Michigan Administrative Code › Department - Licensing and Regulatory Affairs › Corporations, Securities, and Commercial Licensing › Securities › Securities › Part 4 - BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS, INVESTMENT ADVISER REPRESENTATIVES, AND FEDERAL COVERED INVESTMENT ADVISERS › Section R. 451.4.27 - Dishonest or unethical business practices of broker-dealers and agents

Current through Vol. 24-12, July 15, 2024
Rule 4.27.
(1)
					 "Dishonest or unethical practices" for purposes of section 412(4)(m) of the
					 act, MCL 451.2412(4)(m) , includes the conduct prohibited in this rule. The
					 conduct specified in subrules (2) and (3) of this rule is not all inclusive.
					 Engaging in other conduct such as forgery, embezzlement, nondisclosure,
					 incomplete disclosure or misstatement of material facts, or manipulative or
					 deceptive practices shall also be grounds for denial, suspension, or revocation
					 of registration.
(2) Prohibited
					 conduct of broker-dealers registered, or required to be registered, under the
					 act includes, but is not limited to, the following:
(a) Engaging in unreasonable and
					 unjustifiable delaying or failing to execute orders, liquidate customers
					 account or in the delivery of securities purchased by any of its customers or
					 in the payment upon request, free credit balances reflecting completed
					 transactions of any of its customers.
(b) Inducing trading in a customers account
					 that is excessive in size or frequency in view of the financial resources and
					 character of the account.
(c)
					 Recommending to a customer the purchase, sale, or exchange of any security
					 without reasonable grounds to believe that such transaction or recommendation
					 is suitable for the customer based upon reasonable inquiry concerning the
					 customers investment objectives, financial situation and needs, and any other
					 relevant information known by the broker-dealer.
(d) Executing a transaction on behalf of a
					 customer without authorization to do so.
(e) Exercising any discretionary power in
					 effecting a transaction for a customers account without first obtaining written
					 discretionary authority from the customer, unless the discretionary power
					 relates solely to the time, price, or both for executing of orders.
(f) Executing any transaction in a margin
					 account without securing from the customer a properly executed written margin
					 agreement promptly after the initial transaction in the account.
(g) Failing to segregate customers free
					 securities or securities held in safekeeping.
(h) Hypothecating a customers securities
					 without having a lien on it, unless the broker-dealer secures from the customer
					 a properly executed written consent, except as permitted by SEC rule 8c-1,
					 17 C.F.R. §
													240.8c-1, or SEC rule 15c2-1, 17 C.F.R.
					 § 240.15c2-1.
(i) Entering
					 into a transaction with or for a customer at a price not reasonably related to
					 the current market price of the security or receiving an unreasonable
					 commission or profit.
(j) Failing
					 to furnish to a customer purchasing securities in an offering, no later than
					 the date of confirmation of the transaction, either a final prospectus or a
					 preliminary prospectus and an additional document, which together include all
					 information set forth in the final prospectus or making oral or written
					 statements contrary to or inconsistent with the disclosures contained in the
					 prospectus.
(k) Charging
					 unreasonable and inequitable fees for services performed, including
					 miscellaneous services such as collection of monies due for principal,
					 dividends or interest, exchange or transfer of securities, appraisals,
					 safekeeping, or custody of securities and other services related to its
					 securities business.
(l) Offering
					 to buy from or sell to any person any security at a stated price unless such
					 broker-dealer is prepared to purchase or sell, as the case may be, at such
					 price and under such conditions as are stated at the time of such offer to buy
					 or sell.
(m) Representing that a
					 security is being offered to a customer "at the market" or a price relevant to
					 the market price unless such broker-dealer knows or has reasonable grounds to
					 believe a market for such security exists other than that made, created, or
					 controlled by such broker-dealer, or by any such person from whom he or she is
					 acting or with whom he or she is associated in such distribution, or any person
					 controlled by, controlling, or under common control with such
					 broker-dealer.
(n) Effecting any
					 transaction in, or inducing the purchase or sale of, any security by means of
					 any manipulative, deceptive or fraudulent device, practice, plan, program,
					 design or contrivance, which may include but not be limited to the following:
(i) Effecting any transaction in a security
					 which involves no change in the beneficial ownership of the security.
(ii) Entering an order or orders for the
					 purchase or sale of any security with the knowledge that an order or orders of
					 substantially the same size, at substantially the same time and substantially
					 the same price, for the sale of any such security, has been or will be entered
					 for the purpose of creating a false or misleading appearance of active trading
					 the security or a false or misleading appearance with respect to the market for
					 the security; provided; however, nothing in this subdivision prohibits a
					 broker-dealer from entering a bona fide agency cross transaction for its
					 customers.
(iii) Effecting, alone
					 or with 1 or more other persons, a series of transactions in any security
					 creating actual or apparent active trading in such security or raising or
					 depressing the price of such security, for the purpose of inducing the purchase
					 or sale of such security by others.
(iv) Guaranteeing a customer against loss in
					 any securities account of such customer or in any securities transaction
					 effected by the broker-dealer with or for such customer.
(v) Publishing or circulating, or causing to
					 be published or circulated, any notice, circular, advertisement, newspaper
					 article, investment service, or communication of any kind that purports to
					 report any transaction as a purchase or sale of any security unless such
					 broker-dealer believes that such transaction was a bona fide purchase or sale
					 or such security; or that purports to quote the bid price or asked price for
					 any security, unless such broker-dealer believes that such quotation represents
					 a bona fide bid for, or offer of, such security.
(vi) Using any advertising or sales
					 presentation in such a fashion as to be deceptive or misleading including, but
					 not limited to, distribution of any nonfactual data, material or presentation
					 based on conjecture, unfounded or unrealistic claims or assertions in any
					 brochure, flyer, or display by words, picture, graphs or other medium designed
					 to supplement, detract from, supersede, or defeat the purpose or effect of any
					 prospectus or disclosure.
(vii)
					 Failing to disclose that the broker-dealer is controlled by, controlling,
					 affiliated with, or under common control with the issuer of any security that
					 is offered or sold to the customer. The existence of any control or affiliation
					 must be disclosed to the customer in writing prior to completion of the
					 transaction.
(viii) Failing to make
					 a public offering of all of the securities allotted to a broker-dealer for
					 distribution, whether acquired as an underwriter, a selling group member, or
					 from a member participating in the distribution as an underwriter or selling
					 group member, by engaging in conduct including both of the following:
(A) Parking or withholding
					 securities.
(B) Transferring
					 securities to a customer, another broker-dealer, or a fictitious account with
					 the understanding that those securities must be returned to the broker-dealer,
					 or the broker-dealers nominee.
(ix) Failing or refusing to furnish a
					 customer, upon reasonable request, information to which the customer is
					 entitled, or to respond to a formal written request or complaint.
(x) Marking any order tickets or confirmation
					 as unsolicited when the transaction is solicited.
(xi) Failing to comply with any applicable
					 provision of the FINRA conduct rules or any applicable fair practice or ethical
					 standard promulgated by the SEC or by a self-regulatory organization approved
					 by the SEC.
(xii) In connection
					 with the solicitation of a sale or purchase of an "Over the Counter" non-NASDAQ
					 security, failing to promptly provide the most current prospectus or the most
					 recently filed periodic report filed under section 13 of the securities
					 exchange act of 1934,
					 15 U.S.C. §
														78m, when requested to do so by a
					 customer.