[46 Pa.B. 3420]
[Saturday, July 2, 2016]

[Continued from previous Web Page]

CHAPTER 304. POSTREGISTRATION PROVISIONS

§ 304.011. Broker-dealer required records.

 [(a) Every broker-dealer registered under section 301 of the act (70 P.S. § 1-301) shall make and keep the records required to be maintained as described in Rule 17a-3 (17 CFR 240.17a-3) (relating to records to be made by certain exchange members, brokers and dealers) adopted under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78kk).]

 (a) Books and records.

 (1) Every broker-dealer registered under section 301 of the act (70 P.S. § 1-301) shall make and keep the records required to be maintained as described in Rule 17a-3 (17 CFR 240.17a-3) (relating to records to be made by certain exchange members, brokers and dealers) adopted under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78pp).

 (2) If a broker-dealer registered under the act and not registered as a broker or dealer with the Securities and Exchange Commission fails to make and keep current the books and records required under this section, the broker-dealer shall:

 (i) Notify the Department immediately.

 (ii) File a report with the Department, within 24 hours after filing the notice with the Department, stating what steps have been taken and are being taken to fully comply with this section.

 [(c)] (b) Records of complaints.

 (1) Every broker-dealer registered under the act shall make, keep and preserve [either a] one of the following:

 (i) A separate file of written complaints of customers and actions taken by the broker-dealer in response [thereto, or a].

 (ii) A separate record of the complaints and a clear reference to the files containing the correspondence connected with the complaint maintained by the broker-dealer. [A ''complaint'' shall be deemed to include]

 (2) For purposes of this section, a complaint includes a written statement of a customer or a person acting on behalf of a customer or a written notation of verbal communication alleging a grievance involving the purchase or sale of securities, the solicitation or execution of a transaction or the disposition of securities or funds of the customer.

 (3) A registered broker-dealer that also is registered as a broker or dealer with the [SEC shall be deemed to be] Securities and Exchange Commission is considered in compliance with the requirements of this subsection if it maintains records of customer complaints as [prescribed by applicable SEC] required under applicable Securities and Exchange Commission rules.

 [(d) The records required to be maintained under this section shall be retained and preserved for the period of time designated in Rule 17a-4 (17 CFR 240.17a-4) (relating to records to be preserved by certain exchange members, brokers and dealers) promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78kk) and made easily accessible for inspection by the Commission or its representatives. The retention and preservation of records as required in this section may be upon microfilm, microfiche, or any similar medium; electronic or digital storage medium; computer disks or tapes or other similar recording process if adequate facilities are maintained for the examination of the facsimiles and if enlargements or paper copies of the facsimiles can be provided promptly upon reasonable request of the Commission or its representatives.]

 (c) Retention. The records required to be maintained under this section:

 (1) Shall be retained and preserved for the period of time designated in Rule 17a-4 (17 CFR 240.17a-4) (relating to records to be preserved by certain exchange members, brokers and dealers) promulgated under the Securities Exchange Act of 1934.

 (2) Shall be made easily accessible for inspection by the Department or its representatives.

 (3) May be retained and preserved as:

 (i) Microfilm, microfiche or any similar medium.

 (ii) Electronic or digital storage medium.

 (iii) Computer disks or tapes, or other similar recording process if adequate facilities are maintained for the examination of the facsimiles and if enlargements or paper copies of the facsimiles can be provided promptly on reasonable request of the Department or its representatives.

§ 304.012. Investment adviser required records.

 (a) Except as provided in subsection (j), every investment adviser registered under the act shall make and keep true, accurate and current the following books, ledgers and records:

 (1) A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger.

 (2) General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts.

 (3) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of [any such] the order or instruction. [The 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 the order; and shall show the account for which entered, the date of entry, and the bank, broker-dealer by or through whom executed where appropriate. Orders entered pursuant to the exercise of discretionary power shall be so designated.] The memorandum must:

 (i) Show the terms and conditions of the order, instruction, modification or cancellation.

 (ii) Identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order.

 (iii) Show the account for which entered, the date of entry and the bank, broker-dealer by or through whom executed, if appropriate.

 (iv) Designate orders entered under the exercise of discretionary power.

 (4) [All check] Check books, bank statements, canceled checks and cash reconciliations of the investment adviser.

 (5) [All bills] Bills or statements (or copies of), paid or unpaid, relating to the investment adviser's business as an investment adviser.

 (6) [All trial] Trial balances, financial statements, net worth computation[,] and internal audit working papers relating to the investment adviser's business as an investment adviser.

 (i) For purposes of this subsection, ''financial statements'' [shall mean] means a balance sheet prepared in accordance with generally accepted accounting principles, an income statement and a cash flow statement.

 (ii) The net worth computation means the net worth required [by] under § 303.042 (relating to investment adviser capital requirements), if any.

 (7) Originals of [all] written communications received and copies of [all] written communications sent by the investment adviser relating to one or more of the following:

 (i) [Any] A recommendation made or proposed to be made and any advice given or proposed to be given.

 (ii) [Any] A receipt, disbursement or delivery of funds or securities.

 (iii) The placing or execution of [any] an order to purchase or sell any security, except that an investment adviser:

 (A) Is not required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser.

 (B) With respect to [any] a notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service sent by the investment adviser to more than [10] ten persons (including transmission by electronic means), the following apply:

 (I) The investment adviser is not required to keep a record of the names and addresses of the persons to whom it was sent [except, that if].

 (II) If the notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of the notice, circular or advertisement a memorandum describing the list and its source.

 (8) A list or other record of all accounts which list identifies the accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transactions of any client.

 (9) A copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser.

 (10) A copy in writing of each agreement entered into by the investment adviser with [any] a client, and all other written agreements otherwise relating to the investment adviser's business as an investment adviser.

 [(11) A file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication including by electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons (other than persons connected with the investment adviser), and if the notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication including by electronic media recommends the purchase or sale of a specific security and does not state the reasons for the recommendation, a memorandum of the investment adviser indicating the reasons for the recommendation.]

 (11) A file containing:

 (i) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons, other than persons connected with the investment adviser.

 (ii) A memorandum of the investment adviser indicating the reasons for the recommendation if the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media recommends the purchase or sale of a specific security and does not state the reasons for the recommendation.

 (12) Records of transactions as follows:

 (i) A record of every transaction in a security in which the investment adviser or investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership except:

 (A) Transactions effected in any account over which [neither] the investment adviser [nor any] or an investment adviser representative of the investment adviser [has any] does not have direct or indirect influence or control.

 (B) Transactions in securities which are direct obligations of the United States. The record [shall] must state:

 (I) The title and amount of the security involved; the date and nature of the transaction (that is, purchase, sale or other acquisition or disposition).

 (II) The price at which it was effected.

 (III) The name of the broker-dealer or bank with or through whom the transaction was effected.

 (ii) The record may also contain a statement declaring that the reporting or recording of any transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security.

 (iii) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

 [(iv) For purposes of this paragraph, the following terms have the following meanings:

 (A) Investment adviser representative—A partner, officer or director of the investment adviser; any employe who participates in any way in the determination of which recommendations shall be made; any employe of the investment adviser who, in connection with assigned duties, obtains any information concerning which securities are being recommended prior to the effective dissemination of the recommendations; and any of the following persons who obtain information concerning securities recommendations being made by the investment adviser prior to the effective dissemination of the recommendations:

 (I) Any person in a control relationship to the investment adviser.

 (II) Any affiliated person of a controlling person.

 (III) Any affiliated person of an affiliated person.

 (B) Control—The power to exercise a controlling influence over the management or policies of a company, unless the power is solely the result of an official position with the company. A person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control the company.

 (v)] (iv) An investment adviser shall implement adequate procedures and use reasonable diligence to obtain promptly reports of all transactions required to be recorded.

 (13) Records of transactions by investment advisers primarily engaged in a business other than advising clients as follows:

 (i) Notwithstanding paragraph (12), [when] if the investment adviser is primarily engaged in a business or businesses other than advising investment advisory clients, a record shall be maintained of every transaction in a security in which the investment adviser or any investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership, except transactions:

 (A) Effected in [any] an account over which [neither] the investment adviser [nor any] or an investment adviser representative of the investment adviser [has any] does not have direct or indirect influence or control.

 (B) In securities which are direct obligations of the United States. The record [shall] must state:

 (I) The title and amount of the security involved.

 (II) The date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition).

 (III) The price at which it was effected, and the name of the broker-dealer or bank with or through whom the transaction was effected.

 (ii) The record may also contain a statement declaring that the reporting or recording of any transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security.

 [(iii) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

 (iv) An investment adviser is ''primarily engaged in a business or businesses other than advising investment advisory clients'' when, for each of its most recent 3 fiscal years or for the period of time since organization, whichever is lesser, the investment adviser derived, on an unconsolidated basis, more than 50% of the following:

 (A) Its total sales and revenues.

 (B) Its income (or loss) before income taxes and extraordinary items, from other business or businesses.

 (v) For purposes of this paragraph, the following terms have the following meanings:

 (A) Investment adviser representative—When used in connection with a company primarily engaged in a business or businesses other than advising investment advisory clients, the term means any partner, officer, director or employe of the investment adviser who participates in any way in the determination of which recommendations shall be made; any employe who, in connection with assigned duties, obtains information concerning which securities are being recommended prior to the effective dissemination of the recommendations; and any of the following persons who obtain information concerning securities recommendations being made by the investment adviser prior to the effective dissemination of the recommendations as follows:

 (I) Any person in a control relationship to the investment adviser.

 (II) Any affiliated person of a controlling person.

 (III) Any affiliated person of an affiliated person.

 (B) Control—The power to exercise a controlling influence over the management or policies of a company, unless the power is solely the result of an official position with the company. A person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control the company.

 (vi)] (iii) An investment adviser shall implement adequate procedures and use reasonable diligence to promptly obtain reports of all transactions required to be recorded.

 (14) A copy of [each] the written statement and [each] the amendment or revision, given or sent to [any] a client or prospective client of the investment adviser under § 404.011 (relating to investment adviser brochure disclosure), and a record of the dates that [each] the written statement, and [each] the amendment or revision, was given, or offered to be given, to [any] a client or prospective client who subsequently becomes a client.

 (15) [For each client that was obtained by the adviser by means of a solicitor to whom a cash fee was paid by the adviser shall maintain the following] If the adviser obtained a client by means of a solicitor to whom the adviser paid a cash fee:

 (i) Evidence of a written agreement to which the adviser is a party related to the payment of the fee.

 (ii) A signed and dated acknowledgment of receipt from the client evidencing the client's receipt of the investment adviser's disclosure statement and a written disclosure statement of the solicitor.

 (iii) A copy of the solicitor's written disclosure statement if required [by] under § 404.012 (relating to cash payment for client solicitation).

 [(iv) For purposes of this paragraph, the term ''solicitor'' means any person or entity who, for compensation, directly or indirectly solicits any client for, or refers any client to, an investment adviser.]

 (16) [All accounts] Accounts, books, internal working papers, and any other records or documents [that are necessary] to form the basis for, or demonstrate the calculation of, the performance or rate of return of all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin[,] or other communication[, including but not limited to,]:

 (i) Includes electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons [(other than persons connected with the investment adviser) except], other than persons connected with the investment adviser.

 (ii) Except that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits[,] and other transactions in a client's account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts [shall be deemed] will be considered to satisfy the requirements of this paragraph.

 (17) A file containing a copy of [all] the written communications received or sent regarding any litigation involving the investment adviser or [any] an investment adviser representative or employe, and regarding [any] the written customer or client complaint.

 (18) Written information about [each] an investment advisory client that is the basis for making [any] a recommendation or providing [any] investment advice to the client.

 (19) Written procedures to supervise the activities of [employes] employees and investment adviser representatives that are reasonably designed to achieve compliance with applicable securities laws and regulations.

 (20) A file containing a copy of [each document (other than any notices of general dissemination) that was] the documents, other than notices of general dissemination, that were filed with or received from [any] a state or Federal agency or self-regulatory organization and that pertains to the registrant or its investment adviser representatives as that term is defined in [paragraph (12)] § 102.021(a) (relating to definitions), which file [should contain, but is not limited to,] may include all applications, amendments, renewal filings and correspondence.

 (21) A copy, with original signatures of the investment adviser's appropriate signatory and the investment adviser representative, of the initial Form U-4 and the amendment to Disclosure Reporting Pages (DRPs U-4) shall be retained by the investment adviser filing on behalf of the investment adviser representative and made available for inspection on regulatory request.

 (22) A ledger or other listing of all securities or funds held or obtained in this manner if the adviser has inadvertently held or obtained a client's securities or funds and returned them to the client within 3 business days or has forwarded third-party checks within 24 hours under the definition of ''custody'' in § 102.021(a), which ledger or other listing includes the following information:

 (i) The issuer.

 (ii) The type of security and series.

 (iii) The date of issue.

 (iv) The denomination, interest rate and maturity date for debt instruments.

 (v) The certificate number, including alphabetical prefix or suffix.

 (vi) The name in which the security is registered.

 (vii) The date given to the adviser.

 (viii) The date sent to client or sender.

 (ix) The form of delivery to client or sender, or copy of the form of delivery to client or sender.

 (x) The mail confirmation number, if applicable, or confirmation by client or sender of the fund's or security's return.

 (23) Written acknowledgements of receipts obtained from clients under § 404.012(b)(5) and copies of the disclosure documents provided to clients by solicitors under § 404.012(b)(4).

 (24) Written procedures relating to the business and continuity plan required under § 304.071 (relating to business continuity and succession planning).

 (b) For purposes of subsection (a)(12) and (13):

 (1) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

 (2) An investment adviser is ''primarily engaged in a business or businesses other than advising investment advisory clients'' when, for each of its most recent 3 fiscal years or for the time since organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50% of the following from other business or businesses:

 (i) Total sales and revenues.

 (ii) Income, or loss, before income taxes and extraordinary items.

 (3) An investment adviser shall implement adequate procedures and use reasonable diligence to promptly obtain reports of all transactions required to be recorded.

 [(b)] (c) If an investment adviser subject to subsection (a) has custody [or possession of securities or funds of any client], the records required to be made and kept [by] under subsection (a) also [shall] include:

 (1) A journal or other record showing all purchases, sales, receipts and deliveries of securities (including certificate numbers) for all accounts and all other debits and credits to the accounts.

 (2) A separate ledger account for each client showing all purchases, sales, receipts and deliveries of securities, the date and price of each purchase and sale, and all debits and credits.

 (3) [Copies] A copy of confirmations of all transactions effected by or for the account of any client.

 (4) A record for each security in which any client has a position, which record shall show the name of each client having any interest in each security, the amount or interest of each client, and the location of each security.

 (5) A copy of documents executed by the client, including a limited power of attorney, under which the adviser is authorized or permitted to withdraw a client's funds or securities maintained with a custodian on the adviser's instruction to the qualified custodian.

 (6) A copy of each of the client's quarterly account statements, as generated and delivered by the qualified custodian. If the adviser also generates a statement that is delivered to the client, the adviser shall also maintain copies of the statements along with the date the statements were sent to the clients.

 (7) If an investment adviser has custody because it advises a pooled investment vehicle and is relying on the exception from the minimum net worth requirement in § 303.042(a)(3)(ii), the adviser shall also keep:

 (i) True, accurate and current account statements.

 (ii) Documentation of the date of the audit.

 (iii) A copy of the audited financial statements.

 (iv) Evidence of the mailing of the audited financial to all limited partners, members or other beneficial owners within 120 days of the end of its fiscal year.

 (8) Records relating to the adviser's appointment as trustee and the identities of the beneficial owners of the trust if an investment adviser acts as trustee for a beneficial trust under § 102.021(a).

 [(c) Every] (d) An investment adviser subject to subsection (a) that [renders any] gives investment supervisory or management service to [any] a client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, make and keep true, accurate and current:

 (1) [Records showing separately] A separate record for each client showing the securities purchased and sold, and the date, amount and price of each purchase and sale.

 (2) For each security in which any client has a current position, information from which the investment adviser can promptly furnish the name of each client, and the current amount or interest of the client.

 [(d)] (e) Books or records required [by] under this section may be maintained by the investment adviser so that the identity of [any] a client to whom the investment adviser [renders] gives investment supervisory services is indicated by numerical or alphabetical code or some similar designation.

 [(e) Every] (f) An investment adviser subject to subsection (a) shall [preserve the following records in the manner prescribed] maintain:

 (1) [The books] Books and records required to be made under subsections (a), (b) and (c)(1) (except for books and records required to be made under subsection (a)(11) and [(a)(16)), shall be maintained and preserved] (16)), in an easily accessible place for at least 5 years from the end of the fiscal year during which the last entry was made on record, the first 2 years being in the principal office of the investment adviser.

 (2) Partnership articles and any amendments, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor, [shall be maintained] in the principal office of the investment adviser [and preserved until] for at least 3 years after termination of the enterprise.

 (3) Books and records required to be made under subsection (a)(11) and [(18) shall be maintained and preserved] (16) in an easily accessible place for at least 5 years, the first 2 years being in the principal office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media.

 [(4) Books and records required to be made under subsection (a)(19) and (22) shall be maintained and preserved in an easily accessible place for at least 5 years, the first 2 years being in the principal office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media.

 (5)] (4) Notwithstanding other record preservation requirements of this section, the following records or copies [shall be required to be maintained] at the business location of the investment adviser from which the customer or client is being provided or has been provided with investment advisory services:

 (i) Records required to be preserved under subsections (a)(3), (7)—(10), (14)[—], (15), (17)—(19) and (22)—(24), (b) and (c).

 (ii) Records or copies required under subsection (a)(11) and (16) which records or related records identify the name of the investment adviser representative providing investment advice from that business location, or which identify the business [locations'] location's physical address, mailing address, [electronic mailing] e-mail address or telephone number.

 [(f)] (g) An investment adviser subject to subsection (a), before ceasing to do business as an investment adviser, shall [arrange]:

 (1) Arrange and be responsible for the preservation of the books and records required to be maintained and preserved under this section for the remainder of the period specified in this section[, and shall notify the Commission].

 (2) Notify the Department in writing of the exact address where the books and records will be maintained during the period.

 [(g) The requirements for the storage of records are as follows:

 (1) Records required to be maintained and preserved under this section may be immediately produced or reproduced by photograph on film or, as provided in paragraph (2) on magnetic disk, tape or other computer storage medium, and be maintained and preserved for the required time in that form. If records are produced or reproduced by photographic film or computer storage medium, the investment adviser shall:

 (i) Arrange the records and index the films or computer storage medium so as to permit the immediate location of any particular record.

 (ii) Be ready at all times to provide, and promptly provide, any facsimile enlargement of film or computer printout or copy of the computer storage medium which the Commission by its examiners or other representatives may request.

 (iii) Store separately from the original one other copy of the film or computer storage medium for the time required.

 (iv) With respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration or destruction.

 (v) With respect to records stored on photographic film, at all times have available for the Commission's examination of its records under section 304(a) of the act (70 P.S. § 1-304(a)) facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements.

 (2) An investment adviser may maintain and preserve on computer tape or disk or other computer storage medium records which, in the ordinary course of the adviser's business, are created by the adviser on electronic media or are received by the adviser solely on electronic media or by electronic data transmission.

 (h) For purposes of this section, the following terms have the following meanings:

 Client—Any person to whom the investment adviser has given investment advice for which the investment adviser has received compensation.

 Investment supervisory services—The giving of continuous advice as to the investment of funds on the basis of the individual needs of each client. Discretionary power does not include discretion as to the price at which or the time when a transaction is or is to be effected, if, before the order is given by the investment adviser, the client has directed or approved the purchase or sale of a definite amount of the particular security.

 Principal place of business—The meaning set forth in 17 CFR 275.203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A. §§ 80b-1—80b-21).]

 (h) Record storage requirements are as follows:

 (1) Records required to be maintained and preserved for the required time by this section shall:

 (i) Be able to be immediately produced or reproduced.

 (ii) Be maintained and preserved in at least one of the following manners:

 (A) Paper or hard copy form, as those records are kept in their original form.

 (B) Micrographic media, including microfilm, microfiche or any similar medium.

 (C) Electronic storage media, including any digital storage medium or system that meets the terms of this section.

 (2) The investment adviser shall:

 (i) Arrange and index the records in a way that permits easy location, access and retrieval of any particular record.

 (ii) Provide promptly any of the following which the Department by its examiners or other representatives may request:

 (A) A legible, true and complete copy of the record in the medium and format in which it is stored.

 (B) A legible, true and complete printout of the record.

 (C) A means to access, view and print the records.

 (iii) Store separately from the original a copy of the record for the time required for preservation of the original record.

 (3) For records created or maintained on electronic storage media, the investment advisor shall establish and maintain procedures to:

 (i) Maintain and preserve the records to reasonably safeguard them from loss, alteration or destruction.

 (ii) Limit access to the records to properly authorized personnel and the Department, including its examiners and other representatives.

 (iii) Reasonably ensure that any reproduction of a nonelectronic original record on electronic storage media is complete, true and legible when retrieved.

 (i) [Any] A book or other record made, kept, maintained and preserved in compliance with Rules 17a-3 (17 CFR 240.17a-3) (relating to records to be made by certain exchange members, brokers and dealers) and 17a-4 (17 CFR 240.17a-4) (relating to records to be preserved by certain exchange members, brokers and dealers) under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—[78kk] 78pp), which is substantially the same as the book or other record required to be made, kept, maintained and preserved under this section, [shall be deemed] is considered to be made, kept, maintained and preserved in compliance with this section.

 (j) The requirements of this section do not apply to an investment adviser registered under section 301 of the act (70 P.S. § 1-301) that meets the following conditions:

 (1) Has its principal place of business in a state other than this Commonwealth.

 (2) Is licensed as an investment adviser in the state where it has its principal place of business.

 (3) Is in compliance with the recordkeeping requirements of the state in which it has its principal place of business.

§ 304.021. Broker-dealer required financial reports.

 (a) [Every] A broker-dealer registered under the act [which is] but not registered as a broker or dealer with the [United States] Securities and Exchange Commission [(SEC)] under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—[78kk] 78pp) shall file annually with the [Commission] Department a report [consisting of] which includes a statement of financial condition as of the end of its fiscal year and an income statement for the year then ended.

 (b) The annual report of financial condition filed under this section shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an unqualified opinion of an independent certified public accountant. The accountant shall submit as a supplementary opinion comments, based [upon] on the audit, as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures taken for safeguarding securities and shall indicate corrective action taken or proposed.

 (c) A broker-dealer registered under the act [which also is] and registered as a broker or dealer with the [SEC] Securities and Exchange Commission shall provide the [Commission] Department, within 5 days of receipt of a written or electronic request, a copy of any financial statement, financial report or other financial information required [by SEC] under Securities and Exchange Commission rules or the rules of a National securities association or National securities exchange registered with the [SEC] Securities and Exchange Commission of which the applicant is a member.

 (d) The report required [by this section] under subsection (a) shall be filed within 120 days following the end of the broker-dealer's fiscal year.

§ 304.022. Investment adviser required financial reports.

 [(a) Except as provided in subsections (b) and (c), the following investment advisers registered under section 301 of the act (70 P.S. § 1-301) shall file the following reports of financial condition with the Commission within 120 days of the investment adviser's fiscal year end:

 (1) An investment adviser that has custody of client funds or securities or requires prepayment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file with the Commission an audited balance sheet as of the end of its fiscal year. The balance sheet shall be prepared in accordance with generally accepted accounting principles and contain an unqualified opinion of an independent certified public accountant. The accountant shall submit, as a supplementary opinion, comments based on the audit as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures for safeguarding securities and funds, and shall indicate corrective action taken or proposed.

 (2) An investment adviser who has discretionary authority over client funds or securities, but not custody, shall file with the Commission a balance sheet as of the end of its fiscal year. The balance sheet need not be audited but shall be prepared in accordance with generally accepted accounting principles. The balance sheet shall contain a representation by the investment adviser that it is true and accurate.

 (b) The requirements of subsection (a) do not apply to an investment adviser registered under section 301 of the act whose principal place of business is in a state other than this Commonwealth if the investment adviser meets the following conditions:

 (1) Is registered in the state in which it maintains its principal place of business.

 (2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.

 (3) Has not taken custody of assets of any client residing in this Commonwealth at any time during the preceding 12 month period.

 (c) When an investment adviser registered under section 301 of the act inadvertently held or obtained a client's securities or funds and returned them to the client within 3 business days or has forwarded third party checks within 24 hours, the investment adviser will not be deemed to have custody and subject to the requirements of subsection (a) if the investment adviser maintains records which contains the following information about the securities or funds returned to the client:

 (1) If a security:

 (i) The name of the issuer.

 (ii) The type of security.

 (iii) The date of issuance.

 (iv) A certificate number or other identifying information.

 (v) The denomination, interest rate and maturity date applicable to a debt security.

 (vi) The name in which the securities are registered.

 (2) If funds:

 (i) The name of the payee or beneficial owner.

 (ii) The check number, transmittal number, payor name and address and any other identifying information.

 (3) The date on which the funds or securities were received by the investment adviser.

 (4) The date on which the funds or securities were sent by the investment adviser to the client.

 (5) The form of delivery used by the investment adviser to transmit the funds or securities to the client and a copy of written confirmation of receipt of the funds or securities by the client.

 (d) For purposes of this section, the following term has the following meaning:

 Principal place of business—The meaning set forth in 17 CFR 275-203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A. §§ 80b-1—80b-21).]

 (a) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) that has custody of client funds or securities or requires prepayment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file with the Department an audited balance sheet as of the end of its fiscal year with the following conditions:

 (1) The balance sheet shall be prepared in accordance with generally accepted accounting principles and contain an unqualified opinion of an independent certified public accountant.

 (2) The accountant shall submit, as a supplementary opinion, comments based on the audit as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures for safeguarding securities and funds, and shall indicate corrective action taken or proposed.

 (b) An investment adviser registered under section 301 of the act that has discretionary authority over client funds or securities, but not custody, shall file with the Department a balance sheet as of the end of its fiscal year with the following conditions:

 (1) The balance sheet is not required to be audited but shall be prepared in accordance with generally accepted accounting principles.

 (2) The balance sheet must contain a representation by the investment adviser that it is true and accurate.

 (c) A sole proprietor registered under section 301 of the act required to file an affirmative statement under § 303.012(c)(3) (relating to investment adviser registration procedure) shall file with the Department an affirmative statement as of the end of its fiscal year.

 (d) Except as provided in subsections (e) and (f), investment advisers required to file the reports of financial condition set forth in subsections (a)—(c) shall file the reports with the Department within 120 days of the investment adviser's fiscal year end.

 (e) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act whose principal place of business is in a state other than this Commonwealth if the investment adviser:

 (1) Is registered in the state in which it maintains its principal place of business.

 (2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.

 (3) Has not taken custody of assets of any client residing in this Commonwealth at any time during the preceding 12-month period.

 (f) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act who:

 (1) Has custody of client funds or securities solely as a result of activities set forth in § 303.042(a)(3) (relating to investment adviser capital requirements).

 (2) Is in compliance with the requirements set forth in § 303.042(a)(3).

§ 304.041. Examinations of broker-dealers and investment advisers.

 (a) In the conduct of an examination authorized under section 304(d) of the act (70 P.S. § 1-304(d)), every broker-dealer and investment adviser registered under the act [shall]:

 (1) Shall honor all requests by representatives of the [Commission] Department to have physical access to all areas of the office which is the subject of the examination [and, upon request, shall permit them].

 (2) Shall permit the Department to review and examine the files in the physical place where the files routinely are maintained on request.

 [In complying with a request,] (3) May accompany the representatives of the Department themselves or through a representative of the broker-dealer or investment adviser [may accompany the representatives of the Commission].

 (b) Files referred to in subsection (a) include[, but are not limited to,] books, ledgers, accounts, records[,] and electronic files required to be kept by broker-dealers and investment advisers in accordance with this chapter, rules of the [United States] Securities and Exchange Commission [or] and rules of a National Securities Exchange or National securities association registered with the [United States] Securities and Exchange Commission, and any document reasonably related to these required records.

§ 304.051. Broker-dealer compensation.

 [No] (a) A broker-dealer registered under the act may not charge or receive commissions or other compensation in connection with the purchase or sale of securities [unless the compensation is fair and reasonable and is determined on an equitable basis, adequately disclosed to each customer in writing at or prior to final confirmation].

 (b) The prohibition contained in subsection (a) does not apply if the compensation is:

 (1) Fair and reasonable.

 (2) Determined on an equitable basis.

 (3) Adequately disclosed to each customer in writing at or before final confirmation.

 (c) Compensation which complies with the Conduct Rules of [the National Association of Securities Dealers, Inc. shall be deemed] FINRA will be considered fair and reasonable and, unless otherwise required to be disclosed in writing by the Conduct Rules, [need not be] does not need to be disclosed in writing.

§ 304.061. Free credit balances.

 [No broker-dealer registered or required to register under the act may use funds arising out of a free credit balance carried for the account of a customer in connection with the operation of the business of the broker-dealer unless the broker-dealer has established adequate procedures under which each customer for whom a free credit balance is carried will be given or sent, together with or as a part of the customer's statement of account, whenever sent but not less frequently than once every 3 months, a written statement informing the customer of the amount due to the customer by the broker-dealer on the date of the statement and containing a written notice that:

 (1) Funds are not segregated and may be used in the business of the broker-dealer.

 (2) Funds are payable on the demand of the customer.

 For the purpose of this section, the term ''customer'' means every person other than the broker-dealer.]

 (a) A broker-dealer registered or required to register under the act may not use funds arising out of a free credit balance carried for the account of a customer in connection with the operation of the business of the broker-dealer.

 (b) The prohibition contained in subsection (a) does not apply if the broker-dealer has established adequate procedures under which each customer for whom a free credit balance is carried will be given or sent a written statement which:

 (1) Informs the customer of the amount due to the customer by the broker-dealer on the date of the statement.

 (2) Contains a written notice that:

 (i) Funds are not segregated and may be used in the business of the broker-dealer.

 (ii) Funds are payable on the demand of the customer.

 (iii) Is sent no less than once every 3 months together with or as a part of the customer's statement of account.

 (Editor's Note: The following section is new and printed in regular type to enhance readability.)

§ 304.071. Business continuity and succession planning.

 (a) An investment adviser shall establish, implement and maintain written procedures relating to a business continuity and succession plan.

 (b) The investment adviser shall base the business continuity and succession plan on the facts and circumstances of the investment adviser's business model including the size of the firm, type of services provided and the number of locations of the investment adviser.

 (c) The business continuity and succession plan must provide for at least the following:

 (1) Protection, backup and recovery of books and records.

 (2) Alternate means of communicating notice to customers, key personnel, employees, vendors, regulators and service providers, including third-party custodians, about issues such as:

 (i) A significant business interruption.

 (ii) The death or unavailability of key personnel.

 (iii) Other disruptions or cessation of business activities.

 (3) Office relocation if a temporary or permanent loss of a principal place of business occurs.

 (4) Assignment of duties to a qualified responsible person if the death or unavailability of key personnel occurs.

 (5) Otherwise minimizing service disruptions and client harm that could result from a sudden significant business interruption.

CHAPTER 305. DENIAL, SUSPENSION, REVOCATION AND CONDITIONING OF REGISTRATION

§ 305.011. Supervision of agents, investment adviser representatives and employees.

 (a) Every broker-dealer and investment adviser registered under section 301 of the act (70 P.S. § 1-301) shall exercise diligent supervision over the securities activities and securities related activities of its agents, investment adviser representatives and employees[.] by:

 (1) [Each broker-dealer and investment adviser, in exercising diligent supervision, shall establish and maintain] Establishing and maintaining written procedures and a system for applying and enforcing those written procedures which are reasonably designed to [achieve]:

 (i) Achieve compliance with the act and this title [and to detect].

 (ii) Detect and prevent any violations of statutes, rules, regulations or orders described in [section] any of the following:

 (A) Section 305(a)(v) and (ix) of the act (70 P.S. § 1-305(a)(v) and (ix))[, the Conduct Rules of the National Association of Securities Dealers, Inc., or any].

 (B) The Conduct Rules of FINRA.

 (C) An applicable fair practice or ethical standard promulgated by the [United States] Securities and Exchange Commission or by a National Securities Exchange registered under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—[78kk] 78pp).

 (2) [Final] Accepting final responsibility for proper supervision [shall rest with the broker-dealer and investment adviser].

 (b) Every issuer who employs agents registered under section 301 of the act shall be subject to the supervision requirements of subsection (a) with respect to those agents.

 (c) As evidence of compliance with the supervisory obligations imposed by this section, [every] a broker-dealer [and] or investment adviser shall [implement]:

 (1) Implement written procedures, a copy of which shall be kept in each location at which the broker-dealer or investment adviser conducts business[, and shall establish].

 (2) Establish, maintain and enforce those written procedures designed to achieve compliance with the act and this title and to detect and prevent violations described in subsection (a).

 [These] (d) The written procedures required under subsection (c), at a minimum, [shall] must address:

 (1) The supervision of every agent, investment adviser representative, employee and supervisor by a designated qualified supervisor.

 (2) [Methods] The methods to be used to determine that all supervisory personnel are qualified by virtue of character, experience and training to carry out their assigned responsibilities.

 (3) [Methods] The methods to be used to determine the good character, business repute, qualifications[,] and experience of any person [prior to] before making application for registration of that person with the [Commission] Department and hiring that person.

 (4) The review and written approval by the designated supervisor of the opening of each new customer account.

 (5) The frequent examination of customer accounts to detect and prevent violations, irregularities or abuses.

 (6) The prompt review and written approval of the handling of customer complaints.

 (7) The prompt review and written approval by the designated supervisor of all securities transactions and all correspondence pertaining to the solicitation or execution of all securities transactions.

 (8) The review and written approval by the designated supervisor of the delegation by a customer of discretionary authority with respect to the customer's account and frequent examination of discretionary accounts to prevent violations, irregularities or abuses.

 (9) The participation of each agent and investment adviser representative either individually or collectively, no less than annually, in an interview or meeting conducted by persons designated by the broker-dealer or investment adviser at which compliance matters relevant to the activities of the agents and investment adviser representatives are discussed. Written records shall be maintained reflecting the interview or meeting.

 (10) The periodic inspection of each location in this Commonwealth from which business is conducted to ensure that the written procedures and systems are enforced. [In establishing an inspection cycle, the broker-dealer and investment adviser 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 agents or investment adviser representatives assigned to the location. The obligation of diligent supervision required by this section may require that one or more locations of a broker-dealer or investment adviser in this Commonwealth receive more inspections or be on a periodic inspection cycle different than other locations of the broker-dealer or investment adviser in this Commonwealth and that inspections be unannounced. In acquitting their obligations under this section, registrants are to consult NASD Notice to Members 98-38 (May 1998) and SEC Release No. 34-38174 (January 15, 1997). In accordance with NASD Notice to Members 98-38, unannounced visits may be appropriate when there are indicators of misconduct such as receipt of significant customer complaints; personnel with disciplinary records; or excessive trade corrections, extensions, liquidations, or variable contract replacements.

 (i) An office of supervisory jurisdiction of a broker-dealer shall be inspected at least annually. Branch offices and nonbranch locations of a broker-dealer shall be inspected in accordance with an inspection cycle established in the broker-dealer's written supervisory procedures.

 (ii) It is the responsibility of the broker-dealer or investment adviser to ensure through inspections of each location in this Commonwealth that the written procedures and systems are enforced and the supervisory obligations imposed by this section are being honored.

 (iii) Written records shall be maintained reflecting each inspection conducted.

 (iv) For purposes of this section, the terms ''office of supervisory jurisdiction'' and ''branch office'' shall have the same meaning as those terms are defined in NASD Conduct Rule 3010(g) or any successor thereto. The term ''nonbranch location'' means any location at which a broker-dealer is conducting a securities business that does not come within the definition of ''office of supervisory jurisdiction'' or ''branch office.''

 (d) Records required to be maintained under this section shall be maintained for 5 years, the first 2 years being in an easily accessible place. The retention and preservation of records may be on microfilm, computer disks or tapes or other electronic medium if adequate facilities are maintained for examination of facsimiles.]

 (e) The periodic inspections referenced in subsection (d)(10) shall occur according to the following time frames:

 (1) At least annually for an office of supervisory jurisdiction of a broker-dealer.

 (2) In accordance with an inspection cycle established in the broker-dealer's written supervisory procedures for branch offices and nonbranch locations of a broker-dealer.

 (i) In establishing an inspection cycle, the broker-dealer and investment adviser 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 agents or investment adviser representatives assigned to the location.

 (ii) The obligation of diligent supervision required under this section may require that one or more locations of a broker-dealer or investment adviser in this Commonwealth receive more inspections or be on a periodic inspection cycle different than other locations of the broker-dealer or investment adviser in this Commonwealth and that inspections be unannounced.

 (f) It is the responsibility of the broker-dealer or investment adviser to ensure through inspections of each location in this Commonwealth that the written procedures and systems are enforced and the supervisory obligations imposed by this section are being honored.

 (g) Written records shall be maintained reflecting each inspection conducted.

 (h) In acquitting their obligations under this section, registrants are to consult FINRA Notice to Members 98-38 (May 1998) and Securities and Exchange Commission Release No. 34-38174 (January 15, 1997).

 (i) In accordance with FINRA Notice to Members 98-38, unannounced visits may be appropriate if there are indicators of misconduct including any of the following:

 (1) Significant customer complaints.

 (2) Personnel with disciplinary records.

 (3) Excessive trade corrections, extensions, liquidations or variable contract replacements.

 (j) Records required under this section:

 (1) Shall be maintained for 5 years.

 (2) Shall be maintained in an easily accessible place for the first 2 years.

 (3) May be retained and preserved on microfilm, computer disks or tapes, or other electronic medium if adequate facilities are maintained for examination of facsimiles.

 [(e)] (k) To the extent that this section imposes any recordkeeping requirement on an investment adviser registered under section 301 of the act [(70 P.S. § 1-301)], the recordkeeping requirement does not apply if the investment adviser meets the following conditions:

 (1) Has its principal place of business in a state other than this Commonwealth.

 (2) Is licensed as an investment adviser in the state where it has its principal place of business.

 (3) Is in compliance with the recordkeeping requirements of the state in which it has its principal place of business.

§ 305.012. [Convicted] (Reserved).

 [The term ''convicted,'' as used in section 305(a)(ii) of the act (70 P.S. § 1-305(a)(ii)), includes a verdict, judgment or plea of guilty, or a finding of guilt on a plea of nolo contendere if the verdict, judgment, plea or finding has not been reversed, set aside or withdrawn, whether or not sentence has been imposed.]

§ 305.019. Dishonest and unethical practices.

 (a) Every person registered under section 301 of the act (70 P.S. § 1-301) is a fiduciary and [has a duty to act] shall:

 (1) Act primarily for the benefit of its customers.

 [Further, these persons shall observe] (2) Observe high standards of commercial honor and just and equitable principals of trade in the conduct of their business.

 (b) Under section 305(a)(ix) of the act (70 P.S. § 1-305(a)(ix)), the [Commission] Department may deny, suspend, condition or revoke a broker-dealer, agent, investment adviser or investment adviser representative registration or censure a broker-dealer, agent, investment adviser or investment adviser representative registrant if the registrant or applicant, or in the case of any broker-dealer or investment adviser, any affiliate [thereof], has engaged in dishonest or unethical practices in the securities business or has taken unfair advantage of a customer.

 (c) The [Commission] Department, for purposes of section 305(a)(ix) of the act, will consider [the actions] actions such as those in paragraphs (1)—(3) to constitute dishonest or unethical practices in the securities business or taking unfair advantage of a customer. [The conduct described in paragraphs (1)—(3) is not exclusive. Engaging in other conduct inconsistent with the standards in subsection (a), such as forgery, embezzlement, nondisclosure, incomplete disclosure or misstatement of material facts, or manipulative or deceptive practices or taking unfair advantage of a customer or former customer in any aspect of a tender offer also constitute grounds for denial, suspension, conditioning or revocation of any registration or application for registration of a broker-dealer, agent, investment adviser or investment adviser representative.]

 (1) Broker-dealers. Includes the following actions:

 (i) Engaging in a pattern of unreasonable and unjustifiable delays in the delivery of securities purchased by any of its customers or in the payment [upon] on request of free credit balances reflecting completed transactions of any of its customers.

 (ii) Inducing trading in a customer's account which is excessive in size or frequency in view of the financial resources and character of the account.

 (iii) Recommending to a customer the purchase, sale or exchange of a security without reasonable grounds to believe that the transaction or recommendation is suitable for the customer based [upon] on reasonable inquiry concerning the customer's investment objectives, financial situation and needs and other relevant information known by the broker-dealer.

 (iv) Executing a transaction on behalf of a customer without authorization to do so.

 (v) Exercising discretionary power in effecting a transaction for a customer's account without first obtaining written discretionary authority from the customer, unless the discretionary power relates solely to the time or price, or both, for the execution of orders.

 (vi) Executing a transaction in a margin account without securing from the customer a properly executed written margin agreement promptly after the initial transaction in the account.

 (vii) Failing to segregate customers' free securities or securities held in safekeeping.

 (viii) Hypothecating a customer's securities without having a lien thereon unless the broker-dealer secures from the customer a properly executed written consent promptly after the initial transaction, except as permitted by rules of the Securities and Exchange Commission.

 (ix) Entering into a transaction with or for a customer at a price not reasonably related to the current market price of the security or receiving an unreasonable commission or profit.

 (x) Failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include information set forth in the final prospectus.

 (xi) Charging unreasonable and inequitable fees for services performed, including miscellaneous services such as collection of moneys due for principal, dividends or interest, exchange or transfer of securities, appraisals, safekeeping or custody of securities and other services related to its securities business.

 (xii) Offering to buy from or sell to a person at a stated price unless the broker-dealer is prepared to purchase or sell at a price and under the conditions that are stated at the time of the offer to buy or sell.

 (xiii) Representing that a security is being offered to a customer ''at the market'' or a price relevant to the market price unless the broker-dealer knows or has reasonable grounds to believe that a market for the security exists other than that made, created or controlled by the broker-dealer, or by a person for whom the broker-dealer is acting or with whom is associated in the distribution, or a person controlled by, controlling or under common control with the broker-dealer.

 (xiv) Effecting a transaction in, or inducing the purchase or sale of, a security by means of a manipulative, deceptive or fraudulent device, practice, plan, program, design or contrivance, which may include:

 (A) Effecting a transaction in a security which involves no change in the beneficial ownership [thereof].

 (B) Entering an order for the purchase or sale of a security with the knowledge that an order of substantially the same size, at substantially the same time and substantially the same price, for the sale of the security, has been or will be entered by or for the same or different parties [for the purpose of creating] to create a false or misleading appearance of active trading in the security or a false or misleading appearance with respect to the market for the security. [Nothing in this subsection prohibits] This subsection does not prohibit a broker-dealer from entering bona fide agency cross transactions for its customers.

 (C) Effecting, along or with one or more other persons, a series of transactions in a security creating actual or apparent active trading in the security or raising or depressing the price of the security, [for the purpose of inducing] to induce the purchase or sale of the security by others.

 (xv) Guaranteeing a customer against loss in a securities account of the customer carried by the broker-dealer or in a securities transaction effected by the broker-dealer with or for the customer.

 (xvi) Publishing or circulating, or causing to be published or circulated, a notice, circular, advertisement, newspaper article, investment service or communication of any kind which purports to report a transaction as a purchase or sale of a security unless the broker-dealer believes that the transaction was a bona fide purchase or sale of the security; or which purports to quote the bid price or asked price for a security, unless the broker-dealer believes that the quotation represents a bona fide bid for, or offer of, the security.

 (xvii) Using advertising or sales presentation in [such] a fashion as to be deceptive or misleading. An example of this practice would be a distribution of nonfactual data, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in a brochure, flyer or display by words, pictures, graphs or otherwise designed to supplement, detract from, supersede or defeat the purpose or effect of a prospectus or disclosure.

 (xviii) Failing to disclose that the broker-dealer is controlled by, controlling, affiliated with or under common control with the issuer of a security before entering into a contract with or for a customer for the purchase or sale of the security, the existence of the control to the customer, and if the disclosure is not made in writing, it shall be supplemented by the giving or sending of written disclosure at or before the completion of the transaction.

 (xix) Failing to make a bona fide public offering of all of the securities allotted to a broker-dealer for distribution, whether acquired as an underwriter, a selling group member or from a member participating in the distribution as an underwriter or selling group member.

 (xx) [Failure or refusal] Failing or refusing to furnish a customer, [upon] on reasonable request, information to which he is entitled, or to respond to a formal written request or complaint.

 (xxi) Failing to comply with an applicable [provision of the Rules of Fair Practice of the National Association of Securities Dealers or an applicable] fair practice or ethical standard promulgated by the Securities and Exchange Commission or by a self-regulatory organization approved by the Securities and Exchange Commission.

 (xxii) Failing to comply with investor suitability standards imposed as a condition of the registration of securities under section 205 or 206 of the act (70 P.S. [§ 1-205 or § 1-206] §§ 1-205 and 1-206) in connection with the offer, sale or purchase of a security in this Commonwealth.

 (2) Agents. Includes the following actions:

 (i) Engaging in the practice of lending or borrowing money or securities from a customer, or acting as a custodian for money, securities or an executed stock power of a customer.

 (ii) Effecting securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer [prior to] before execution of the transaction.

 (iii) Establishing or maintaining an account containing fictitious information [in order] to execute transactions which would otherwise be prohibited.

 (iv) Sharing directly or indirectly in profits or losses in the account of a customer without the written authorization of the customer and the broker-dealer which the agent represents.

 (v) Dividing or otherwise splitting the agent's commissions, profits or other compensation from the purchase or sale of securities with a person not also registered as an agent for the same broker-dealer, or for a broker-dealer under direct or indirect common control.

 (vi) Engaging in conduct specified in paragraph (1)(ii)—(vi), (ix), (x), (xiv)—(xvii), (xxi) and (xxii).

 (3) Investment advisers and investment adviser representatives. Includes the following actions:

 (i) Recommending to a client to whom investment supervisory, management or consulting services are provided the purchase, sale or exchange of a security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known by the investment adviser or investment adviser representative.

 (ii) Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within 10 business days after the date of the first transaction placed under oral discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.

 (iii) Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives and character of the account.

 (iv) Placing an order to purchase or sell a security for the account of a client without authority to do so.

 (v) Placing an order to purchase or sell a security for the account of a client [upon] on instruction of a third party without first having obtained a written third-party trading authorization from the client.

 (vi) Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser[,] or a financial institution engaged in the business of loaning funds.

 (vii) Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.

 (viii) Misrepresenting to an advisory client, or prospective advisory client, the qualifications of the investment adviser, investment adviser representative or an employee of the investment adviser or misrepresenting the nature of the advisory services being offered or fees to be charged for the service, or to omit to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.

 (ix) Providing a report or recommendation to an advisory client prepared by someone other than the investment adviser or investment adviser representative without disclosing that fact. This prohibition does not apply to a situation where the investment adviser or investment adviser representative uses published research reports or statistical analyses to [render] give advice or where an investment adviser or investment adviser representative orders the report in the normal course of providing advice.

 (x) Charging a client an unreasonable advisory fee.

 (xi) Failing to disclose to [clients] a client in writing, before advice is [rendered] given, a material conflict of interest relating to the investment adviser, the investment adviser representative or an employee of the investment adviser which could reasonably be expected to impair the [rendering] giving of unbiased and objective advice including:

 (A) [Compensation arrangements] A compensation arrangement connected with advisory services to [clients which are] a client which is in addition to compensation from the [clients] client for the services.

 (B) [Charging a client an advisory fee for rendering] An advisory fee charged to a client for giving advice when a commission for executing securities transactions [pursuant to] under the advice will be received by the investment adviser, the investment adviser representative or an employee or affiliated person of the investment adviser.

 (xii) Guaranteeing a client that a specific result will be achieved[—gain or no loss—], either a gain or no loss, with advice which will be [rendered] given.

 (xiii) Publishing, circulating or distributing an advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940 (15 U.S.C.A. §§ 80b-1—80b-21).

 (xiv) Disclosing the identity, [affairs or] investments or other financial information of a client unless required [by] under law to do so, or unless consented to by the client.

 (xv) Taking an action, directly or indirectly, with respect to those securities or funds in which a client has a beneficial interest, where the investment adviser has custody or possession of the securities or funds when the adviser's action is subject to, and does not comply with, the requirements of [§ 404.013 (relating to investment adviser custody or possession of funds or securities of clients)] § 404.014 (relating to custody requirements for investment advisers).

 (xvi) Entering into, extending or renewing an investment advisory contract unless the contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of a prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the adviser and that no assignment of the contract shall be made by the investment adviser without the consent of the other party to the contract.

 (xvii) Failing to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information contrary to the provisions of section 204a of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-4a) and the rules and regulations of the [United States] Securities and Exchange Commission promulgated thereunder.

 (xviii) Entering into, extending, or renewing any advisory contract contrary to the provisions of section 205 of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-5) and the rules and regulations of the [United States] Securities and Exchange Commission promulgated thereunder. This applies to all investment advisers and investment adviser representatives registered under section 301 of the act [(70 P.S. § 1-301)] notwithstanding whether the investment adviser is exempt from registration with the [United States] Securities and Exchange Commission under section 203(b) of the Investment Advisers Act of 1940 (15 U.S.C.A. § [80b-3] 80b-3(b)).

 (xix) [To indicate] Indicating, in an advisory contract, any condition, stipulation or provision binding any person to waive compliance with any provision of the act.

 (xx) Engaging in any act, practice or course of business which is fraudulent, deceptive or manipulative or contrary to the provisions of section 206(4) of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-6(4)) and the rules and regulations of the [United States] Securities and Exchange Commission promulgated thereunder. This applies to all investment advisers and investment adviser representatives registered under section 301 of the act notwithstanding whether the investment adviser is exempt from registration with the United States Securities and Exchange Commission under section 203(b) of the Investment Advisers Act of 1940.

 (xxi) Engaging in conduct or committing any act, directly, indirectly or through or by another person, which would be unlawful for the person to do directly under [the provisions of this] the act or any rule, regulation or order issued thereunder.

 [(d) This section does not apply to Federally-covered advisers unless the conduct otherwise is actionable under section 401(a) or (c) or 404 of the act (70 P.S. § 1-401(a) or (c) or 1-404).]

 (d) In addition to the conduct described in paragraphs (1)—(3), the Department may deny, suspend, condition or revoke a registration or application for registration of a broker-dealer, agent, investment adviser or investment adviser representative for conduct inconsistent with the standards in subsection (a), including any of the following:

 (1) Forgery.

 (2) Embezzlement.

 (3) Nondisclosure, incomplete disclosure or misstatement of material facts.

 (4) Manipulative or deceptive practices.

 (5) Taking unfair advantage of a customer or former customer in any aspect of a tender offer.

 (e) This section does not apply to Federally covered advisers unless the conduct otherwise is actionable under section 401(a) or (c) or 404 of the act (70 P.S. §§ 1-401(a) and (c) and 1-404).

 (Editor's Note: The following section is new and printed in regular type to enhance readability.)

§ 305.020. Use of senior specific certifications and professional designations.

 (a) General rule. The use of a senior specific certification or designation by a person in connection with the offer, sale or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to securities, that indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees, in a way as to mislead any person is a dishonest and unethical practice in the securities business within the meaning of section 305(a)(ix) of the act (70 P.S. § 1-305(a)(ix)).

 (b) Prohibitions. The prohibited use of senior specific certification or professional designation includes the use of:

 (1) A certification or professional designation by a person who has not actually earned or is otherwise ineligible to use the certification or designation.

 (2) A nonexistent or self-conferred certification or professional designation.

 (3) A certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training or experience that the person using the certification or professional designation does not have.

 (4) A certification or professional designation that was obtained from a designating or certifying organization to which any of the following apply:

 (i) Is primarily engaged in the business of instruction in sales or marketing, or both.

 (ii) Does not have reasonable standards or procedures for assuring the competency of its designees or certificants.

 (iii) Does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct.

 (iv) Does not have reasonable continuing education requirements for its designees or certificants to maintain the designation or certificate.

 (c) Rebuttable presumption. There is a rebuttable presumption that a designating or certifying organization is not disqualified solely for purposes of subsection (b)(4) when the organization has been accredited by any of the following:

 (1) The American National Standards Institute.

 (2) The National Commission for Certifying Agencies.

 (3) An organization that is on the United States Department of Education's ''Accrediting Agencies Recognized for Title IV Purposes'' list and the designation or credential issued therefrom does not primarily apply to sales or marketing, or both.

 (d) Factors to be considered. In determining whether a combination of words, or an acronym standing for a combination of words, constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing senior citizens or retirees, the Department will consider the following factors:

 (1) Use of one or more words such as ''senior,'' ''retirement,'' ''elder'' or like words, combined with one or more words such as ''certified,'' ''registered,'' ''chartered,'' ''adviser,'' ''specialist,'' ''consultant,'' ''planner'' or like words, in the name of the certification or professional designation.

 (2) How those words are combined.

 (e) Exception. For purposes of this section, a certification or professional designation does not include a job title within an organization that is licensed or registered by a state or Federal financial services regulatory agency, including an agency that regulates broker-dealers, investment advisers or investment companies as defined under the Investment Company Act of 1940 (15 U.S.C.A. §§ 80-1—80-64), when that job title does either of the following:

 (1) Indicates seniority or standing within the organization.

 (2) Specifies an individual's area of specialization within the organization.

 (f) No limitation on Department enforcement. This section does not limit the Department's authority to enforce existing provisions of law.

§ 305.061. Withdrawal of registration or notice filing.

 (a) [The following applies to investment advisers that want to] Investment adviser. To withdraw from registration as an investment adviser registered under section 301 of the act (70 P.S. § 1-301) because the investment adviser has:

 (1) [For an investment adviser that seeks to withdraw from registration under section 301 of the act because the investment adviser has become a Federally-covered] Become a Federally covered adviser subject to exclusive registration with the [United States] Securities and Exchange Commission, the investment adviser shall file an amendment to the uniform application for investment adviser registration (Form ADV) or successor form thereto with the [Commission] Department or with an investment adviser registration depository designated by [order of the Commission] the Department.

 (2) [For an investment adviser that seeks to withdraw from registration under section 301 of the act because the investment adviser no longer transacts] Stopped transacting business in this Commonwealth as an investment adviser, the investment adviser shall file a notice of withdrawal from registration as an investment adviser form (Form ADV-W)[,] or a successor form with the [Commission] Department or with an investment adviser registration depository designated by [order of the Commission] the Department.

 (b) [An application to] Broker-dealer. To withdraw from registration as a broker-dealer [shall contain the information requested in and shall be made on], the broker-dealer shall file a completed Uniform Request for Withdrawal from Registration as a Broker-Dealer Form (Form BDW) or a successor form with the Department.

 (c) Investment adviser representative. To withdraw from registration as investment adviser representative, the investment adviser or Federally covered adviser for whom the investment adviser representative was employed shall file the Uniform Termination Notice for Securities/Futures Industry Registration (Form U-5) or a successor form [thereto] with the [Commission] Department or with an investment adviser registration depository designated by [order of the Commission] the Department within 30 days from the date of termination.

 (d) Agent of a broker-dealer or an issuer. To withdraw from registration as an agent of a broker-dealer or an issuer, the broker-dealer or issuer shall file Form U-5 or successor form [thereto with the Commission] with the Department within 30 days from the date of termination.

 (e) Federally covered adviser. To withdraw a notice filing, a [Federally-covered] Federally covered adviser shall file a notice with the [Commission] Department or with an investment adviser registration depository designated by [order of the Commission] the Department.

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