October 14, 2016




7 TAC §109.7

The Texas State Securities Board proposes an amendment to §109.7, concerning secondary trading exemption under the Texas Securities Act, §5.O. The proposal would update the "manual exemption" contained in §5.O of the Act. Included in §5.O is the requirement that certain information about the issuer appear in either a recognized securities manual or on a form (Form 133.5 or 133.6) filed with the Securities Commissioner. The definition of "recognized securities manual," as defined by the Board in §109.7(e), would be amended as follows.

First, to emphasize that the information relied on to claim the exemption must be current, an explanation would be added to reference the type of information required in subsection (d) and a reminder that the financial information provided must be within 18 months of the date of the sale relying upon the exemption.

Second, to add the electronic information available on www.otcmarkets.com, in connection with a current or recent listing on the OTCQX or OTCQB, as a "recognized securities manual" for purposes of §5.O(9). The OTCQX and OTCQB markets require that companies listing on these markets disclose all of the information required by §5.O and §109.7 and that the information be publicly available for free on OTC Markets Group's website.

Finally, for greater ease in using the exemption and to limit the need to amend it when publications are merely added or renamed, subsection (e) would be amended to recognize the publisher of the Mergent manuals, rather than list the name of each specific manual.

Although the list of manuals in subsection (e) will include the S&P Capital IQ Standard Corporation Descriptions, S&P ceased publication of its manual as of May 2, 2016. Prior publications of the manual are available online. At the present time the Board is not removing the S&P publication from the list of manuals since some of the financial information contained therein may not be stale and parties may continue to rely upon the listing to meet the exemption.

Clinton Edgar, Director, Registration Division, has determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rule.

Mr. Edgar also has determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be that registered dealers seeking reliance upon the exemption contained in §5.O of the Texas Securities Act will have notice of the manuals included among the Board's "recognized securities manuals" for purposes of the exemption. There will be no effect on micro- or small businesses. Since the rule will have no adverse economic effect on micro- or small businesses, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 or faxed to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendment is proposed under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes.

The proposal affects Texas Civil Statutes, Article 581 5.O.

§109.7.Secondary Trading Exemption under the Texas Securities Act, Section 5.O

(a) - (d) (No change.)

(e) The term "recognized securities manual" as used in the Texas Securities Act, Section 5.O(9)(c), is limited to the S&P Capital IQ Standard Corporation Descriptions, Best Insurance Reports Life-Health, any Mergent's Manual, and the OTC Markets Group Inc. website (www.otcmarkets.com) in connection with a current or recent listing on the OTCQX or OTCQB markets. This designation encompasses both print and electronic data and includes periodic supplements to these publications. The information provided in the recognized securities manual must contain the information specified in subsection (d) of this section. All information provided must be current. The time for determining whether the entries are current is at the date of the particular sale, not the date the manual listings are published. If a listing is not continually updated, the exemption would not be available once the published balance sheet becomes more than 18 months old. [the following and includes any electronic publication format that is as readily available to the general public as the printed version, including, without limitation, CD-Rom and electronic dissemination over the Internet:]

[(1) S&P Capital IQ Standard Corporation Descriptions (including the Daily News Section);]

[(2) Best's Insurance Reports Life-Health;]

[(3) Mergent's Bank and Finance Manual and News Reports;]

[(4) Mergent's Industrial Manual and News Reports;]

[(5) Mergent's Public Utility Manual and News Reports;]

[(6) Mergent's Transportation Manual and News Reports;]

[(7) Mergent's Municipal and Government Manual and News Reports;]

[(8) Mergent's International Manual and News Reports; and]

[(9) Mergent's OTC Industrial Manual and News Reports, provided however, that Mergent's OTC Industrial News Reports are recognized solely for the purpose of updating a current listing in the OTC Industrial Manual. A registered dealer who, between the date of the last publication of Mergent's OTC Industrial Manual and the effective date of this rule, relies upon a listing in the Mergent's OTC Industrial News Reports to comply with §5.O of the Act may continue to rely upon such listing until the publication date of the next Mergent's OTC Industrial Manual, which follows the effective date of this rule.]

(f) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on September 30, 2016.


John Morgan

Securities Commissioner

State Securities Board

Earliest possible date of adoption: November 13, 2016

For further information, please call: (512) 305-8301