The rule is proposed for amendment to: update references to incorporated material; amend the definition of an accredited investor to define it according to federal rule; remove one unused and one duplicative definition; and correct cross-references....

 

DEPARTMENT OF FINANCIAL SERVICES

Securities

RULE NO.:RULE TITLE:

69W-200.001Definitions

PURPOSE AND EFFECT: The rule is proposed for amendment to: update references to incorporated material; amend the definition of an accredited investor to define it according to federal rule; remove one unused and one duplicative definition; and correct cross-references. The Office of Financial Regulation proposes to consolidate all material incorporated by reference in Chapter 69W, F.A.C. into a new proposed Rule 69W-200.002, F.A.C. that conforms with Section 120.54(1)(i), F.S. The proposed amendment would reference Rule 69W-200.002, F.A.C., where the material can be accessed via the FAR.

SUMMARY: See above.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION: The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: 1) No requirement for a SERC was triggered under Section 120.541(1); and 2) The amendments will not exceed any one of the economic analysis criteria in a SERC, as set forth in Section 120.541(2)(a), F.S.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 517.03(1), 517.1215(2), 517.1217 FS.

LAW IMPLEMENTED: 517.081, 517.12(4), 517.1215, 517.1217, 517.161(1) FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE SCHEDULED AND ANNOUNCED IN THE FAR.

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: John Kim, Division of Securities, [phone], [e-mail]

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

69W-200.001 Definitions.

As used in the Rules and Regulations of the Financial Services Commission and Office of Financial Regulation, pursuant to Chapter 517, F.S., unless the context otherwise specifically requires:

(1) “Accredited Investor” is defined pursuant to S.E.C. Rule 501(a) of Regulation D (17 C.F.R. § 230.501(a)), which is incorporated by reference in Rule 69W-200.002, F.A.C.. shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

(a) Any bank as defined in section 3(a)(2) of the Securities Act of 1933 (15 U.S.C. § 77c-(a)(2) (2006 & Supp. II)), or any savings and loan association or other institution as defined in section 3(a)(5)(A) of that Act (15 U.S.C. § 77c-(a)(5)(A) (2006 & Supp. II)), whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934 (15 U.S.C. § 78o (2006 & Supp. II)); any insurance company as defined in section 2(13) of the Securities Act of 1933 (15 U.S.C. § 77b (2006 & Supp. II)); any investment company registered under the Investment Company Act of 1940 (15 U.S.C. §§ 80a-1 through 80a-64 (2006 & Supp. II)) or a business development company as defined in section 2(a)(48) of that Act (15 U.S.C. § 80a-2(a)(48) (2006 & Supp. II)); Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) of the Small Business Investment Act of 1958 (15 U.S.C. § 681(c) (2006 & Supp. II)) any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1002(3) (2006 & Supp. II)) if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act (29 U.S.C. § 1002(21) (2006 & Supp. II)), which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

(b) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940 (15 U.S.C. § 80b-2(a)(22) (2006 & Supp. II ));

(c) Any organization described in section 501(c)(3) of the Internal Revenue Code (26 I.R.C. § 501(c)(3) (2006 & Supp. III)), corporation, Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

(d) Any director, executor officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

(e) Any natural person whose individual net worth or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;

(f) Any natural person who had an individual income in excess of $200,000 in each of the two most recent fiscal years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

(g) Any trust, with total assets in excess of $5,000,000, not formed for the purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Securities and Exchange Commission Regulation 230.506(b)(2)(ii) (17 C.F.R. § 230.506(b)(2)(ii) (2009)); and

(h) Any entity in which all of the equity owners are accredited investors.

(2) No change.

(3) “Aggregate Indebtedness” is defined pursuant to S.E.C. Rule 15c3-1 (17 C.F.R. § 240.15c3-1), which is incorporated by reference in Rule 69W-200.002, F.A.C. (17 C.F.R. § 240.15c3-1 (2009)).

(4) “Allowable Assets” is defined pursuant to S.E.C. Rule 15c3-1 (17 C.F.R. § 240.15c3-1 (2009)).

(4)(5) The term “Applicant” shall mean a person natural or otherwise, executing or submitting an application for registration.

(5)(6) “Application” means all information required by the forms prescribed by the Financial Services Commission and any additional information required by the Financial Services Commission or Office of Financial Regulation together with all required statutory fees.

(6)(a) (7)(a) “Associated person” as defined in Section 517.021(2), F.S., shall include any person who for compensation refers, solicits, offers, or negotiates for the purchase or sale of securities and/or of investment advisory services. A person whose activities fall within this definition is required to register with the Office of Financial Regulation as an associated person pursuant to Sections 517.12(1) or (4), F.S.

(b) Notwithstanding the provisions of paragraph (a), an associated person registered with the Office of Financial Regulation and operating in compliance with subsection 69W-600.003(3), F.A.C., shall not be deemed an associated person of any investment adviser other than the investment adviser or dually registered dealer/investment adviser with which such associated person is registered.

(c) Any person acting in compliance with S.E.C. Rule 206(4)-3 (17 C.F.R. § 275.206(4)-3), which is incorporated by reference in Rule 69W-200.002, F.A.C. (17 C.F.R. § 275.206(4)-3 (2009)), shall not be deemed an associated person of an investment adviser.

(7)(8) “Bona Fide Employee” is deemed to be a partner, officer, director, or trustee of the issuer, or any employee of such partner, officer, director or trustee, who has not participated in the distribution or sale of any securities within the preceding twelve (12) months, and who primarily performs, or is intended to perform at the end of the distribution, substantial duties for, or on behalf of the issuer, other than in connection with transactions in securities.

(8)(a) (9)(a) Except as otherwise provided in this subsection, the term “Branch Office” shall mean any location in this state of a dealer or investment adviser at which one or more associated persons regularly conduct the business of rendering investment advice or effecting any transactions in, or inducing or attempting to induce the purchase or sale of, any security or any location that is held out as such. Pursuant to Section 517.021(4), F.S., the Financial Services Commission may adopt exceptions to this definition. The following locations shall not be deemed branch offices for purposes of Section 517.12(5), F.S., and are considered exceptions to the definition of a branch office under Section 517.021(4), F.S.:

1. Any location that is established solely for customer service or back office type functions where no sales activities are conducted and that is not held out to the public as a branch office;

2. Any location that is the associated person’s primary residence; provided that:

a. through d. No change.

e. The associated person’s correspondence and communications with the public are subject to the firm’s supervision in accordance with NASD Rule 3010, as incorporated in Rule 69W-200.002, F.A.C. subparagraph 69W-600.013(1)(h)1., F.A.C.;

f. through i. No change.

3. Any location, other than a primary residence, that is used for securities business for less than 30 business days in any one calendar year, provided the registrant complies with the provisions of this rule in sub-subparagraphs (8)(a)2.a. (9)(a)2.a. through i. above;

4. through 9. No change.

(b) Notwithstanding the exclusions provided in subparagraph (8)(a)2. (9)(a)2. above, any location of a dealer that is responsible for supervising the activities of persons associated with the registrant at one or more non-branch locations of the registrant is considered to be a branch office.

(c) The term “business day” as used in subparagraph (8)(a)3. above NASD Rule 3010(g)(2)(A), which is incorporated by reference in subparagraph 69W-600.013(1)(h)1., F.A.C., shall not include any partial business day provided that the associated person spends at least four hours on such business day at his or her designated branch office during the hours that such office is normally open for business.

(9)(10) “Carrying Dealer” means any dealer maintaining a fully/principally disclosed agreement/arrangement with an introducing dealer, whereby the carrying dealer is responsible for customer monies and securities, and confirms transactions to the customer accounts introduced; such dealer who carriers accounts for Florida residents must be registered pursuant to the provisions of Section 517.12, F.S.

(11) “Custody” means a person directly or indirectly holds customer funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.

(10)(12) “Developmental Stage Entities” shall be defined as those entities which are devoting substantially all of their efforts to establishing a new business and for which either of the following conditions exists:

(a) through (b) No change.

(11)(13) “Dilution” for purposes of paragraph 69W-700.015(2)(b), F.A.C., shall be determined by subtracting the maximum sales commissions and expenses set forth in the prospectus from the gross proceeds of the offering and adding the net worth prior to the offering. Divide this sum by the total number of shares to be outstanding at the conclusion of the offering to determine book value. Subtract the book value from the proposed offering price and divide the result by the proposed offering price to arrive at the percentage of dilution. For the purpose of calculating “dilution” or “book value”, intangible assets such as patents, copyrights, franchises, trademarks, operating rights and goodwill are deducted from total assets.

Dilution Formula:

NP = Gross Proceeds minus Maximum Sales Commissions and Expenses

NW = Net Worth prior to the offering

TS = Total Number of shares to be outstanding after a successful offering

BV = Book Value

OP = Offering Price

Example:

NP + NW

________=              BV

TS

 

OP – BV

_________=Dilution

OP

(12)(14) “Established Market Price” for purposes of Rule 69W-700.015, F.A.C., shall be the OTC price for a security published in The Wall Street Journal in the Over-The-Counter Markets Section, Quotations from the NASDAQ System of such publication or the price for a security published on any stock exchange registered pursuant to the Securities Exchange Act of 1934.

(13)(15) “Executing Dealer” means any dealer who executes transactions entered by another dealer; such dealer need not be registered under Section 517.12, F.S., unless such dealer confirms said transactions directly to Florida resident accounts, and/or maintains responsibility for such accounts as either introducing dealer or carrying dealer.

(14)(16) “Fair Value of the Equity Investment” for purposes of subsection 69W-700.005(1), F.A.C., of the promoters or insiders shall mean the total of all sums contributed to the issuer in cash together with the reasonable value of all tangible assets contributed to the issuer, and as adjusted by the earned surplus or deficit of the issuer subsequent to the dates of contribution. In determining the reasonable value of tangible assets contributed, the Office of Financial Regulation may take into consideration any values as determined by independent appraisal or otherwise.

(15)(17) “Independent Director” shall be defined as a member of the Issuer’s Board of Directors who:

(a) through (c) No change.

(16)(18) “Introducing Dealer” means any dealer maintaining a formal agreement/arrangement with another dealer whereby the introducing dealer does not carry (i.e., holds funds or securities, or confirms transactions) customer accounts; such dealer who introduces Florida resident accounts must be registered pursuant to Section 517.12, F.S.

(17)(19) “Issuer” in Rules 69W-400.001, 69W-500.005, 69W-500.006, and 69W-500.008, F.A.C., shall mean any person who proposes to issue or has issued or shall hereafter issue any securities. For purposes of this subsection only, the term “issuer” shall not include a promoter of the issuer for the purposes of these rules.

(18)(20) “Issuers” Within the Meaning of Section 517.021(14), F.S.

(a) through (b) No change.

(19)(21) “Issuer/Dealer” means any issuer who through either persons directly or indirectly compensated or controlled by the issuer engages, either for all or part of his time, directly or indirectly, in the business of offering or selling securities which are issued or are proposed to be issued by said issuer.

(20)(22) “Principal Office” or “Home Office” shall mean the place where the chief or principal affairs and business of the applicant or registrant are transacted.

(21)(23) “Promotional Securities” for purposes of Rule 69W-700.015, F.A.C., shall mean securities that are to be issued or were issued:

(a) through (b) No change.

(22)(24) “Publication” means advertising printed in any newspaper, magazine, periodical or other publication and mailed or delivered to its subscribers or addresses, or communicated by radio, television or similar means.

(23)(25) “Qualified Institutional Buyer” for purposes of Section 517.061(7), F.S., shall be defined as provided in Securities and Exchange Commission rule 144A(a) (17 C.F.R. § 230.144A(a)), which is incorporated by reference in Rule 69W-200.002, F.A.C. (17 C.F.R. § 230.144A(a) (2009)).

(24)(26) “Reaffiliation” refers to those associated persons leaving one registered dealer or investment adviser and reaffiliating with another registered dealer or investment adviser.

(25)(27) “Registrant” shall mean an applicant for whom a registration has been declared effective by the Office of Financial Regulation.

(26)(28) “Reportable Act” shall mean:

(a) through (d) No change.

(27)(29) “Renewal Applicant” shall mean an applicant who is a registrant who seeks a timely renewal of the license.

(28)(30) “Securities Act of 1933”, 15 U.S.C. §§ 77a through 77mm (2006 & Supp. II), “Securities Exchange Act of 1934”, 15 U.S.C. §§ 78a through 78oo (2006 & Supp. II), “Investment Company Act of 1940”, 15 U.S.C. §§ 80a-1 through 80a-64 (2006 & Supp. II), “Investment Advisers Act of 1940”, 15 U.S.C. §§ 80b-1 through 80b-21 (2006 & Supp. II), and “Internal Revenue Code”, 26 U.S.C. Subtitles A through K (2006 & Supp. III), means the federal statutes of those names.

(29)(31) “State” means any state, territory or possession of the United States, the District of Columbia and Puerto Rico.

(30)(32) “Total Equity Investment” for purposes of subsection 69W-700.005(1), F.A.C., shall mean the total of (1) par or stated values of all equity securities offered or proposed to be offered; and (2) the amount of surplus of any kind, regardless of description and whether or not restricted.

(31)(33) “Wholesaler” is defined as any dealer conducting business exclusively with other dealers in this State, and such dealer need not be registered as a dealer under Section 517.12, F.S.

(34) The federal statutes and regulations referenced in this rule are hereby incorporated by reference. Copies of the United States Code are available online through the U.S. House of Representatives, Office of the Law Revision Counsel: http://uscode.house.gov/download/downloadPDF.shtml. Copies of the Code of Federal Regulation are available online through the U.S. Government Printing Office via GPO Access: http://www.gpoaccess.gov/cfr/retrieve.html.

Rulemaking Authority 517.03(1) FS. Law Implemented 517.07, 517.12, 517.021, 517.061, 517.051, 517.081, 517.161 FS. History–New 12-5-79, Amended 9-20-82, Formerly 3E-200.01, Amended 12-8-87, 10-14-90, 7-31-91, 6-16-92, 1-10-93, 5-5-94, 10-20-97, 8-9-98, 8-19-99, 10-30-03, Formerly 3E-200.001, Amended 5-15-07, 9-30-10, 11-11-13,________.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Pamela Epting, Director, Division of Securities

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Financial Services Commission

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: May 13, 2014

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: April 15, 2014