In determining whether a misdemeanor conviction directly
relates to such duties and responsibilities, the Securities Commissioner shall
consider:
(1)
the nature and seriousness of the crime;
(2)
the relationship of the crime to the purposes for requiring
registration of investment advisers and investment adviser representatives;
(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)
the relationship of the crime to the ability, capacity,
or fitness required to perform the duties and discharge the responsibilities
of a registered investment adviser or investment adviser representative.
(b)
The Securities Commissioner shall consider the following
evidence in determining the present fitness of an applicant who has been convicted
of a crime:
(1)
The extent and nature of the person's past criminal activity.
(2)
The age of the applicant at the time of the commission
of the crime.
(3)
The amount of time that has elapsed since the applicant's
last criminal activity.
(4)
The conduct and work activity of the applicant prior to
and following the criminal activity.
(5)
Evidence of the applicant's rehabilitation or rehabilitative
effort while incarcerated or following release.
(6)
Other evidence of the applicant's present fitness, including
letters of recommendation from prosecution, law enforcement, and correctional
officers who prosecuted, arrested, or had custodial responsibility for the
applicant; the sheriff and chief of police in the community where the applicant
resides; and any other persons in contact with the applicant.
(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 investment advisers
and investment adviser representatives:
(1)
any criminal violation of which fraud is an essential element
or that involves wrongful taking or possession of property or services;
(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;
(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; and
(4)
any criminal violation involving an assault on a person.
§116.7.Maintenance and Inspection of Records.
(a)
All records required to be maintained by registered investment
advisers shall be maintained at the location designated in Form 133.16 and
at such other locations registered as branch offices with the Securities Commissioner.
(b)
The Securities Commissioner or his or her authorized representative
may conduct on-site examinations of registered investment advisers without
notice and shall be entitled to immediate and free access to all records,
required to be maintained pursuant to Board rules or maintained in the course
of the normal business of the investment adviser, and to all locations where
such records are kept. The Commissioner or his or her authorized representative
shall be permitted to make photostatic or computer copies of such records.
(c)
In the alternative, the Securities Commissioner or his
or her authorized representative may require that all records maintained pursuant
to Board rules or maintained in the course of the normal business of the investment
adviser be made available in any office of the State Securities Board designated
by the Commissioner or his or her representative within 48 hours of a request
or within a greater time period as the Commissioner or his or her authorized
representative deems reasonable.
§116.8.Fee Requirements.
(a)
Registration and notice filing fees. Registration and notice
filing fees are as follows:
(1)
Investment Adviser - $275 for original applications and
$240 for renewal applications.
(2)
Investment Adviser Representative, Officer, Partner, or
Solicitor of an Investment Adviser - $235 for original applications and $220
for renewal applications.
(b)
Reduced fees for certain person registered in multiple
capacities.
(1)
In general. A person may request reduced fees under paragraph
(2) of this subsection, provided they are registered or are seeking registration
in Texas:
(A)
as either an agent of a securities dealer or as a sole
proprietor securities dealer; and
(B)
as either an investment adviser representative of an investment
adviser that has less than five investment adviser representatives or as a
sole proprietor investment adviser with less than five investment adviser
representatives.
(2)
Procedure. Persons meeting the requirements of paragraph
(1) of this subsection may request reduced registration fees by filing Form
133.36, Request for Reduced Fees for Certain Persons Registered in Multiple
Capacities. Form 133.36 must be filed at the time the original application
for investment adviser representative or sole proprietor investment adviser
registration is filed, or at least 30 days before the person's existing investment
adviser representative or sole proprietor investment adviser registration
will expire. On review of Form 133.36, the Securities Commissioner may, in
his or her discretion, grant or deny the request for reduced fees or direct
the person to supply additional information.
(3)
Reduced fees. If the Securities Commissioner grants a person's
request, the person must pay all applicable fees for registration as a dealer
or dealer's agent as specified in the Texas Securities Act, §§35.A,
35.B, and 41(a), but is exempt from the fees specified in the Texas Securities
Act, §41(a), in connection with original and renewal applications for
registration as an investment adviser representative or sole proprietor investment
adviser, as applicable at the time Form 133.36 is filed. The reduction in
fees granted by the Securities Commissioner under this subsection shall continue
in force, without any further filings, as long as a person remains registered
in a multiple capacity status.
§116.9.Post-Registration Reporting Requirements.
(a)
Each person registered as an investment adviser shall report
to the Securities Commissioner within 30 days after its entry against the
registered person or an investment adviser representative thereof, the matters
described in this subsection. Likewise, each person registered as an investment
adviser representative shall report to the Commissioner within 30 days after
its occurrence or entry against the investment adviser representative the
matters described in this subsection. The following matters must be reported:
(1)
any administrative order issued by state or federal authorities,
which order:
(A)
is based upon a finding that such person has engaged in
fraudulent conduct; or
(B)
was entered after notice and opportunity for a hearing,
denying, suspending, or revoking the person's registration as an investment
adviser, investment adviser representative, dealer, or agent, or the substantial
equivalent of those terms;
(2)
any felony criminal action or conviction;
(3)
any misdemeanor action or conviction based on fraud, deceit,
or wrongful taking of property;
(4)
any order, judgment, or decree entered by any court of
competent jurisdiction which temporarily or permanently restrains or enjoins
such person from engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security or involving any false filing with
any state; or which restrains or enjoins such person from activities subject
to federal or state statutes designed to protect consumers against unlawful
or deceptive practices involving insurance, commodities or commodity futures,
real estate, franchises, business opportunities, consumer goods, or other
goods and services;
(5)
any expulsion, bar, suspension, censure, fine, or penalty
imposed by a self-regulatory organization;
(6)
any change in any other information previously disclosed
to the Securities Commissioner on any application form or filing; and
(7)
the filing of any voluntary or involuntary bankruptcy petition.
(b)
Upon request by the Securities Commissioner, an investment
adviser or investment adviser representative is required to furnish to the
Commissioner copies of the order, conviction, or decrees, or other documents
which evidence events disclosable pursuant to subsection (a) of this section.
(c)
For purposes of this section an "investment adviser" shall
include any partners, directors, executive officers, or beneficial owners
of 10% or more of any class of the equity securities of an investment adviser
(beneficial ownership meaning the power to vote or direct the vote of and/or
the power to dispose or direct the disposition of such securities).
§116.10.Supervisory Requirements.
Each investment adviser shall establish and maintain a system to supervise
the activities of its investment adviser representatives that is reasonably
designed to achieve compliance with the Texas Securities Act and Board rules.
§116.11.Disclosure Requirement/Brochure Rule.
All registered investment advisers must deliver to all clients or prospective
clients a written disclosure statement that may be:
(1)
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 Code of Federal Regulations §279.1)
as made effective in Release Number IA-991 and corrected in Release Number
IA-991A; or
(2)
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 that the client will enter into.
(3)
The disclosure statement 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)
On an annual basis, the Part II of Form ADV or other disclosure
statement satisfying the requirements of paragraph (1) or (2) of this section
must be provided to all customers, or in the alternative, the investment adviser
must offer the client the right to receive such Part II of Form ADV or other
disclosure statement.
§116.12.Advisory Contract Requirements.
(a)
The advisory contract must contain the following language:
"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."
(b)
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.
(c)
The advisory contract must contain a provision that prohibits
the assignment of the contract by the adviser without the written consent
of the client.
(d)
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 SEC (as in existence
on April 8, 1997) or state law to disclose any information to its clients
not specifically required by this section.
§116.13.Advisory Fee Requirements.
(a)
Any investment adviser who wishes to charge 3.0% or greater
of the assets under management must disclose that such fee is in excess of
the industry norm and that similar advisory services can be obtained for less.
(b)
Any investment adviser who wishes to charge a fee based
on a share of the capital gains or the capital appreciation of the finds or
any portion of the funds of a client must comply with SEC Rule 205-3 (17 Code
of Federal Regulations §275.205-3), which prohibits the use of such fee
unless the client is a "qualified client." In general, a qualified client
may include:
(1)
a natural person or company who at the time of entering
into such agreement has at least $750,000 under the management of the investment
adviser;
(2)
a natural person or company who the adviser reasonably
believes at the time of entering into the contract:
(A)
has a net worth of jointly with his or her spouse of more
than $1,500,000; or
(B)
is a qualified purchaser as defined in §2(a)(51)(A)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(51)(A)); or
(3)
a natural person who at the time of entering into the contract
is:
(A)
An executive officer, director, trustee, general partner,
or person serving in similar capacity of the investment adviser; or
(B)
An employee of the investment adviser (other than an employee
performing solely clerical, secretarial, or administrative functions with
regard to the investment adviser), who, in connection with his or her regular
functions or duties, participates in the investment activities of such investment
adviser, provided that such employee has been preforming such functions and
duties for or on behalf of the investment adviser, or substantially similar
function or duties for or on behalf of another company for at least 12 months.
§116.14.Prevention of Misuse of Nonpublic Information.
All investment advisers registered under the Texas Securities Act are
required to establish, maintain, and enforce written policies and procedures
reasonable designed to prevent the misuse of material nonpublic information.
§116.15.Advertising Restrictions.
The antifraud provisions of the Texas Securities Act prohibit an investment
adviser from using any advertisement that contains any untrue statement of
material fact or that is otherwise misleading. The prohibition would include
any notice, circular, letter, or other written communication addressed to
more than one person, or any notice or other announcement in any publication
or by radio, television, Internet, the World Wide Web, or similar proprietary
or common carrier electronic systems, that offers any service as an investment
adviser.
(1)
Specifically, an advertisement may not:
(A)
use or refer to testimonials (including any statement of
a client's experience or endorsement);
(B)
refer to past, specific recommendations made by an investment
adviser that were profitable, unless the advertisement sets out a list of
all recommendations made by the investment adviser within the preceding period
of not less than one year, and complies with paragraph (2) of this subsection;
(C)
represent that any graph, chart, formula, or other device
can, in and of itself, be used to determine which securities to buy or sell,
or when to buy or sell securities, or assist persons in making those decisions,
unless the advertising prominently discloses the limitations thereof and the
difficulties regarding its use; and
(D)
represent that any report, analysis, or other service will
be provided without charge unless the report, analysis, or other service will
be provided without any obligation whatsoever.
(2)
An investment adviser may advertise its past performance
(both actual performance and hypothetical or model results) only if the advertisement
discloses all material facts necessary to avoid any unwarranted inference.
An investment adviser may not advertise its performance data if the advertisement:
(A)
fails to disclose the effect of material market or economic
conditions on the results advertised;
(B)
fails to disclose whether and to what extent the advertised
results reflect the reinvestment of dividends or other earnings;
(C)
suggests or makes claims about the potential for profit
without disclosing the potential for loss; or
(D)
omits any of the facts material to the performance figures.
(3)
In addition, generally an investment adviser may not advertise
gross performance data (i.e., performance data that does not reflect the deduction
of various fees, commissions, and expenses that a client would pay) unless
the investment adviser also includes net performance information in an equally
prominent manner.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101685
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 305-8300
Part 7.
STATE SECURITIES BOARD
Chapter 107.
TERMINOLOGY
annulment,
] withdrawal, or amendment
of a license.
Any person coming within the designation cannot conduct such
activity without first being registered as an investment adviser/dealer under
the provisions of the Act or notice-filed under the provisions of §115.1(i)
of this title (relating to General Provisions). Likewise, every person employed
or appointed, or authorized by such person to render services which include
the giving of investment advice cannot conduct such activities unless registered
as a dealer/investment adviser, a salesman, or an agent under the provisions
of the Act, or notice-filed as a dealer/investment adviser, a salesman, or
an agent under the provisions of §115.1(i) of this title.
]
(39)
(40)
] Staff--Personnel of the
Securities Board, excluding the members of the Board, the Securities Commissioner,
and the Deputy Commissioner.
(41)
] State, territory, or insular
possession of the United States--As used in the Texas Securities Act, includes
a commonwealth.
(42)
] Statement to reflect the
financial condition--A balance sheet.
(43)
] Telephone or telegram--For
purposes of the Texas Securities Act, §7.C(2)(c), includes any means
of electronic transmission such as, but not limited to, telephone, telegraph,
wireless, graphic scanning, modem, or facsimile; provided, however, that the
office of the State Securities Board has the necessary equipment to accept
such a transmission.
(44)
] Within this state--
Chapter 109.
TRANSACTIONS EXEMPT FROM REGISTRATION
Chapter 115.
DEALERS AND SALESMEN
Chapter 115.
SECURITIES DEALERS AND AGENTS
Chapter 116.
INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES
Chapter 139.
EXEMPTIONS BY RULE OR ORDER