Code of Maryland Regulations › Title 02 - OFFICE OF THE ATTORNEY GENERAL › Subtitle 02 - DIVISION OF SECURITIES › Chapter 02.02.05 - Investment Adviser Regulations › Section 02.02.05.16 - Record-Keeping Requirements for Investment Advisers

Current through Register Vol. 51, No. 14, July 12, 2024
A. An investment adviser registered or required to be registered in this State shall maintain and preserve the following books, ledgers, and records:
(1) 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.
(2) General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income, and expense accounts.
(3) A memorandum of each order given by the investment adviser for the purchase or sale of a security or asset, of an instruction received by the investment adviser from the client concerning the purchase, sale, receipt, or delivery of a particular security or asset, and of a modification or cancellation of an order or instruction. These 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 the order, and shall show the account for which entered, the date of entry, whether the order was entered pursuant to the exercise of discretionary power and, when appropriate, the bank, broker-dealer, or other entity or person by or through which the transaction was effected.
(4) All check books, bank statements, cancelled checks, and cash reconciliations of the investment adviser.
(5) All bills or statements, or copies thereof, paid or unpaid, relating to the business of the investment adviser.
(6) All trial balances, financial statements, and internal audit working papers relating to the business of the investment adviser.
(7) Originals of all written communications received, and copies of all written communications sent, by the investment adviser relating to a recommendation made or proposed to be made and advice given or proposed to be given, a receipt, disbursement, or delivery of funds, securities, or assets, or the placing or execution of an order to purchase or sell a security or asset, except that:
(a) The investment adviser is not required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser; and
(b) If the investment adviser sends a notice, circular, or other advertisement offering a report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser is not required to keep a record of the names and addresses of the persons to whom it was sent, except that if the notice, circular, or advertisement is distributed to persons named on a list, the investment adviser shall retain with a copy of the notice, circular, or advertisement a memorandum describing the list and its source.
(8) A list or other record of all accounts in which the investment adviser is vested with discretionary power with respect to the funds, securities, assets, or transactions of a client.
(9) Copies of originals of all powers of attorney and other evidences of the granting of discretionary authority by a client to the investment adviser.
(10) All written agreements, or copies, entered into by the investment adviser with a client or otherwise relating to the business of the investment adviser.
(11) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons, other than persons connected with the investment adviser, and, if the notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication recommends the purchase or sale of a specific security or asset, and does not state the reasons for this recommendation, a memorandum of the investment adviser indicating the reasons.
(12) Records of Securities or Asset Transactions.
(a) A record of every transaction involving either an asset about which advice is given or a security, in which the investment adviser or any of those persons described in §A(12)(b) and (c) of this regulation has, or by reason of the transaction acquires, any direct or indirect beneficial ownership, except transactions effected over which neither the investment adviser nor any of those persons described in §A(12)(b) and (c) of this regulation has any direct or indirect influence or control, and transactions in securities that are direct obligations of the United States.
(b) Records of transactions shall include the transactions of:
(i) A partner, officer, or director of the investment adviser;
(ii) An employee who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made;
(iii) An employee who, in connection with the employee's duties, obtains information concerning which securities are being recommended before the effective dissemination of the recommendations or of the information concerning the recommendations; and
(iv) Any of the following persons who obtain information concerning securities recommendations being made by the investment adviser before the effective dissemination of the recommendations or of the information concerning the recommendations: a person in a control relationship to the investment adviser, an affiliated person of the controlling person, and an affiliated person of the affiliated person.
(c) "Control" has the same meaning as set forth in § 2(a)(9) of the Investment Company Act of 1940, as amended.
(d) The record shall state the title and amount of the security or asset involved, the date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition), the price at which it was effected, and the name of the broker-dealer, bank, or other entity or person with or through which the transaction was effected.
(e) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.
(f) The record also may contain a statement declaring that the reporting or recording of the transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security or asset.
(g) An investment adviser will not be considered to have violated the provisions of this subsection by the investment adviser's failure to record securities or asset transactions of any of those persons described in §A(12)(b) and (c) of this regulation if the investment adviser establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded.
(13) Records of Transactions in Securities or Assets Involving Direct or Indirect Beneficial Ownership.
(a) Notwithstanding the provisions of §A(12) of this regulation, when the investment adviser is primarily engaged in a business other than advising registered investment companies or other advisory clients, a record shall be maintained of every transaction involving either an asset about which advice is given or a security, in which the investment adviser or any of those persons described in §A(13)(b) and (c) of this regulation has, or by reason of the transaction acquires, any direct or indirect beneficial ownership, except transactions effected in any account over which neither the investment adviser nor any of those persons described in §A(13)(b) and (c) of this regulation has any direct or indirect influence or control, and transactions in securities that are direct obligations of the United States.
(b) Records of transactions shall include the transactions of:
(i) A partner, officer, director, or employee of the investment adviser who makes a recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made, or who, in connection with his duties, obtains information concerning which securities are being recommended before the effective dissemination of the recommendations or of the information concerning the recommendations; and
(ii) Any of the following persons who obtain information concerning securities recommendations being made by the investment adviser before the effective dissemination of the recommendations or of the information concerning the recommendations: a person in a control relationship to the investment adviser, an affiliated person of the controlling person, and an affiliated person of the affiliated person.
(c) "Control" has the same meaning as set forth in § 2(a)(9) of the Investment Company Act of 1940, as amended.
(d) The record shall state the title and amount of the security or asset involved, the date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition), the price at which it was effected, and the name of the broker-dealer, bank, or other entity or person with or through which the transaction was effected.
(e) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.
(f) The record may also contain a statement declaring that the reporting or recording of the transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security or asset.
(g) An investment adviser is "primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients" if, for each of its three most recent fiscal years or for the period of time since organization, whichever is less, the investment adviser derived from the other business or businesses, on an unconsolidated basis, more than 50 percent of both its total sales and revenues and its income (or loss) before income taxes and extraordinary items.
(h) An investment adviser will not be considered to have violated the provisions of this subsection by its failure to record securities or asset transactions of any of those persons described in §A(13)(b) and (c) of this regulation if the investment adviser establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded.
(14) A copy of each written statement, and each amendment or revision of each written statement, given or sent to a client or prospective client of the investment adviser in accordance with the provisions of Regulation .05 of this chapter, and a record of the dates that each written statement, and each amendment or revision of each written statement, was given, or offered to be given, to a client or prospective client who subsequently became a client.
(15) All accounts, books, internal working papers, and other records or documents that are necessary to form the basis for or demonstrate the calculation of the performance or rate of return of all managed accounts or securities or assets recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons, other than persons connected with the investment adviser. With respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits, and other transactions in a client's account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts, shall be considered to satisfy the requirements of this subsection.