Part 7.
STATE SECURITIES BOARD
Chapter 109.
TRANSACTIONS EXEMPT FROM REGISTRATION
7 TAC §109.3
The Texas State Securities Board adopts an amendment to §109.3,
concerning financial institutions under the Texas Securities Act (Act) §5.H,
without changes to the proposed text as published in the March 11, 2005, issue
of the
Texas Register
(30 TexReg 1382).
The amendment simplifies the rule to only address the Board's long-standing
definition of "savings institution" for purposes of the §5.H exemption.
The other components of the previous §109.3 were moved into three new
rules concurrently adopted as §§109.4, 109.5, and 109.6, each addressing
a different category of registration exemption.
Definitions of terms used in §5.H of the Act may be located more easily.
No comments were received regarding adoption of the amendment.
Statutory authority: Texas Civil Statutes, Articles 581-28-1
and 581-5.T. Section 28-1 provides the Board with the authority to adopt rules
and regulations necessary to carry out and implement the provisions of the
Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes. Section 5.T provides that the Board may prescribe new
exemptions by rule.
Cross-reference to Statute: Texas Civil Statutes, Article 581-5.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 24, 2005.
TRD-200502604
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: July 14, 2005
Proposal publication date: March 11, 2005
For further information, please call: (512) 305-8303
7 TAC §§109.4 - 109.6
The Texas State Securities Board adopts new §109.4,
concerning securities registration exemption for sales to financial institutions
and certain institutional investors; §109.5, concerning dealer registration
exemption for sales to financial institutions and certain institutional investors;
and §109.6, concerning investment adviser registration exemption for
investment advice to financial institutions and certain institutional investors.
Section 109.6 is adopted with changes to the proposed text as published in
the March 11, 2005, issue of the
Texas Register
(30
TexReg 1383). Sections 109.4 and 109.5 are adopted without changes and will
not be republished.
Changes to §109.6 include clarifying when an investment adviser or
investment adviser representative is providing investment advisory services
to an entity and not to the owners of the legal entity, changing the definition
of a "private fund" so that investors who are not natural persons may be permitted
to redeem their interests in the fund within two years of purchase, and making
non-substantive changes to conform terminology with that used elsewhere in
the rule.
Sections 109.4 - 109.6 are based on exemptions formerly contained in §109.3.
The exemption from investment adviser registration, set out in §109.6,
corresponds closely to federal regulations providing an exemption from federal
registration for an investment adviser to a venture capital fund. This exemption
also reflects the Board's position that an investment adviser to an entity
composed partially or entirely of natural persons is not exempt from registration.
Natural persons simply are not institutions, regardless of their net worth
or annual income. Likewise, a private investment entity, such as a hedge fund,
composed partially or entirely of natural persons, does not equate to an institutional
investor. Section 109.6 provides an exemption from registration for an investment
adviser to a venture capital fund because a venture capital fund does not
constitute a "private fund" as that term is defined in §109.6(c).
These rules clarify the applicability of exemptions for transactions with
financial institutions and certain institutional investors to different categories
of participants, namely, persons selling securities, dealers, and investment
advisers.
No comments were received regarding adoption of §109.4 and §109.5.
Vinson & Elkins ("V&E") and Kelly, Hart & Hallman ("KH&H")
provided comments on §109.6.
Commenting on behalf of the Texas Venture Capital Association, V&E
indicated support for the clarifications provided by the rule and its consistency
with the Securities and Exchange Commission (SEC) Rule 203(b)(3)-1(d). This
new federal rule permits redemptions of investments within two years of the
purchase of the investment under limited circumstances without causing the
fund to be deemed a "private fund."
V&E also suggested changes to the definition of a "private fund," to
clarify when an investment adviser or investment adviser representative is
providing investment advisory services to an entity and not to its individual
members, and for consistency in terminology. The staff agreed with many of
the suggestions.
Although generally supportive of the proposed rule and the greater level
of uniformity it brings to the area, KH&H suggested §109.6 should
conform fully to SEC Rule 203(b)(3)-1(d) and permit redemptions of investments
within two years of the investment for "extraordinary events" and "reinvestment
of distributed capital gains" without causing the fund to be deemed a "private
fund." Staff noted that the SEC has provided little guidance about what constitutes
an extraordinary event and raised the concern that such ambiguity would encourage
abuse of the registration exclusion.
The Board agreed with many of the comments and adopted §109.6 with
changes to incorporate many of the points raised. The Board, however, disagreed
with the commenters and declined to alter the definition of "private fund"
to permit natural persons to redeem within a two-year period following purchase
for "extraordinary events." The Board did instruct the staff to gather additional
information on this issue with an eye to possibly amending the rule at some
future date.
Statutory authority: Texas Civil Statutes, Articles 581-28-1,
581-5.T, and 581-12.C. 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.C provides the Board with the authority to
prescribe new dealer/agent and investment adviser/representative registration
exemptions by rule.
Cross-reference to Statute: Texas Civil Statutes, Articles 581-5, 581-7,
581-12, 581-12-1, and 581-18.
§109.6.Investment Adviser Registration Exemption for Investment Advice to Financial Institutions and Certain Institutional Investors.
(a)
Availability. The exemption from investment adviser and
investment adviser representative registration provided by the Texas Securities
Act, §5.H, or this section is not available if the financial institution
or other institutional investor named therein is in fact acting only as agent
for another purchaser that is not a financial institution or other institutional
investor listed in §5.H or this section. These exemptions are available
only if the financial institution or other institutional investor named therein
is acting for its own account or as a bona fide trustee of a trust organized
and existing other than for the purpose of acquiring the investment advisory
services for which the investment adviser or investment adviser representative
is claiming the exemption. For purposes of this section, an investment adviser
or investment adviser representative that is providing investment advisory
services to a corporation, general partnership, limited partnership, limited
liability company, trust or other legal entity, other than a private fund,
is not providing investment advisory services to a shareholder, general partner,
member, other security holder, beneficiary or other beneficial owner of the
legal entity unless the investment adviser provides investment advisory services
to such owner separate and apart from the investment advisory services provided
to the legal entity.
(b)
Investment advice rendered to certain institutional investors.
The State Securities Board, pursuant to the Act, §5.T and §12.C,
exempts from the investment adviser and investment adviser representative
registration requirements of the Act, persons who render investment advisory
services to any of the following:
(1)
an "accredited investor" (as that term is defined in Rule
501(a)(1)-(3), (7), and (8) promulgated by the Securities and Exchange Commission
(SEC) under the Securities Act of 1933, as amended (1933 Act), as made effective
in SEC Release Number 33-6389, as amended in Release Numbers 33-6437, 33-6663,
33-6758, and 33-6825);
(2)
any "qualified institutional buyer" (as that term is defined
in Rule 144A(a)(1) promulgated by the SEC under the 1933 Act, as made effective
in SEC Release Number 33-6862, and amended in Release Number 33-6963); and
(3)
a corporation, partnership, trust, estate, or other entity
(excluding individuals) having net worth of not less than $5 million, or
a wholly-owned subsidiary of such entity.
(c)
Investment advice rendered to natural persons and private
funds. There is no exemption under this section for an investment adviser
providing investment advisory services to a natural person or to a private
fund, such as a hedge fund, that is composed partially or entirely of natural
persons. A "private fund" is an entity that:
(1)
would be subject to regulation under the federal Investment
Company Act of 1940 but for the exceptions from the definition of "investment
company" provided for:
(A)
a fund that has no more than 100 beneficial owners, or
(B)
a fund that is owned exclusively by qualified purchasers
who acquired ownership through a non-public offering;
(2)
permits investors who are natural persons to redeem their
interests in the fund within two years of purchasing them; and
(3)
offers interests in the entity based on the investment
advisory skills, ability or expertise of the investment adviser.
(d)
Financial statements. For purposes of determining an institutional
investor's total assets or net worth under this section, an investment adviser
or investment adviser representative may rely upon the entity's most recent
annual balance sheet or other financial statement which shall have been audited
by an independent accountant or which shall have been verified by a principal
of the institutional investor.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 24, 2005.
TRD-200502605
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: July 14, 2005
Proposal publication date: March 11, 2005
For further information, please call: (512) 305-8303
7 TAC §115.3
The Texas State Securities Board adopts an amendment to §115.3,
concerning dealer and agent examinations, without changes to the proposed
text as published in the March 11, 2005, issue of the
Texas Register
(30 TexReg 1385).
An examination waiver is created for an applicant whose prior Texas registration
has lapsed for more than two years, but who has been continually registered
with the National Association of Securities Dealers and the state securities
regulator where the applicant maintains its principal place of business.
Examination waivers in this circumstance will be processed quickly and
treated uniformly.
No comments were received regarding adoption of the amendment.
Statutory authority: Texas Civil Statutes, Articles 581-28-1
and 581-13.D. 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 13.D provides the Board with authority to waive
examination requirements for any applicant or class of applicants.
Cross-reference to Statute: Texas Civil Statutes, Articles 581-13 and 581-19.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 24, 2005.
TRD-200502606
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: July 14, 2005
Proposal publication date: March 11, 2005
For further information, please call: (512) 305-8303
7 TAC §116.3
The Texas State Securities Board adopts an amendment to §116.3,
concerning investment adviser and investment adviser representative examinations,
without changes to the proposed text as published in the March 11, 2005, issue
of the
Texas Register
(30 TexReg 1386).
An examination waiver is created for an applicant whose prior Texas registration
has lapsed for more than two years, but who has been continually registered
with the state securities regulator where the applicant maintains its principal
place of business. Additionally, cross-references have been updated and an
organizational name change noted.
Examination waivers in this circumstance will be processed quickly and
treated uniformly.
No comments were received regarding adoption of the amendment.
Statutory authority: Texas Civil Statutes, Articles 581-28-1
and 581-13.D. 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 13.D provides the Board with authority to waive
examination requirements for any applicant or class of applicants.
Cross-reference to Statute: Texas Civil Statutes, Articles 581-13 and 581-19.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 24, 2005.
TRD-200502607
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: July 14, 2005
Proposal publication date: March 11, 2005
For further information, please call: (512) 305-8303
7 TAC §116.10
The Texas State Securities Board adopts an amendment to §116.10,
concerning supervisory requirements, without changes to the proposed text
as published in the March 11, 2005, issue of the
Texas Register
(30 TexReg 1387).
The rule clarifies that supervisory systems are required to be in writing.
Registered investment advisers will be informed of requirements for their
supervisory systems.
No comments were received regarding adoption of the amendment.
Statutory authority: 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.
Cross-reference to Statute: Texas Civil Statutes, Article 581-1, et seq.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 24, 2005.
TRD-200502609
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: July 14, 2005
Proposal publication date: March 11, 2005
For further information, please call: (512) 305-8303
7 TAC §133.2
The Texas State Securities Board repeals §133.2, a form
concerning public information charges--billing detail, without changes to
the proposal published in the March 11, 2005, issue of the
Texas Register
(30 TexReg 1389).
Repealing this form allows for simultaneous adoption of a new form.
The repeal eliminates an outdated form.
No comments were received regarding adoption of the repeal.
Statutory authority: 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.
Cross-reference to Statute: Texas Government Code §552.262.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 24, 2005.
TRD-200502610
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: July 14, 2005
Proposal publication date: March 11, 2005
For further information, please call: (512) 305-8303
7 TAC §133.2
The Texas State Securities Board adopts by reference a new §133.2,
a form concerning public information charges--billing detail, without changes
to the proposal published in the March 11, 2005, issue of the
Texas Register
(30 TexReg 1389).
The new form reflects the current fees for public information established
by the Texas Building and Procurement Commission in accordance with the Public
Information Act.
The form accurately apprises persons requesting public information of the
associated charges.
No comments were received regarding adoption of the new form.
Statutory authority: 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.
Cross-reference to Statute: Texas Government Code §552.262.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on June 24, 2005.
TRD-200502611
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: July 14, 2005
Proposal publication date: March 11, 2005
For further information, please call: (512) 305-8303
Chapter 115.
SECURITIES DEALERS AND AGENTS
Chapter 116.
INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES
Chapter 133.
FORMS
Chapter 139.
EXEMPTIONS BY RULE OR ORDER