Virginia Administrative Code › Title 21 - SECURITIES AND RETAIL FRANCHISING › Agency 5 - STATE CORPORATION COMMISSION › Chapter 20 - BROKER-DEALERS, BROKER-DEALER AGENTS AND AGENTS OF THE ISSUER › Part IV - Broker-Dealer and Agent Regulations › Section 21VAC5-20-280 - Prohibited business conduct

Current through Register Vol. 40, No. 24, July 15, 2024
A.
				  Every broker-dealer is required to observe high standards of commercial honor
				  and just and equitable principles of trade in the conduct of its business. The
				  acts and practices described in this subsection are considered contrary to such
				  standards and may constitute grounds for denial, suspension, or revocation of
				  registration or such other action authorized by the Act. No broker-dealer who
				  is registered or required to be registered shall:
1. Engage in a pattern of unreasonable and
				  unjustifiable delays in the delivery of securities purchased by any of its
				  customers or in the payment upon request of free credit balances reflecting
				  completed transactions of any of its customers, or take any action that
				  directly or indirectly interferes with a customer's ability to transfer his
				  account; provided that the account is not subject to any lien for moneys owed
				  by the customer or other bona fide claim, including seeking a judicial order or
				  decree that would bar or restrict the submission, delivery or acceptance of a
				  written request from a customer to transfer his account;
2. Induce trading in a customer's account
				  which is excessive in size or frequency in view of the financial resources and
				  character of the account;
3.
				  Recommend to a customer the purchase, sale or exchange of any security without
				  reasonable grounds to believe that the recommendation is suitable for the
				  customer. The reasonable basis to recommend any such transaction to a customer
				  shall be based upon the risks associated with a particular security, and the
				  information obtained through the diligence and inquiry of the broker-dealer to
				  ascertain the customer's investment profile. A customer's investment profile
				  includes the customer's investment objectives, financial situation, risk
				  tolerance and needs, tax status, age, other investments, investment experience,
				  investment time horizon, liquidity needs, and any other relevant information
				  known by the broker-dealer or of which the broker-dealer is otherwise made
				  aware in connection with such recommendation;
4. Execute a transaction on behalf of a
				  customer without authority to do so or, when securities are held in a
				  customer's account, fail to execute a sell transaction involving those
				  securities as instructed by a customer, without reasonable cause;
5. Exercise any discretionary power in
				  effecting a transaction for a customer's account without first obtaining
				  written discretionary authority from the customer, unless the discretionary
				  power relates solely to the time or price for the execution of
				  orders;
6. Execute 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,
				  or fail, prior to or at the opening of a margin account, to disclose to a
				  noninstitutional customer the operation of a margin account and the risks
				  associated with trading on margin at least as comprehensively as required by
				  FINRA Rule 2264;
7. Fail to
				  segregate customers' free securities or securities held in
				  safekeeping;
8. Hypothecate a
				  customer's securities without having a lien thereon unless the broker-dealer
				  secures from the customer a properly executed written consent promptly after
				  the initial transaction, except as permitted by Rules of the SEC;
9. Enter into a transaction with or for a
				  customer at a price not reasonably related to the current market price of a
				  security or receiving an unreasonable commission or profit;
10. Fail 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, either by (i) hard copy prospectus delivery or (ii)
				  electronic prospectus delivery;
11.
				  Introduce customer transactions on a "fully disclosed" basis to another
				  broker-dealer that is not exempt under §
											13.1-514B
				  6 of the Act;
12.
a.
Charge unreasonable and inequitable fees for services
					 performed, including miscellaneous services such as collection of moneys 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;
b.
				  Charge a fee based on the activity, value or contents (or lack thereof) of a
				  customer account unless written disclosure pertaining to the fee, which shall
				  include information about the amount of the fee, how imposition of the fee can
				  be avoided and any consequence of late payment or nonpayment of the fee, was
				  provided no later than the date the account was established or, with respect to
				  an existing account, at least 60 days prior to the effective date of the
				  fee;
13. Offer to buy
				  from or sell to any person any security at a stated price unless the
				  broker-dealer is prepared to purchase or sell at the price and under such
				  conditions as are stated at the time of the offer to buy or sell;
14. Represent that a security is being
				  offered to a customer "at a market" or a price relevant to the market price
				  unless the broker-dealer knows or has reasonable grounds to believe that a
				  market for the security exists other than that made, created or controlled by
				  the broker-dealer, or by any person for whom he is acting or with whom he is
				  associated in the distribution, or any person controlled by, controlling or
				  under common control with the broker-dealer;
15. Effect any transaction in, or induce 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:
a. Effecting any transaction in a
				  security which involves no change in the beneficial ownership
				  thereof;
b. Entering an order for
				  the purchase or sale of any security with the knowledge that an order of
				  substantially the same size, at substantially the same time and substantially
				  the same price, for the sale of any security, has been or will be entered by or
				  for the same or different parties for the purpose of creating a false or
				  misleading appearance of active trading in the security or a false or
				  misleading appearance with respect to the market for the security; however,
				  nothing in this subdivision shall prohibit a broker-dealer from entering bona
				  fide agency cross transactions for its customers; or
c. Effecting, alone or with one or more other
				  persons, a series of transactions in any security creating actual or apparent
				  active trading in the security or raising or depressing the price of the
				  security, for the purpose of inducing the purchase or sale of the security by
				  others;
16. Guarantee a
				  customer against loss in any securities account of the customer carried by the
				  broker-dealer or in any securities transaction effected by the broker-dealer
				  with or for the customer;
17.
				  Publish or circulate, or cause to be published or circulated, any notice,
				  circular, advertisement, newspaper article, investment service, or
				  communication of any kind which purports to report any transaction as a
				  purchase or sale of any security unless the broker-dealer believes that the
				  transaction was a bona fide purchase or sale of the security; or which purports
				  to quote the bid price or asked price for any security, unless the
				  broker-dealer believes that the quotation represents a bona fide bid for, or
				  offer of, the security;
18. Use any
				  advertising or sales presentation in such a fashion as to be deceptive or
				  misleading. An example of such practice would be a 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,
				  pictures, graphs or otherwise designed to supplement, detract from, supersede
				  or defeat the purpose or effect of any prospectus or disclosure;
19. Fail to make reasonably available upon
				  request to any person expressing an interest in a solicited transaction in a
				  security, not listed on a registered securities exchange or quoted on an
				  automated quotation system operated by a national securities association
				  approved by regulation of the commission, a balance sheet of the issuer as of a
				  date within 18 months of the offer or sale of the issuer's securities and a
				  profit and loss statement for either the fiscal year preceding that date or the
				  most recent year of operations, the names of the issuer's proprietor, partners
				  or officers, the nature of the enterprises of the issuer and any available
				  information reasonably necessary for evaluating the desirability or lack of
				  desirability of investing in the securities of an issuer. All transactions in
				  securities described in this subdivision shall comply with the provisions of
				  §
											13.1-507
				  of the Act;
20. Fail to disclose
				  that the broker-dealer is controlled by, controlling, affiliated with or under
				  common control with the issuer of any security before entering into any
				  contract with or for a customer for the purchase or sale of the security, the
				  existence of control to the customer, and if disclosure is not made in writing,
				  it shall be supplemented by the giving or sending of written disclosure at or
				  before the completion of the transaction;
21. Fail to make a bona fide 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;
22. Fail or refuse to
				  furnish a customer, upon reasonable request, information to which the customer
				  is entitled, or to respond to a formal written request or complaint;
23. Fail to clearly and separately disclose
				  to its customer, prior to any security transaction, providing investment advice
				  for compensation or any materially related transaction that the customer's
				  funds or securities will be in the custody of an investment advisor or
				  contracted custodian, in a manner that does not provide Securities Investor
				  Protection Corporation protection, or equivalent third-party coverage over the
				  customer's assets;
24. Market
				  broker-dealer services that are associated with financial institutions in a
				  manner that is misleading or confusing to customers as to the nature of
				  securities products or risks;
25.
				  In transactions subject to breakpoints, fail to:
a. Utilize advantageous breakpoints without
				  reasonable basis for their exclusion;
b. Determine information that should be
				  recorded on the books and records of a member or its clearing firm, which is
				  necessary to determine the availability and appropriateness of breakpoint
				  opportunities; or
c. Inquire
				  whether the customer has positions or transactions away from the member that
				  should be considered in connection with the pending transaction and apprise the
				  customer of the breakpoint opportunities;
26. Use a certification or professional
				  designation in connection with the offer, sale, or purchase of securities that
				  indicates or implies that the user has special certification or training in
				  advising or servicing senior citizens or retirees in such a way as to mislead
				  any person.
a. The use of such certification
				  or professional designation includes the following:
(1) Use of a certification or designation by
				  a person who has not actually earned or is otherwise ineligible to use such
				  certification or designation;
(2)
				  Use of a nonexistent or self-conferred certification or professional
				  designation;
(3) Use of a
				  certification or professional designation that indicates or implies a level of
				  occupational qualifications obtained through education, training, or experience
				  that the person using the certification or professional designation does not
				  have; or
(4) Use of a certification
				  or professional designation that was obtained from a designating or certifying
				  organization that:
(a) Is primarily engaged in
				  the business of instruction in sales or marketing;
(b) Does not have reasonable standards or
				  procedures for assuring the competency of its designees or
				  certificants;
(c) Does not have
				  reasonable standards or procedures for monitoring and disciplining its
				  designees or certificants for improper or unethical conduct; or
(d) Does not have reasonable continuing
				  education requirements for its designees or certificants in order to maintain
				  the designation or certificate.
b. There is a rebuttable presumption that a
				  designating or certifying organization is not disqualified solely for purposes
				  of subdivision 26 a (4) of this subsection, when the organization has been
				  accredited by:
(1) The American National
				  Standards Institute;
(2) The
				  Institute for Credentialing Excellence (formerly the National Commission for
				  Certifying Agencies); or
(3) An
				  organization that is on the U.S. Department of Education's list entitled
				  "Accrediting Agencies Recognized for Title IV Purposes" and the designation or
				  credential issued therefrom does not primarily apply to sales or
				  marketing.
c. In
				  determining whether a combination of words (or an acronym standing for a
				  combination of words) constitutes a certification or professional designation
				  indicating or implying that a person has special certification or training in
				  advising or servicing senior citizens or retirees, factors to be considered
				  shall include:
(1) Use of one or more words
				  such as "senior," "retirement," "elder," or like words, combined with one or
				  more words such as "certified," "chartered," "adviser," "specialist,"
				  "consultant," "planner," or like words, in the name of the certification or
				  professional designation; and
(2)
				  The manner in which those words are combined.
d. For purposes of this section, a
				  certification or professional designation does not include a job title within
				  an organization that is licensed or registered by a state or federal financial
				  services regulatory agency when that job title:
(1) Indicates seniority within the
				  organization; or
(2) Specifies an
				  individual's area of specialization within the organization.
For purposes of this subdivision d, "financial services
					 regulatory agency" includes an agency that regulates broker-dealers, investment
					 advisers, or investment companies as defined under § 3 (a)(1) of the
					 Investment Company Act of 1940 (
					 15 USC §
															80a-3(a)(1)
					 ).
e. Nothing in
				  this regulation shall limit the commission's authority to enforce existing
				  provisions of law;
27.
				  Represent that securities will be listed or that application for listing will
				  be made on a securities exchange or the National Association of Securities
				  Dealers Automated Quotations (NASDAQ) system or other quotation system without
				  reasonable basis in fact for the representation;
28. Falsify or alter so as to make false or
				  misleading any record or document or any information provided to the
				  commission;
29. Negotiate,
				  facilitate, or otherwise execute a transaction on behalf of an investor
				  involving securities issued by a third party pursuant to a claim for exemption
				  under subsection B of §
											13.1-514
				  of the Act unless the broker-dealer intends to report the securities owned and
				  the value of such securities on at least a quarterly basis to the
				  investor;
30. Offer or sell
				  securities pursuant to a claim for exemption under subsection B of §
											13.1-514
				  of the Act without having first verified the information relating to the
				  securities offered or sold, which shall include ascertaining the risks
				  associated with investing in the respective security;
31. Allow any person to represent or utilize
				  its name as a trading platform without conspicuously disclosing the name of the
				  registered broker-dealer in effecting or attempting to effect purchases and
				  sales of securities; or
32. Engage
				  in any conduct that constitutes a dishonest or unethical practice including
				  forgery, embezzlement, nondisclosure, incomplete disclosure or material
				  omissions or untrue statements of material facts, manipulative or deceptive
				  practices, or fraudulent course of business.