Texas Register
. Comments should be sent to David
Weaver, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167,
or sent by facsimile to (512) 305-8310.
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.
Statutes and codes affected: none applicable.
§115.5.Minimum Records.
(a)
(No change.)
(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)-(5)
(No change.)
(6)
Order memoranda:
(A)
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 the order was received,
the
time of entry, the price at which executed,
the identity of each employee,
if any, responsible for the account, the identity of any other person who
entered or accepted the order on behalf of the customer or, if a customer
entered the order on an electronic system, a notation of that entry,
and,
to the extent feasible, the time of execution or cancellation.
The memorandum
need not show the identity of any person, other than the employee responsible
for the account, who may have entered or accepted the order if the order is
entered into an electronic system that generates the memorandum and if that
system is not capable of receiving an entry of the identity of any person
other than the responsible employee; in that circumstance, the dealer shall
maintain a separate record that identifies each other person.
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
].
(B)
This memorandum need not be made as to
a purchase, sale or redemption of a security on a subscription way basis directly
from or to the issuer, if the dealer maintains a copy of the customer's subscription
agreement regarding a purchase, or a copy of any other document required by
the issuer regarding a sale or redemption.
(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
of any modification thereof,
the account in which
it was entered
, the identity of each employee, if any, responsible for
the account, the identity of any other person who entered or accepted the
order on behalf of the customer or, if a customer entered the order on an
electronic system, a notation of that entry. The memorandum need not show
the identity of any person other than the employee responsible for the account
who may have entered the order if the order is entered into an electronic
system that generates the memorandum and if that system is not capable of
receiving an entry of the identity of any person other than the responsible
employee; in that circumstance, the dealer shall maintain a separate record
that identifies each other person. An order with a customer other than a dealer
entered pursuant to the exercise of discretionary authority by the dealer,
or agent thereof, shall be so designated
.
(8)-(11)
(No change.)
(12)
A record listing of every agent of the
dealer that shows, for each agent, every office of the dealer where the agent
regularly conducts the business of handling funds or securities or effecting
any transaction in, or inducing or attempting to induce the purchase or sale
of any security for the dealer, and the Central Registration Depository number,
if any, and every internal identification number or code assigned to that
agent by the dealer.
(13)
For each account with a natural person
as a customer or owner:
(A)
For each account with a natural person as a customer or
owner:
(i)
An account record including the customer's or owner's name,
tax identification number, address, telephone number, date of birth, employment
status (including occupation and whether the customer is an agent of a dealer),
annual income, net worth (excluding value of primary residence), and the
account's investment objectives. In the case of a joint account, the account
record must include personal information for each joint owner who is a natural
person; however, financial information for the individual joint owners may
be combined. The account record shall indicate whether it has been signed
by the agent responsible for the account, if any, and approved or accepted
by a supervisor of the dealer. For accounts in existence on the effective
date of this section, the dealer must obtain this information within three
years of May 2, 2003.
(ii)
A record indicating that:
(I)
The dealer has furnished to each customer or owner within
three years of May 2, 2003, and to each customer or owner who opened an account
after May 2, 2003 within 30 days of the opening of the account, and thereafter
at intervals no greater than 36 months, a copy of the account record or an
alternate document with all information required by clause (i) of this subparagraph.
The dealer may elect to send this notification with the next statement mailed
to the customer or owner after the opening of the account. The dealer may
choose to exclude any tax identification number and date of birth from the
account record or alternate document furnished to the customer or owner. The
dealer shall include with the account record or alternate document provided
to each customer or owner an explanation of any terms regarding investment
objectives. The account record or alternate document furnished to the customer
or owner shall include or be accompanied by prominent statements that the
customer or owner should mark any corrections and return the account record
or alternate document to the dealer, and that the customer or owner should
notify the dealer of any future changes to information contained in the account
record.
(II)
For each account record updated to reflect a change in
the name or address of the customer or owner, the dealer furnished a notification
of that change to the customer's old address, or to each joint owner, and
the agent, if any, responsible for that account, on or before the thirtieth
day after the date the dealer received notice of the change.
(III)
For each change in the account's investment objectives
the dealer has furnished to each customer or owner, and the agent, if any,
responsible for that account a copy of the updated customer account record
or alternative document with all information required to be furnished by clause
(i) of this subparagraph, on or before the thirtieth day after the date the
dealer received notice of any change, or, if the account was updated for some
reason other than the dealer receiving notice of a change, after the date
the account record was updated. The dealer may elect to send this notification
with the next statement scheduled to be mailed to the customer or owner.
(iii)
For purposes of this paragraph, the neglect, refusal,
or inability of a customer or owner to provide or update any account record
information required under subparagraph (A)(i) of this paragraph shall excuse
the dealer from obtaining that required information.
(iv)
The account record requirements in subparagraph (A)(i)
of this paragraph shall only apply to accounts for which the dealer is, or
has within the past 36 months been, required to make a suitability determination.
Additionally, the furnishing requirement in clause (ii)(I) of this subparagraph
shall not be applicable to an account for which, within the last 36 months,
the dealer has not been required to make a suitability determination. Clause
(iii) of this subparagraph does not relieve a dealer from any regulatory obligation
regarding the collection of information from a customer or owner.
(B)
If an account is a discretionary account, a record containing
the dated signature of each customer or owner granting the authority and the
dated signature of each natural person to whom discretionary authority was
granted.
(C)
A record for each account indicating that each customer
or owner was furnished with a copy of each written agreement entered into
on or after May 2, 2003 pertaining to that account and that, if requested
by the customer or owner, the customer or owner was furnished with a fully
executed copy of each agreement.
(14)
A record:
(A)
As to each agent of each written customer complaint received
by the dealer concerning that associated person. The record shall include
the complainant's name, address, and account number; the date the complaint
was received; the name of any other agents identified in the complaint; a
description of the nature of the complaint; and the disposition of the complaint.
Instead of the record, a dealer may maintain a copy of each original complaint
in a separate file by the agent named in the complaint along with a record
of the disposition of the complaint.
(B)
Indicating that each customer of the dealer has been provided
with a notice containing the address and telephone number of the department
of the dealer to which any complaints as to the account may be directed.
(15)
A record:
(A)
As to each agent listing each purchase and sale of a security
attributable, for compensation purposes, to that agent. The record shall include
the amount of compensation if monetary and a description of the compensation
if non-monetary. In lieu of making this record, a dealer may elect to produce
the required information promptly upon request of a representative of the
Securities Commissioner.
(B)
Of all agreements pertaining to the relationship between
each agent and the dealer including a summary of each agent's compensation
arrangement or plan with the dealer, including commission and concession schedules
and, to the extent that compensation is based on factors other than remuneration
per trade, the method by which the compensation is determined.
(16)
A record, which need not be separate
from the advertisements, sales literature, or communications, documenting
that advertisements, sales literature, or any other communications with the
public by a dealer or its agents have been approved by a supervisor.
(17)
A record for each office listing, by
name or title, each person at that office who, without delay, can explain
the types of records the dealer maintains at that office and the information
contained in those records.
(18)
A record listing each supervisor of a
dealer responsible for establishing policies and procedures that require acceptance
or approval of a record by a supervisor.
(c)
(No change.)
(d)
Maintenance of office records.
[
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)
Every dealer shall make and keep current, as to each
office, the books and records described in paragraphs (1), (6), (7), (11),
(13), (14)(A), (15), (16), (17), and (18) of subsection (b) this section.
[
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)
When used in this section, the term "office" means
any location where one or more agents regularly conduct the business of handling
funds or securities or effecting any transactions in, or inducing or attempting
to induce the purchase or sale of, any security. The term "office" as used
in this section is not related to the term "branch office" defined in §115.1
of this chapter (relating to General Provisions).
[
Ledgers (or
other records) that reflect all assets and liabilities, income and expense,
and capital accounts; and
]
[(3)
A questionnaire or application for employment
executed by each partner, officer, director, agent, trader, manager, and each
employee who handles funds or securities or who solicits transactions or accounts
for such dealer, which questionnaire or application shall be approved in writing
by an authorized representative of such dealer and shall contain at least
the following information with respect to such person (in the case of persons
registered with the State Securities Board, a copy of their application for
registration as an agent, officer, or partner will satisfy this requirement):]
[(A)
name, address, social security number, and the starting
date of employment or other association with the dealer;]
[(B)
date of birth;]
[(C)
the educational institutions attended and whether he or
she graduated therefrom;]
[(D)
a complete, consecutive statement of all business connections
for at least the preceding 10 years, including the reason for leaving each
prior employment, and whether the employment was part-time or full-time;]
[(E)
a record of any denial, suspension, expulsion, or revocation
of membership or registration of any dealer he or she was associated with
in any capacity when such action was taken;]
[(F)
a record of any denial of membership or registration,
and of any disciplinary action taken, or sanction imposed, on the person by
any federal or state agency, or by any national securities exchange or national
securities association, including any finding that he or she was a cause of
any disciplinary action or had violated any law;]
[(G)
a record of any permanent or temporary injunction entered
against the person or any dealer he or she was associated with in any capacity
at the time such injunction was entered;]
[(H)
a record of any arrest or indictment for any felony or
misdemeanor, and the disposition of any such arrest or indictment or further
explanation thereof, and a record of any conviction for any felony or any
misdemeanor, except minor traffic offenses, of which he or she has been the
subject; and]
[(I)
a record of any other name or names he or she has been
known by or has used.]
(e)
Records to be preserved by dealers.
(1)
Persons subject to subsection (b) of this section shall
preserve:
(A)
all records required to be made pursuant to paragraphs
(1), (2), (3), [
and
] (5)
, (17), and (18)
of subsection
(b) of this section for a period of not less than
six
[
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;
and
(B)
all records required to be made pursuant to paragraphs
(4)
,
[
and
] (6) - (10)
, and (14)-(16)
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
]
(2)
Persons subject to subsection (b) of this
section shall maintain and preserve in an easily accessible place:
(A)
[
(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
;
[
.
]
(B)
All account record information required
pursuant to subsection (b)(13) of this section until at least six years after
the earlier of the date the account was closed or the date on which the information
was replaced or updated;
(C)
Each report which a securities regulatory
authority has requested or required the dealer to make and furnish to it pursuant
to an order or settlement, and each securities regulatory authority examination
report until three years after the date of the report;
(D)
Each compliance, supervisory, and procedures
manual, including any updates, modifications, and revisions to the manual,
describing the policies and practices of the dealer with respect to compliance
with applicable laws and rules, and supervision of the activities of each
natural person associated with the dealer until three years after the termination
of the use of the manual; and
(E)
All reports produced to review for unusual
activity in customer accounts until 18 months after the date the report was
generated. In lieu of maintaining the reports, a dealer may produce promptly
the reports upon request by a representative of the Securities Commissioner.
If a report was generated in a computer system that has been changed in the
most recent 18 month period in a manner such that the report cannot be reproduced
using historical data in the same format as it was originally generated, the
report may be produced by using the historical data in the current system,
but must be accompanied by a record explaining each system change which affected
the reports. If a report is generated in a computer system that has been changed
in the most recent 18 month period in a manner such that the report cannot
be reproduced in any format using historical data, the dealer shall promptly
produce upon request a record of the parameters that were used to generate
the report at the time specified by a representative of the Securities Commissioner,
including a record of the frequency with which the reports were generated.
[
(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)-(B)
(No change.)
(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
. As used in this
subparagraph, the term "communications" includes sales scripts
;
(D)-(H)
(No change.)
(4)
Persons registered as dealers in Texas shall preserve for
a period of not less than
six
[
five
] years from
when
[
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
, all
Forms BD, all Forms BDW, all amendments to these forms, all licenses or other
documentation showing the registration of the dealer with any securities regulatory
authority
.
(6)-(9)
(No change.)
(f)
(No change.)
(g)
Records for the most recent two year period
required to be made and maintained pursuant to subsections (d), (e)(2)(D),
and (e)(3)(C) of this section, which relate to an office shall be maintained
at the office to which they relate. If an office is a private residence where
only one agent (or multiple agents who reside at that location and are members
of the same immediate family) regularly conducts business, and it is not held
out to the public as an office nor are funds or securities of any customer
of the dealer handled there, the dealer need not maintain records at that
office, but the records must be maintained at another location within Texas
as the dealer may select. Rather than maintain the records at each office,
the dealer may choose to produce the records promptly at the request of a
representative of the Securities Commissioner at the office to which they
relate or at another location agreed to by the representative.
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 July 21, 2003.
TRD-200304377
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Earliest possible date of adoption: August 31, 2003
For further information, please call: (512) 305-8300