TITLE 7. BANKING AND SECURITIES
PART 7. STATE SECURITIES BOARD
CHAPTER 104. PROCEDURE FOR REVIEW OF APPLICATIONS
7 TAC §104.4, §104.5
The Texas State Securities Board proposes amendments to §104.4, concerning registration of securities--review of applications, and §104.5, concerning registration of dealers and investment advisers--review of applications. The amendments to §104.4 and §104.5 would eliminate the requirement that deficiency and comment letters be sent via U.S. mail and recognize the use of email as an alternative method of communication with applicants.
Patricia Loutherback, Director, Registration Division, has determined that for the first five-year period the rules are in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rules.
Ms. Loutherback also has determined that for each year of the first five years the rules are in effect the public benefit anticipated as a result of enforcing the rules will be to reduce the time needed to process registration applications by allowing the use of alternative means of communications, such as email, for deficiency and comment letters. There will be no effect on micro- or small businesses. Since the rules 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 rules as proposed. There is no anticipated impact on local employment.
Comments on the proposal must be in writing and will be accepted for 45 days following publication of the proposed sections 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 45 days following publication.
The amendments are proposed under Texas Civil Statutes, Article 581-28-1 and Texas Government Code, §2005.003. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. Section 2005.003 requires state agencies issuing permits to adopt procedural rules for processing permit applications and issuing permits.
The proposals affect Texas Civil Statutes, Articles 581-7, 581-10, 581-13, and 581-15, and Texas Government Code, §2005.003.
§104.4.Registration of Securities--Review of Applications.
(a) Within seven days of receipt by the Agency of an application to register securities, if the application does not contain all required information, the Registration Division will send [by United States mail at the Agency's expense] a written deficiency letter to the applicant setting forth a list of items or exhibits that have not been filed and that, pursuant to requirements of the Texas Securities Act or Board rules, must be filed with the Agency.
(b) Within 45 days of receipt by the Agency of all requested items and exhibits necessary in order to analyze the offering, the Registration Division shall review the application and shall send a written [by United States mail at the Agency's expense an] initial comment letter setting forth deviations from the substantive requirements of the Act or Board rules relating to the registration of securities. This process may be repeated if the applicant suggests that alternatives be considered, or the applicant's response does not resolve substantive issues.
(c) If the applicant consents, communications from the Registration Division to [Upon request of] the applicant[, comments] may be transmitted [at the applicant's expense] by [telephone,] facsimile, email , or other more timely means of communication.
(d) An application is complete and accepted for filing upon receipt by the Agency of the following:
(1) all items and exhibits required to be filed with the Agency as set forth in paragraphs (a) - (c) of this section; and
(2) complete responses to all comments raised by the division staff pursuant to subsections (b) and (c) of this section.
(e) Within 21 days of receipt by the Agency of a complete application, the division staff shall review the applicant's responses to initial and subsequent comments, if any, and make a recommendation to either grant, deny, or allow withdrawal of the application.
(f) Within 14 days of the division staff's recommendation the application shall be reviewed by the Director (or Assistant Director) of the Registration Division and the Deputy Commissioner and/or Securities Commissioner. Additional comments, if any, raised at these stages of review must be communicated to the applicant immediately.
(g) The final decision to grant, deny, or allow withdrawal of the application must be made and communicated to the applicant within 14 days of the latter of:
(1) the division staff's recommendation, or
(2) the receipt by the Agency of complete responses to any additional comments raised pursuant to subsection (f) of this section.
§104.5.Registration of Dealers and Investment Advisers--Review of Applications.
(a) Within 14 days of receipt by the Agency of an application and a fee that is sufficient for registration as a dealer or investment adviser, the Registration Division shall send [by United States mail at the Agency's expense,] a written deficiency letter to the applicant setting forth a list of items or exhibits that either have not been filed or that contain errors or omissions. If the applicant is filing through the Central Registration Depository (CRD) or the Investment Adviser Registration Depository (IARD), deficiency corrections of a procedural, non-disciplinary nature will be handled by the CRD or IARD.
(1) If an insufficient fee is submitted with the application, the fee will be returned to the applicant along with immediate notification as to the correct amount owed.
(2) The application will be held in abeyance until the correct fee is received by the Agency.
(b) Within 14 days of receipt by the Agency of all requested items and exhibits, the division staff shall review the file and, if necessary, shall send [by United States mail at the Agency's expense] a written comment letter setting forth any deviations from the substantive requirements of the Texas Securities Act or Board rules relating to the registration of dealers or investment advisers. This process may be repeated to raise subsequent comments.
(c) An application is complete and accepted for filing upon receipt by the agency of the following:
(1) all items required to be filed with the Agency as set forth in the deficiency letter referred to in subsection (a) of this section; and
(2) complete responses to all comments raised by the division during review of the application.
(d) Within 14 days of receipt by the Agency of a complete application, the division staff shall review the application and the applicant's responses to initial comments and make a recommendation to grant, deny, or allow withdrawal of the application.
(e) Within 14 days of the division staff's recommendation, any remaining issues shall be addressed by the Director of the Registration Division. Additional comments, if any, raised at this stage of review must be communicated to the applicant immediately.
(f) The final decision to grant, deny, or allow withdrawal of the application must be made and communicated to the applicant within 14 days of the latter of:
(1) the division's recommendation, or
(2) receipt by the Agency of complete responses to any remaining comments.
(g) If the applicant consents, communications from the Registration Division to the applicant may be transmitted by facsimile, email, or other more timely means of communication.
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 October 28, 2014.
TRD-201405031
John Morgan
Securities Commissioner
State Securities Board
Earliest possible date of adoption: December 14, 2014
For further information, please call: (512) 305-8303
CHAPTER 107. TERMINOLOGY
7 TAC §107.2
The Texas State Securities Board proposes an amendment to §107.2, concerning definitions. The amendment would change the definition of Form D to include both paper filings (the current method) as well as electronic filings made through the EFD System, which is expected to be deployed in November 2014.
The SEC has required the electronic filing of Form D through EDGAR since March 2009. The EFD System was developed to facilitate the electronic filing of Form D for Rule 506 offerings with state regulators and is designed to interface with the SEC's EDGAR system. The filing of Form D in Texas is time-sensitive and so to allow for a smooth transition by issuers the Securities Commissioner will initially be waiving the requirement in the Board rules that mandates Form D filings be made electronically through the EFD System for issuers that opt to make paper filings during the transition period.
Patricia Loutherback, 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.
Ms. Loutherback 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 to recognize the information submitted through the EFD System in connection with a Regulation D offering filed in Texas as a Form D filing made with the Securities Commissioner. 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 45 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 45 days following publication.
The amendment is proposed under Texas Civil Statutes, Articles 581-5.T and 581-28-1. Section 5.T provides that the Board may prescribe new exemptions by rule. 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, Articles 581-5 and 581-7.
§107.2.Definitions.
The following words and terms, when used in Part 7 of this title (relating to the State Securities Board), shall have the following meanings, unless the context clearly indicates otherwise.
(1) - (42) (No change.)
(43) Form D--
(A) For paper filings--Form D, Notice of Exempt Offering of Securities, as effective on September 23, 2013 (referenced in [September 15, 2008 (] 17 Code of Federal Regulations §239.500).
(B) For electronic filings made through the EFD System--The information, relating to a filing designated to be made in Texas, that is submitted through the EFD System in connection with a Form D filing made with the SEC. It includes all information made available to the Securities Commissioner through the EFD System in connection with the Texas filing.
(44) (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 October 28, 2014.
TRD-201405032
John Morgan
Securities Commissioner
State Securities Board
Earliest possible date of adoption: December 14, 2014
For further information, please call: (512) 305-8303
CHAPTER 115. SECURITIES DEALERS AND AGENTS
7 TAC §115.2
The Texas State Securities Board proposes an amendment to §115.2, concerning application requirements. The amendment would reference new Form 133.18, which is being concurrently proposed. The principal financial officer of an applicant for dealer registration would use the new form to certify the applicant's balance sheet. Currently, the Staff provides a template with suggested language on its website, but applicants have some difficulty locating and completing the template. Staff feels this difficulty can be overcome if a specific form is provided and referenced in the rule.
Patricia Loutherback, 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.
Ms. Loutherback 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 to simplify the registration process by providing a specific certification form for applicants to complete. 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 45 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 45 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, Articles 581-12, 581-13, and 581-18.
§115.2.Application Requirements.
(a) Securities dealer application requirements. A complete application consists of the following and must be filed in paper form with the Securities Commissioner:
(1) - (3) (No change.)
(4) a balance sheet prepared in accordance with generally accepted accounting practices reflecting the financial condition of the dealer as of a date not more than 90 days prior to the date of such filing. The balance sheet should be prepared by independent certified public accountants or independent public accountants, or must instead be attested by the sworn notarized statement of the applicant's principal financial officer. If attested by the principal financial officer of the applicant, such officer shall make the certification on Form 133.18, Certification of Balance Sheet by Principal Financial Officer. [certify as follows: I am the principal financial officer of (name of dealer). The accompanying balance sheet has been prepared under my direction and control and presents fairly its financial position on the dates indicated to the best of my knowledge, belief, and ability. (Signature and Title).]
(5) - (6) (No change.)
(b) - (e) (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 October 28, 2014.
TRD-201405033
John Morgan
Securities Commissioner
State Securities Board
Earliest possible date of adoption: December 14, 2014
For further information, please call: (512) 305-8303
CHAPTER 116. INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES
7 TAC §116.2
The Texas State Securities Board proposes an amendment to §116.2, concerning application requirements. The amendment would reference new Form 133.18, which is being concurrently proposed. The principal financial officer of an applicant for investment adviser registration would use the new form to certify the applicant's balance sheet. Currently, the Staff provides a template with suggested language on its website, but applicants have some difficulty locating and completing the template. Staff feels this difficulty can be overcome if a specific form is provided and referenced in the rule.
Patricia Loutherback, 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.
Ms. Loutherback 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 to simplify the registration process by providing a specific certification form for applicants to complete. 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 45 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 45 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, Articles 581-12, 581-13, and 581-18.
§116.2.Application Requirements.
(a) Investment adviser and investment adviser representative application requirements. A complete application consists of the following:
(1) (No change.)
(2) items filed in paper form with the Securities Commissioner:
(A) (No change.)
(B) a balance sheet prepared in accordance with generally accepted accounting practices reflecting the financial condition of the investment adviser as of a date not more than 90 days prior to the date of such filing. The balance sheet should be prepared by independent certified public accountants or independent public accountants, or must instead be attested by the sworn notarized statement of the applicant's principal financial officer. If attested by the principal financial officer of the applicant, such officer shall make the certification on Form 133.18, Certification of Balance Sheet by Principal Financial Officer. [certify as follows: I am the principal financial officer of (name of investment adviser). The accompanying balance sheet has been prepared under my direction and control and presents fairly its financial position on the dates indicated to the best of my knowledge, belief, and ability. (Signature and Title).]
(C) - (E) (No change.)
(b) - (e) (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 October 28, 2014.
TRD-201405034
John Morgan
Securities Commissioner
State Securities Board
Earliest possible date of adoption: December 14, 2014
For further information, please call: (512) 305-8303
CHAPTER 133. FORMS
7 TAC §133.18
The Texas State Securities Board proposes new §133.18, which adopts by reference a form concerning certification of balance sheet by principal financial officer. The form would be used for certification of an applicant's balance sheet to be filed with their application for registration as a dealer or investment adviser.
Patricia Loutherback, 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.
Ms. Loutherback 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 to simplify the registration process by providing a specific certification form for applicants to complete. 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 45 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 45 days following publication.
The new rule 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, Articles 581-12, 581-13, and 581-18.
§133.18.Certification of Balance Sheet by Principal Financial Officer.
This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.state.tx.us.
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 October 28, 2014.
TRD-201405035
John Morgan
Securities Commissioner
State Securities Board
Earliest possible date of adoption: December 14, 2014
For further information, please call: (512) 305-8303
CHAPTER 139. EXEMPTIONS BY RULE OR ORDER
7 TAC §139.27
The Texas State Securities Board proposes new §139.27, concerning mergers and acquisitions dealer exemption. The new rule would add an exemption from the dealer registration requirements for dealers that meet certain criteria. The criteria is based on a no-action letter issued by the SEC Division of Trading and Markets and would craft a state exemption to correspond with the federal guidance. The proposal deviates from the SEC letter by providing more comprehensive bad person disqualifications, requiring the mergers and acquisitions ("M&A") dealer to maintain certain records, requiring those records to be furnished to the Commissioner on request, and providing for the loss of the exemption if the M&A dealer fails to maintain and provide records.
The existing provisions in Chapter 115 that create a restricted registration category for certain business brokers would be left intact for bad actors or others who cannot qualify for the exemption but choose to limit their activities to those described. A business broker who limits its activities as noted also receives a full waiver of the dealer examination requirements.
Additionally, persons in this type of business who do not wish to limit their activities to those permitted under the exemption or the restricted registration have another choice. They have the option of registering as a restricted dealer to deal exclusively in investment banking per §115.1(c)(2)(N). This restricted registration category provides them with the option of taking the Series 79-Investment Banking Qualification Examination under §115.3(b)(3)(G) instead of the more comprehensive Series 7 examination for general dealers.
Ronak V. Patel, Deputy Securities Commissioner, Tommy Green, Director, Inspections and Compliance Division, and Patricia Loutherback, Director, Registration Division, have determined that there will be fiscal implications as a result of enforcing or administering the rule on state, but not local government.
The effect on state government for the first five-year period the rule will be in effect is a potential decrease in revenue. It is anticipated that some firms holding a restricted registration to act as a business broker, and the agents registered with those firms, would choose to claim the exemption rather than renewing their registrations. Similarly, some individuals currently registered as finders may opt to change the services they provide to fit within the proposed exemption. Currently, there are 26 restricted dealers registered as business brokers, 91 agents registered under those business brokers, and 40 registered finders. If all of these currently registered persons migrated to the M&A dealer exemption, there would be an annual loss in revenue to the Agency of $45,545. The annual actual loss in revenue would be something less than this amount.
Mr. Patel, Mr. Green, and Ms. Loutherback also have 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 a state exemption that closely corresponds with federal guidance. 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 45 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 45 days following publication.
The new rule is proposed under Texas Civil Statutes, Articles 581-12.C, and 581-28-1. Section 12.C provides the Board with the authority to prescribe new dealer, agent, investment adviser, or investment adviser representative registration exemptions by rule. 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, Articles 581-7, 581-12, 581-13, 581-14, 581-15, and 581-18.
§139.27.Mergers and Acquisitions Dealer Exemption.
(a) Dealer and agent exemption. The State Securities Board, pursuant to the Texas Securities Act, §12.C, exempts a Mergers and Acquisitions (M&A) Dealer from registration as a dealer provided the conditions set forth in this section are met. The agents for the M&A Dealer are also exempt from registration provided the conditions set forth in this section are met.
(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) M&A Dealer--A person engaged in the business of effecting securities transactions solely in connection with a Qualifying M&A Transaction, as identified in subsection (c) of this section.
(2) Actively Operate--The power to elect executive officers and approve the annual budget or serving as an executive or other executive manager.
(3) Privately-Held Company--A company that does not have any class of securities registered or required to be registered with a securities regulator and is not required to file periodic information, documents, or reports under §15(d) of the Exchange Act. The company must be an operating company that is a going concern and not a shell company. For purposes of this definition, a "going concern" need not be profitable so long as it has actually been conducting business, including soliciting or effecting business transactions or engaging in research and development activities.
(4) Shell Company--A company that has no or nominal operations, and has:
(A) no or nominal assets;
(B) assets consisting solely of any amount of cash or cash equivalents; or
(C) assets consisting of any amount of cash and cash equivalents and nominal other assets.
(5) Business Combination Related Shell Company--a Shell Company (as defined in SEC Rule 405) that is:
(A) formed by an entity that is not a shell company solely for the purpose of changing the corporate domicile of that entity solely within the United States; or
(B) formed by an entity that is not a Shell Company solely for the purpose of completing a business combination transaction (as defined in SEC Rule 165(f)) among one or more entities other than the Shell Company, none of which is a Shell Company.
(c) Qualifying M&A Transactions. To be a Qualifying M&A Transaction, the transaction must meet all the following requirements.
(1) A Qualifying M&A Transaction is a transfer of ownership and control of a Privately-Held Company to a buyer through the purchase, sale, exchange, issuance, repurchase, or redemption of securities, or a business combination involving securities or assets of the company.
(2) Upon completion of the transaction, the buyer or group of buyers must actively operate the company or the business conducted with the assets of the company.
(3) No Qualifying M&A Transaction can involve a public offering of securities. Any offering or sale of securities will be conducted in compliance with an applicable exemption from registration under the Texas Securities Act.
(4) No party to any Qualifying M&A Transaction can be a Shell Company, other than a Business Combination Related Shell Company.
(5) The buyer, or group of buyers, in any Qualifying M&A Transaction must, upon completion of the transaction, control the company. A buyer, or group of buyers collectively, would have the necessary control if it has the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. The necessary control will be presumed to exist if, upon completion of the transaction, the buyer or group of buyers has the right to vote 25% or more of a class of voting securities; has the power to sell or direct the sale of 25% or more of a class of voting securities; or in the case of a partnership or limited liability company, has the right to receive upon dissolution or has contributed 25% or more of the capital.
(6) No Qualifying M&A Transaction can result in the transfer of securities to a passive buyer or group of passive buyers.
(7) Any securities received by the buyer or M&A Dealer in a Qualifying M&A Transaction are restricted securities within the meaning of the Securities Act of 1933, Rule 144(a)(3).
(d) Permitted activities. An M&A Dealer may:
(1) advertise a Privately-Held Company for sale with information such as the description of the business, general location, and price range, so long as the dealer does not include an offer for sale of securities; or
(2) facilitate a Qualifying M&A Transaction with a group of buyers only if the group is formed without the assistance of the M&A Dealer.
(e) Prohibited activities. An M&A Dealer may not:
(1) have the ability to bind a party to a Qualifying M&A Transaction;
(2) directly, or indirectly through any of its affiliates, provide financing for a Qualifying M&A Transaction; or
(3) have custody, control, or possession of or otherwise handle funds or securities issued or exchanged in connection with a Qualifying M&A Transaction or other securities transaction for the account of others.
(f) Disclosures.
(1) To the extent an M&A Dealer represents both buyers and sellers, it must provide clear written disclosure as to the parties it represents and obtain written consent from both parties to the joint representation.
(2) An M&A Dealer that assists buyers to obtain financing from unaffiliated third parties must comply with all applicable legal requirements and must disclose any compensation in writing to the buyer.
(g) Disqualifications.
(1) Except as provided in paragraph (2) of this subsection, the exemption in this section is not available if the M&A Dealer, or an officer, director, or employee of the M&A Dealer are subject to any of the following disqualifications:
(A) any of those described in Rule 262 of SEC Regulation A, 17 CFR §230.262;
(B) has been convicted within five years prior to the filing of the notice required under this exemption of any felony or misdemeanor involving the offer, purchase, or sale of any security or the rendering of investment advice, or any felony involving embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;
(C) is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily, or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;
(D) is the subject of a United States Postal Service fraud order that is currently effective and was issued within the last five years;
(E) is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;
(F) is subject to an order issued by a state or federal authority that bars the person from association with an entity regulated by the authority that issued the order, or from engaging in the business of securities, insurance, or banking, or savings association or credit union activities; or
(G) is the subject of a suspension or expulsion from membership in or association with a member of a self-regulatory organization that is currently effective and was issued within the last five years.
(2) The prohibitions of paragraph (1) of this subsection shall not apply if:
(A) the party subject to the disqualification is duly licensed or registered to conduct securities-related business or render investment advisory services in the state in which the order, judgment, or decree creating the disqualification was entered against such party; or
(B) before services are rendered under this section, the Securities Commissioner, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification upon a showing of good cause.
(h) Recordkeeping and requests for records.
(1) An M&A Dealer shall maintain and preserve for a period of three (3) years records of all compensation received and communications, agreements, or contracts with buyers and/or sellers in connection with any transaction or transactions in which the dealer received compensation.
(2) Upon a written request from the Securities Commissioner or the Commissioner's authorized representative, an M&A Dealer relying on the exemption provided by this section shall make available to the Commissioner all records required to be maintained and preserved under this subsection. Failure to comply with this subsection will result in the loss of the exemption provided by this section.
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 October 28, 2014.
TRD-201405036
John Morgan
Securities Commissioner
State Securities Board
Earliest possible date of adoption: December 14, 2014
For further information, please call: (512) 305-8303