PROPOSED RULEMAKING
SECURITIES COMMISSION
[64 PA. CODE CHS. 202, 203, 301--304 AND 606]
National Securities Markets Improvement Act of 1996 Amendments
[31 Pa.B. 4174] Statutory Authority
The Securities Commission (Commission), under the authority contained in sections 202(i), 203(r), 301(b), 302(f), 303(a), (c) and (d), 304(a), (d) and (e), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (act) (70 P. S. §§ 1-202(i), 1-203(r), 1-301(b), 1-302(f), 1-303(a), (c) and (d), 1-304(a), (d) and (e), 1-606(d) and 1-609(a)) proposes to amend and adopt rulemakings concerning the subject matter of the act as set forth in Annex A.
Summary and Purpose of Regulations
§ 202.093 It is proposed to amend this section to permit persons to receive compensation for soliciting contributions or transfer of assets to pooled income funds if they are registered with the Commission under section 301 of the act and to permit Federally covered advisers to advise the fund.
§ 202.095 It is proposed to amend this section to permit persons to receive compensation for soliciting the sale of charitable gift annuities if they are registered with the Commission under section 301 of the act.
§ 203.202 This new section would exempt transactions effected by broker-dealers exempt from registration under § 302.065 (relating to Canadian broker-dealer exempt).
§ 301.020 This section was adopted when the Central Registration Depository (CRD) first began an agent transfer program in 1984. The program has been incorporated into Form U-4 and it is proposed that the section now reference that transfers must be done in compliance with the terms and conditions of Item 15 of Form U-4.
§ 302.061 This section is proposed to be amended by deleting the requirement to file and post Forms 302-F1, AU-1 and AU-2 to claim the exemption and reducing the number of requirements for the exemption to be available.
§ 302.062 It is proposed that this section be deleted as section 102(j)(iv) of the act (70 P. S. § 1-102(j)(iv)) was amended in 1998 to make this section a statutory exclusion from the definition of investment adviser.
§ 302.064 It is proposed that this section be broadened to include any agent of a broker-dealer registered with the Commission who is a member of a National securities exchange where the agent's only customers are other registered broker-dealers.
§ 303.011 It is proposed to conform this section with the State preemption provisions of the National Securities Markets Improvement Act of 1996 (NSMIA).
§ 303.013 It is proposed to delete the requirement to file a fingerprint card as part of the registration process for an agent of an issuer and the requirement for a broker-dealer to keep certain information on file for agents since that information is readily available to the Commission through CRD.
§ 303.031 It is proposed that this section incorporate changes made to the Series 66 exam.
§ 303.041 It is proposed to conform this section with NSMIA.
§ 304.011 It is proposed to conform this section with NSMIA.
§ 304.021 It is proposed to revise this section to conform with the state preemption provisions of NSMIA and provide that any financial information to be submitted to the Commission be prepared by an independent certified public accountant.
§ 304.041 It is proposed to adopt a new section to make clear that representatives of the Commission who conduct examinations in accordance with section 304(d) of the act have the ability to view and have access to the physical location where files are kept in the registrant's office which is the subject of an examination.
§ 304.051 It is proposed to delete references in the section to charges established by stock exchanges and the United States Securities and Exchange Commission (SEC), since the SEC structure was deregulated in the '70s.
§ 606.031 It is proposed to amend this section and make it the sole section governing use of advertising in the connection with the offer and sale of securities under the act and would incorporate by reference advice given by the SEC on publication of advertisements by use of electronic media.
§ 606.032 It is proposed that this section be deleted since its provisions have been superceded by specific provisions in the Takeover Disclosure Law (70 P. S. §§ 71--85) concerning filing of advertisements and solicitation materials in tender offers.
§ 606.033 It is proposed this section be deleted because its provisions have been preempted by NSMIA except for governmental issuers located in this Commonwealth whose provisions relating thereto have been incorporated into the proposed revisions to § 606.031 (relating to advertising literature).
§ 606.034 It is proposed this section be deleted because its provisions have been preempted by NSMIA.
§ 606.041 It is proposed that this section be amended to reflect a recent Commission reorganization, update references in the section to acknowledge interim changes in relevant statutes and rules and to grant additional authority to the Director of Corporation Finance to register certain nonprofit debt offerings.
Persons Affected by this Rulemaking
Nonprofit organizations are affected by the proposed changes to sections relating to pooled income funds and charitable gift annuities. Another regulatory proposal affects Canadian issuers who issue securities to persons covered by certain tax advantaged plans which transactions are effected by Canadian broker-dealers eligible to rely on a registration exemption. Auctioneers licensed by the State Auctioneer Board are affected by the section exempting them from broker-dealer and agent registration. Broker-dealers and agents are affected by the proposed regulatory actions impacting on registration requirements, examination requirements, required books and records retention and net capital requirements. The regulatory proposal on advertising affects issuers of securities which may publish an advertisement in this Commonwealth in connection with an offer or sale of securities.
Fiscal Impact
The proposed regulatory actions impose no new compliance costs and actually reduce compliance costs by expanding exemptions, eliminating required filings with the Commission and reducing the amount of information which was be maintained by registrants.
Paperwork
The Commission proposes to eliminate Forms 302-F1, AU-1 and AU-2 required for auctioneers to claim an exemption form broker-dealer and agent registration for the occasional auctioning of securities. As previously indicated, paperwork will be reduced further by elimination of filing of currently mandated reports and information with the Commission.
Effective Date
The proposed amendments and regulations will become effective upon publication in the Pennsylvania Bulletin as a final-form rulemaking.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on July 13, 2001, the Commission submitted a copy of this proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the House Committee on Commerce and Economic Development and the Senate Committee on Banking and Insurance for comment and review. In addition to submitting the proposed rulemaking, the Commission has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis form prepared by the Commission in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of this material is available upon request.
Under section 5(g) of the Regulatory Review Act, if IRRC has objections to any portion of the proposed rulemaking, it will notify the Commission within 10 days of the close of the Committee's review period. The notification shall specify the regulatory review criteria which have not been met by the portion of the proposed rulemaking to which an objection is made. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking by the Commission, the General Assembly and the Governor of objections raised.
Availability in Alternative Formats
This proposed rulemaking may be made available in alternative formats upon request. The Commission also will receive comments on this proposed rulemaking in alternative formats. TDD users should use the AT&T Relay Center (800) 854-5984. To make arrangements for alternative formats, contact Joseph Shepherd, ADA Coordinator, at (717) 787-6828.
Contact Person
Interested persons are invited to send comments concerning the proposed rulemaking within 30 days of publication of this notice to G. Philip Rutledge, Chief Counsel, Securities Commission, Eastgate Building, 1010 N. Seventh Street, 2nd Floor, Harrisburg, PA 17102-1410, (717) 783-5130. G. Philip Rutledge also is the contact person for an explanation of the proposed rulemaking.
M. JOANNA CUMMINGS,
SecretaryFiscal Note: 50-116. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 64. SECURITIES
PART I. SECURITIES COMMISSION
Subpart B. REGISTRATION OF SECURITIES
CHAPTER 202. EXEMPT SECURITIES § 202.093. Charitable contributions to pooled income funds exempt.
(a) Under the authority contained in section 202(i) of the act (70 P. S. § 1-202(i)), the Commission finds that it is not in the public interest nor necessary for the protection of investors to require registration under section 201 of the act (70 P. S. § 1-201) of any securities issued or created in connection with contributions or transfers of property to, or certificates of interest or participation in, pooled income funds if the following conditions are met:
* * * * * (5) None of those persons responsible for solicitation of contributions to the Fund will receive commissions or other special compensation based upon the amount of property transferred except that this prohibition does not apply if the person receiving the commissions or special compensation is registered with the Commission as a broker-dealer under section 301 of the act (70 P. S. § 1-301) or is registered with the Commission under section 301 as an agent of the broker-dealer.
(6) Any person who, for compensation, advises the charitable organization as to the advisability of investing in, purchasing or selling securities, including interests in the Fund, or otherwise performs as [in] an investment adviser [in connection with securities purchased or sold by the charitable organization] is [in compliance with the registration requirements of section 301 of the act (70 P. S. § 1-301), if applicable] either an investment adviser registered with the Commission under section 301 of the act or is a Federally covered adviser that is in compliance with section 303(a) of the act (70 P. S. § 1-303(a)).
(b) [Advertising literature as defined in] If permitted by § 606.031 (relating to advertising literature), advertising literature may be used by the Fund in connection with the solicitation of contributions but is subject to the antifraud provisions of sections 401--409 of the act (70 P. S. §§ 1-401--1-409) and Subpart D (relating to fraudulent and prohibited practices).
§ 202.095. Charitable gift annuities.
(a) Under the authority contained in section 202(i) of the act (70 P. S. § 1-202(i)), the Commission finds that it is not in the public interest nor necessary for the protection of investors to require registration under section 201 of the act (70 P. S. § 1-201) of securities issued or created in connection with the offer or sale of charitable gift annuities if the following conditions are met:
* * * * * (3) None of the persons responsible for solicitation of purchasers of annuities will receive commissions or other special compensation based upon the amount of the annuity purchased except that this prohibition does not apply if the person receiving the commissions or special compensation is registered with the Commission as a broker-dealer under section 301 of the act (70 P. S. § 1-301) or is registered with the Commission under section 301 as an agent of the broker-dealer.
* * * * * (b) [Advertising literature, as defined in] If permitted by § 606.031(a) (relating to advertising literature), advertising literature may be used by the qualified charity in connection with the solicitation of contributions but is subject to the antifraud provisions of sections 401--409 of the act (70 P. S. §§ 1-401--1-409) and Subpart D (relating to fraudulent and prohibited practices).
CHAPTER 203. EXEMPT TRANSACTIONS § 203.202. Certain transactions with persons from Canada exempt.
Under section 203(r) of the act (70 P. S. § 1-203(r)), the Commission finds it neither necessary nor appropriate for the protection of investors to require registration under section 201 of the act (70 P. S. § 1-201) for the offer or sale of a security if the following requirements are met:
(1) The security is offered or sold in this Commonwealth only to a person described in § 302.065(1) (relating to Canadian broker-dealer exempt).
(2) The transaction is effected in this Commonwealth solely by a Canadian broker-dealer or agent of a Canadian broker-dealer described in § 302.065(2).
Subpart C. REGISTRATION OF BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES AND NOTICE FILINGS BY FEDERALLY-COVERED ADVISERS
CHAPTER 301. REGISTRATION REQUIREMENT § 301.020. Agent transfers.
[(a)] An agent who wishes to terminate [his] employment with one registered broker-dealer and thereafter commence employment with another registered broker-dealer may do so without causing a suspension in the agent's registration with the Commission if all of the following conditions are met:
* * * * * (2) The transfer is effected in accordance with the [terms and conditions of the NASAA/CRD Temporary Agent Transfer Program as established under an agreement between and operated under guidelines established by NASDAQ, Inc., a wholly-owned subsidiary of the National Association of Securities Dealers, Inc., and the North Association, Inc.] terms, conditions and execution of Item 15 of the Uniform Application for Securities Industry Registration or Transfer (Form U-4).
[(3) The employing broker-dealer has executed and filed an Undertaking for Participation in the NASAA/CRD TAT Program.
(4) The employing broker-dealer currently is not subject to an order of the Commission which would otherwise make this section unavailable.
(b) For purposes of this section, the term Undertaking for Participation in the NASAA/CRD Temporary Agent Transfer Program shall mean the document entitled ''Broker-Dealer Undertaking for Participation in the NASAA/CRD Temporary Agent Transfer Program'' which the employing broker-dealer has executed and filed with the NASAA/NASD Central Registration Depository, 1735 ''K'' Street, N.W., Washington, DC 20006.]
CHAPTER 302. EXEMPTIONS § 302.061. Auctioneers exemption from broker-dealer and agent registration.
(a) Under the authority contained in section 302(f) of the act (70 P. S. § 1-302(f)), the Commission deems it appropriate and in the public interest to exempt [broker-dealers and agents] persons from the broker-dealer and agent registration provisions of section 301 of the act (70 P. S. § 1-301) if [the persons fulfill the requirements of this section] all of the following conditions are met:
(1) The person [is licensed] meets one of the following conditions:
(i) Is licensed as an auctioneer [or], apprentice auctioneer, auction company or auction house under [section 707 of] the Auctioneers License Act [(63 P. S. § 707)] (AALA) (63 P. S. §§ 734.1--734.34).
(ii) Is exempt from registration under section 3(h) of the AALA (63 P. S. § 734.3(h)).
(iii) Holds a special license to conduct an auction under section 3(i) of the AALA.
(2) The person [offers and sells] effects transactions in securities solely at an ''auction'' or at a ''sale at auction'' as these terms are defined in [section 702(5) of the Auctioneers License Act (63 P. S. § 702(5))] the AALA.
(3) [The person does not sell in a period of 12 consecutive months, securities at auction of a dollar amount in excess of the lesser of $250,000 or 5% of the total dollar amount of all ''goods'' as that term is defined in section 702(1) of the Auctioneers License Act (63 P. S. § 702(1)) sold by the person during that period.
(4) The person has filed an executed Commission's Form 302-F1 with the Commission at least 10 business days prior to the offer and sale of securities.
(5) The person has not been convicted of a crime or made the subject of any sanction described in section 305(a)(ii)--(ix) of the act (70 P. S. § 1-305(a)(ii)--(ix)).
(6) The person undertakes as a condition of the exemption only to offer and sell securities at auction if:
(i) No later than 24 hours prior to the auction of a security Forms AU-1 and AU-2 are completed.
(ii) No later than 24 hours prior to the auction of any security Forms AU-1 and AU-2 (except for Part C) are conspicuously posted at the place of the auction.
(iii) Immediately prior to the auction of any security, the information appearing on the responses to questions on Form AU-1 are publicly announced at the auction.
(iv) Immediately prior to the auction of any security, the information appearing on the response to questions on Form AU-2, Part B, items 3(a)--(f) are publicly announced at the auction.
(7) The person undertakes to comply with the provisions of the act, including the anti-fraud provisions contained in Part IV of the act (70 P. S. §§ 1-410--1-407) and the advertising provisions contained in section 606(c) of the act (70 P. S. § 1-606(c)).
(8) The person offers and sells at auction only securities in a] The person engages only in effecting transactions in securities at an auction or for sale at auction which constitute a ''nonissuer transaction'' as that term is defined in section 102(m) of the act (70 P. S. § 1-102(m)).
[(9) The person shall at all times maintain a complete set of books, records, and accounts of such sales of securities including copies of Forms AU-1 and AU-2 utilized in any offers or sales of securities, for a period of 3 years.
(10) The person shall take such steps as may be necessary to ensure that all material information contained in its Form 302-F1 remains current and accurate. In the event that any material statement made in such forms, or in any attachments thereto becomes incorrect or inaccurate, the applicant shall file with the Commission an amendment on Form AM within 10 business days of the occurrence of the event which required the filing of such amendment.
(11) The person is not the subject of an order issued by the Commission denying, suspending or revoking the exemption claimed under this section.]
(4) The person does not effect transactions in securities at an auction or for sale at auction more than three times in any consecutive period of 24 months.
(5) The person and any affiliate of the person currently is not subject or, within the past 10 years, was not subject to any of the following:
(i) An order described in section 305(a)(iv) of the act (70 P. S. § 1-305(a)(iv).
(ii) An injunction described in section 305(a)(iii) of the act.
(iii) A criminal conviction described in section 305(a)(ii) of the act.
(iv) An order of the Commission issued under section 512 of the act (70 P. S. § 1-512).
(v) A court order finding civil contempt under section 509(c) of the act (70 P. S. § 1-509(c).
(vi) An order of the Commission imposing an administrative assessment under section 602.1 of the act (70 P. S. § 1-602.1) which has not been paid in full.
(b) [For purposes of all items other than subsection (a)(5) and (11), ''person'' means all affiliated auctioneers and apprentice auctioneers working with and for the same auctioneer.
(c)] Solely for purposes of subsection [(a)(8)] (a)(3), a transaction where a bank, as that term is defined in section 102(d) of the act (70 P. S. § 1-102(d)), acting as a fiduciary under a trust agreement, estate administration or other similar relationship, causes [its] the bank's securities to be offered and sold at auction from such [persons'] accounts shall be deemed to be a nonissuer transaction.
[(d) The following forms are part of this section:]
(Editor's Note: As part of this proposed rulemaking, the Commission is proposing to delete the text of Forms 302-F1, AU-1 and AU-2, which currently appear at 64 Pa. Code pages 302-4--302-12, serial pages (234918)--(234926).)
§ 302.062. [Publishers exemption from investment adviser registration] (Reserved).
[(a) Under section 302(f) of the act (70 P. S. § 1-302(f)), the Commission deems it appropriate in the public interest to exempt investment advisers from the registration provisions of section 301 of the act (70 P. S. § 1-301) if the investment advisers fulfill the requirements of this subsection:
(1) The person's investment advisory activities in this Commonwealth are limited solely to being a publisher of a bona fide newspaper, news column, news magazine or business or financial publication with a general, regular and paid circulation or being a publisher of a securities advisory newsletter with a regular and paid circulation which does not provide advice to subscribers on their specific investment situation.
(2) The person, or an affiliate thereof, whether prior or subsequent to becoming associated with the person, has not been subject to any of the following:
(i) Conviction within the past 10 years of a crime described in section 305(a)(ii)(A) of the act (70 P. S. § 1-305(a)(ii)(A)).
(ii) Sanctions described in section 305(a)(iii) of the act (70 P. S. § 1-305(a)(iii)).
(iii) A finding within the past 5 years that the person has met any of the criteria described in section 305(a)(iv) of the act (70 P. S. § 1-305(a)(iv)).
(b) The Commission may deny, suspend or revoke the exemption contained in this section for a person or an affiliate thereof, whether prior or subsequent to becoming associated with the person, if it finds the person or affiliate to meets the criteria set forth in any of the following clauses of section 305(a) of the act: (i), (ii)(B), (ii)--(xiii) (70 P. S. §§ 1-305(a)(i), (ii)(B), (iii)--(xiii)).]
§ 302.064. [Philadelphia] Stock Exchange exemption from agent registration.
Under the authority contained in section 302(f) of the act (70 P. S. § 1-302(f)), the Commission deems it appropriate in the public interest to exempt agents from the registration provisions of section 301 of the act (70 P. S. § 1-301), if [the individuals fulfill the] all the following requirements [of this section.] are met:
(1) The agent is representing a broker-dealer which [is] meets the following requirements:
* * * * * (ii) A member of [the Philadelphia Stock Exchange] a National securities exchange registered with the United States Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a--78kk).
(2) The agent's only customers are broker-dealers [which are] registered with the United States Securities and Exchange Commission under the Securities Exchange Act of 1934 [(15 U.S.C.A. §§ 78a--78kk)] or section 301 of the act.
(3) The agent is not subject to a currently effective order under section 305 of the act (70 P. S. § 1-305) denying, suspending, conditioning or revoking registration or [another] an order of the Commission [barring the individual from any form of relationship with a person registered under section 301 of the act] issued under section 512 of the act (70 P. S. § 1-512).
CHAPTER 303. REGISTRATION PROCEDURE § 303.011. Broker-dealer registration procedures.
(a) An application for initial registration as a broker-dealer shall contain the information requested in and shall be made on Uniform Application for Broker-Dealer Registration (Form BD), or a successor form, and shall be made in the following manner[.]:
(1) [The] An applicant which is not a member of the National Association of Securities Dealers, Inc. (NASD) or a member of a National securities exchange registered with the United States Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a--78kk) shall complete and file one copy of Form BD with the Commission accompanied by the requisite filing fee required by section 602(d.1) of the act (70 P. S. § 1-602(d.1)), the compliance assessment required by section 602.1(a)(3) of the act (70 P. S. § 1-602.1(a)(3)), and financial statements in the form required by subsections (b) and (c).
(2) An applicant which is not a member of the NASD but is a member of a National securities exchange registered with the SEC under the Securities Exchange Act of 1934 shall complete and file one copy of Form BD with the Commission accompanied by the requisite filing fee required by section 602(d.1) of the act and the compliance assessment required by section 602.1(a)(3) of the act.
(3) An applicant which is a member of NASD shall file Form BD in the manner set forth in § 606.011(f) (relating to filing requirements) accompanied by the filing fee required by section 602(d.1) of the act and the compliance assessment required by section 602.1(a)(3) of the act.
(b) [Except as set forth in subsection (d)] Except for applicants described in subsections (a)(2) and (3), every application shall be accompanied by a statement of the financial condition of the applicant 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 [or independent public accountant]. The audited statement of financial condition shall be as of the end of the applicant's most recent fiscal year, or the preceding fiscal year if the statement of financial condition for the most recently ended fiscal year is unavailable and if the application is filed within 14 months of the end of the preceding fiscal year. If the date of the most recent audited statement of financial condition is more than 45 days prior to the date of filing, the applicant also shall file an unaudited statement of financial condition as of a date within 45 days of the date of filing. As a part of the statement, the Commission may require the filing of separate schedules:
* * * * * (c) [For] Except for applicants described in subsections (a)(2) and (3), an applicant that has commenced to act as a broker-dealer, the audited statement of financial condition shall be accompanied by an audited statement of income as of the end of the applicant's most recent fiscal year, or the preceding fiscal year if the statement of income for the most recently ended fiscal year is unavailable and if the application is filed within 14 months of the end of the preceding fiscal year.
(d) [As an alternative to subsections (b) and (c), an application filed by a member organization of the Philadelphia Stock Exchange (PHLX) that does not conduct business with customers as defined in Rule 17a-5 promulgated under the Securities and Exchange Act of 1934 (15 U.S.C.A. §§ 78a--78kk), and is designated to PHLX for financial responsibility under Rule 17d-1 promulgated under the Securities Exchange Act of 1934 and is exempt from Rule 15c3-1 or excluded under Rule 17a-5(d)(iii) promulgated under the Securities Exchange Act of 1934 may be accompanied by an unaudited statement financial condition, dated as of the end of the applicant's most recent fiscal year prepared in accordance with generally accepted accounting principles. The statement financial condition of shall be supplemented by a schedule of minimum net capital or minimum net liquid assets as defined in PHLX Rule 703] An applicant described in subsection (a)(2) or (3) shall provide the Commission, within 5 days of receipt of a written or electronic request, a copy of any financial statement or financial information required by SEC rules or the rules of a National securities association or National securities exchange registered with the SEC of which the applicant is a member.
(e) A broker-dealer registered under the act shall take [the] steps necessary to ensure that [the] material information contained in its Form BD remains current and accurate. If a material statement made in Form BD becomes incorrect or inaccurate, the broker-dealer shall file with the Commission [amended pages of] an amendment on Form BD [in accordance with General Instruction to Form BD] within 30 days of the occurrence of the event which required the filing of the amendment.
§ 303.013. Agent registration procedures.
(a) An application for initial registration as an agent of a broker-dealer or issuer shall contain the information requested in and shall be made on Uniform Application for Securities [/Futures] Industry Registration or Transfer (Form U-4) or a successor form. [The] Except as provided in subsection (b), the agent and the broker-dealer or issuer shall complete and file with the Commission one copy of Form U-4 and exhibits thereto accompanied by the [requisite] filing fee [and exhibits, to include fingerprints. However, fingerprints are not required to be filed by an agent or a member firm of the National Association of Securities Dealers, Inc. which firm's agents are exempt under Securities and Exchange Commission Rule 17f-2 (17 CFR 240.17f-2) (relating to fingerprinting of securities industry personnel) from the fingerprinting requirements of section 17(f)(2) of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78q)] required by section 602(d.1) of the act (70 P. S. § 1-602(d.1)), the compliance assessment required by section 602.1(a)(1) of the act (70 P. S. § 1-602.1(a)(1)) and evidence of passage of the examinations required by § 303.031 (relating to examination requirements for agents).
(b) [Every broker-dealer or issuer for whom agents are to be registered shall obtain from the agent and preserve the information described in paragraphs (1)--(4) with respect to each agent. While this information is required to be maintained by the broker-dealer or issuer, it otherwise is not required to be filed with the Commission on Form U-4.
(1) The name, address, date of birth, social security number and the starting date of employment or other association with the broker-dealer or issuer.
(2) The complete educational background and a complete statement of the agent's principal business or occupation for the preceding 10 years, including the reason for leaving each prior employment.
(3) A record of a denial of registration, disciplinary action taken or sanction imposed by a Federal or state agency, or by a National securities exchange or National securities association, including a finding that the agent was a cause of disciplinary action or had violated a statute.
(4) A record of convictions for a felony or misdemeanor except minor traffic offenses, of which the agent has been the subject]
An applicant for registration as an agent of a broker-dealer which is a member firm of the National Association of Securities Dealers (NASD) shall file the following items in the manner set forth in § 603.011(f) (relating to filing requirements):
(1) A completed and executed Form U-4 and exhibits thereto.
(2) The filing fee required by section 602(d.1) of the act.
(3) The compliance assessment required by section 602.1(a)(1) of the act.
(4) Evidence of passage of the examinations required by § 303.031.
(c) An agent and broker-dealer or issuer shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or inaccurate, the agent and broker-dealer or issuer shall file with the Commission an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment.
§ 303.031. Examination requirement for agents.
[Prior to an individual becoming registered as an agent for a broker-dealer or issuer, the individual shall receive a passing grade on the following examinations:]
(a) An individual may not be registered as an agent under the act unless the individual has met the requirements of subsections (b) and (c).
[(1) The] (b) The applicant has received a passing grade on the securities examination for principals or registered representatives administered by the National Association of Securities Dealers, Inc. (NASD), the New York Stock Exchange or the United States Securities and Exchange Commission within 2 years prior to the date of filing an application for registration [or]. An applicant will be deemed to have met the requirements of this subsection if any of the following apply:
(i) The applicant previously has passed the examination and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.
(ii) The applicant has received a waiver of the examination requirement by the NASD.
(iii) The applicant has received a Commission order waiving the examination requirement.
[(2) The] (c) The applicant has received a passing grade on the Uniform Securities Agent State Law Examination (Series 63) or, alternatively, the Uniform Combined State Law Examination (Series 66) and the General Securities Representative Examination (Series 7) or successor examination administered by the [National Association of Securities Dealers, Inc.] NASD within 2 years prior to the date of filing an application for registration [, or,]. An applicant will be deemed to have met the requirements of this subsection if any of the following apply:
(i) The applicant previously has passed the Series 63 or, alternatively, the Series 66 and Series 7, and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.
(ii) The applicant has received a Commission order waiving the requirement to take the Series 63 or, alternatively, the Series 66 and Series 7.
§ 303.041. Broker-dealer capital requirements.
(a) Except as set forth in [subsections (e) and (f)] subsection (e), every broker-dealer registered [or required to be registered] under section 301 of the act (70 P. S. § 1-301) shall maintain net capital of $25,000. The aggregate indebtedness of a registered broker-dealer may not exceed 1500% of its net capital. For purposes of this section, the terms ''net capital'' and ''aggregated indebtedness'' have the meanings set forth in Rule 15c3-1 (17 CFR 240.15c3-1) (relating to net capital requirements for brokers and dealers) promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a--78kk).
(b) As a condition of the right to continue to transact business, every broker-dealer [shall] registered under the act that is not registered as a broker-dealer with the United States Securities and Exchange Commission (SEC) under the Securities Exchange Act (15 U.S.C.A. §§ 78a--78kk) immediately shall notify the Commission if the broker-dealer's aggregate indebtedness exceeds 1500% of its net capital or [that] if its total net capital is less than the minimum required. [Broker-dealers complying with subsection (e) shall immediately notify the Commission if the broker-dealer's net capital or net liquid assets are less than the minimum required.] Within 24 hours after transmitting the notice, [each] the broker-dealer shall file a report of its financial condition with the Commission including the following:
* * * * * (d) The Commission may by order permit an applicant for registration as a broker-dealer under section 301 of the act which is not registered or has not applied for registration as a broker or dealer with the SEC to file, execute and maintain a surety bond [in the form required by section 303(e) of the act (70 P. S. § 1-303(e)) and this chapter in the amount of $10,000 where it deems the surety bond to be necessary or appropriate in the public interest or for the protection of customers and the bond may be deemed a part of the $25,000 minimum net capital of the applicant as required by this section] in compliance with § 303.051 (relating to surety bonds).
(e) Every broker-dealer registered [or required to be registered] under section 301 of the act [and] that is registered as a broker or dealer with the [Securities and Exchange Commission or a member of the National Association of Securities Dealers, Inc.] SEC shall maintain minimum net capital and comply with the aggregate indebtedness requirements as set forth in Rule 15c3-1 (17 CFR 240.15c3-1)(relating to net capital requirements for brokers and dealers) promulgated under the Securities Exchange Act of 1934.
[(f) As an alternative to subsection (a), every broker-dealer registered or required to be registered under the act that is a member organization of the Philadelphia Stock Exchange (PHLX) shall maintain minimum net capital or minimum net liquid assets in accordance with PHLX Rule 703.]
CHAPTER 304. POSTREGISTRATION PROVISIONS § 304.011. Broker-dealer required records.
(a) Every broker-dealer registered [or required to be registered] under section 301 of the act (70 P. S. § 1-301) shall make and keep the [following books, ledgers and] records required to be maintained as described in [Rules] Rule 17a-3 [and 17a-4] (17 CFR 240.17a-3 [and 240.17a-4]) (relating to records to be made by certain exchange members, brokers and dealers[; and records to be preserved by certain exchange members, brokers and dealers]) adopted under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a--78kk).
(b) [As a condition of the right to continue to transact business in this Commonwealth, a registered broker-dealer shall] A broker-dealer registered under the act that is not registered as a broker or dealer with the United States Securities and Exchange Commission (SEC) immediately shall notify the Commission if the broker-dealer fails to make and keep current the books and records required by this section. Within 24 hours after filing the notice with the Commission, the broker-dealer shall file with the Commission a report stating what steps have been taken and are being taken to fully comply with this section. [The report may be made by filing with the Commission copies of the analogous report required by the National Association of Securities Dealers, Inc., or the Securities and Exchange Commission.]
(c) Every broker-dealer registered [or required to be registered] under the act shall make, keep and preserve either a separate file of written complaints of customers and actions taken by the broker-dealer in response thereto, or 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 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. A registered broker-dealer that also is registered as a broker or dealer with the SEC shall be deemed to be in compliance with the requirements of this subsection if it maintains records of customer complaints as prescribed by applicable SEC rules.
(d) [The term ''customer'' of the broker-dealer as used in this section includes every person except the broker-dealer.
(e)] The records required to be maintained under this section shall be retained and preserved for [inspection by the Commission for a period of 5 years, the period to be measured from the date of the last entry therein or from the date of receipt of the communication or other information contained therein] 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.
§ 304.021. Broker-dealer required financial reports.
(a) Every [registered] broker-dealer registered under the act which is 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) shall file annually with the Commission a report consisting of a statement of financial condition as of the end of its fiscal year and an income statement for the year then ended.
(b) [Except as set forth in subsections (c) and (d), the] 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 [or independent public accountant]. The accountant shall submit as a supplementary opinion comments, based upon 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) [For purposes of this section, if the subject broker-dealer is registered with the Securities and Exchange Commission, the filing with the Commission of the information required by Form X-17A-5 promulgated under section 17 of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78g), by the Securities and Exchange Commission, 17 CFR 249.617 shall be deemed to be in compliance with this section] A broker-dealer registered under the act which also is registered as a broker or dealer with the SEC shall provide the Commission, 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 rules or the rules of a National securities association or National securities exchange registered with the SEC of which the applicant is a member.
(d) [As an alternative to subsection (b), a member organization of the Philadelphia Stock Exchange (PHLX) that complies with the following may file annually with the Commission the reports required by PHLX Rule 703(c):
(1) Does not conduct business with customers as defined in Rule 17a-5 promulgated under the Securities and Exchange Act of 1934 (15 U.S.C.A. §§ 78a--78kk).
(2) Is designated to PHLX for financial responsibility under Rule 17d-1 promulgated under the Securities Exchange Act of 1934.
(3) Is exempt from Rule 15c3-1 or excluded under Rule 17a-5(d)(iii) promulgated under the Securities Exchange Act of 1934.
(e)] The report required by this section shall be filed within 120 days following the end of the broker-dealer's fiscal year.
[(f) A broker-dealer that receives a Securities and Exchange Commission no-action letter waiving the filing of the initial annual audited financial report required by Rule 17a-5 (17 CFR 240.17a-5) promulgated under the Securities Exchange Act of 1934, is not required to file the initial annual audited financial report required by this section, if the next annual audited financial report of the broker-dealer covers the entire period from the date of registration of the broker-dealer with the Commission.]
§ 304.041. Examinations of broker-dealers and investment advisers.
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 honor all requests by representatives of the Commission to have physical access to all areas of the office which is the subject of the examination and, upon request, shall permit them to review and examine files in the physical place where the files routinely are maintained. In complying with a request, a representative of the broker-dealer or investment adviser may accompany the representatives of the Commission.
§ 304.051. Broker-dealer compensation.
No broker-dealer registered [or required to be registered] under the act may 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[, provided that the charges, commissions or other compensation consistent with rates set by a national securities exchange, when applied to transactions on that exchange, or with the rules of the Securities and Exchange Commission or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a--78kk), or compensation]. Compensation which complies with the Conduct Rules [of Fair Practice] of the National Association of Securities Dealers, Inc.[, may not be deemed unreasonable] shall be deemed fair and reasonable and, unless otherwise required to be disclosed in writing by [such] the Conduct Rules [of Fair Practice], need not be disclosed in writing.
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