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Ohio Laws and Rules
(A) “Having no readily determinable value,” as used in division (L)(1) of section 1707.01 of the Revised Code and paragraph (K)(2)(b)(i) of rule 1301:6-3-15 of the Administrative Code, means any securities not listed on an exchange specified in division (E)(1) of section 1707.02 of the Revised Code or approved by the division in accordance with division (E)(2) of section 1707.02 of the Revised Code or securities not actively traded in the over-the-counter market.
(B) “The distribution by a corporation of its securities,” as used in division (K)(1) of section 1707.03 of the Revised Code, includes the distribution on a pro rata basis of shares of a subsidiary to shareholders of the parent corporation.
(C) For the purposes of Chapter 1301:6-3 of the Administrative Code, “division” shall, where the context indicates, mean the Ohio division of securities.
(D) “Institutional investor,” as used in division (S) of section 1707.01 of the Revised Code, includes, but is not limited to, “qualified institutional buyer,” as that term is defined in 17 C.F.R. 230.144A as amended.
(E) “Affiliated,” as used in division (B) of section 1707.14 of the Revised Code, shall mean directly or indirectly through one or more intermediaries controlled by or under common control with another person or enterprise. For the purpose of this rule, “control” shall mean the authority to direct or cause the direction of the management and policies of the dealer through ownership, by contract, or otherwise. Without limiting the range of circumstances where persons or entities are determined to be affiliated, it shall be presumed that two or more persons or entities are affiliated when any person or entity is the owner of record or known beneficial owner of ten percent or more of the voting interests of the persons or entities, or when any person or entity is the owner of record or known beneficial owner of ten per cent or more of the voting interests of the dealer.
(F) “Branch Office” as used in paragraphs (C)(2)(d), (D) and (M) of rule 1301:6-3-15 of the Administrative Code means:
(1) Any location where one or more persons associated with a securities dealer
(“associated person(s)”) regularly conducts the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security, or is held out as such, excluding:
(a) Any location that is established solely for customer service and/or back office type functions where no sales activities are conducted and that is not held out to the public as a branch office;
(b) Any location that is the associated person’s primary residence; provided that:
(i) Only one associated person, or multiple associated persons who reside at that location and are members of the same immediate family, conduct business at the location;
(ii) The location is not held out to the public as an office and the associated person does not meet with customers at the location;
(iii) Neither customer funds nor securities are handled at that location;
(iv) The associated person is assigned to a designated branch office, and such designated branch office is reflected on all business cards, stationery, advertisements and other communications to the public by such associated person;
(v) The associated person’s correspondence and communications with the public are subject to the dealer’s supervision in accordance with “National Association of Securities Dealers” rule 3010 as amended.
(vi) Electronic communications including but not limited to e-mail are made through the dealer’s electronic system;
(vii) All orders are entered through the designated branch office or an electronic system established by the dealer that is reviewable at the branch office;
(viii) Written supervisory procedures pertaining to supervision of sales activities conducted at the residence are maintained by the dealer; and
(ix) A list of the residence locations is maintained by the dealer.
(c) Any location, other than a primary residence, that is used for securities business for less than thirty days in any one calendar year, provided the dealer complies with the provisions of paragraphs (F)(1)(b)(i) to (F)(1)(b)(ix) of this rule;
(d) Any office of convenience, where associated persons occasionally and exclusively by appointment meet with customers, which is not held out to the public as an office, except that where such office of convenience is located on bank premises, signage necessary to comply with paragraph (H) of rule 1301:6-3-15 of the Administrative Code may be displayed and shall not be deemed “holding out” for purposes of this paragraph;
(e) Any location that is used primarily to engage in non-securities activities and from which the associated person(s) effects no more than twenty-five securities transactions in any one calendar year, provided that any advertisement or sales literature identifying such location also sets forth the address and telephone number of the location from which the associated person(s) conducting business at the non-branch locations are directly supervised;
(f) The floor of a registered national securities exchange where a dealer conducts a direct access business with public customers; or
(g) A temporary location established in response to the implementation of a business continuity plan.
(2) Notwithstanding the exclusions in paragraph (F)(1) of this rule, any location that is responsible for supervising the activities of persons associated with the dealer at one or more non-branch locations of the dealer is considered to be a branch office.
(G) “Place of business,” as used in section 1707.141 of the Revised Code and section 1707.161 of the Revised Code, means:
(1) An office at which the investment adviser or investment adviser representative regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients; and
(2) Any other location that is held out to the general public as a location at which the investment adviser or investment adviser representative provides investment advisory services, solicits, meets with, or otherwise communicates with clients.
(H) For the purpose of determining the number of clients in division (A)(4) of section 1707.141 of the Revised Code as a safe harbor and not as the exclusive method for determining who may be deemed a client, the following are deemed a “single client:”
(1) A natural person, and
(a) Any minor child of the natural person;
(b) Any relative, spouse, or relative of the spouse of the natural person who has the same principal residence;
(c) All accounts of which the natural person and/or the persons referred to in paragraph (H)(1) of this rule are the only primary beneficiaries; and
(d) All trusts of which the natural person and/or the persons referred to in paragraph (H)(1) of this rule are the only primary beneficiaries.
(2) Legal organizations, including:
(a) A corporation, general partnership, limited partnership, limited liability company, trust, other than a trust referred to in paragraph (H)(1)(d) of this rule, or other legal organization that receives investment advice based on its investment objectives rather than the individual investment objectives of its owners. “Owners” includes shareholders, partners, limited partners, members, or beneficiaries.
(b) Two or more legal organizations referred to in paragraph (H)(2)(a) of this rule that have identical owners.
(I) Special rules. For purposes of paragraph (H) of this rule:
(1) An owner must be counted as a client if the investment adviser provides investment advisory services to the owner separate and apart from the investment advisory services provided to the legal organization, provided, however, that the determination that an owner is a client will not affect the applicability of this section with regard to any other owner;
(2) An owner need not be counted as a client of an investment adviser solely because the investment adviser, on behalf of the legal organization, offers, promotes, or sells interests in the legal organization to the owner, or reports periodically to the owners as a group solely with respect to the performance of or plans for the legal organization’s assets or similar matters;
(3) A limited partnership is a client of any general partner or other person acting as investment adviser to the partnership;
(4) Any person for whom an investment adviser provides investment advisory services without compensation need not be counted as a client; and
(5) An investment adviser that has its principal office and place of business outside the United States must count only clients that are United States residents. An investment adviser that has its principal office and place of business in the United States must count all clients.
(J) “Investments,” as used in division (FF) of section 1707.01 of the Revised Code, has the same meaning as defined in rule 17 C.F.R. 270.2a51-1(b), as amended.
(K) For purposes of division (E)(1) of section 1707.01 of the Revised Code “dealer” shall not mean any person who is a member in good standing of a self-regulatory agency or stock exchange in Canada and is registered as a broker or dealer in a Canadian province or territory provided all transactions in Ohio are limited to:
(1) Canadian residents who are temporarily in Ohio with whom the Canadian broker or dealer has a bona fide business customer relationship; or
(2) Self-directed, tax-advantaged retirement plans where the holder or contributor is a Canadian resident.
(L) Exception to the definition of “investment adviser” in accordance with division (X)(2)(j) of section 1707.01 of the Revised Code. “Investment adviser” does not mean:
(1) Any person who, during the course of the preceding twelve months:
(a) Has had fewer than fifteen clients;
(b) Does not hold himself out generally to the public as an investment adviser; and
(c) Has clients consisting solely of:
(i) “Accredited investors” as defined in rule 501(a) of Regulation D under the Securities Act of 1933, as amended;
(ii) “Excepted persons” as defined in division (EE) of section 1707.01 of the Revised Code;
(iii) “Qualified purchasers” as defined in division (FF) of section 1707.01 of the Revised Code;
(iv) Trusts, provided the trust is not formed or operated for the purpose of evading sections 1707.01 to 1707.45 of the Revised Code;
(v) An entity in which all of the equity owners and the person providing the investment advice are related by blood, marriage, or adoption, and not more remote than a first cousin; provided, however, that such entity may include persons who acquire an interest from such related person as a gift or bequest or pursuant to an agreement relating to a legal separation or divorce; or
(vi) Any entity in which the equity owners are persons:
(a) Listed in paragraph (L)(1)(c)(i), (L)(1)(c)(ii), or (L)(1)(c)(iii) of this rule.
(b) Provided, however, that such entity also may include persons:
(i) Serving as an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the entity; or
(ii) Serving as an employee of the entity, other than an employee performing solely clerical, secretarial, or administrative functions or duties, which employee, in connection with the employee’s regular functions or duties, participates in the investment activities of the entity, provided that, for at least twelve months, the employee has been performing such nonclerical, nonsecretarial, or nonadministrative functions or duties for or on behalf of the entity or performing substantially similar functions or duties for or on behalf of another company.
(c) Provided further, that such entity may include persons who acquire an interest from a person listed in paragraph (L)(1)(c)(vi)(a) or (L)(1)(c)(vi)(b) of this rule as a gift or bequest or pursuant to an agreement relating to a legal separation or divorce.
(2) Any person who:
(a) Is acting solely as a “solicitor” as defined in paragraph (C)(4)(c) of rule 1301:6-3-44 of the Administrative Code; and
(b) Is in compliance with the requirements of paragraph (C)(1) of rule 1301:6-3-44 of the Administrative Code, or is excepted from the requirements of paragraph (C)(1) of rule 1301:6-3-44 of the Administrative Code by virtue of paragraph (C)(2) of rule 1301:6-3-44 of the Administrative Code.
(M) “Filed with the division” as used in sections 1707.141 and 1707.15 of the Revised Code and “filing with the division” as used in section 1707.151 and 1707.161 of the Revised Code, shall include information submitted to the central registration depository and the investment adviser registration depository maintained by the national association of securities dealers, inc.
(N) With the exception of paragraphs (F) and (G) of rule 1301:6-3-39.1, for purposes of Chapter 1301:6-3 of the Administrative Code, filing an amendment or update “promptly” shall mean filing not later than thirty calendar days after learning of the facts or circumstances giving rise to the amendment or update.
Effective: 08/05/2007
R.C. 119.032 review dates: 11/15/2009
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.01
Prior Effective Dates: 12-31-75; 10-24-84; 7-3-93; 10-18-94; 3-18-99; 7-29-99; 5-25-00; 11-27-00; 2-1-01; 5-21-01; 5-23-03; 7-3-06
(A) For purposes of division (E) of section 1707.02 of the Revised Code, the division finds that the following national securities exchanges, or segments or tiers thereof, have listing standards that are substantially similar to those of the New York stock exchange, the American stock exchange, or the national market system of the NASDAQ stock market, and that securities listed on such exchanges shall be deemed exempt securities:
(1) Tier I of the Pacific exchange, incorporated;
(2) Tier I of the Philadelphia stock exchange, incorporated; and
(3) The Chicago board options exchange, incorporated.
(B) The designation of securities in paragraphs (A)(1), (A)(2), and (A)(3) of this rule as exempt securities is conditioned on such exchanges’ listing standards, or segments or tiers thereof, continuing to be substantially similar to those of the New York stock exchange, the American stock exchange, or the national market system of the NASDAQ stock market.
(C) Securities not deemed “payable out of the proceeds of a general tax.” A security is not deemed “payable out of the proceeds of a general tax” unless at the time of issuance, machinery has been set up for the servicing of the security out of the proceeds of a general tax in the event that revenues collected or administered by the issuer and allocated to the payment thereof prove to be insufficient. It is not sufficient for this purpose that the full faith and credit of a state is pledged to the payment of a security if it will be necessary, on the failure of specified revenues to meet security charges, to obtain legislative action which would make the security in question payable out of the proceeds of a general tax.
(D) Commercial paper and promissory notes; sale to the public.
(1) Pursuant to division (G) of section 1707.02 of the Revised Code, commercial paper and promissory notes are not offered for sale directly or indirectly to the public where their sale is restricted to:
(a) Sales to officers or directors of the issuer, of the parent corporation of the issuer, or of a corporate general partner of the issuer;
(b) Sales to general partners of the issuer;
(c) Sales to persons who directly or indirectly control the management and policies of the issuer by ownership of voting securities, by contract, or otherwise; or
(d) Sales by the issuer of the security to not more than ten persons in this state during any twelve month period, provided that:
(i) The issuer reasonably believes after reasonable investigation that the person is purchasing for investment;
(ii) No advertisement, article, notice, or other communication shall be published or broadcast or caused to be published or broadcast by the issuer in connection with the sale other than an offering circular or other communication delivered by the issuer to selected individuals;
(iii) The aggregate commission, discount, and other remuneration paid or given directly or indirectly for sale of the commercial paper and promissory notes of the issuer, excluding legal, accounting and printing costs, does not exceed ten percent of the initial offering price of the commercial paper and promissory notes; and
(iv) Any commission, discount, or other remuneration for sales of commercial paper and promissory notes in reliance on this exemption in this state is paid or given only to dealers or salesmen licensed pursuant to Chapter 1707. of the Revised Code; and
(e) For the purpose of determining compliance with paragraph (D)(1)(d) of this rule, a husband and wife, a child and its parent or guardian when the parent or guardian holds the security for the benefit of the child, a partnership, association or other unincorporated entity, or a trust not formed for the purpose of purchasing the security shall be deemed to be a single purchaser.
(f) For the purpose of determining compliance with paragraph (D)(1)(d) of this rule, sales of commercial paper and promissory notes registered or sold pursuant to an exemption under section 1707.01 to 1707.45 of the Revised Code other than division (G) of section 1707.02 of the Revised Code or sold pursuant to paragraph (D)(1)(a), (D)(1)(b) or (D)(1)(c) of this rule shall not be integrated with sales made pursuant to paragraph (D)(1)(d) of this rule.
(2) Commercial paper and promissory notes otherwise offered to all other persons are deemed to be offered to the public for purposes of division (G) of section 1707.02 of the Revised Code.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.02
Prior Effective Dates: 12-31-75, 1-17-92, 10-18-94, 5-25-00, 5-21-01
(A) Definitions. For the purposes of this rule and section 1707.03 of the Revised Code:
(1) “Bank” shall have the meaning specified in division (O) of section 1707.01 of the Revised Code.
(2) “Escrow Agreement” shall mean a written instrument established by a dealer registered with the securities and exchange commission in accordance with the standards set forth in 17 CFR 15c2-4(b), as amended, or a written instrument signed by the issuer and the bank, the deposits of which are insured by the federal deposit insurance corporation and which is not an affiliate, subsidiary, or parent of the issuer, which instrument provides for the establishment of an escrow account with the bank, establishes procedures for the prompt deposit into the escrow account of funds received from purchasers, specifies that no funds will be disbursed from the escrow account until a minimum stated amount of the securities have been sold and the proceeds have been deposited into the escrow account, and specifies a termination date when the proceeds held in the escrow account will be returned without deduction to the purchasers if the proceeds for a minimum stated amount of the securities have not been deposited in the escrow account.
(3) “Mortgage-backed security” shall mean indebtedness, a participation in indebtedness, or other interest in indebtedness secured by a mortgage lien upon real estate, or a participation in or other interest in a syndicate, pool, trust, or other entity consisting of indebtedness secured by a mortgage lien upon real estate.
(4) “Retail repurchase agreement” shall mean indebtedness arising from the sale of a security or pool of securities that is a direct obligation of or is fully guaranteed by the United States government or an agency thereof, or indebtedness collateralized by an interest in a security or pool of securities that is a direct obligation of or is fully guaranteed by the United States government or an agency thereof.
(5) “Ten per cent of the initial offering price” shall mean an amount equal to ten percent of the offering price of the securities actually sold.
(B) Claims of exemption in accordance with division (Q) of section 1707.03 of the Revised Code.
(1) The issuer or dealer shall file with the division a report of sales on a manually executed form 3-Q not later than sixty days after each sale of any security in reliance on division (Q) of section 1707.03 of the Revised Code. All sales within any sixty-day period which have not been reported on a prior form 3-Q may be included on a single form 3-Q.
(2) When the division receives a form 3-Q which appears to be defective, the division shall notify the claimant and shall allow not more than thirty days for the amendment of the form. If the defects are remedied by amendment in a timely manner, the form shall be deemed filed as of the date of the original filing. If the defects are not remedied by proper amendment, the division shall note on its records that the form is defective and that no effective claim of exemption has been made.
(3) Where the division determines by examination or otherwise that the information reported on a form 3-Q is inaccurate or incomplete, the division shall notify the claimant and shall afford the claimant an opportunity to present proof to establish that the exemption was properly claimed. In the absence of satisfactory proof to the division that claimant was entitled to claim the exemption, the division shall make a finding that the facts necessary for claiming the exemption did not exist at the time such exemption was claimed and that the claim of exemption was null and void and of no effect when made. The division shall thereupon order its records endorsed in accordance with that finding. If the division determines that an exemption has been improperly claimed, it may take action in accordance with Chapter 1707. of the Revised Code.
(C) Claims of exemption in accordance with division (O) of section 1707.03 of the Revised Code and division (Q) of section 1707.03 of the Revised Code.
(1) The issuer shall maintain or cause to be maintained books and records which reflect all material transactions involving the sale of securities under division (O) of section 1707.03 of the Revised Code or under division (Q) of section 1707.03 of the Revised Code for a period of five years from the date of the last sale by the issuer under the claim of exemption.
(2) For the purpose of determining the date of sale for division (O) or (Q) of section 1707.03 of the Revised Code, a sale shall be deemed to have occurred on the later of:
(a) The date that a subscription agreement or its equivalent, signed by the purchaser, is received by the issuer or the dealer, or the purchaser transfers or loses control of the purchase funds, whichever is earlier; or
(b) The first date of disbursement of any proceeds of the sale of the securities which have been deposited directly into an escrow account established pursuant to an escrow agreement as defined in paragraph (A)(2) of this rule.
(3) No salesperson shall sell securities in reliance on an exemption under division (O) or (Q) of section 1707.03 of the Revised Code other than through or with the salesperson’s employing dealer.
(D) Claims of exemption in accordance with division (O) of section 1707.03 of the Revised Code.
(1) An issuer shall be presumed to have established that a purchaser is purchasing for investment, in the absence of information to the contrary, when the issuer obtains a written declaration signed by the purchaser which includes;
(a) A statement that the purchaser is aware that no market may exist for the resale of the securities;
(b) A statement that the purchaser is purchasing for investment and not for the distribution of the securities; and
(c) A statement that the purchaser is aware of any and all restrictions imposed by the issuer on the further distribution of the securities, including, but not limited to, any restrictive legends appearing on the certificate, required holding periods, stop transfer orders, or buy-back rights of the corporation or the holders of its securities.
(2) For the purpose of computing the total number of purchasers under division (O)(2) of section 1707.03 of the Revised Code, successive sales by an issuer to a single purchaser shall not be considered to be sales to additional purchasers.
(E) Additional exemptions in accordance with division (V) of section 1707.03 of the Revised Code.
(1) The sale by a bank, a subsidiary of a bank, or a service corporation owned by and organized to provide services to one or more banks of retail repurchase agreements is exempt pursuant to division (V) of section 1707.03 of the Revised Code.
(2) The sale by a bank, a subsidiary of a bank, or a service corporation owned by and organized to provide services to one or more banks of mortgage-backed securities is exempt pursuant to division (V) of section 1707.03 of the Revised Code.
(3) The sale of any security representing directly or indirectly a fractional interest in a pool of FHA-insured or VA-guaranteed first mortgage loans guaranteed by the full faith and credit of the United States government (commonly referred to as GNMA-backed securities or GNMA pass-through securities), is exempt pursuant to division (V) of section 1707.03 of the Revised Code. The assets of a security sold in reliance on this paragraph may also include cash or other obligations backed by the full faith and credit of the United States government to a maximum of twenty per cent of the total assets of the security.
(4) The sale of any security representing directly or indirectly a fractional interest in a certificate of deposit or a pool of certificates of deposit is exempt pursuant to division (V) of section 1707.03 of the Revised Code, provided that:
(a) The certificates of deposit are issued by a bank with assets of two billion dollars or more;
(b) If a pool, no more than ten per cent of the pool’s assets may be invested in the certificates of deposit of any one bank; and
(c) The total expenses of sale, issuance and distribution of the securities do not exceed three per cent of the gross proceeds of the sale of the securities.
(5) The sale of any security pursuant to a pension plan, stock plan, profit-sharing plan, compensatory benefit plan, welfare plan, or similar plan is exempt pursuant to division (V) of section 1707.03 of the Revised Code if:
(a) The security is sold pursuant to a plan qualified under sections 401 to 425 of the Internal Revenue Code of 1986, as amended;
(b) The sale of the security is exempt from the provisions of section 5 of the Securities Act of 1933, as amended, because it meets the exemption set forth in rule 701 of the Securities Act of 1933, as amended, and any commission, discount or other remuneration paid or given for the sale of the security in this state is paid or given only to dealers or salespersons licensed by the division;
(c) The security is effectively registered under sections 6 to 8 of the Securities Act of 1933, as amended, and is offered and sold in compliance with the provisions of section 5 of the Securities Act of 1933 as amended; or
(d) The security is sold pursuant to a contributory employee welfare benefit plan and trust that are qualified under section 501(c)(9) of the Internal Revenue Code of 1986.
(6) The sale of a warrant, subscription right, or option to purchase a security exempted by division (E) of section 1707.02 of the Revised Code or the sale of a unit consisting of a warrant, subscription right, or option to purchase a security exempted under division (E) of section 1707.02 of the Revised Code and a security which is exempt under division (E) of section 1707.02 of the Revised Code is exempt pursuant to division (V) of section 1707.03 of the Revised Code.
(7) Any guarantee, letter of credit, standby purchase agreement, or other credit enhancement that is offered and sold in conjunction with a security that is exempt under division (B) of section 1707.02 of the Revised Code and which is not traded separately is exempt under division (V) of section 1707.03 of the Revised Code.
(8) The offer of securities by an issuer on the internet, or similar electronic medium, is exempt pursuant to division (V) of section 1707.03 of the Revised Code, provided that:
(a) The offer of securities indicates, directly or indirectly, that securities are not being offered to any person in this state and the issuer does not otherwise attempt to sell securities in this state;
(b) The offer of securities is not specifically directed to any person in this state by, or on behalf of, the issuer; and
(c) No sales of securities are made in this state as a result of the offer of securities until the securities have been registered by description, qualification or coordination, or are the subject matter of a transaction that has been registered by description, or are otherwise exempt or are subject matter of an exempt transaction, and a final prospectus, offering circular or form U-7, if required under the Ohio Securities Act or division regulations, has been delivered to persons in this state prior to such sale.
(9) The sale of any security, including the issuance of securities in mergers, consolidations, combinations or conversions, by an issuer formed primarily to provide professional services as such term is defined in division (A) of section 1785.01 of the Revised Code is exempt pursuant to division (V) of section 1707.03 of the Revised Code provided that:
(a) No commission or other remuneration is paid directly, or indirectly, in connection with the sale of the security; and
(b) Ownership of the securities of the issuer is limited to:
(i) Employees, partners, officers, directors, shareholders, members or managers who perform professional services for the issuer;
(ii) Retired employees, partners, officers, directors, shareholders, managers or members who have performed professional services for the issuer;
(iii) Employee benefit plans holding securities for the benefit of employees, partners, officers, directors, shareholders, members or managers who perform, or who have performed, professional services for the issuer;
(iv) The estate of any individual described in paragraph (E)(9)(b)(i), (E)(9)(b)(ii), or (E)(9)(b)(iii) of this rule; or
(v) Any other person who acquired such ownership interest by reason of the death of an individual described in paragraph (E)(9)(b)(i), (E)(9)(b)(ii), or (E)(9)(b)(iii) of this rule.
(10) The sale of a security that is exempt from the provisions of section 5 of the Securities Act of 1933, as amended, because it meets an exemption in rule 801 or 802 of the Securities Act of 1933, as amended, and any commission, discount or other remuneration paid or given for the sale of the security in this state is paid or given only to dealers or salespersons licensed by the division is exempt pursuant to division (V) of section 1707.03 of the Revised Code.
(11) The sale of any security to a Canadian resident temporarily in Ohio or to a self-directed, tax-advantaged retirement plan where the holder or contributor is a Canadian resident, by a Canadian broker or dealer meeting the requirements of paragraph (J) of rule 1301:6-3-01 of the Administrative Code, is exempt.
(F) The issuer shall maintain or cause to be maintained books and records which reflect all material transactions involving the sale of securities under division (W) of section 1707.03 of the Revised Code or under division (Y) of section 1707.03 of the Revised Code for a period of five years from the date of the last sale by the issuer under the claim of exemption.
(G) An issuer making a filing with the division under division (Q), (W), (X) or (Y) of section 1707.03 of the Revised Code shall file an irrevocable consent to service of process on either a form 11 or a form U-2, if required under section 1707.11 of the Revised Code.
Effective: 08/05/2007
R.C. 119.032 review dates: 11/15/2009
Promulgated Under: 119.03
Statutory Authority: 1707.20 and 1707.03(V)
Rule Amplifies: 1707.01
Prior Effective Dates: 12-31-75; 10-23-79; 4-1-83; 10-26-84; 8-23-85; 1-17-92; 12-14-92; 7-3-93; 10-18-94; 1-21-96; 4-21-97; 7-19-97; 3-18-99; 1-28-00; 2-1-01; 5-21-01; 10-10-03, 2-1-07
(A) If an offeror makes a control bid for any securities of a subject company pursuant to a tender offer or request or invitation for tenders that is not subject to section 14(d) of the Securities Exchange Act of 1934, any person who deposits securities pursuant to the tender offer, request or invitation has the right to withdraw such securities during the period such offer, request or invitation remains open.
(B) The division shall:
(1) Terminate a control bid filing made pursuant to section 1707.041 of the Revised Code if all of the following conditions are met:
(a) Pursuant to division (A)(3) of section 1707.041 of the Revised Code, the division suspends the continuation of the control bid;
(b) Pursuant to division of (A)(4) of section 1707.041 of the Revised Code, the division maintains the suspension of the control bid; and
(c) The control bid remains suspended for sixty days after the date the division maintains the suspension.
(2) Give notice of a termination to the offeror and to the subject company.
(3) Permit the offeror to reinstitute the control bid by filing new or amended information with the division pursuant to section 1707.041 of the Revised Code.
(C) Financial statements of the offeror.
(1) Financial statements of an offeror shall not be deemed material and are not required to be filed under division (A)(2)(g) of section 1704.041 of the Revised Code when:
(a) The consideration offered consists solely of cash, and;
(b) The control bid is not subject to any financing condition, and:
(c) The offeror is a public reporting company under section 13(a) or 15(d) of the Securities Exchange Act of 1934 and files reports electronically on the electronic data gathering, analysis, and retrieval system, or the “EDGAR” system, or the control bid is for all outstanding securities of the subject company.
(2) An offeror that is a public reporting company under section 13(a) or 15(d) of the Securities Exchange Act of 1934 and files reports electronically on the “EDGAR” system shall be required only to file financial statements for the current period and the two most recent annual accounting periods. The offeror may file summary financial information for the current period and the two most recent annual accounting periods and incorporate by reference financial statements filed with the securities and exchange commission electronically on the “EDGAR” system.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.041
Prior Effective Dates: 8-10-98, 11-5-01
(A) Every registration by description filed with the division pursuant to section 1707.06 of the Revised Code shall be filed on an appropriate division form. A registration by description intended to comply with division (A)(1) of section 1707.06 of the Revised Code shall be filed on a division form 6(A)(1), a registration by description intended to comply with division (A)(2) of section 1707.06 of the Revised Code shall be filed on a division form 6(A)(2), a registration by description intended to comply with division (A)(3) of section 1707.06 of the Revised Code shall be filed on a division form 6(A)(3), and a registration by description intended to comply with division (A)(4) of section 1707.06 of the Revised Code shall be filed on a division form 6(A)(4). The registration by description shall be accompanied by any additional exhibits requested by the division for the protection of investors, and the following exhibits, as necessary:
(1) Where the issuer has engaged in operations for ninety days or more prior to the date of the filing of the registration by description with the division, a balance sheet of the issuer as of a date not more than ninety days prior to the date of filing of the registration by description with the division and statements of income and shareholder’s equity for the two years prior to the date of the balance sheet or the period of the issuer’s existence if less than two years, either audited by an independent public accountant or verified as true in all material respects within the actual knowledge and belief of the chief financial officer or the general partner of the issuer. If any financial statements used in connection with a registration by description are accompanied by a report of an independent public accountant, a letter from the accountant consenting to the use of the report shall be attached to the application; and
(2) Where the aggregate amount of the securities to be registered by description exceeds two hundred fifty thousand dollars, or where the securities to be registered by description represent interests in oil and gas, an offering circular prepared in accordance with paragraph (D) of this rule;
(3) When the issuer has sold securities in violation of the Ohio securities act not more than five years prior to the registration by description, an exhibit stating:
(a) The total number of persons to whom the securities were originally sold,
(b) The consideration received by the issuer for the securities, showing in detail whether the consideration was in cash or in property or services, and if in property or services, the nature, value and description thereof, and
(c) The total number of each type of securities outstanding;
(4) One copy of any offering circular, prospectus, advertising, sales literature, or other writing to be used in connection with the offering or sale of the securities registered by description.
(B) The division shall promptly examine every registration by description filed with it and shall issue a certificate of acknowledgment when it determines that the description conforms to the requirements of and is accompanied by the appropriate fee required by section 1707.08 of the Revised Code.
(C) No dealer or issuer selling its own securities shall use any prospectus or offering circular in connection with the offering or sale of any securities registered by description unless the prospectus, offering circular, advertising, sales literature, or other writing has first been filed with the division. No dealer or issuer selling its own securities shall use any advertising, sales literature, or other writing other than a prospectus or offering circular in connection with the offering or sale of any securities registered by description unless the advertising, sales literature, or other writing has first been approved by the division. All dealers and any issuer selling its own securities shall retain one copy of any prospectus, offering circular, advertising, sales literature, or other writing which it has used in connection with the offering or sale of the securities registered by description for a period of five years from the date of last use of the prospectus, offering circular, advertising, sales literature, or other writing.
(D) Where the aggregate amount of the securities to be registered by description exceeds two hundred and fifty thousand dollars or where the securities to be registered by description represent interests in oil and gas, the issuer and dealer shall, prior to the earlier of the date that a subscription agreement or its equivalent is signed by a purchaser or the purchaser transfers or loses control of the purchase funds, deliver an offering circular which shall contain the following information to each purchaser of the securities registered by description:
(1) The issuer’s name and address, its type of business entity, the state or jurisdiction of its incorporation or formation, and the date of its incorporation or formation on the outside front cover page;
(2) The offering price to the public, discounts or commissions to dealers, and proceeds to the issuer shall be presented in tabular form on the outside front cover page;
(3) The amount of securities to be offered for sale, the aggregate offering price to the public, the aggregate underwriting discounts or commissions, the amount of expenses of the issuer, the amount of expenses of the underwriters to be paid by the issuer, and the aggregate proceeds. If the securities are not to be offered for cash, a description of the consideration to be paid for the securities on the outside front cover page;
(4) A description of the method by which the offering will be made and, the name and address of every dealer participating in the offering, specifying the extent and amount of participation of each dealer, and indicating the nature of any material relationship between the issuer and any dealer;
(5) A statement specifying the purposes for which the proceeds of the sale of the securities registered by description will be used and the amount to be used for each purpose, indicating the present intention of the issuer; with respect to the order of priority in which the proceeds will be used;
(6) A description of the experience and expertise of the issuer in the particular business which is the subject of the offering;
(7) A description of the significant risks inherent in the particular offering;
(8) A description of the securities;
(9) A description of the particular business which is the subject of the offering, which shall include, to the extent material to an understanding of the business of the issuer, the nature and principal market of the issuer’s present or proposed products or services, the length of time the issuer has been in commercial production of the present or proposed products or services, the location and ownership interest of the issuer in real property, patents, and other physical property now held or to be acquired by the issuer, the manner in which any new invention or process will be used, and the application or registration numbers of any applicable patents;
(10) A summary of the background, history, and compensation of the principals, officers, directors, and general partners of the issuer and holders of ten percent or more of the securities of the issuer, which shall include:
(a) The names and addresses of all principals, officers, directors, general partners, and ten per cent shareholders of the issuer, and similar information regarding all promoters if the issuer was incorporated or organized less than one year prior to the date of the registration by description;
(b) The annual remuneration of all principals, directors, general partners and ten per cent shareholders of the issuer and of the three highest paid officers of the issuer for the year preceding the date of the filing of the registration by description;
(c) All direct and indirect interests (by securities holdings or otherwise) of each principal, officer, director, general partner, or promoter:
(i) In the issuer or its affiliates and;
(ii) In any material transactions within the two years prior to the date of filing of the registration by description or in any proposed material transactions to which the issuer or any of its predecessors or affiliates was or is to be a party.
(d) If the issuer was incorporated or organized within the last three years, the price paid for and the percentage of outstanding securities of the issuer which will be held by directors, officers and promoters, as a group, and the price paid for and the percentage of securities which will be held by the public, if all of the securities to be offered are sold; and
(11) A description of the financial condition of the issuer audited by an independent certified public accountant or verified as true in all material aspects within the actual knowledge and belief of the chief financial officer of the issuer which shall include;
(a) A balance sheet as of a date no more than ninety days prior to the filing of the registration by description; and
(b) A statement of income and a statement of other shareholders’ equity for the two years prior to the date of the balance sheet or for the period of the issuer’s existence, if less than two years.
(E) Pursuant to section 1707.13 of the Revised Code, the division may suspend any registration by description where:
(1) The issuer has sold securities in violation of the Ohio securities act within five years of the date of filing of the registration by description and has not retroactively qualified those securities pursuant to section 1707.39 or 1707.391 of the Revised Code;
(2) The issuer has issued securities in exchange for intangibles within six months of the date of filing of a registration by description pursuant to division (A)(1) of section 1707.06 of the Revised Code. If the division finds that the protection of investors will be assured, it may permit an escrow of the securities previously issued for intangibles;
(3) The issuer proposes to issue securities for consideration other than cash and has not submitted a sworn appraisal by a competent, disinterested appraiser, other proof as the division may require to establish the dollar value of the consideration, or, if the division finds that the protection of investors will be assured, an escrow of the securities proposed to be issued for consideration other than cash;
(4) The person who filed the registration by description has failed to provide the division with supplementary information as required by paragraph (H) of this rule;
(5) The issuer, incorporators, or dealer has filed a registration by description which does not comply with the provisions of section 1707.08 of the Revised Code and the issuer, incorporators, or dealer has not amended the registration by description in compliance with section 1707.08 of the Revised Code in response to a notice of deficiency transmitted to the issuer, incorporators, or dealer prior to the offer or sale of the securities; or
(6) The registration by description appears to the division to comply with the provisions of section 1707.08 of the Revised Code, but the division has requested additional information to clarify the registration by description for the protection of investors by a letter sent to the address shown on the registration by description by the issuer, incorporators, or dealer, and the issuer, incorporators, or dealer does not provide the additional information requested prior to the offer or sale of the securities.
(F) Pursuant to division (B) of section 1707.131 of the Revised Code, the division shall refuse any registration by description if the issuer is in the development stage and either has no specific business plan or purpose or has indicated that its business is to engage in a merger or acquisition with an unidentified company or companies, or other entities or persons.
(G) Pursuant to division (C) of section 1707.131 of the Revised Code, the division may refuse any registration by description if the issuer does not disclose in final offering materials that, with regard to officers, directors, five per cent shareholders, managers, trustees, or general partners:
(1) Any future transactions will be on terms no less favorable to the issuer than could be obtained from an independent third party; or
(2) Any outstanding loans from the issuer are required to be repaid within six months of the offering, except for loans or extensions of credit made by a bank, and any future loans from the issuer will be for bona fide business purposes as approved by a majority of the disinterested directors, managers, trustees, or general partners, or will be a type of transaction involving a director or executive officer of the issuer as permitted by section 13(k) of the Securities Exchange Act of 1934 as amended.
(H) During the effectiveness of a registration by description, the person who filed the registration by description shall promptly notify the division of:
(1) Any adverse material change in the financial status of the issuer;
(2) Any material change in the proposed use of the proceeds reported in the registration by description;
(3) Any change in the identity of the principals, general partner or officers of the issuer; or
(4) The occurrence of any event or series of events which would cause any statement contained in the registration by description, prospectus or offering circular to be false or misleading in any material respect.
(I) The division shall accept amendments to registrations by description which are limited, in compliance with section 1707.08 of the Revised Code, to the correction of errors or omissions.
Effective: 08/05/2007
R.C. 119.032 review dates: 11/15/2009
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.06
Prior Effective Dates: 8-3-78; 4-1-83; 1-17-92; 11-27-00; 9-16-03
(A) A registration by description shall have a period of effectiveness of sixteen months.
(B) Notwithstanding paragraph (A) of this rule and upon good cause shown, the division may grant an extended period of effectiveness for a registration by description that does not exceed twenty-four months.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.08
Prior Effective Dates: 8-3-78, 10-26-84, 1-17-92, 9-16-03
(A) Application.
(1) An application to register securities by qualification in accordance with section 1707.09 of the Revised Code shall be made on a form 9 of the division or on form U-1 of the North American securities administrators association, and shall, as applicable, be accompanied by a division form 11 or a form U-2, and a form U-2(A) of the North American securities administrators association.
(2) Whenever any statement or report, however characterized, prepared by an independent accountant is to be used in connection with an offering circular, prospectus, or other advertising, the issuer shall furnish the division a letter from the accountant consenting to the use of the statement or report by the issuer.
(3) The division may require that an appropriate cross reference sheet of the North American securities administrators association be submitted with any application.
(B) Period of effectiveness.
(1) Unless otherwise specified by division order, a registration by qualification shall have a period of effectiveness of thirteen months from the effective date of the division order. Upon good cause shown, the division may establish a period of effectiveness for a registration by qualification of not more than twenty-four months.
(2) During the period of effectiveness of a registration by qualification, the issuer shall advise the division of:
(a) Any adverse material change in the financial status of the issuer;
(b) Any material change in the compensation agreement between the issuer and a dealer licensed to sell its securities;
(c) Any material change in the proposed use of the proceeds of an issue;
(d) Any change in the identity of the principals, general partners or officers of the issuer;
(e) Any change in the stated investment policies, objectives, or restrictions of the registration; and
(f) The occurrence of any event or series of events which have caused any statement contained in a prospectus or circular to be false or misleading in any material respect.
(C) Escrow of securities or proceeds from sale of securities.
(1) The division may, for the protection of investors, require the escrow of all or a portion of the securities of an issuer or of the proceeds of sale of securities registered by qualification under terms and conditions of an escrow agreement established by the division in the order qualifying the securities. The division shall have continuing jurisdiction over the escrow agreement so long as the escrow agreement is in effect.
(2) No person shall sell securities in violation of the provisions of an escrow agreement entered into in accordance with paragraph (C)(1) of this rule.
(D) An issuer relying on rule 504 of regulation D of the securities and exchange commission as amended or Section 3(A)(11) of the Securities Act of 1933 as amended shall deliver an offering circular or other disclosure document or documents as required by rule 1301:6-3-06 of the Administrative Code prior to the earlier of the date that a subscription agreement or its equivalent is signed by a purchaser or the purchaser transfers or loses control of the purchase funds. Notwithstanding the foregoing, an issuer relying on rule 504 of regulation D of the securities and exchange commission as amended may use a form U-7 of the North American securities administrators association in lieu of the offering circular or other disclosure document or documents required by rule 1301:6-3-06 of the Administrative Code.
Effective: 08/05/2007
R.C. 119.032 review dates: 11/15/2009
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.09
Prior Effective Dates: 12-31-75; 8-3-78; 2-22-80; 6-18-82; 8-18-83 (Emer.); 12-3-83; 10-26-84; 8-5-85; 1-17-92; 12-14-92; 1-21-96; 9-17-96; 8-4-97; 11-27-00; 4-1-05
(A) A registration statement filed pursuant to section 1707.091 of the Revised Code shall include the following documents in addition to the information specified in divisions (B)(1) and (B)(4) of section 1707.091 of the Revised Code, and the consent to service of process required by section 1707.11 of the Revised Code, unless the division permits otherwise:
(1) A copy of the articles of incorporation and code of regulations or bylaws, or their substantial equivalent currently in effect;
(2) A copy of any agreements with or among underwriters;
(3) A copy of any indenture or other instrument governing the issuance of the security to be registered;
(4) A specimen or copy of the security; and
(5) Any other information or copies of any other documents filed with the securities and exchange commission.
The application may be made on division forms or on forms U-1, U-2, and U-2(A).
(B) The division may issue a stop order denying the effectiveness of the registration statement or suspending its effectiveness, provided the division promptly notifies the issuer or its representative by telegram or telephone, and promptly confirms, when it notifies by telephone, by letter or telegram, if the division finds that the business of the issuer is fraudulently conducted, that the proposed offer or disposal of securities is on grossly unfair terms, or that the plan of issuance and sale of securities would defraud or deceive, or tend to defraud or deceive purchasers. The stop order shall set forth the reasons for such order. When the issuer has complied with the requirements of the division, the division shall promptly notify the issuer or its representative by telegram or telephone, and promptly confirm, when it notifies by telephone, by letter or telegram that the stop order has been terminated. The stop order shall then be void as of the time of entry.
(C) The division may permit, pursuant to divisions (C)(2) and (C)(3) of section 1707.091 of the Revised Code, a reduction of the time period prior to effectiveness during which a registration statement, a statement of the maximum and minimum proposed offering prices, and the maximum underwriting discount and commissions are required to be on file with the division.
(D) If the issuer or its representative, pursuant to division (D) of section 1707.091 of the Revised Code, notifies the division of securities by telephone of the date and time when the federal registration statement became effective or when the offering may otherwise be commenced in accordance with the rules, regulations or orders of the securities and exchange commission, and of the contents of the price amendments, if any, it shall promptly, and in any event not later than the first business day after the day on which the telephone notification was made, confirm the information conveyed in such telephone notification by letter or telegram.
(E) The provisions of rule 1301:6-3-09 of the Administrative Code shall apply to registrations by coordination pursuant to section 1707.091 of the Revised Code.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.091
Prior Effective Dates: 2-22-80, 10-23-79, 12-31-75, 8-5-85
(A) Availability. The use of the Ohio automated securities information submission system, or the “OASIS” system, is voluntary.
(1) Only an electronic filer for an “investment company,” as defined by the Investment Company Act of 1940 that is registered or has filed a registration statement with the securities and exchange commission under the Investment Company Act of 1940, and who is seeking to comply with section 1707.092 of the Revised Code, may submit electronic filings to the division using the “OASIS” system.
(2) With the exception of a duly executed consent to service, filings submitted to the division using the “OASIS” system shall consist exclusively of documents submitted in an electronic filing.
(3) In order to use the “OASIS” system, electronic filers shall comply with all provisions of this rule.
(B) For purposes of this rule and section 1707.093 of the Revised Code:
(1) “Electronic filer” shall mean a person who electronically submits filings and data to the division pursuant to this rule.
(2) “Electronic filing” shall mean:
(a) The data submitted for purposes of complying with section 1707.092 of the Revised Code that is transmitted over the internet to the division’s web site located at http://www.securities.state.oh.us or other associated web site in accordance with this rule and the electronic filing instructions contained on the division’s web site; and
(b) The transmission of fees as described in paragraph (E) of this rule.
(C) Signature. When used in connection with an electronic filing, “signature” shall mean an electronic entry in the form of a computer data compilation of any letter or series of letters comprising a name that is executed, adopted or authorized as a signature.
(1) A signature used in connection with an electronic filing shall have the same legal effect as a manual signature.
(2) For the purposes of this rule, a signature used in connection with an electronic filing shall, on behalf of the investment company for which the electronic filing is submitted, grant irrevocable consent to service of process on the secretary of state as provided in section 1707.11 of the Revised Code.
(D) Business hours. Electronic filings may be submitted to the division using the “OASIS” system each day from eight a.m. to five p.m. eastern standard time or eastern daylight time, whichever is applicable, except Saturdays, Sundays and legal holidays.
(1) Except as provided in paragraph (D)(2) of this rule, the business day on which an electronic filing is received by the division shall be the date of submission if:
(a) The direct transmission is completed and received in its entirety by the division prior to five p.m. eastern standard time or eastern daylight time, whichever is applicable. All electronic filings, the direct transmission of which is completed and received in its entirety after five p.m. Eastern standard time or Eastern daylight time, whichever is applicable, shall be deemed filed the next business day.
(b) The electronic filing is accepted by the “OASIS” system; and
(c) If applicable, the required fee payment has been provided.
(2) If an electronic filer in good faith attempts to submit an electronic filing to the division in a timely manner, but the transmission is delayed due to technical difficulties in the “OASIS” system, the electronic filer may request an adjustment to the filing date of the transmission. The division may grant the request if it appears that such an adjustment is appropriate and consistent with the public interest and the protection of investors.
(E) Fee payment. Fees required by Chapter 1707. of the Revised Code with respect to an electronic filing submitted to the division using the “OASIS” system must be transferred through the automated clearing house network in cash concentration or disbursement entry format or by fedwire transfer.
(F) Permissible documents and required format. In addition to the form NF of the North American securities administrators association and amendments thereto, an electronic filer may submit the following attachments which shall be in html 3.2 or higher format:
(1) Registration statements and amendments thereto;
(2) Prospectuses and statements of additional information, and amendments thereto;
(3) Related correspondence including notice of the declaration of effectiveness of the investment company’s registration statement by the securities and exchange commission; and
(4) Other supplemental information.
(G) Errors and omissions. An electronic filer shall not be subject to the liability and anti-fraud provisions of Chapter 1707. of the Revised Code with respect to an error or omission in an electronic filing resulting solely from electronic transmission errors beyond the control of the electronic filer where the error or omission is corrected by submitting to the division a filing that contains an amendment as soon as reasonably practicable after the electronic filer becomes aware of the error or omission.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.093
Prior Effective Dates: 1-28-00, 11-27-00, 2-1-01, 9-14-02
(A) For purposes of division (B) of section 1707.12 of the Revised Code, information obtained by the division through any offering materials filed with the division in connection with exempt transactions under divisions (Q) and (W) of section 1707.03 of the Revised Code or through any investigation may be made available by the division for inspection by the “National Association of Securities Dealers, Inc.” and the “New York Stock Exchange”.
(B) For purposes of division (C) of section 1707.12 of the Revised Code, confidential law enforcement investigatory records and trial preparation records of the division or any other law enforcement or administrative agency in the possession of the division may be made available by the division for inspection by the “National Association of Securities Dealers, Inc.” and the “New York Stock Exchange”.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.12
Prior Effective Dates: 8-31-03
(A) If an application to register securities pursuant to section 1707.09, 1707.091, or 1707.39 of the Revised Code has been on file with the division for more than one year without becoming registered, the division may withdraw the application without prejudice and refund the qualification fee.
(B) If a notice filing submitted to the division pursuant to section 1707.092 of the Revised Code has been on file with the division for more than one year without becoming effective, the division may withdraw the notice filing and refund the filing fee.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.13
Prior Effective Dates: 10-26-84, 1-28-00
(A) A dealer’s license shall be required of a person who acts as a dealer, as defined in division (E) of section 1707.01 of the Revised Code subject, to the provisions of division (A)(1) of section 1707.14 of the Revised Code, and to the following exceptions:
(1) Without a license, a person may sell the promissory notes or commercial paper of its subsidiary, provided such securities are not offered for sale, directly or indirectly, to the public, as that term is defined in paragraph (D) of rule 1301:6-3-02 of the Administrative Code.
(2) Without a license, a person which is organized not for profit and whose net earnings do not inure to the benefit of any person, may sell its subsidiaries’ securities which do not constitute evidence of indebtedness or a promise to pay money, provided the total cost of sale does not exceed two per cent of their aggregate sale price, plus five hundred dollars.
(3) Without a license, a person may sell any securities of its subsidiary, which have been issued under an approved plan of reorganization, recapitalization or refinancing pursuant to section 1707.04 of the Revised Code.
(4) Without a license, a person may sell the securities of its subsidiary in the transactions specified in section 1707.06 of the Revised Code.
(5) Without a license, a person may distribute information on available products and services on or through the internet or similar electronic medium provided that:
(a) The distribution of information is not specifically directed to any person in this state;
(b) The distribution of information consists solely of the dissemination of general information regarding products and services;
(c) The distribution of information contains a legend which clearly states that:
(i) The person may only act as a dealer or salesperson in this state if the person is first licensed by the division or properly excepted from licensure; and
(ii) Follow-up individualized responses by the person in this state that involve acting as a dealer or salesperson will not be made unless the person is first licensed by the division or properly excepted from licensure;
(d) The distribution of information contains a mechanism, including but not limited to, a technical “firewall” or other implemented policies and procedures, designed to reasonably ensure that prior to any direct communication resulting from the distribution of information, the person is first licensed by the division or properly excepted from licensure;
(e) In the case of distribution of information by a person who would qualify as a “salesman” as defined in division (F) of section 1707.01 of the Revised Code, in addition to the foregoing:
(i) The dealer with whom the person is associated is prominently disclosed in the distribution of information;
(ii) The dealer with whom the person is associated retains responsibility for reviewing and approving the content of the distribution of information;
(iii) The dealer with whom the person is associated first authorizes the distribution of information; and
(iv) The distribution of information is within the scope of authority granted to the person by the dealer with whom the person is associated.
(6) Without a license, a bank may sell securities to an institutional investor.
(B) In accordance with division (D) of section 1707.14 of the Revised Code, the division may, by division order, exempt a dealer from the requirement of being registered with the securities and exchange commission set out in division (B) of section 1707.14 of the Revised Code where the division determines that all of the following have been met:
(1) The dealer has been continuously licensed by the Ohio division of securities since October 11, 1994;
(2) The dealer, alone or with any other dealer with which it is affiliated, does not employ more than five securities salespersons at any time;
(3) No less than eighty per cent of the securities bought and sold by the dealer, as determined by the aggregate price of all securities bought and sold by the dealer, are securities of banks, as the term “bank” is defined in division (O) of section 1707.01 of the Revised Code, which have their principal place of business in Ohio;
(4) The dealer enters into an undertaking with the division whereby the dealer agrees that it will immediately surrender any exemption from the requirement of being registered with the securities and exchange commission in the event that it fails to disclose in writing to any person to whom it sells securities its compensation, however that compensation is characterized, for the sale of the securities; and
(5) The dealer enters into an undertaking with the division whereby the dealer agrees that it will immediately surrender any exemption from the requirement of being registered with the securities and exchange commission in the event that it no longer meets the standards set forth in paragraphs (B)(1), (B)(2) and (B)(3) of this rule.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.14
Prior Effective Dates: 12-31-75; 11-30-94; 1-21-96; 8-10-98; 7-29-99; 11-27-00; 5-21-01; 5-23-03
(A) The notice filing specified in division (B) of section 1707.141 of the Revised Code shall:
(1) Consist of a fully completed part 1 of the form ADV, uniform application for investment adviser registration, fully completed schedules and disciplinary reporting pages pertaining to part 1 of the form ADV, and a fully completed execution page of the form ADV; and
(2) Be submitted to the division through the investment adviser registration depository, or IARD, maintained by the national association of securities dealers, inc.
(B) An investment adviser who is required to make a notice filing with the division shall also submit to the division the notice filing fee required by division (B)(4) of section 1707.17 of the Revised Code.
(C) An investment adviser who is required to make a notice filing with the division shall simultaneously submit to the division through the IARD any updates or amendments to the form ADV that are filed with the securities and exchange commission. ö (D) A notice filing submitted to the division in accordance with the provisions of paragraphs (A) and (B) of this rule shall be effective upon receipt by the division and shall expire on December thirty-first of the year in which it was filed, unless renewed prior to its expiration.
(E) A notice filing may be renewed prior to December thirty-first of each year by submitting the notice filing fee required by division (B)(4) of section 1707.17 of the Revised Code through the renewals program of the IARD.
(F) A notice filing that has not been renewed by December thirty-first shall be deemed by the division to be terminated as of December thirty-first of the year in which it expired. An investment adviser that has submitted a notice filing to the division may terminate the notice filing by submitting a completed form ADV-W to the division through the IARD.
(G) In addition to the notice filing requirements of paragraphs (A) through (C) of this rule, the division may require the filing of any other document filed or deemed filed by the investment adviser with the securities and exchange commission.
(H) A notice filing is considered to have been made with the division when the investment adviser selects “OH” in Item 2B of Part 1A of the form ADV, and the form ADV is accepted by the IARD.
(I) Upon the discontinuation of the employment or affiliation of a licensed investment adviser representative, the investment adviser with which the investment adviser representative was employed or affiliated shall, within thirty calendar days of the discontinuation, submit to the division through the “IARD” a request to cancel the license of the investment adviser representative. The request shall be made on form U-5, “Uniform Termination Notice For Securities Industry Registration” and shall become effective as described in paragraph (K)(2) of rule 1301:6-3-15.1 of the Administrative Code.
R.C. 119.032 review dates: 01/13/2005 and 01/13/2010
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.141
Prior Effective Dates: 3-25-99, 11-5-01, 5-23-03
(A) Pursuant to division (C) of section 1707.142 of the Revised Code, a dealer that is not required under federal law or the law of this state to register as a broker or dealer with the securities and exchange commission may elect to comply with paragraphs (B) to (M) of this rule in lieu of requirement contained in section 15 of the Securities and Exchange Act of 1934, 48 Stat. 881, 15 U.S.C. 78o, as amended, section 17 of the Securities and Exchange Act of 1934, 48 State 881, 15 U.S.C. 78q, as amended, and rules of the securities and exchange commission promulgated under those sections.
(B) As used in this rule: “Dealer” shall mean a dealer licensed by the division that is not required under federal law or the law of this state to be registered as a broker or dealer with the securities and exchange commission.
(C) Records of dealer
(1) Every dealer licensed in this state shall promptly furnish to the division, upon request by the division, legible, true and complete copies of the records required to be preserved and retained pursuant to this rule. The division, in its discretion, may examine the books and records of any licensed dealer or any applicant for a dealer’s license.
(2) Every licensed dealer shall preserve and retain for a period of not less than three years, the first two years in an accessible place:
(a) All check books, bank statements, cancelled checks and cash reconciliations;
(b) All bills receivable or payable, or copies thereof, paid or unpaid, relating to the business of the dealer;
(c) Originals of all communications received and copies of all communications sent by the dealer, including interoffice memoranda and communications, relating to the dealer’s business and all communications which are subject to rules of a self regulatory organization of which the dealer is a member regarding communications with the public. As used in this paragraph, the term “communications” includes sales scripts;
(d) All trial balances, computations of aggregate indebtedness and net capital and working papers in connection therewith, financial statements, branch office reconciliations, and internal audit working papers, relating to the business of the dealer;
(e) All guarantees of accounts and all powers of attorney and other evidence of the granting of any discretionary authority given in respect of any account, and copies of resolutions empowering an agent to act on behalf of a corporation;
(f) All written agreements or copies thereof entered into by the dealer relating to its business, including agreements with respect to any account;
(g) For those dealers affiliated with a self-regulatory organization, records that contain the following information in support of amounts included in the form X-17A-5, “Financial and Operational Combined Uniform Single Report,” part II, part IIA, part IIB, part III and applicable schedules filed by dealers subject to any minimum net capital requirement set forth in 17 C.F.R. 240.15c3-1, as amended;
(i) Money balance position, long or short, including description, quantity, price and valuation of each security including contractual commitments in customers’ accounts, in cash and fully secured accounts, partly secured accounts, unsecured accounts, and in securities accounts payable to customers;
(ii) Money balance and position, long or short, including description, quantity, price and valuation of each security including contractual commitments in non-customers’ accounts, in cash and fully secured accounts, partly secured and unsecured accounts, and in securities accounts payable to non-customers;
(iii) Position, long or short, including description, quantity, price and valuation of each security including contractual commitments included in the computation of net capital as commitments, securities owned, securities owned not readily marketable, and other investments owned not readily marketable;
(iv) Amount of secured demand note, description of collateral securing the demand note including quantity, price and valuation of each security and cash balance securing the demand note;
(v) Description of futures commodity contracts, contract value on trade date, market value, gain or loss, and liquidating equity or deficit in customers’ and non-customers’ accounts;
(vi) Description of futures commodity contracts, contract value on trade date, market value, gain or loss and liquidating equity or deficit in trading and investment accounts;
(vii) Description, money balance, quantity, price and valuation of each spot commodity position or commitments in customers’ and non-customers’ accounts;
(viii) Description, money balance, quantity, price and valuation of each spot commodity position or commitments in trading and investment accounts;
(ix) Number of shares, description of security, exercise price, cost and market value of put and call options including short out of the money options having no market or exercise value, showing listed and unlisted put and call options separately;
(x) Quantity, price, and valuation of each security underlying the haircut for undue concentration made in the computation for net capital;
(xi) Description, quantity, price and valuation of each security and commodity position or contractual commitment, long or short, in each joint account in which the dealer has an interest, including each participant’s interest and margin deposit;
(xii) Description, settlement date, contract amount, quantity, market price, and valuation for each aged failed to deliver requiring a charge in the computation of net capital;
(xiii) Detail relating to information for possession or control requirements under 17 C.F.R. 240.15c3-3, as amended, and reported on the schedule in part II or part IIA of form X-17A-5;
(xiv) Detail of all items, not otherwise substantiated, which are charged or credited in the computation of net capital including cash margin deficiencies, deductions related to securities values and undue concentration, aged securities differences and insurance claims receivable; and
(xv) Other information or records specifically prescribed by the division.
(h) Dealers having physical possession or control of fully paid and excess margin securities shall prepare and maintain a current and detailed description of the procedures used to comply with the possession or control requirements set forth in this rule.
(i) Internal risk management control systems for OTC derivatives dealers.
(i) An OTC derivatives dealer shall establish, document, and maintain a system of internal risk management controls to assist it in managing the risks associated with its business activities, including market, credit, leverage, liquidity, legal, and operational risks.
(ii) An OTC derivatives dealer shall consider the following when adopting its internal control system guidelines, policies, and procedures:
(a) The ownership and governance structure of the OTC derivatives dealer;
(b) The composition of the governing body of the OTC derivatives dealer;
(c) The management philosophy of the OTC derivatives dealer;
(d) The scope and nature of established risk management guidelines;
(e) The scope and nature of the permissible OTC derivatives activities;
(f) The sophistication and experience of relevant trading, risk management, and internal audit personnel;
(g) The sophistication and functionality of information and reporting systems; and
(h) The scope and frequency of monitoring, reporting, and auditing activities.
(iii) An OTC derivatives dealer’s internal risk management control system shall include the following elements:
(a) A risk control unit that reports directly to senior management and is independent from business trading units;
(b) Separation of duties between personnel responsible for entering into a transaction and those responsible for recording the transaction in the books and records of the OTC derivatives dealer;
(c) Periodic reviews that may be performed by internal audit staff and annual reviews that must be conducted by independent certified public accountants of the OTC derivatives dealer’s risk management systems;
(d) Definitions of risk, risk monitoring, and risk management; and
(e) Written guidelines, approved by the OTC derivatives dealer’s governing body, that include and discuss the following:
(i) The OTC derivatives dealer’s consideration of the elements in paragraph (C)(2)(i)(ii) of this rule;
(ii) The scope, and the procedures for determining the scope, of authorized activities or any non-quantitative limitation on the scope of authorized activities;
(iii) Quantitative guidelines for managing the OTC derivatives dealer’s overall risk exposure;
(iv) The type, scope, and frequency of reporting by management on risk exposures;
(v) The procedures for and the timing of the governing body’s periodic review of the risk monitoring and risk management written guidelines, systems, and processes;
(vi) The process for monitoring risk independent of the business or trading units whose activities create the risks being monitored;
(vii) The performance of the risk management function by persons independent from or senior to the business or trading units whose activities create the risks;
(viii) The authority and resources of the groups or persons performing the risk monitoring and risk management functions;
(ix) The appropriate response by management when internal risk management guidelines have been exceeded;
(x) The procedures to monitor and address the risk that an OTC derivatives transaction contract will be unenforceable;
(xi) The procedures requiring the documentation of the principal terms of OTC derivatives transactions and other relevant information regarding such transactions;
(xii) The procedures authorizing specified employees to commit the OTC derivatives dealer to particular types of transactions;
(xiii) Any other procedures or steps taken to prevent the OTC derivatives dealer from engaging in any securities transaction that would cause it to violate laws to which it is subject; and
(xiv) The procedures to prevent the OTC derivatives dealer from improperly determining whether a counterparty is acting in the capacity of principal or agent.
(iv) Management must periodically review, in accordance with written procedures, the OTC derivatives dealer’s business activities for consistency with risk management guidelines including that:
(a) Risks arising from the OTC derivatives dealer’s OTC derivatives activities are consistent with prescribed guidelines;
(b) Risk exposure guidelines for each business unit are appropriate for the business unit;
(c) The data necessary to conduct the risk monitoring and risk management function as well as the valuation process over the OTC derivatives dealer’s portfolio of products is accessible on a timely basis and information systems are available to capture, monitor, analyze, and report relevant data;
(d) Procedures are in place to enable management to take action when internal risk management guidelines have been exceeded;
(e) Procedures are in place to monitor and address the risk that an OTC derivatives transaction contract will be unenforceable;
(f) Procedures are in place to identify and address any deficiencies in the operating systems and to contain the extent of losses arising from unidentified deficiencies;
(g) Procedures are in place to authorize specified employees to commit the OTC derivatives dealer to particular types of transactions, to specify any quantitative limits on such authority, and to provide for the oversight of their exercise of such authority;
(h) Procedures are in place to prevent the OTC derivatives dealer from engaging in any securities transaction that is not permitted under the laws to which the OTC derivatives dealer is subject;
(i) Procedures are in place to prevent the OTC derivatives dealer from improperly determining whether a counterparty is acting in the capacity of principal or agent;
(j) Procedures are in place to provide for adequate documentation of the principal terms of OTC derivatives transactions and other relevant information regarding such transactions;
(k) Personnel resources with appropriate expertise are committed to implementing the risk monitoring and risk management systems and processes; and
(l) Procedures are in place for the periodic internal and external review of the risk monitoring and risk management functions.
(j) All notices relating to an internal dealer system provided to the customers of the dealer that sponsors the internal dealer system. Notices, whether written or communicated through the internal dealer trading system or other automated means, shall be preserved under this rule if they are provided to all customers with access to an internal dealer system, or to one or more classes of classes of customers.
(3) Every dealer subject to this rule shall preserve and retain for a period of not less than six years after closing any customer’s account any account cards or records which relate the terms and conditions with respect to the opening and maintenance of the account.
(4) Every dealer subject to this rule shall preserve and retain during the life of the enterprise and of any successor enterprise, all organizational documents of the enterprise including partnership agreements, articles of incorporation or charters, articles of organization, minute books and stock certificate books, all forms BDW, all amendments to the foregoing forms, and all documentation showing the licensure of the dealer with any regulatory authority.
(5) Each report that any securities regulator has requested or required the dealer to make and furnish to the securities regulator pursuant to an order or settlement, and each securities regulatory examination report shall be retained by the dealer until three years after the date of the report.
(6) Each compliance, supervisory, and procedures manual, including any updates, modifications, and revisions to the manual, describing the policies and practices of the dealer with respect to compliance with applicable laws and rules, and supervision of the activities of each natural person employed by or associated with the dealer shall be retained by the dealer until three years after the termination of the use of the manual.
(7) All reports produced to review for unusual activity in customer accounts shall be retained by the dealer until eighteen months after the date the report was generated. In lieu of maintaining the reports, a dealer may produce promptly the reports upon request by the division. If a report was generated in a computer system that has been changed in the most recent eighteen month period in a manner such that the report cannot be reproduced using historical data in the same format as it was originally generated, the report may be produced by using the historical data in the current system, but must be accompanied by a record explaining each system change that affected the reports. If a report is generated in a computer system that has been changed in the most recent eighteen month period in a manner such that the report cannot be reproduced in any format using historical data, the dealer shall promptly produce upon a request a record of the parameters that were used to generate the report at the time specified by the division, including a record of the frequency with which the report or reports were generated.
(8) The records required to be maintained and preserved pursuant to this rule may be immediately produced or reproduced on microfilm, microfiche or any similar medium, or by means of any digital storage medium or system that meet the conditions set forth in this rule and be maintained and preserved for the required time in that form.
(a) If a digital storage medium or system is used by a dealer, the dealer shall comply with the following requirements:
(i) Upon request by the division, the dealer must be able to provide its own representation or one from the storage medium vendor or other third party with appropriate expertise that the selected storage media meets these conditions. The electronic storage media must:
(a) Preserve the records exclusively in a non-rewriteable, non-erasable format;
(b) Verify automatically the quality and accuracy of the storage media recording process;
(c) Serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention, the information placed on such electronic storage media; and
(d) Have the capacity to readily download indices and records preserved on the electronic storage media to any medium acceptable to the division.
(ii) Verify automatically the quality and accuracy of the storage media recording process;
(iii) Serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention, the information placed on such electronic storage media; and
(iv) Have the capacity to readily download indices and records preserved on the electronic storage media to any medium acceptable to the division.
(b) If digital storage medium or system or microfilm, microfiche or similar medium is used by a dealer, the dealer shall:
(i) At all times have available, for examination by the division, facilities for immediate, easily readable projection or production of microfilm, microfiche or similar medium or digital storage medium images and for producing easily readable images;
(ii) Be ready at all times to provide, and immediately provide, any facsimile enlargement which the division may request;
(iii) Store separately from the original, a duplicate copy of the record stored on any medium for the time required;
(iv) Organize and index accurately all information maintained on both original and any duplicate storage media. At all times, a dealer must be able to have indices available for examination by the division. Each index must be duplicated and the duplicate copies must be stored separately from the original copy of each index. Original and duplicate indices must be preserved for the time required for the indexed records;
(v) The dealer must have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved pursuant to this rule to digital storage media and inputting any changes made to every original and duplicate record maintained and preserved. At all times, a dealer must be able to have the results of the audit system available for examination by the division. The audit results must be preserved for the time required for the audited records;
(vi) The dealer must maintain, keep current, and provide promptly upon request by the division all information necessary to access records and indices stored on the electronic storage media; or place in escrow and keep current a copy of the physical and logical file format of the electronic storage media, the field format of all different information types written on the electronic storage media and the source code, together with the appropriate documentation and information necessary to access records and indices; and
(vii) For every dealer exclusively using electronic storage media for some or all of the dealer’s record preservation under this rule, at least one third party who has access to and the ability to download information from the dealer’s electronic storage media to any acceptable medium under this rule, shall file with the division an undertaking to promptly furnish to the division, upon reasonable request, information as is deemed necessary by the division to download information kept on the dealer’s electronic storage media to any medium acceptable to the division, and to take reasonable steps to provide access to information contained on the dealer’s electronic storage media, including arrangements for the downloading of any record required to be maintained and preserved by the dealer by this rule. Such arrangements will provide specifically that in the event of a failure on the part of a dealer to download the record into a readable format and after reasonable notice to the dealer, upon being provided with the appropriate electronic storage medium, the undersigned will undertake to do so, as the division may request.
(9) If a person who has been subject to this rule ceases to transact a business in securities directly with others than members of a national securities exchange or ceases to transact a business in securities through the medium of a member of a national securities exchange, the person shall, for the remainder of the periods of time specified in this section, continue to preserve the records which he theretofore preserved pursuant to this rule.
(10) For purposes of transactions in municipal securities by municipal securities dealers, compliance with rule G-9 of the “Municipal Securities Rulemaking Board” as amended, will be deemed to be compliance with this rule.
(11) If the records required to be maintained and preserved pursuant to this rule are prepared or maintained by an outside service bureau, depository, bank which does not operate pursuant to paragraph (C)(13)(y) of this rule, or other recordkeeping service on behalf of the dealer required to maintain and preserve the records, the outside entity shall, upon request by the division, be able to file with the division a written undertaking in a form acceptable to the division, signed by a duly authorized person, to the effect that the records are the property of the dealer required to maintain and preserve the records and will be surrendered promptly on request of the dealer and including the following provision: With respect to any books and records maintained or preserved on behalf of [name of dealer], the undersigned hereby undertakes to permit examination of the books and records at any time or from time to time during business hours by representatives of the division, and to promptly furnish to the division true, correct, complete and current hard copy of any or all or any part of the books and records. Agreement with an outside entity shall not relieve the dealer from the responsibility to prepare and maintain records as specified in this rule.
(12) Every dealer subject to this rule shall furnish promptly to the division legible, true, complete and current copies of those records of the dealer, that are required to be preserved under this rule, or any other records of the dealer subject to examination by the division, that are requested by the division.
(13) All dealers shall make and keep current the following books and records relating to its business:
(a) As to each “office” which, for purposes of paragraph (C)(13) of this rule is defined as any location where one or more associated persons regularly conduct the business of handling funds or securities or effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security, and for a period of not less than six years, the first two years in an easily accessible place, blotters or other records of original entry containing an itemized daily record of all purchases, sales, receipts and deliveries of securities, including certificate numbers, all receipts and disbursements of cash, and all other debits and credits. The records shall show the account for which each transaction was effected, the name of the security, the amount of securities, the unit and aggregate purchase or sale price, if any, the trade or transaction date, and the name or other designation and capacity of the person from whom the security was purchased or received or to whom it was sold or delivered. For purposes of this rule, “associated person” is defined as a partner, officer, director, salesperson, trader, manager, or any employee handling funds or securities or soliciting transactions or accounts for the dealer.
(b) For a period of not less than six years, the first two years in an easily accessible place, ledgers and other records reflecting all assets and liabilities, income and expense and capital accounts.
(c) For a period of not less than six years, the first two years in an easily accessible place, ledger accounts or other records itemizing, separately as to each cash and margin account of every customer and of the member, broker or dealer and partners thereof, all purchases, sales, receipts and deliveries of securities and commodities for each account, and all other debits and credits to each account.
(d) For a period of not less than three years, the first two years in an easily accessible place, ledgers or other records reflecting:
(i) All securities in transfer;
(ii) Dividends and interest received;
(iii) Securities borrowed and securities loaned;
(iv) Monies borrowed and monies loaned (together with a record of the collateral therefor and any substitutions in collateral);
(v) Securities failed to receive and failed to deliver;
(vi) All long and all short stock record differences arising from the examination, count, verification and comparison, by date of examination, count, verification and comparison showing for each security the number of shares of long or short count differences; and
(vii) Repurchase and reverse repurchase agreements.
(e) For a period of not less than six years, the first two years in an easily accessible place, a securities ledger or other record reflecting, separately for each security as of the clearance dates, all long or short positions, including securities in safekeeping and securities that are the subjects of repurchase or reverse repurchase agreements, carried by the dealer for his account or for the account of its customers or partners or others and, showing the location of all securities long and the offsetting position to all securities short, including long security count differences and short security count differences classified by the date of the physical count and verification in which they were discovered, and in all cases the name or designation of the account in which each position is carried.
(f) As to each office and for a period of not less than three years, the first two years in an easily accessible place, a memorandum of each brokerage order, and of any other instruction, given or received for the purchase or sale of securities, whether executed or unexecuted. The memorandum shall show the terms and conditions of the order or instructions and of any modification or cancellation thereof, the account for which entered, the time the order was received, the time of entry, the price at which executed, the identity of each associated person, if any, responsible for the account, the identity of any other person who entered or accepted the order on behalf of the customer or, if a customer entered the order on an electronic system, a notation of that entry, and, to the extent feasible, the time of execution or cancellation. The memorandum need not show the identity of any person, other than the associated person responsible for the account, who may have entered or accepted the order if the order is entered into an electronic system that generates the memorandum and if that system is not capable of receiving an entry of the identity of any person other than the responsible associated person. In that circumstance, the dealer shall produce upon request by the division a separate record which identifies each other person. Orders entered pursuant to the exercise of discretionary authority by the dealer or any associated person thereof shall be so designated. This memorandum need not be made as to a purchase, sale or redemption of a security on a subscription way basis directly from or to the issuer, if the dealer maintains a copy of the customer’s subscription agreement regarding a purchase, or a copy of any other document required by the issuer regarding a sale or redemption. The term “instruction” shall include instructions between partners and employees of the dealer. The term “time of entry” shall mean the time when the dealer transmitted the order or instruction for execution.
(g) As to each office and for a period of not less than three years, the first two years in an easily accessible place, a memorandum of each purchase and sale for the account of the dealer showing the price and, to the extent feasible, the time of execution; and, in addition, where the purchase or sale is with a customer other than a broker or dealer, a memorandum of each order received, showing the time of receipt, the terms and conditions of the order, the account in which it was entered, the identity of each associated person, if any, responsible for the account, the identity of any other person who entered or accepted the order on behalf of the customer or, if a customer entered the order on an electronic system, a notation of that entry. The memorandum need not show the identity of any person other than the associated person responsible for the account who may have entered the order if the order is entered into an electronic system that generates the memorandum and if that system is not capable of receiving an entry of the identity of any person other than the responsible associated person. In that circumstance, the dealer shall produce upon request by the division a separate record which identifies each other person. An order with a customer other than a dealer entered pursuant to the exercise of discretionary authority by the dealer or associated person thereof, shall be so designated.
(h) For a period of not less than three years, the first two years in an easily accessible place, copies of confirmations of every purchase or sale of securities, including all repurchase and reverse repurchase agreements, and copies of notices of any other debit or credit for securities, cash and other items for the account of customers and partners of the dealer.
(i) For a period of not less than three years, the first two years in an easily accessible place, a record of each cash and margin account showing:
(i) The name and address of the beneficial owner of each account and,
(ii) Except with respect to exempt employee benefit plan securities, but only to the extent the securities are held by employee benefit plans established by the issuer of the securities, whether or not the beneficial owner of securities registered in the name of the dealer, or a registered clearing agency or its nominee objects to disclosure of his or her identity, address and securities positions to issuers; and
(iii) In the case of a margin account, the signature of the owner; provided that, in the case of a joint account or an account of a corporation, the records are required only in respect of the person or persons authorized to transact business for the account.
(j) For a period of not less than three years, the first two years in an easily accessible place, a record of all puts, calls, spreads, straddles and other options for which the dealer has any direct or indirect interest or which the dealer has granted or guaranteed, containing, at least, an identification of the security and the number of units involved. An OTC derivatives dealer shall also keep a record of all eligible OTC derivative instruments in which the OTC derivatives dealer has any direct or indirect interest or which it has written or guaranteed, containing, at a minimum, an identification of the security or other instrument, the number of units involved, and the identity of the counterparty.
(k) A record of the proof of money balances of all ledger accounts in the form of trial balances, and a record of the computation of aggregate indebtedness and net capital, as of the trial balance date, provided;
(l) For a period until at least three years after the associated person’s employment and any other connection with the dealer has terminated, every dealer shall maintain for each office and with regard to each associated person:
(i) A record listing every associated person of the dealer;
(ii) A record listing every office of the dealer where the associated person regularly conducts the business of handling funds or securities or effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security for the dealer;
(iii) A record listing the central registration depository number, if any, and every internal identification number or code assigned to that person by the dealer;
(iv) A questionnaire or application for employment executed by each associated person of the dealer, which questionnaire or application shall be approved in writing by an authorized representative of the dealer and shall contain at least the following information with respect to the person:
(a) The associated person’s name, address, social security number, and the starting date of the associated person’s employment or other association with the dealer;
(b) The associated person’s date of birth;
(c) A complete, consecutive statement of all the associated person’s business connections for at least the preceding ten years, including whether the employment was part-time or full-time;
(d) A record of any denial of membership or registration, and of any disciplinary action taken, or sanction imposed, upon the associated person by any federal or state agency, or by any national securities exchange or national securities association, including any finding that the associated person was a cause of any disciplinary action or had violated any law;
(e) A record of any denial, suspension, expulsion or revocation of membership or registration of any dealer with which the associated person was associated in any capacity when such action was taken;
(f) A record of any permanent or temporary injunction entered against the associated person or dealer with which the associated person was associated in any capacity at the time the injunction was entered;
(g) A record of any arrest or indictment for any felony, or any misdemeanor pertaining to securities, commodities, banking, insurance or real estate, including, but not limited to, acting or being associated with a broker, a dealer, investment company, investment adviser, futures sponsor, bank, fraud, false statements or omissions, wrongful taking of property or bribery, forgery, counterfeiting or extortion, and the disposition of the foregoing; and
(h) A record of any other name or names by which the associated person has been known or which he has used; Notwithstanding paragraph (C)(13)(l) of this rule, if the associated person has been registered as a salesperson of the dealer with, or his employment has been approved by, the “National Association of Securities Dealers, Inc.”, or the American stock exchange, llc, the Boston stock exchange, inc., the Chicago stock exchange, inc. the New York stock exchange, inc., the Pacific exchange, inc., the Philadelphia stock exchange, inc., the Chicago board options exchange, inc., the Cincinnati stock exchange, inc., or the international securities exchange, then retention of a full, correct, and complete copy of any and all applications for the registration or approval shall be deemed to satisfy the requirements of paragraph (C)(13)(l) of this rule.
(m) For a period until at least three years after the associated person’s employment and any other connection with the dealer has terminated, every dealer shall maintain for each office and with regard to each associated person records required to be maintained pursuant to 17 C.F.R. 240.17f-2(d), as amended.
(n) For a period of at least three years, every dealer shall maintain copies of all forms X-17F-1A “Report of Missing, Lost, Stolen, or Counterfeit Securities”, filed pursuant to 17 C.F.R. 240.17f-1, as amended, all agreements between any national securities exchange, member thereof, registered securities association, broker, dealer, municipal securities dealer, government securities broker, government securities dealer, registered transfer agent, registered clearing agency, participant therein, member of the “Federal Reserve System” and bank whose deposits are insured by the “Federal Deposit Insurance Corporation”, regarding registration or other aspects of 17 C.F.R. 240.17f-1, as amended, and all confirmations or other information received from the “United States Securities and Exchange Commission” or its designee as a result of inquiry.
(o) Every dealer subject to this rule shall preserve and retain during the life of the enterprise and of any successor enterprise, records required to be maintained pursuant to 17 C.F.R. 240.17f-2(e), as amended.
(p) Records required to be made pursuant to 17 C.F.R. 240.15c3-3(o) as amended.
(q) For a period of not less than three years, the first two years in an easily accessible place, the following records regarding any internal dealer system of which a dealer is the sponsor:
(i) A record of the dealer’s customers that have access to an internal dealer system sponsored by the dealer identifying any affiliations between the customers and the dealer;
(ii) Daily summaries of trading in the internal dealer system including:
(a) Securities for which transactions have been executed through use of the system; and
(b) Transaction volume, separately stated for trading occurring during hours when consolidated trade reporting facilities are and are not in operation:
(i) With respect to equity securities, stated in number of trades, number of shares, and total United States dollar value;
(ii) With respect to debt securities, stated in total settlement value in United States dollars; and
(iii) With respect to other securities, stated in number of trades, number of units of securities, and in dollar value, or other appropriate commonly used measure of value of the securities;
(iii) Time-sequenced records of each transaction effected through the internal dealer system, including date and time executed, price, size, security traded, counterparty identification information, and method of execution if internal dealer system allows alternative means or locations for execution, such as routing to another market, matching with limit orders, or executing against the quotations of the dealer sponsoring the system.
(iv) For purposes of paragraph (C)(13)(q) of this rule, “internal dealer system” shall mean any facility, other than a national securities exchange, an exchange exempt from registration based on limited volume, or an alternative trading system that provides a mechanism, automated in full or in part, for collecting, receiving, disseminating, or displaying system orders and facilitating agreement to the basic terms of a purchase or sale of a security between a customer and the sponsor, or between two customers of the sponsor, through use of the internal dealer system or through the dealer sponsor of the system.
(v) For purposes of paragraph (C)(13)(q) of this rule “sponsor” shall mean any dealer that organizes, operates, administers, or otherwise directly controls an internal dealer trading system or, if the operator of the internal dealer system is not a registered dealer, any dealer that, pursuant to contract, affiliation, or other agreement with the system operator, is involved on a regular basis with executing transactions in connection with use of the internal dealer system, other than solely for its own account or as a customer with access to the internal dealer system.
(vi) For purposes of paragraph (C)(13)(q) of this rule, “system order” means any order or other communication or indication submitted by any customer with access to the internal dealer system for entry into a trading system announcing an interest in purchasing or selling a security. “System order” does not include inquiries or indications of interest that are not entered into the internal dealer system.
(r) In an easily accessible place, for a period until at least six years after the earlier of the date an account is closed or the date on which the information is replaced or updated and for each office and for each account with a natural person as a customer or owner:
(i) For purposes of this rule:
(a) An account record including the customer’s or owner’s name, tax identification number, address, telephone number, date of birth, employment status, including occupation and whether the customer is an associated person of a dealer, annual income, net worth excluding value of primary residence, and the account’s investment objectives. In the case of a joint account, the account record must include personal information for each joint owner who is a natural person, however, financial information for the individual joint owners may be combined. The account record shall indicate whether it has been signed by the associated person res