Source: http://www.asc.alabama.gov/ALCode_830-x-3.aspx
Timestamp: 2019-04-24 04:39:59+00:00

Document:
830-X-3-.01 Application For Registration As A Dealer.
(1) Each dealer shall file a complete Form BD and any other documentation required by law or by rule, regulation or order of the Commission.
(2) If the information contained in any application for registration as a dealer, or in any amendment thereto, becomes inaccurate for any reason, the dealer shall file an amendment on Form BD within 30 days correcting such information in the manner provided in the General Instructions accompanying the form.
(3) Registration of all dealers shall expire on December 31st of each year unless renewed for the following year by that date.
Statutory Authority: Code of Ala. 1975, §8-6-23.
830-X-3-.02 Application For Registration As An Agent.
(1) Application for registration as an NASD member agent shall be filed on Form U-4 and in compliance with all requirements of the NASAA/NASD Central Registration Depository System, or its successor, and in compliance with all requirements of law or by rules, regulations or orders of the Commission.
(2) Application for registration as a non-NASD agent shall be filed on Form U-4 directly with the Commission and in compliance with all requirements of law or by rules, regulations or orders of the Commission.
(3) Whenever the information contained in an agent's U-4 becomes inaccurate or incomplete for any reason, it is the responsibility of the issuer or dealer to correct such information by the filing of an amendment on Form U-4 within 30 days with the Central Registration Depository, or its successor, for NASD agents and directly with the Commission for all other agents.
(4) Whenever an agent's registration is terminated, it shall be the responsibility of the issuer or dealer to file a Form U-5 within 30 days with the Central Registration Depository, or its successor, for NASD agents and directly with the Commission for all other agents.
(5) Agent transfers from one dealer or issuer to another are accomplished by filing Form U-4 with the Central Registration Depository, or its successor, for NASD agents and directly with the Commission for all other agents. Fees shall be incurred with each agent transfer in accordance with §§8-6-3(h).
(6) Registration of all agents shall expire on December 31st of each year unless renewals for the following year are completed by that date.
830-X-3-.03 Application For Registration As An Investment Adviser.
(1) Each investment adviser shall file a Form ADV and any other documentation the Commission may require.
(2) If the information contained in any application for registration, or in any amendment thereto, becomes inaccurate for any reason, the investment adviser shall within 30 days file an amendment on Form ADV correcting such information in the manner provided in the General Instructions accompanying the form.
(3) Registration of all investment advisers shall expire on December 31st of each year unless renewals for the following year are completed by that date.
History: Filed September 28, 1990.
830-X-3-.04 Application For Registration As An Investment Adviser Representative.
(1) Application for registration as an investment adviser representative shall be filed on Form U-4 with the Commission, or its designee, and in compliance with all requirements and rules prescribed by the Commission.
(2) Whenever the information contained in an investment adviser representative's Form U-4 becomes inaccurate or incomplete for any reason, it shall be the responsibility of the investment adviser with whom employment has terminated to correct such information by the filing of an amendment on Form U-4 with the Commission within 30 days.
(3) Whenever an investment adviser representative's registration is terminated, it shall be the responsibility of the investment adviser with whom employment has terminated to correct such information by filing a Form U-5 with the Commission within 30 days of the investment adviser representative's termination date.
(4) Investment adviser representatives' transfers from one investment adviser to another is accomplished by filing Form U-4 with the Commission and payment of the fee in accordance with §8-6-3(h).
(5) Registration of all investment adviser representatives shall expire on December 31st of each year unless renewals for the following year are completed by that date.
830-X-3-.05 Statement Of Financial Condition.
(1) An applicant filing a new application for registration as a dealer or investment adviser shall file a balance sheet prepared in accordance with generally accepted accounting principles, dated not more than ninety days prior to the date of filing. Such balance sheet shall be in compliance with Rule 830-X-3-.05(4) or audited in accordance with generally accepted auditing standards accompanied by an unqualified opinion of an independent certified public accountant registered with the Alabama State Board of Public Accountancy or a similar board of the state in which the certifying accountant resides.
(2) If an applicant is registered with the United States Securities and Exchange Commission, National Association of Securities Dealers, Inc., or a recognized stock exchange, the filing with the Commission of financial reports prepared in accordance with the rules and requirements of that organization shall satisfy the requirements of this rule; however, should such a report be submitted, it shall be accompanied by a balance sheet attested to by an officer of the applicant, unless said report contains an opinion as set forth in paragraph (1) of this rule.
(3)(a) Except as otherwise ordered by the Commission, all persons required to be registered as investment advisers in this state shall file a balance sheet audited in accordance with generally accepted auditing standards accompanied by an unqualified opinion of an independent certified public accountant registered with the Alabama State Board of Public Accountancy or a similar board of the state in which the certifying accountant resides, within sixty (60) days after the close of the registrant's fiscal period.
(b) For the purposes of satisfying the provisions of Code of Alabama 1975, §8-6-3(g), relating to the filing of yearly audited financial statements of broker-dealers, the filing of financial reports with the U.S. Securities and Exchange Commission (“SEC”) pursuant to SEC Rule 17a-5 (17 C.F.R. 240.17a-5 (1991)) as amended will be deemed to satisfy the provisions of the section.
(c) All persons required to be registered as investment advisers or dealers in this state shall file with the Commission, within 15 days of a written request of the Commission staff, their most recent financial statements audited in accordance with generally accepted auditing standards accompanied by an unqualified opinion of an independent certified public accountant registered with the Alabama State Board of Public Accountancy or a similar board of the state in which the certifying accountant resides.
(d) Any financial statements submitted to the Commission staff for the purposes of satisfying a request made pursuant to subdivision (3)(c) of this rule must accurately represent the financial condition of the dealer or investment adviser as of a date within twelve months of the date of such request.
(4) Attached to every balance sheet or financial statement which may be required to be submitted to the Commission shall be an oath or affirmation that such statement is true and correct to the best knowledge, information, and belief, after a diligent inquiry, of the person making such oath or affirmation. The oath or affirmation shall be made before a person authorized to administer such oath or affirmation. If the dealer or investment adviser is a sole proprietorship, the oath or affirmation shall be made by the proprietor; if a partnership, by a general partner; if a corporation, by a duly authorized officer; and if a trust, by a trustee.
(5) Securities in which an applicant has an interest disclosed in the balance sheet or financial statement shall be listed in a separate schedule and valued at cost. Market value of such securities shall be shown parenthetically as of a date within thirty (30) days of the date of filing any application.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Emergency rule filed December 22, 1983. Amended: Filed September 28, 1990. Amended: November 19, 2004. Ed. Note: Formerly Rule 830-X-3-.03.
(1) For the purpose of this rule, and for the purpose of initial or renewal registration pursuant to Section 3, Title 8, Code of Ala. 1975, Net Capital shall be computed as follows: Assets minus total liabilities, excluding liabilities which are subordinated to the claims of creditors pursuant to a satisfactory subordination agreement as defined in Appendix D of Rule 15c3-l under the Securities Exchange Act of 1934 (17 C.F.R. §240.15c3-ld) as amended.
(2) All dealers shall have and maintain net capital of not less than $50,000 as computed in (1) above.
(3) All investment advisers shall have and maintain net capital of not less than $10,000 as computed in (1) above.
(4) Except as otherwise ordered by the Commission, those dealers and investment advisers that maintain custody of customer funds or that have discretionary authority over customer accounts shall post a $50,000 surety bond in addition to maintaining the net capital required by this rule (830-X-3-.06).
(5) Any dealer or investment adviser who fails to maintain the minimum net capital required under this rule shall immediately suspend business operations and notify the Commission within three (3) business days of such fact. Such dealer or investment adviser shall not resume business operations unless and until financial statements which verify compliance with this rule have been submitted and approved by the Commission in writing.
(6) In lieu of the net capital requirements of the foregoing subsections of this rule and the provisions concerning net capital in Code of Ala. 1975, Section 8-6-3(f)(2), the Commission will accept as an alternative for licensing purposes a bond of not less than $50,000, payable, executed and conditioned as set out in (7) of this rule (830-X-3-.06).
(7) Any surety bond required under this rule shall be payable to the State of Alabama, shall be executed by the dealer or investment adviser and a corporation qualified to do business as a surety company in the State of Alabama and shall be in such form and subject to such conditions as the Commission shall from time to time designate. Any person damaged by any breach in the conditions of said bond shall have a right of action upon said bond for the damages suffered thereby. Any action to enforce liability under the bond must be brought within the period of time specified in Code of Ala. 1975, §8-6-19(f). One or more recoveries upon such bond shall not vitiate the same, but the aggregate amount of such recoveries thereon shall not exceed the amount of such bond. Any recovery on such bond shall be sufficient cause for canceling or revoking such dealer's or investment adviser's registration.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Emergency rule filed December 22, 1983. Amended: Filed March 15, 1984; September 28, 1990 (rule title changed from "Net Worth Required" to "Net Capital Required.") Ed. Note: Formerly Rule No. 830-X-3-.04. Emergency rule filed May 9, 1991. Amended: Filed September 11, 1991.
History: Rule 830-X-3-.07 entitled "Salesman's Registration Card" filed September 30, 1982. Readopted: Filed November 9, 1983. Repealed: Filed September 28, 1990.
(b) An examination on general or limited securities principles which will be satisfied by the applicant showing evidence of passing the appropriate examination(s) required by NASD for the activity in which the applicant will be engaged.
(2) Registration as a dealer or agent is effective only for the activity associated with the Qualification Examination which the applicant passed in satisfaction of Section (1)(b) of this Rule.
(3) The examination required under Section (1)(a) of this Rule shall not be applicable to renewal applications of persons registered prior to January 1, 1984, it being the intent of the Commission to apply this additional examination requirement prospectively. All persons currently registered should be already in compliance with the examination requirements of Section (1)(b) and should strictly observe the restriction upon registration set out in Section (2) of this Rule.
(b) The General Securities Representative Examination (Series 7 examination) and the Uniform Combined State Law Examination (Series 66 examination).
(a) Any individual who is registered as an investment advisor or investment adviser representative in any jurisdiction in the United States on the effective date of this rule shall not be required to satisfy the examination requirements for continued registration, except that the Commission may require additional examinations for any individual found to have violated the Uniform Securities Act.
(b) An individual who has not be registered in any jurisdiction for a period of two (2) years shall be required to comply with the examination requirements of this Rule.
(f) Such other professional designation as the Director of the Alabama Securities Commission may by order recognize.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Emergency rule filed December 22, 1983. Amended: Filed March 15, 1984; September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.05. Amended: Filed September 11, 1991. Amended: January 25, 1996; effective February 29, 1996. Amended: Filed November 17, 1999; effective December 22, 1999. Amended: Filed March 20, 2000; effective April 24, 2000.
830-X-3-.09 Dual Registration. Registration of any "associated person" simultaneously with more than one issuer, dealer, or investment advisor is prohibited, except as may be allowed on a case by case basis by the Director after a determination is made that the waiver would be in the public interest.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Amended: Filed January 25, 1996; effective February 29, 1996. Ed. Note: Formerly Rule No. 830-X-3-.06. Amended: Filed June 21, 1999; effective July 26, 1999.
2. an expulsion or bar from membership in any professional association or organization.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.09.
History: Rule 830-X-3-.11 entitled "Salesman's Photograph Required" filed September 30, 1982. Readopted: Filed November 9, 1983. Repealed: Filed September 28, 1990.
830-X-3-.12 Suitability Of Recommendations. Every dealer, investment adviser and every associated person thereof who recommends to a customer the purchase, sale or exchange of any security shall have reasonable grounds to believe and shall believe that the recommendation is suitable for such customer on the basis of information furnished by such customer after reasonable inquiry concerning the customer's investment objectives, financial situation and needs, and any other information known by such dealer, investment adviser or associated person thereof.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.10.
830-X-3-.13 Supervision Of Associated Persons.
(1) Every dealer, issuer or investment adviser, and officers, directors and partners thereof, shall exercise diligent supervision over all the securities activities of its associated persons.
(2) Every associated person of the dealer, issuer or investment adviser shall be subject to the supervision of a supervisor designated by such dealer, issuer or investment adviser. The supervisor may be a partner, officer, director, office manager, or any other qualified associated person, or in the case of a sole proprietorship, the sole proprietor.
(3) As part of its responsibility under this rule, every dealer, issuer or investment adviser shall establish, maintain and enforce written procedures, a copy of which shall be kept in each business office, which shall set forth the procedures adopted by the dealer, issuer or investment adviser to comply with the following duties imposed by this rule, and shall state at which business office or offices the dealer, issuer or investment adviser keeps and maintains the records required by Rules 830-X-3-.14 and 830-X-3-.16, as appropriate.
(e) The prompt review and written approval of the handling of all customer complaints.
(b) Periodically inspect each business office of the dealer, issuer or investment adviser to ensure that the written procedures are enforced.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.18.
830-X-3-.14 Records Required Of Registered Dealers.
(a) Blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities, all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash and all other debits and credits. Such records shall show the account for which each such transaction was effected, the name and amount of securities, the unit and aggregate purchase or sale price (if any), the trade date, and the name or other designation of the person from whom purchased or received or to whom sold or delivered.
(b) Ledgers (or other records) reflecting all assets and liabilities, income and expenses and capital accounts.
(c) Ledger accounts (or other records) itemizing separately as to each cash and margin account of every customer and of such dealer and partners thereof, all purchases, sales, receipts, and deliveries of securities for such account and all other debits and credits to such account.
5. Securities failed to receive and failed to deliver.
(e) A securities record or ledger reflecting separately for each security as of the clearance dates all "long" or "short" positions (including securities in safekeeping) carried by such dealer for its account or for the account of its customers or partners showing the location of all securities "long" and the offsetting position to all securities "short" and in all cases the name and designation of the account in which each position is carried.
(f) 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. Such 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 of entry, the price at which executed and, to the extent feasible, the time of execution or cancellation. Orders entered pursuant to the exercise of discretionary power by such dealer, or any employee thereof, shall be so designated. The term "instruction" shall be deemed to include instructions between partners and employees of a dealer. The term "time of entry" shall be deemed to mean the time when such dealer transmits the order or instruction for execution or, if it is not so transmitted, the time when it is received.
(g) A memorandum of each purchase and sale of securities for the account of such dealer showing the price and, to the extent feasible, the time of execution; and, in addition, where such purchase or sale is with a customer other than a dealer, a memorandum of each order received, showing the time of receipt, the terms and conditions of the order, and the account in which it was entered.
(h) Copies of confirmation of all purchases and sales of securities and copies of notices of all other debits and credits for securities, cash, and other items for the accounts of customers and partners of such dealers.
(i) A record in respect to each cash and margin account with such dealer containing the name and address of the beneficial owner of such account and, in the case of a margin account, the signature of such owner; provided, that in the case of a joint account or an account of a corporation, such records are required only in respect to the person or persons authorized to transact business for such account.
(j) A record of all puts, calls, spreads, straddles, and other options which such dealer has granted or guaranteed, containing at least an identification of the security and the number of units involved.
(k) A record of the proof of money balances of all ledger accounts in the form of trial balances. Such trial balances shall be prepared currently at least once a month.
9. A record of any other name or names by which such associated person has been known or has used; provided, however, that if such associated person has been registered as a registered representative of such dealer with, or such associated person's employment has been approved by the National Association of Securities Dealers, Inc., or the American Stock Exchange, the Boston Stock Exchange, the Midwest Stock Exchange, the New York Stock Exchange, the Pacific Coast Stock Exchange, or the Philadelphia-Baltimore-Washington Stock Exchange, then retention of a full, correct, and complete copy of any and all applications for such registration or approval shall be deemed to satisfy the requirements of this subparagraph (1).
(m) Unless otherwise provided by order of the Commission, each registered dealer shall make, maintain and preserve books and records in compliance with U.S. Securities and Exchange Commission Rules 17a-3 (17 C.F.R. 240.17a-3 (1991)), 17a-4 (17 C.F.R. 240.17a-4 (1991)), 15c2-6 (17 C.F.R. 240.15c2-6 (1991)) and 15c2-11 (17 C.F.R. 240.15c2-11 (1991)) as amended, and specifically, but without limiting the foregoing, all filings dealing with fingerprint cards and criminal records.
(2) This rule shall not be deemed to require a member of a national securities exchange to make or keep such records of transactions cleared for a member by another member as are customarily made and kept by the clearing member.
(a) Ledger, journals (or other records) reflecting all assets and liabilities, income and expenses, and capital accounts properly maintained in accordance with general accounting principles.
(c) Stockholders ledger or other record reflecting alphabetically the names and addresses of all stockholders, stock certificates issued to each, dates paid, and full details as to transfers or cancellations.
(d) Copies of all promotional and/or sales materials used in connection with the sales of all securities as distributed.
(e) Copies of all confirmations of sales of securities.
(f) A record of any arrests, indictments, or convictions for any felony or any misdemeanor, except minor traffic offenses, of which any of its principal officers has been the subject.
(4) A dealer registered in this state who maintains and preserves records in accordance with the provisions of the Securities Exchange Act of 1934, as amended, shall not be subject to the requirements of paragraphs (1) and (3) of this rule.
(5) All registered issuers or dealers shall maintain in this state the books and records referred to in this rule unless otherwise approved by the Commission. Any issuers or dealers who are approved to keep such records physically outside this state shall make such records available to the Commission, at a time and place designated by the Commission, for inspection upon request.
(6) All records required to be kept hereunder shall be in such form as may conveniently be examined by the Commission or its staff without the necessity of employing mechanical methods of reproduction or inspection.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Amended: November 19, 2004. Ed. Note: Formerly Rule No. 830-X-3-.12.
(l) The records (or a copy thereof) required by paragraph (1), subparagraphs (a), (f) and (h) of Rule 830-X-3-.14, shall be maintained in each office in this state, if any, from which transactions with respect to such records occurred, except as otherwise provided in paragraph (5) of Rule 830-X-3-.14.
(m) All records required to be preserved hereunder shall be in such form as may conveniently be examined by the Commission or its staff.
Ed. Note: Formerly Rule No. 830-X-3-.13.
830-X-3-.16 Record-Keeping Requirements For Investment Advisers.
(a) A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger.
(b) General and auxiliary ledgers (or other comparable records) reflecting assets, liabilities, reserves, capital, income and expense accounts.
(c) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of any such order or instruction. Such memoranda shall show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed such order; and shall show the account for which entered, the date of entry, and the bank, or dealer by or through whom executed where appropriate. Orders entered pursuant to the exercise of discretionary power shall also be designated.
(d) All checkbooks, bank statements, cancelled checks and cash reconciliations of the investment adviser.
(e) All bills or statements (or copies thereof), paid or unpaid, relating to the business of the investment adviser as such.
(f) All trial balances, financial statements, and internal audit working papers relating to the business of such investment adviser.
(ii) That if the investment adviser sends any notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent; except that if such notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with a copy of such notice, circular or advertisement a memorandum describing the list and the source thereof.
(h) A list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transactions of any client.
(i) All powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser, or copies thereof.
(j) All written agreements (or copies thereof) entered into by the investment adviser with any client or otherwise relating to the business of such investment adviser.
(k) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication recommending the purchase or sale of a specific security, which the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than investment advisory clients or persons connected with such investment adviser), and if such notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication does not state the reasons for such recommendation, a memorandum of the investment adviser indicating the reasons therefor.
(1) All of their advertisements and all records, worksheets, and calculations necessary to form the basis for performance data in their advertisements.
2. Transactions in securities which are direct obligations of the United States.
(n) An investment adviser shall not be deemed to have violated the provisions of paragraph (m) because of its failure to record securities transactions of any investment adviser representative if it establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded.
(o) A copy of each written statement and each amendment or revision thereof, given or sent to any client or prospective client of such investment adviser in accordance with the provision of Rule 830-X-3-.17 and a record of the date that each written statement, and each amendment or revision thereof, was given, or offered to be given, to any client or prospective client who subsequently becomes a client.
(a) A journal or other record showing all purchases, sales, receipts and deliveries of securities (including certificate or other identifying numbers) for such accounts and all other debits and credits to such accounts.
(b) A separate ledger account for each client showing all purchases, sales, receipts and deliveries of securities, the date and price of each such purchase and sale, and all debits and credits.
(c) Copies of confirmations of all transactions effected for or from the account of any such client.
(d) A record for each security in which any such client has a position, which record shall show the name of each such client having any interest in each security, the amount of, or interest of, such client in such security, and the location of each such security.
(a) Records showing separately for each such client the securities purchased and sold, and the date, amount and price of each such purchase and sale.
(b) For each security in which any such client has a current position, information from which the investment adviser can promptly furnish the name of each such client, and the current amount of or interest of such client in such security.
(4) Any books or records required by this rule may be maintained by the investment adviser in such manner that the identity of any client to whom such investment adviser renders investment advisory services is indicated by numerical or alphabetical code or some similar designation.
(5) All books and records required to be made under the provisions of (1) and (3)(a) of this rule shall be preserved for a period of not less than three (3) years, the first two (2) years of which shall be kept in an easily accessible place.
(6) Partnership articles and any amendments thereto, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor, shall be maintained in the principal office of the investment adviser and preserved until at least three years after termination of the enterprise.
(7) An investment adviser subject to (1) of this rule, before ceasing to conduct or discontinuing business as an investment adviser shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this rule for the remainder of the period specified in this rule, and shall notify the Commission in writing of the exact address where such books and records will be maintained during such period.
(8) All books, records or other documents required to be maintained and preserved under this rule may be stored on microfilm, microfiche, or an electronic data processing system or similar system utilizing an internal memory device provided a printed copy of any such record is immediately accessible.
(9) Any book or record made, kept, maintained, and preserved in compliance with SEC Rules 17a-3 [17 C.F.R. §§240.17a-3] and 17a-4 [17 C.F.R. §240.17a-4] under the Securities Exchange Act of 1934, which is substantially the same as the book, or other record required to be made, kept, maintained, and preserved under this rule shall be deemed to be made, kept, maintained, and preserved in compliance with this rule.
830-X-3-.17 Disclosure Requirements For Investment Advisers.
(1) A copy of Part II of Form ADV must be given to clients of investment advisers, or a brochure containing such information may be utilized.
(b) At the time of entering into any such contract, if the advisory client has a right to terminate the contract without penalty within five calendar days after entering into the contract.
(3) A copy of Part II of Form ADV or the brochure to be given to clients must be filed with the Commission not later than the time of its use.
(4) If an investment adviser renders substantially different types of investment advisory services to different advisory clients, any information required by Part II of Form ADV may be omitted from the statement furnished to an advisory client or prospective advisory client if such information is applicable only to a type of investment advisory service or fee which is not rendered or charged, or proposed to be rendered or charged to that client or prospective client.
830-X-3-.18 "Twisting" Or "Churning" Prohibited.
(1) No dealer, investment adviser, agent or investment adviser representative, or officer, partner, director, or agent of any thereof, shall effect or induce or attempt to induce any transaction in any insurance or securities portfolio of a prospective investor or customer for the purpose of sale or purchase of securities, mutual funds or insurance, or any other investment, by "twisting" or "churning." "Twisting" and "churning" are prohibited and shall be grounds for revocation, suspension, denial, censure, bar, administrative assessment, fine or any other penalty that may be imposed by the Commission.
(2) "Twisting" shall mean the making of any false or misleading representation pertaining to, or any incomplete or fraudulent comparison with respect to, any life insurance policy, insurer, security, mutual fund, or other investment or issuer for the purpose of inducing or tending to induce any person to cash in or convert any security or to lapse, forfeit, surrender or terminate any life insurance policy and substitute any security therefor.
(3) "Churning" shall mean any action of a dealer, investment adviser, agent or investment adviser representative, or officer, partner, director or agent of any thereof, acting in its own interest and against the interest of its customer, which effects or induces transactions in the customer's account which are excessive in size and frequency in the light of the nature of the account and the financial resources and investment needs and objectives of the customer.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.08.
(a) The investment adviser shall notify the Commission that it has or may have custody. Such notification may be given on Form ADV.
(b) The securities of each client must be segregated, marked to identify the particular client having the beneficial interest therein and held in some place reasonably free from risk of safekeeping destruction or other loss.
(c) All client funds must be deposited in one or more bank accounts containing only clients' funds.
2. The investment adviser must maintain a separate record for each such account showing the name and address of the bank where the account is maintained, the dates and amounts of deposits in and withdrawals from the account, and the exact amount of each client's beneficial interest in the account.
(d) Immediately after accepting custody or possession of funds or securities from any client, the investment adviser must notify the client in writing of the place where and the manner in which the funds and securities will be maintained and subsequently, if and when there is a change in the place where or the manner in which the funds or securities are maintained, the investment adviser must give written notice thereof to the client.
(e) At least once every three months, the investment adviser must send each client an itemized statement showing the funds and securities in the investment adviser's custody at the end of such period and all debits, credits and transactions in the client's account during such period.
(f) At least once every calendar year, an independent certified public accountant must verify all client funds and securities by actual examination at a time chosen by the accountant without prior notice to the investment adviser. A certificate of such accountant stating that he or she has made an examination of such funds and securities, and describing the nature and extent of the examination, shall be filed with the Commission promptly after each such examination.
2. A member of an exchange whose members are exempt from SEC Rule 15c3-l, [17 C.F.R. §240.15c3-l] under the provisions of paragraph (b)(2) thereof, and the dealer is in compliance with all rules and settled practices of the exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers.
(1) For purposes of this rule, agency cross transaction means a transaction in which an investment adviser, or any person controlled by, or under common control with such investment adviser, including an investment adviser representative, acts as a dealer for both the advisory client and the person on the other side of the transaction.
(a) Obtain from the advisory client a written consent prospectively authorizing the investment adviser to effect agency cross transactions for such client.
(b) Before obtaining such written consent from the client, disclose to the client in writing that, with respect to agency cross transactions, the investment adviser will act as dealer for, receive commission from and have a potentially conflicting division of loyalties and responsibilities regarding both parties to the transactions.
(c) At or before the completion of each agency cross transaction, send the client a written confirmation. The written confirmation shall include a statement of the nature of the transaction, the date the transaction took place, an offer to furnish, upon request, the time when the transaction took place and the source and amount of any other remuneration the investment adviser received or will receive in connection with the transaction. In the case of a purchase, if the investment adviser was not participating in a distribution, or, in the case of a sale, if the investment adviser was not participating in a tender offer, the written confirmation may state whether the investment adviser has been receiving or will receive any other remuneration and that the investment adviser will furnish to the client the source and amount of such remuneration upon the client's written request.
2. The total amount of all commission or other remuneration the investment adviser received or will receive in connection with agency cross transactions during the period.
(e) Each written disclosure and confirmation required by this rule must include a conspicuous statement that the client may revoke the written consent required under subsection (2)(a) of this rule at any time by providing written notice of revocation to the investment adviser.
(f) No agency cross transaction may be effected in which the same investment adviser recommended the transaction to both any seller and any purchaser.
(3) Nothing in this rule shall be construed to relieve an investment adviser or investment adviser representative from acting in the best interests of the client, including fulfilling his duty with respect to the best price and execution for the particular transaction for the client nor shall it relieve any investment adviser or investment adviser representative of any other disclosure obligations imposed by the Act.
830-X-3-.21 Dishonest Or Unethical Practices By Investment Advisers.
(a) Recommending to a client to whom investment supervisory, management or consulting services are provided the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known or acquired by the investment adviser after reasonable examination of the client's financial records.
(b) Placing an order to purchase or sell a security for the account of a client without written authority to do so.
(c) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third party authorization from the client.
(d) Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within ten business days after the date of the first transaction placed pursuant to oral discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.
(e) Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives and character of the account.
(f) Borrowing money or securities from a client unless the client is a dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds or securities.
(g) Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.
(h) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omitting to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.
(i) Providing a report or recommendation to any advisory client prepared by someone other than the investment adviser without disclosing that fact. This prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.
(j) Charging a client an unreasonable advisory fee in light of the fees charged by other investment advisers providing essentially the same services.
2. Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees.
(1) Guaranteeing a client that a specific result will be achieved as a result of the advice which will be rendered.
(m) Publishing, circulating or distributing any advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940.
(n) Disclosing the identity, affairs, or investments of any client to any third party unless required by law or an order of a court or a regulatory agency to do so, or unless consented to by the client.
(o) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where the investment adviser has custody or possession of such securities or funds, when the investment adviser's action is subject to and does not comply with the safekeeping requirements of Rule 830-X-3-.19.
(p) Entering into, extending or renewing any investment advisory contract unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the investment adviser and that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract.
(q) Engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices.
(a) Recommending to a client to whom investment supervisory, management or consulting services are provided the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known or acquired by the investment adviser representative after reasonable examination of the client's financial records.
(f) Borrowing money or securities from a client unless the client is a dealer, an affiliate of the investment adviser representative, or a financial institution engaged in the business of loaning funds or securities.
(g) Loaning money to a client unless the investment adviser representative is engaged in the business of loaning funds or the client is an affiliate of the investment adviser representative.
(h) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser representative, or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omission to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.
(i) Providing a report or recommendation to any advisory client prepared by someone other than the investment adviser who the investment adviser representative is employed by or associated with without disclosing that fact. This prohibition does not apply to a situation where the investment adviser uses published research reports or statistical analyses to render advice or where an investment adviser orders such a report in the normal course of providing service.
(j) Charging a client an unreasonable advisory fee in light of the fees charged by other investment adviser representatives providing essentially the same services.
2. Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the investment adviser representative.
(o) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where the investment adviser representative has custody or possession of such securities or funds, when the investment adviser representative's action is subject to and does not comply with the safekeeping requirement of Rule 830-X-3-.19.
(p) Entering into, extending or renewing any investment advisory contract unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the investment adviser representative and that no assignment of such contract shall be made by the investment adviser representative without the consent of the other party to the contract.
830-X-3-.22 Advertisements By Investment Advisers.
(e) Contains any untrue statement of a material fact, or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, or which is otherwise false or misleading.
(c) Any other investment advisory service.
830-X-3-.23 Change In Name Or Legal Entity.
(b) Satisfactory rider or endorsement to the registrant's bond by surety agreeing to the change in name, if a surety bond was required and currently on file.
(2) If a change in legal entity of a registrant occurs, the new entity shall file with the Commission a new application for registration with all exhibits required.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.14.
830-X-3-.24 Notice Of Changes Of Officers, Partners, Directors Or Controlling Persons. In the event of a change of the officers, partners, directors or controlling persons, as defined by these rules, of any applicant or registrant, written notice of such fact or change shall be filed with the Commission, or its designee, within thirty (30) days, as provided by Form BD or Form ADV.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.15.
(1) Every dealer or investment adviser registered in Alabama shall notify the Commission of the establishment of any office in Alabama, as well as its address, and the name or names of the branch managers and the method of compensation for those branch managers.
(2) Such notification of the establishment of or any change in the location of the office or the identity of the branch manager must be filed in the form prescribed by the Commission within thirty (30) days from the date of the establishment or change.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.16.
830-X-3-.26 Termination Of Registration As Dealer, Investment Adviser, Agent, Or Investment Adviser Representative.
(1) In the event a registrant should terminate registration or be terminated for any reason, notice of such fact in the forms prescribed by either the Commission, the National Association of Securities Dealers, or the United States Securities and Exchange Commission shall be filed within thirty (30) days with the Commission or its designee.
(2) A dealer and investment adviser shall be responsible for the acts of all executive officers, directors, partners, other associated persons, agents, and investment adviser representatives until such time as they have been properly terminated as provided in this rule.
History: Filed September 30, 1982. Readopted: Filed November 9, 1983. Amended: Filed September 28, 1990. Ed. Note: Formerly Rule No. 830-X-3-.17.
830-X-3-.27 Use Of Certain Names Prohibited. An applicant for registration as a dealer or investment adviser shall not use a name so similar to that of another dealer or investment adviser whether registered in this state or not, or a bank, insurance company, trust company, or other entity, so as to be misleading or confusing to the public, unless the applicant is affiliated with the similarly named entity and submits documentation of same to the Commission or the applicant has obtained a written release from the similarly named entity and furnishes an original of said release to the Commission.
History: Filed September 30, 1982. Readopted: Filed November 9,1983. Amended: Filed September 28, 1990. Ed. Note:Formerly Rule No.830-X-3-.19.
(iv) does not have reasonable continuing education requirements for its designees or certificants in order to maintain the designation or certificate.
certification or professional designation to show that such use complies with this rule.
(b) the manner in which those words are combined.
titleholder possesses, or otherwise misleads investors.
companies as defined under the Investment Company Act of 1940.
Author: Joseph P. Borg, Esq.

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