Source: http://www.rules.utah.gov/publicat/bulletin/2010/20101015/34126.htm
Timestamp: 2014-04-16 19:31:52
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DAR File No. 34126 (Rule R164-4) UT Bull 2010-20 (10/15/2010)
Rules / Publications / Utah State Bulletin / 10/15/2010 Contents / File No. 34126
File No. 34126
Rule R164-4
DAR File No.: 34126
Filed: 09/30/2010 03:43:45 PM
This proposal makes minor modifications to the license application and renewal process for investment advisers in light of recent changes made by the United States Securities and Exchange Commission (SEC) to the form used for licensing federal covered and state covered investment advisers, and makes clarifying amendments.
This proposal incorporates recent SEC changes to Form ADV, the form used by both federal and state covered investment advisers in order to become licensed. The proposal also modifies the minimum financial requirements for certain investment advisers by waiving the bonding requirement for advisers who are deemed to have custody solely because the adviser is authorized to withdraw fees from a client account. In addition, also following federal amendments, the proposal increases the amount of prepaid advisory fees triggering the submission of a balance sheet from $500 to $1,200 per client. Finally, the proposal changes references from NASD to FINRA and makes several minor corrections.
Section 61-1-4Section 61-1-24
There will be no additional costs, but there may be savings for investment advisers who meet the criteria for a waiver of the bonding requirement.
This proposed rule makes several changes to the licensing and renewal procedures for investment advisers to reflect changes made by the SEC to forms used in the licensing process. The only fiscal impact may be savings from the costs of obtaining a bond for certain investment advisers as described in the rule summary.
R164-4-1. Broker-Dealer, Broker-Dealer
Agent, and Issuer-Agent Licensing Requirements.
authority granted by Sections 61-1-4, 61-1-5, 61-1-6, and
61-1-24.
(2) This rule sets forth the procedure and
requirements to license as a broker-dealer, broker-dealer agent, or
issuer-agent.
(2) "CRD" means the Central
Registration Depository.
FINRA[NASD]" means the Financial Industry Regulatory Authority, formerly known as
NASD[National Association of Securities Dealers].
(4) "NASAA" means the North
(5) "SEC" means the United
(C) Broker-dealer licensing, post
licensing, renewal, and withdrawal requirements
(1)(a) To license as a broker-dealer,
applicant must be a member of FINRA[the NASD] and submit to the CRD the following:
(1)(a)(i) SEC Form BD - Uniform
Application for Broker-Dealer Registration;
(1)(a)(ii) application for a license as an
agent in Utah, as specified in paragraph (D), for each principal,
officer, agent or employee who directly supervises, or will
directly supervise, any licensed agent associated with applicant in
(1)(a)(iii) a license fee as specified in
the Division's fee schedule, and in the form of payment
prescribed by the CRD.
(1)(b) A certificate of license will not
be issued. Proof of status is available from the CRD.
(2)(a) Applicant must file amendments to
SEC Form BD with the CRD only.
(2)(b) Applicant must file SEC Form
X-17A-5, FOCUS reports in a timely manner with FINRA[the NASD]. However, the Division may request
(3)(a) All licenses expire on December 31
(3)(b) To renew a license, applicant must submit to the CRD the license fee
specified in the Division's fee schedule before December
(4) License or application withdrawal
(4)(a) To withdraw a license or
application, applicant must file with the CRD, or with the Division
if not required by the CRD, SEC Form BDW - Uniform Request for
Withdrawal from Registration as a Broker-Dealer.
(4)(b) A withdrawal is effective 30 days
following receipt of SEC Form BDW, unless the Division notifies
(D) Broker-dealer agent licensing,
renewal, and withdrawal requirements
(1)(a) To license as a broker-dealer
agent, applicant or the sponsoring broker-dealer must submit to the
CRD the following, in addition to any information required by FINRA[the NASD], the CRD, or the SEC:
(1)(a)(i) FINRA[NASD] Form U-4 - Uniform Application for
Securities Industry Registration or Transfer;
(1)(a)(ii) proof that applicant passed the
Series 63, Uniform Securities Agent State Law Examination (Series
63 Exam), or the Series 66, Uniform Combined State Law Examination
(Series 66 Exam), which are administered by FINRA[the NASD], and any other exams required by the SEC
or FINRA[the NASD]; and
(2)(a) All licenses expire on December 31
(2)(b) To renew a license, applicant must submit to the CRD the license fee
specified in the Division
's fee schedule before December 31.
(3) License or application withdrawal
(3)(a) To withdraw a license or
application, applicant must file with the CRD, FINRA[NASD] Form U-5 - Uniform Termination Notice for
Securities Industry Registration.
(3)(b) A withdrawal is effective 30 days
following receipt of FINRA[NASD] Form U-5, unless the Division notifies
(D)(4)(b), applicant may associate with only one broker-dealer at a
(4)(b) A dual license may be allowed by
the director if:
(4)(b)(i) applicant requests a dual
license in writing to the Division which identifies the
broker-dealers with which applicant will associate and sets forth
the reasons for the dual license;
(4)(b)(ii) both broker-dealers with which
applicant intends to associate represent in writing to the Division
that each assumes full responsibility for applicant at all times;
(4)(b)(iii) applicant discloses the dual
license to each client.
(E) Issuer-agent licensing, renewal, and
(1)(a) To license as an issuer-agent,
applicant or the sponsoring issuer must submit to the Division the
(1)(a)(i) FINRA[NASD] Form U-4 with original signatures;
Series 63 Exam or the Series 66 Exam;
(1)(a)(iii) a license fee as prescribed in
the Division's fee schedule; and
(1)(a)(iv) a surety bond if required by
Section R164-11-1.
(2)(b) To renew a license, applicant must submit to the Division the
following before December 31 of each year:
(2)(b)(i) FINRA[NASD] Form U-4 with original signatures; and
(2)(b)(ii) The license fee specified in
the Division's fee schedule.
application, applicant must file with the Division a written
request for withdrawal or FINRA[NASD] Form U-5.
(3)(b) A withdrawal is effective thirty
days following receipt of the written request for withdrawal,
unless the Division notifies applicant otherwise.
(4)(a) If applicant applies for a license
two or more times in a twelve-month period, the Division deems
applicant to be a broker-dealer. Applicant must then license as a
R164-4-2. Investment Adviser and
Investment Adviser Representative Licensing Requirements.
requirements to license as an investment adviser and investment
(1) "CRD" means the Central
(2) "Designated Official" means
a person that is a partner, officer, director, sole proprietor, or
a person occupying a similar status or performing similar functions
in an investment adviser firm.
(3) "Division" means the
(4) "Fee" means any remuneration
received, directly or indirectly, for investment advice given or
investment advisory services rendered, including, among other
things, charges for a publication which includes investment advice
and commissions paid or received when securities are purchased or
sold as a result of investment advice given or investment advisory
services rendered. License fees referred to in this rule are not
(5) "IARD" means the Investment
Adviser Registration Depository.
(6) "Investment advice" or
"investment advisory services" means advice given or
services rendered concerning the value of securities or as to the
advisability of investing in, or purchasing or selling
(7) "NASAA" means the North
(9) "SEC" means the United
(10) "SIPC" means the Securities
(C) Investment adviser and investment
adviser representative licensing requirements
(1) Investment adviser licensing
requirements. To license as an investment adviser, applicant must
(1)(a)(i) SEC Form ADV - Uniform
Application for Investment Adviser Registration, Parts 1 and 2, including applicant's audited balance
sheet if required under item 1
8[4] of [part II of] Form ADV Part 2; and
(1)(a)(ii) a license fee as specified in
the Division's fee schedule. (This fee includes the fee for one
designated official.)
(1)(b)(i) FINRA[NASD] Form U-4 - Uniform Application for
Securities Industry Registration or Transfer for applicant's
designated official; and
(1)(b)(ii) proof that applicant's
designated official has passed the Series 65 or both the Series 66
Exam and Series 7 Exam.
(aa) identifying the applicant's designated official[Part II of SEC Form ADV - Uniform Application for
Investment Adviser Registration]; and
(bb) indicating whether the applicant will have either custody
of or discretionary authority over client funds or
(1)(c)(ii) If the applicant will have custody of or discretionary authority
over client funds or securities, the applicant must provide
Division Form 4-5BIA - Indemnity Bond of Investment Adviser[, if required by Section R164-4-5,] or documents containing the information provided on Division Form
4-5BIA, or, alternatively, proof of membership in SIPC.
(2) Investment Adviser Representative
Licensing Requirements. To license as an investment adviser
representative, the investment adviser or federal covered adviser
with which the applicant will associate must submit the
(2)(a)(i) FINRA[NASD] Form U-4; and
(2)(a)(ii) proof applicant passed the
Series 65 Exam or both the Series 66 Exam and Series 7 Exam.
(2)(b) To the IARD, a license fee as
specified in the Division's fee schedule.
(3)(a) Except as provided in Subparagraph
(C)(3)(b), applicant may associate with only one investment adviser
or federal covered adviser at a time.
(3)(b) A dual license may be allowed by
(3)(b)(i) Applicant requests a dual
license in writing to the Division which identifies the investment
advisers or federal covered advisers with which applicant intends
to associate and sets forth the reasons for the dual license;
(3)(b)(ii) Both investment advisers or
federal covered advisers with which applicant intends to associate
represent in writing to the Division that each assumes full
responsibility for applicant at all times; and
(3)(b)(iii) Applicant discloses the dual
(D) Investment adviser and associated
investment adviser representative renewal requirements
(1) All licenses expire on December 31 of
(2) To renew licenses of the investment
adviser and associated investment adviser representatives, the
investment adviser must submit the following[to the IARD before December 31]:
(2)(a)(i) SEC Form ADV - Uniform Application for Investment
Adviser Registration, Parts 1 and 2, including applicant's
audited balance sheet if required under item 18 of Form ADV Part
2[a copy of applicant's most recent SEC Form ADV -
Registration];
(ii) a license fee for the investment adviser and a license
fee for each associated investment adviser representative as
specified in the Division's fee schedule (the license fee for
the investment adviser includes the fee for one designated
.[;]
b[c]) To the CRD:
(2)(b)(i) FINRA Form U-4 - Uniform Application for Securities
Industry Registration or Transfer for applicant's designated
official and any investment adviser representatives.
(2)(c)(i) Division Form 4-5BIA, Indemnity Bond of Investment
Adviser, if required by Section R164-4-5; and
c[d])
(ii) the investment adviser's most recently audited
balance sheet, if the investment adviser requires payment of
1,2[5]00 per client, or if the investment adviser has
custody or possession of clients' funds or securities
.[; and]
[(2)(e) a copy of the alternate disclosure brochure given or
offered if the investment adviser delivered or offered to deliver a
written disclosure statement in lieu of Part II of Form ADV during
the last calendar year of the licensing period.
](E) Investment adviser representatives of
adviser representatives of a federal covered adviser, the federal
covered adviser must submit to the IARD before December 31, a
license fee for each investment adviser representative as specified
(F) Investment adviser and investment
adviser representative withdrawal requirements
(1) Investment adviser withdrawal
(1)(a) To withdraw a license or
application, applicant must file with the IARD, SEC Form ADV-W -
Notice of Withdrawal from Registration as Investment Adviser.
(1)(b) A withdrawal is effective thirty
days following receipt of SEC Form ADV-W, unless the Division
notifies applicant otherwise.
(2)(a) To withdraw a license or
application, applicant must file with the CRD, a completed FINRA[NASD] Form U-5.
(2)(b) A withdrawal is effective thirty
days following receipt of applicant's FINRA[NASD] Form U-5, unless the Division notifies
(G) Acts or practices which require
licensing as an investment adviser and compliance with statutes and
rules pertaining thereto
(1) Lawyers, accountants, engineers or
(1)(a) A lawyer, accountant, engineer or
teacher (professional) must be licensed as an investment adviser or
investment adviser representative if the professional provides
investment advice or investment advisory services to the
professional's clients for a fee, if the advice is not
"solely incidental" to the professional's regular
professional practice with respect to clients.
(1)(b) For purposes of this subparagraph
(1), providing investment advice under ANY of the following
circumstances would NOT be considered to be "solely
incidental":
(1)(b)(i) The investment advice the
professional or the investment advisory service the professional
renders clients is the primary professional advice for which the
professional charges or is paid a fee;
(1)(b)(ii) The professional advertises or
otherwise holds himself out to the public as a provider of
(1)(b)(iii) The professional holds funds
for clients pursuant to discretionary authority to invest such
(1)(c) Following are examples to assist in
understanding the meaning of "solely incidental":
(1)(c)(i) If the primary professional
advice for which the professional receives a fee involves business
or tax planning and the professional neither advertises or
otherwise holds himself out as a provider of investment advice, nor
holds funds which the professional invests for clients. The
professional may also provide investment advice to clients in
connection with the planning or other professional services,
without being required to become licensed as an investment
(1)(c)(ii) If the professional advertises
or otherwise holds himself out as a provider of investment advice,
the professional must be licensed as an investment adviser whether
or not the professional actually provides investment advice.
(1)(c)(iii) If the professional holds
client funds which the professional invests for the client, the
professional must be licensed as an investment adviser whether or
not the professional actually provides investment advice.
(2) Broker-dealers and broker-dealer
(2)(a) A broker-dealer or broker-dealer
agent must be licensed as an investment adviser or investment
adviser representative if for a fee, the securities broker-dealer
or sales agent of the securities broker-dealer provides investment
advice to clients if the investment advice is not "solely
incidental" to the conduct of business as a broker-dealer or
broker-dealer agent.
(2)(b) For purposes of this subparagraph,
providing investment advice under ANY of the following
circumstances would NOT be considered "solely
(2)(b)(i) Providing investment advice to a
client for a fee in addition to any commission received in
connection with transactions in which the client either purchases
or sells securities;
(2)(b)(ii) Providing investment advice,
for a fee, to clients who are not clients of the broker-dealer with
which the agent is licensed; or
(2)(b)(iii) Receiving compensation from an
investment adviser to whom the broker-dealer or agent refers
(3)(a) An insurance agent who, for a fee,
provides investment advice to a client, must be licensed as an
investment adviser or investment adviser representative.
(3)(b) An insurance agent who, performs an
analysis of a client's estate, for a fee, which recommends that
the client purchases or sells either specific securities or
specific types of securities must be licensed as an investment
adviser or investment adviser representative.
(3)(c) An insurance agent who, receives a
commission from the sale of insurance to a client who makes such
purchase with the proceeds of securities the insurance agent
recommended be sold, must be licensed as an investment adviser or
(4)(a) One must be licensed as an
investment adviser or investment adviser representative, as
appropriate, whether or not described in subparagraphs (1), (2), or
(3) of paragraph (
G[E]) if:
(4)(a)(i) [Providing,] A[a]dvertising, or otherwise holding oneself out as
(4)(a)(ii) Publishing a newspaper, news
column, news letter, news magazine, or business or financial
publication, which, for a fee, gives investment advice based upon
the specific investment situations of the clients; or
(4)(a)(iii) Receiving a fee from an
investment adviser for client referrals.
R164-4-3. General Licensing
(2) This rule applies to the licensing of
broker-dealers, broker-dealer agents, issuer-agents, investment
advisers, and investment adviser representatives.
Registration Depository operated by FINRA[the NASD].
(3) "IARD" means the Investment
Adviser Registration Depository operated by FINRA[the NASD].
NASD [National Association of Securities Dealers].
(6) "SEC" means the United
(7) "Termination" means the date
on which FINRA[the NASD] processes FINRA[NASD] Form U-5 - Uniform Termination Notice for
(1) A broker-dealer agent must pass the
63 Exam) or the Series 66, Uniform Combined State Law Examination
(Series 66 Exam). If the broker-dealer agent's most recent
license terminated two or more years before the date of receipt by
the Division of a new application, the agent will be required to
(2) An issuer-agent must pass the Series
63 Exam or the Series 66 Exam. If the issuer-agent's most
recent license terminated two or more years before the date of
receipt by the Division of a new application, the agent will be
required to retake the examination.
(3) Investment advisers and investment
(3)(a) Examination requirements. An
individual applying to be licensed as an investment adviser or
investment adviser representative shall provide the Division with
proof of obtaining a passing score on one of the following
(3)(a)(i) Series 65, Uniform Investment
Adviser Law Examination (Series 65 Exam); or
(3)(a)(ii) Series 7, General Securities
Representative Examination (Series 7 Exam) and Series 66 Exam.
(3)(b) If an investment adviser or
investment adviser representative has not been licensed in any
jurisdiction for a period of two (2) years, the investment adviser
or investment adviser representative will be required to retake the
(3)(c) Waivers. The investment adviser or
investment adviser representative may request a waiver of the
examination requirement if such individual currently holds one of
the following professional designations:
(3)(c)(i) Certified Financial Planner
(CFP) awarded by the Certified Financial Planner Board of
Standards, Inc.;
(3)(c)(ii) Chartered Financial Consultant
(ChFC) awarded by the American College, Bryn Mawr,
(3)(c)(iii) Personal Financial Specialist
(PFS) awarded by the American Institute of Certified Public
(3)(c)(iv) Chartered Financial Analyst
(CFA) awarded by the Institute of Chartered Financial Analysts;
(3)(c)(v) Chartered Investment Counselor
(CIC) awarded by the Investment Counsel Association of America,
(3)(c)(vi) Such other professional
designation as the Division may recognize by order.
(1) The Division designates and authorizes
the web-based CRD to receive and store filings and collect related
fees on behalf of the Division whenever this rule requires filings
to be submitted to the CRD.
(2) The Division designates and authorizes
the web-based IARD to receive and store filings and collect related
to be submitted to the IARD.
(3) Unless otherwise provided, all
broker-dealer, agent, investment adviser, and investment adviser
representative applications, amendments, reports, notices, related
filings and fees required to be filed with the Division pursuant to
this rule, shall be filed electronically with and transmitted to
either the CRD or the IARD as designated in this rule. The
following additional conditions relate to such electronic
(3)(a) When a signature or signatures are
required by the particular instruction of any filing to be made
through the CRD or the IARD, a duly authorized officer of the
applicant or the applicant him or herself, as required, shall affix
his or her electronic signature to the filing by typing his or her
name in the appropriate fields and submitting the filing to the CRD
or the IARD. Submission of a filing in this manner shall constitute
irrefutable evidence of legal signature by any individuals whose
names are typed on the filing.
(3)(b) Solely for purposes of a filing
made through the CRD or the IARD, a document is considered filed
with the Division when all fees are received and the filing is
accepted by the CRD or the IARD on behalf of the state.
(4) Notwithstanding Subparagraph (D)(3),
the electronic filing of any particular document shall not be
required until such time as the CRD or the IARD provides for
receipt of such filings. Any documents required to be filed with
the Division, the CRD or the IARD that are not permitted to be
filed with or cannot be accepted by the CRD or the IARD shall be
filed directly with the Division in either a paper format or as an
attachment to an email to the Division in a format that can be
viewed by the Division.
(5) This Subparagraph provides two
"hardship exemptions" from the requirements to make
electronic filings as required by this rule.
(5)(a)(i) Investment advisers licensed or
required to be licensed under the Act who experience unanticipated
technical difficulties that prevent submission of an electronic
filing to the IARD may request a temporary hardship exemption from
the requirements to file electronically.
(5)(a)(ii) To request a temporary hardship
exemption, the investment adviser must:
(5)(a)(ii)(aa) File Form ADV-H in paper
format with the state securities agency where the investment
adviser's principal place of business is located, no later than
one business day after the filing that is the subject of the Form
ADV-H was due; and
(5)(a)(ii)(bb) Submit the filing that is
the subject of the Form ADV-H in electronic format to the IARD no
later than seven business days after the filing was due.
(5)(a)(iii) The temporary hardship
exemption will be deemed effective upon receipt by the Division of
the complete Form ADV-H. Multiple temporary hardship exemption
requests within the same calendar year may be disallowed by the
(5)(b)(i) A continuing hardship exemption
will be granted only if the investment adviser is able to
demonstrate that the electronic filing requirements of this rule
are prohibitively burdensome.
(5)(b)(ii) To apply for a continuing
hardship exemption, the investment adviser must:
(5)(b)(ii)(aa) File Form ADV-H in paper
format with the Division at least twenty business days before a
filing is due; and
(5)(b)(ii)(bb) If a filing is due to more
than one state securities agency, the Form ADV-H must be filed with
the state securities agency where the investment adviser's
principal place of business is located. The state securities agency
who receives the application will grant or deny the application
within ten business days after the filing of Form ADV-H.
(5)(b)(iii) The exemption is effective
upon approval by the Division. The time period of the exemption may
be no longer than one year after the date on which the Form ADV-H
is filed. If the Division approves the application, the investment
adviser must, no later than five business days after the exemption
approval date, submit filings to the Division in paper format along
with the appropriate processing fees for the period of time for
which the exemption is granted.
(5)(c) The decision to grant or deny a
request for a hardship exemption will be made by the state
securities agency where the investment adviser's principal
place of business is located, which decision will be followed by
the state securities agency in the other state(s) where the
investment adviser is licensed.
(1) At a time when a material change
(1)(a) a broker-dealer must promptly file
amendments to SEC Form BD - Uniform Application for Broker-Dealer
Registration with the CRD;
(1)(b) a broker-dealer agent must promptly
file amendments to FINRA[NASD] Form U-4 - Uniform Application for
Securities Industry Registration or Transfer with the CRD;
(1)(c) an issuer-agent must promptly file
amendments to FINRA[NASD] Form U-4 - Uniform Application for
Securities Industry Registration or Transfer with the Division;
(1)(d) an investment adviser must promptly
file amendments to SEC Form ADV - Uniform Application for
Investment Adviser Registration with the IARD;
(1)(e) an investment adviser
representative must promptly file amendments to FINRA[NASD] Form U-4 - Uniform Application for
Securities Industry Registration or Transfer with the CRD; and
(1)(f) a federal covered adviser must
promptly file amendments to SEC Form ADV - Uniform Application for
Investment Adviser Registration with the IARD.
(2) Amendments should be filed in
accordance with the instructions on the respective forms.
(1) The requirement in Subsection
61-1-4(1) that requires filing a consent to service of process may
be fulfilled by execution of SEC Form BD, FINRA[NASD] Form U-4, or SEC Form ADV, as
(1) A broker-dealer or broker-dealer agent
may transfer a license by following CRD procedures. The Division
recognizes and participates in the NASAA/CRD Temporary Agent
Transfer ("TAT") program and will honor transfers
R164-4-4. Minimum Financial Requirements
and Financial Reporting Requirements of Licensed Broker-Dealers and
(2) This rule provides the minimum
financial requirements and financial reporting requirements for
(3) "Net worth" means an excess
of assets over liabilities, as determined by generally accepted
accounting principles, but shall not include as assets: prepaid
expenses (except as to items properly classified as current assets
under generally accepted accounting principles), deferred charges,
goodwill, franchise rights, organizational expenses, patents,
copyrights, marketing rights, unamortized debt discount and
expense, all other assets of intangible nature; home, home
furnishing, automobile(s), and any other personal items not readily
marketable in the case of an individual; advances or loans to
stockholders and officers in the case of a corporation; and
advances or loans to partners in the case of a partnership.
(4) "SEC" means the United
(C) Broker-Dealer - Minimum Financial
(1) Each broker-dealer licensed or
required to be licensed under the Act shall comply with SEC Rules
15c3-1 (17 CFR 240.15c3-1(1996)), 15c3-2 (17 CFR 240.15c3-2(1996)),
and 15c3-3 (17 CFR 240.15c3-3(1996)), which are adopted and
(2) Each broker-dealer licensed or
required to be licensed under the Act shall comply with SEC Rule
17a-11 (17 CFR 240.17a-11(1996)) and shall file with the Division
upon request copies of notices and reports required under SEC Rules
17a-5 (17 CFR 240.17a-5(1996)), 17a-10 (17 CFR 240.17a-10(1996)),
and 17a-11 (17 CFR 240.17a-11(1996)), which are adopted and
(3) To the extent the SEC promulgates
compliance with the amended SEC rule.
(D) Investment Adviser - Minimum Financial
(D)(4), unless an investment adviser posts a bond pursuant to
Section R164-4-5 or is not required to post a bond under Section
R164-4-5(F)(2)(a), an investment adviser licensed or required
to be licensed under the Act who has custody of client funds or
securities shall maintain at all times a minimum net worth of
$35,000, and every investment adviser licensed or required to be
licensed under the Act who has discretionary authority over client
funds or securities but does not have custody of client funds or
securities, shall maintain at all times a minimum net worth of
(2) An investment adviser registered or
required to be registered who accepts prepayment of more than $
1,2[5]00 per client and six or more months in advance
shall maintain at all times a positive net worth.
(3) Unless otherwise exempted, as a
condition of the right to continue to transact business in this
state, every investment adviser licensed or required to be licensed
under the Act shall by the close of business on the next business
day notify the Division if such investment adviser's net worth
is less than the minimum required. After transmitting such notice,
each investment adviser shall file by the close of business on the
next business day a report with the Division of its financial
condition, including the following:
(3)(a) A trial balance of all ledger
(3)(b) A statement of all client funds or
securities which are not segregated;
(3)(c) A computation of the aggregate
amount of client ledger debit balances; and
(3)(d) A statement as to the number of
(4) The Division may require that a
current appraisal be submitted in order to establish the worth of
(5) Every investment adviser that has its
maintain such minimum capital as required by the state in which the
investment adviser maintains its principal place of business,
provided the investment adviser is licensed in such state and is in
compliance with such state's minimum capital requirements.
R164-4-5. Bonding Requirements for
Broker-Dealers, Broker-Dealer Agents, Issuer-Agents, and Investment
authority granted by Sections 61-1-4 and 61-1-24.
(2) This rule sets the surety-bond
requirements for broker-dealers, broker-dealer agents,
issuer-agents, and investment advisers.
(2) "SEC" means the United
(3) "SIPC" means the Securities
(C) Bonding requirements for
(1) A broker-dealer who is a member of
SIPC and is not excluded from membership assessments need not
provide a bond.
(2) Every broker-dealer licensed or
required to be licensed under this Act whose business is
exclusively intrastate, who does not make use of any facility of a
national securities exchange and who is not registered under
section 15 of the Securities Exchange Act of 1934, shall be bonded
in an amount of not less than $100,000 by a bonding company
(D) Bonding requirements for broker-dealer
(1) A broker-dealer agent need not provide
(E) Bonding requirements for
issuer-agents
(1) An issuer-agent need not provide a
bond unless otherwise required by Section R164-11-1.
(2) If an issuer-agent must provide a
bond, it must be:
(2)(a) issued by a corporate bonding
company qualified to do business in Utah;
(2)(b) on or in substantially the same
form as Division Form 4-5BI, "Corporate Indemnity Bond of
Issuer"; and
(3) Upon written request the Division may
waive the bond requirement and accept instead the escrow of
(3)(a) The issuer or issuer-agent must
place in escrow at least $25,000.
(3)(b) The issuer or issuer-agent may
place the money in escrow at any federal or state bank or savings
institution, only.
(3)(c) The term of the escrow must extend
for a period terminating no earlier than four years after
expiration of the issuer's registration statement.
(3)(d) The escrow must be on or in
substantially the same form as Division Form 4-5EIA, "Escrow
Agreement", which is available from the Division.
(3)(e) The funds in escrow may be released
only by an order of the Division, in accordance with the
(3)(e)(i) If claims have been made against
the issuer-agent in a court of competent jurisdiction and the court
has finally adjudicated the dispute, or the claimant and the
issuer-agent have agreed in writing to resolve the dispute, the
amount of funds at issue may be ordered released by the Division in
accordance with the order or agreement, up to the amount placed in
escrow; or
(3)(e)(ii) The issuer's registration
statement expired not less than four (4) years ago.
(F) Bonding requirements for certain
(1) Except as provided in subparagraphs
(F)(2) and (3), every investment adviser having custody of or
discretionary authority over client funds or securities shall be
(1)(a) in an amount determined by the
Division based upon the number of clients and the total assets
under management of the investment adviser, which shall be at a
minimum of $10,000;
(1)(b) issued by a bonding company
(1)(c) on or in substantially the same
form as Division Form 4-5BIA, Corporate Indemnity Bond of
(2) The requirements of subparagraph
(F)(1) shall not apply to those applicants or licensees who
(2)(a) have custody solely as a consequence of the
adviser's authority to withdraw advisory fees from client
(3) An investment adviser that has its
be exempt from the requirements of subparagraph (F)(1), provided
that the investment adviser is licensed as in investment adviser in
the state where it has its principal place of business and is in
compliance with such state's requirements relating to
(4) Upon request and for good cause shown,
the Division may waive the bond requirement and accept instead the
(4)(a) The investment adviser must place
in escrow an amount determined by the Division based upon the
number of clients and the total assets under management of the
investment adviser, which shall be at a minimum of $10,000.
(4)(b) The investment adviser may place
the money in escrow at any federal or state bank or savings
(4)(c) The term of the escrow must extend
for a period terminating no earlier than three years after
expiration of the investment adviser's license.
(4)(d) The escrow must be on, or in
substantially the same form as, Division Form 4-5EIA, Escrow
(4)(e) The funds in escrow may be released
(4)(e)(i) Where claims have been made
against the investment adviser in a court of competent jurisdiction
and the court has finally adjudicated the dispute, or the claimant
and the investment adviser have agreed in writing to resolve the
dispute, the amount of funds at issue may be ordered released by
the D[d]ivision in accordance with the order or
agreement, up to the amount placed in escrow; or
(4)(e)(ii) The investment adviser has not
been licensed by the Division for a period of at least four
R164-4-6. Notice Filing Requirements for
Federal Covered Advisers.
(2) This rule provides the notice filing
requirements for federal covered advisers.
Federal covered advisers required to file
notice filings pursuant to Subsection 61-1-4(2), must file with
IARD the following:
(1) an executed SEC Form ADV - Uniform
Application for Investment Adviser Registration; and
(2) a filing fee as specified in the
Division's fee schedule.
(1) All notice filings expire on December
(2) To renew notice filings, a federal
covered adviser must submit the following to IARD before December
(2)(a) a copy of the federal covered
adviser's most recent SEC Form ADV; and
(2)(b) a filing fee as specified in the
Division's fee schedule.[
(E) Until IARD provides for the filing of Part 2 of Form
ADV, the Division will deem filed Part 2 of Form ADV if a federal
covered adviser provides, within 5 days of a request, Part 2 of
Form ADV to the Division. Because the Division deems Part 2 of the
Form ADV to be filed, a federal covered adviser is not required to
submit Part 2 of Form ADV to the Division unless
R164-4-7. Broker-dealers, Investment
Advisers and Other Securities Personnel Using the Internet for
General Dissemination of Information on Products and Services.
authority granted by Sections 61-1-13 and 61-1-24.
(2) This rule clarifies when
broker-dealers, investment advisers, broker-dealer agents and
investment adviser representatives are transacting business in this
state for purposes of Section 61-1-4 by distributing information on
available products and services through Internet Communications
available to persons in this state.
(2) "Internet" means the global
information system comprised of independent computer networks which
are interconnected and share information without the use of a
central processing center by use of the Transmission Control
Protocol/Internet Protocol (TCP/IP) suite, to include without
limitation, the World Wide Web, proprietary or "common
carrier" electronic delivery systems, or similar medium.
(3) "Internet Communications"
means a communication made on the Internet which is directed
generally to anyone who has access to the Internet, including
persons in Utah, to include without limitation, postings on
Bulletin Boards, displays on "Home Pages" or similar
broker-dealer agents ("BD agents") and investment adviser
representatives ("IA reps") who use the Internet to
distribute information on available products and services through
Internet Communications shall not be deemed to be "transacting
business" in this state for purposes of Subsections 61-1-3(1)
and 61-1-3(3) based solely on that fact if the following conditions
(1) The Internet Communication contains a
legend in which it is clearly stated that:
(1)(a) the broker-dealer, investment
adviser, BD agent or IA rep in question may only transact business
in this state if first licensed, excluded or exempted from state
broker-dealer, investment adviser, BD agent or IA rep licensing
requirements, as may be; and
(1)(b) follow-up, individualized responses
to persons in this state by such broker-dealer, investment adviser,
BD agent or IA rep that involve either the effecting or attempting
to effect transactions in securities, or the rendering of
personalized investment advice for compensation, as may be, will
not be made absent compliance with state broker-dealer, investment
adviser, BD agent or IA rep licensing requirements, or an
applicable exemption or exclusion;
(2) The Internet Communication contains a
mechanism, including and without limitation, technical
"firewalls" or other implemented policies and procedures,
designed reasonably to ensure that prior to any subsequent, direct
communication with prospective customers or clients in this state,
said broker-dealer, investment adviser, BD agent or IA rep is first
licensed in this state or qualifies for an exemption or exclusion
from such requirement. Nothing in this subparagraph shall be
construed to relieve a state licensed broker-dealer, investment
adviser, BD agent or IA rep from any applicable securities
registration requirement in this state;
(3) The Internet Communication does not
involve either effecting or attempting to effect transactions in
compensation, as may be, in this state over the Internet, but is
limited to the dissemination of general information on products and
(4) In the case of a BD agent or IA
(4)(a) the affiliation with the
broker-dealer or investment adviser of the BD agent or IA rep is
prominently disclosed within the Internet Communication;
(4)(b) the broker-dealer or investment
adviser with whom the BD agent or IA rep is associated retains
responsibility for reviewing and approving the content of any
Internet Communication by a BD agent or IA rep;
(4)(c) the broker-dealer or investment
adviser with whom the BD agent or IA rep is associated first
authorizes the distribution of information on the particular
products and services through the Internet Communication; and
(4)(d) in disseminating information
through the Internet Communication, the BD agent or IA rep acts
within the scope of the authority granted by the broker-dealer or
(1) The exclusion provided in paragraph
(C) extends to state broker-dealer, investment adviser, BD agent
and IA rep licensing requirements only, and does not excuse
compliance with applicable securities registration, antifraud or
(2) Nothing in this exclusion shall be
construed to affect the activities of any broker-dealer, investment
adviser, BD agent and IA rep engaged in business in this state that
is not subject to the jurisdiction of the Division as a result of
the National Securities Markets Improvements Act of 1996, as
R164-4-8. Exclusion for Certain Canadian
Brokers and Securities Exemption.
authority granted by Subsections 61-1-13(3)(i) and 61-1-14(2)(s)
and Section 61-1-24.
(2) This rule provides an exclusion from
the definition of "Broker-dealer" for certain Canadian
brokers and provides an exemption for transactions effectuated by
these certain Canadian brokers.
"Broker-dealer" as defined in
Section 61-1-13(3) excludes a person who is resident in Canada, has
no office or other physical presence in this state, and complies
(1) Only effects or attempts to effect
(1)(a) with or through the issuers of the
securities involved in the transactions, broker-dealers, banks,
saving institutions, trust companies, insurance companies,
investment companies defined in the Investment Company Act of 1940,
pension or profit-sharing trusts, or other financial institutions
or institutional buyers, whether acting for themselves or as
(1)(b) with or for a person from Canada
who is temporarily present in this state, with whom the Canadian
person had a bona fide business-client relationship before the
person entered this state; or
(1)(c) with or for a person from Canada
who is in this state, whose transactions are in a self-directed tax
advantaged retirement plan in Canada of which the person is the
holder or contributor;
(2) files a notice in the form of his
current application required by the jurisdiction in which their
head office is located and a consent to service of process;
(3) is a member of a self-regulatory
organization or stock exchange in Canada;
(4) Maintains his provincial or
territorial registration and his membership in a self-regulatory
organization or stock exchange in good standing;
(5) Discloses to his clients in this state
that he is not subject to the full regulatory requirements of the
Utah Uniform Securities Act; and
(6) Is not in violation of Section 61-1-1
and all rules promulgated thereunder.
The Division finds that registration is
not necessary or appropriate for the protection of investors in
connection with an offer or sale of a security in a transaction
effected by a person excluded from the definition of broker-dealer
R164-4-9. Exemptions From Licensing
Requirements for Investment Advisers Providing Advice to Certain
authority granted by Sections 61-1-3 and 61-1-24.
(2) This rule provides exemptions from the
licensing requirements of the Act for investment advisers and
investment adviser representatives who meet specified criteria.
(1) "Act" means the Utah Uniform
Securities Act, Utah Code Ann. Section 61-1-1 et seq.
(2) "Control" means the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or
(3)(a) "High net worth family
entity" means a corporation, limited partnership, limited
liability company, or other entity, with all of its owners,
partners, or members belonging to a single family who are all
related by blood, adoption or marriage; with a combined net worth
of not less than $10 million; and with ownership by an individual
family member being direct or indirect pursuant to a trust or other
similar arrangement where the investment is made by or on behalf
of, or for the benefit of, the individual.
(C) Exemption for Investment Advice to
(1) For purposes of Subsection
61-1-3(3)(b)(ii), an investment adviser or investment adviser
representative is exempt from the licensing requirements of the Act
if the investment adviser or investment adviser representative
renders investment advisory services only to the following
renders investment advisory services only to a private fund that
regularly makes equity investments in companies, if:
(1)(a) the private fund does not grant
investors the right or power to redeem their interests in the fund
within two years of purchase;
(1)(b) at the time of investment, at least
fund possess all of the following characteristics:
(1)(b)(i) the private fund, either alone
or with other similarly situated private funds, has control of the
(1)(b)(ii) the private fund, either alone
or with other similarly situated private funds, has access to
material business, financial and other corporate records of the
target company without being required to resort to statutory
stockholder or other equity owner records access provisions;
if the investment adviser or investment adviser representative:
KEY: securities, securities regulation,
investment advisers, securities licensing requirements
Interpreted Law: 61-1-3; 61-1-4; 61-1-5; 61-1-6; 61-1-13; 61-1-14;
61-1-24