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PA Bulletin, Doc. No. 98-1101

STATEMENTS OF POLICY

Title 64--SECURITIES

SECURITIES COMMISSION

[64 PA. CODE CH. 604]

Internet Use

[28 Pa.B. 3302]

   The Securities Commission (Commission) has adopted a statement of policy in § 604.020 (relating to broker-dealers, investment advisers, broker-dealer agents and investment adviser representatives using the Internet for general dissemination of information on products and services--statement of policy) to read as set forth in Annex A.

A.  Effective Date

   The statement of policy shall be effective upon publication in the Pennsylvania Bulletin.

B.  Statutory Reference

   Section 301 of the Pennsylvania Securities Act of 1972 (70 P. S. § 1-301) (act) requires registration with the Commission of persons acting as a broker-dealer, investment adviser, broker-dealer agent or investment adviser representative in this Commonwealth, subject to certain limited exemptions. Broker-dealers, investment advisers, broker-dealer agents and investment adviser representatives increasingly are using the Internet, including individual home pages, to disseminate information on investment products and services which they offer. This information may be accessed by any Pennsylvania citizen with a computer and a connection to the Internet.

C.  Summary and Purpose

   The purpose of the statement of policy is to make available publicly the views of the Commission concerning when broker-dealers, investment advisers, broker-dealer agents and investment adviser representatives using the Internet to provide information on products and services are subject to the registration requirements of section 301 of the act. The statement of policy outlines the types of general information that may be disseminated on the Internet by broker-dealers, investment advisers, broker-dealer agents and investment adviser representatives without registration under the act if certain disclaimers are stated and authorizations obtained. This statement of policy is identical to one adopted by the North American Securities Administrators Association (NASAA), an organization of state securities regulators. This uniform policy is intended to be adopted by all state jurisdictions and is similar to another NASAA position concerning securities offered on the Internet which the Commission adopted in § 203.190 (relating to certain Internet offers exempt).

M. JOANNA CUMMINGS,   
Secretary

   (Editor's Note: The regulations of the Securities Commission, 64 Pa. Code Chapter 604, are amended by adding a statement of policy in § 604.020 to read as set forth in Annex A.)

   Fiscal Note: 50-111. No fiscal impact; (8) recommends adoption.

Annex A

TITLE 64.  SECURITIES

PART I.  PENNSYLVANIA SECURITIES COMMISSION

Subpart F.  ADMINISTRATION

CHAPTER 604.  INTERPRETIVE OPINIONS OF COMMISSION--STATEMENT OF POLICIES

§ 604.020.  Broker-dealers, investment advisers, broker-dealer agents and investment adviser representatives using the Internet for general dissemination of information on products and services--statement of policy.

   (a)  Section 301(a) of the act (70 P. S. § 1-301(a)) provides that ''[i]t is unlawful for any person to transact business in this State as a broker-dealer or agent unless he is registered under this act.''

   (b)  Section 301(c) of the act provides that ''[i]t is unlawful for any person to transact business in this State as an investment adviser unless he is so registered or registered as a broker-dealer under this act or unless he is exempted . . . '' Section 301(c) further provides that: [i]t is unlawful for any person to transact business in this State as an associated person unless he is so registered or exempted from registration . . . ''

   (c)  The Commission acknowledges that the Internet, the World Wide Web and similar proprietary or common carrier electronic systems (collectively, the ''Internet'') have facilitated greatly the ability of broker-dealers, investment advisers, broker-dealer agents and associated persons of investment advisers to advertise and otherwise disseminate information on products and services to prospective customers and clients.

   (d)  The Commission also acknowledges that certain communications made on the Internet are directed generally to anyone having access to the Internet and may be transmitted through postings on Bulletin Boards, displays on ''Home Pages'' or similar methods (hereinafter, ''Internet Communications'').

   (e)  The Commission further acknowledges that in certain instances, by distributing information on available products and services through Internet Communications available to persons in this Commonwealth, broker-dealers, investment advisers, agents and associated persons, as defined under section 102 of the act (70 P. S. § 1-102), could be construed as ''transacting business'' for purposes of section 301(a) and (c) of the act so as to require registration in this Commonwealth under section 301 of the act, since the Internet Communications would be received in this Commonwealth regardless of the intent of the person originating the communication.

   (f)  Broker-dealers, investment advisers, broker-dealers; agents (hereinafter BD agents) and associated persons (hereinafter IA reps) who use the Internet to distribute information on available products and services through Internet Communications directed generally to anyone having access to the Internet, will not be deemed to be ''transacting business'' in this Commonwealth for purposes of section 301(a) and (c) of the act based solely on that fact if all the following conditions are met:

   (1)  The Internet Communication contains a legend in which it is clearly stated that:

   (i)  The broker-dealer, investment adviser, BD agent or IA rep in question may only transact business in this Commonwealth if first registered, excluded or exempted from State broker-dealer, investment adviser, BD agent or IA rep registration requirements.

   (ii)  Follow-up, individualized responses to persons in this Commonwealth by the broker-dealer, investment adviser, BD agent or IA rep that involve either effecting or attempting to effect transactions in securities, or rendering personalized investment advice for compensation, will not be made absent compliance with State broker-dealer, investment adviser, BD agent or IA rep registration requirements, or an applicable exemption or exclusion.

   (2)  The Internet Communication contains a mechanism, including and without limitation, technical ''fire walls'' or other implemented policies and procedures, designed reasonably to ensure that prior to any subsequent, direct communication with prospective customers or clients in this Commonwealth, the broker-dealer, investment adviser, BD agent or IA rep is first registered in this Commonwealth or qualifies for an exemption or exclusion from the requirement. Nothing in this paragraph relieves a broker-dealer, investment adviser, BD agent or IA rep registered in this Commonwealth from any applicable securities registration requirement in this Commonwealth.

   (3)  The Internet Communication does not involve either effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation in this Commonwealth over the Internet, but is limited to the dissemination of general information on products or services.

   (4)  In the case of a BD agent or IA rep, the following apply:

   (i)  The affiliation of the BD agent or IA rep with the broker-dealer or investment adviser is prominently disclosed within the Internet Communication.

   (ii)  The broker-dealer or investment adviser with whom the BD agent or IA rep is associated retains responsibility for reviewing and approving the content of any Internet Communication by a BD agent or IA rep.

   (iii)  The broker-dealer or investment adviser with whom the BD agent or IA rep is associated first authorizes the distribution of information on the particular products and services through the Internet Communication.

   (iv)  In disseminating information through the Internet Communication, the BD agent or IA rep acts within the scope of the authority granted by the broker-dealer or investment adviser.

   (g)  The position expressed in this section extends to broker-dealer, investment adviser, BD agent and IA rep registration requirements within this Commonwealth only, and does not excuse compliance with applicable securities registration, antifraud or related provisions.

   (h)  Nothing in this statement of policy affects the activities of any broker-dealer, investment adviser, BD agent and IA rep engaged in business in this Commonwealth that is not subject to the jurisdiction of the Commission under the National Securities Markets Improvement Act of 1996 (Pub. L. No. 104-290, 110 Stat. 3416), which will be codified in various sections of 15 U.S.C.

[Pa.B. Doc. No. 98-1101. Filed for public inspection July 10, 1998, 9:00 a.m.]


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