Prohibited Business Practices for Dealers and Their Associated Persons

DEPARTMENT OF FINANCIAL SERVICES
Securities

RULE NO: RULE TITLE
69W-600.013: Prohibited Business Practices for Dealers and Their Associated Persons

NOTICE OF CHANGE

Notice is hereby given that the following changes have been made to the proposed rule in accordance with subparagraph 120.54(3)(d)1., F.S., published in Vol. 32 No. 8, February 24, 2006 issue of the Florida Administrative Weekly.

These changes are being made to address written comments by the Joint Administrative Procedures Committee.

WHEN AMENDED THE PROPOSED RULE WILL READ AS FOLLOWS:

69W-600.013 Prohibited Business Practices for Dealers and Their Associated Persons.

(1) The following are deemed demonstrations of unworthiness by a dealer under Section 517.161(1)(h), F.S., without limiting that term to the practices specified herein:

(a) Causing any unreasonable delay in the delivery of securities purchased by any of its customers, or in the payment upon request of free credit balances reflecting complete transactions of any of its customers;

(b) Inducing trading in a customer’s account which 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 the recommendation is suitable for the customer on the basis of information furnished by the customer after reasonable inquiry concerning the customer’s investment objectives, financial situation and needs, and any other information known by the dealer;

(d) Executing a transaction on behalf of a customer without authority to do so;

(e) Exercising 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  and/or price for the execution of orders;

(a)(f) Extending, arranging for, or participating in arranging for credit to a customer in violation of the provisions of Regulation T, Credit by Brokers and Dealers, 12 C.F.R. §§  220.1-220.132 (2006), which is incorporated by reference. (12 CFR 220.1-220.131, inclusive) promulgated by the Federal Reserve Board, as such provisions existed on July 1, 2003;

(b)(g) Executing any transaction in a margin account without obtaining from its customer a written margin agreement prior to settlement date for the initial transaction in the account .;

(c)(h) Failing to segregate customers’ free securities or securities in safekeeping.;

(d)(i) Hypothecating a customer’s securities in violation of SEC Rule 8c-1, 17 C.F.R. § 240.8c-1 (2006), which is incorporated by reference. (17 CFR 240.8c-1), as such rule existed on July 1, 2003;

(j) Charging its customer an unreasonable commission or service charge in any transaction executed as agent for the customer;

(k) Entering into a transaction for its own account with a customer with an unreasonable mark-up or mark-down;

(l) Entering into a transaction with or for a customer at a price not reasonably related to the current market price;

(e)(m) Failing to execute a customer’s order.;

(f)(n) Executing orders for the purchase by a customer of securities not registered under Section 517.081 or 517.082, F.S., unless the securities are exempted under Section 517.051, F.S., or the transaction is exempted under Section 517.061, F.S.;

(g)(o) Representing itself as a financial or investment planner, consultant, or advisor, when the representation does not fairly describe the nature of the services offered, the qualifications of the person offering the services, and the method of compensation for the services.;

(h)(p) With respect to any customer, transaction or business in this state, violating any of the following:

1. Conduct Rules, Marketplace Rules, or the Uniform Practice Code of the National Association of Securities Dealers (NASD). The foregoing NASD regulations, along with the interpretive materials for those regulations, are published in the NASD manual dated March 2006, which is incorporated by reference. Any by-law, schedule thereto, rule, or appendix thereto, of the National Association of Securities Dealers (“NASD”), interpreted in accordance with the guidelines, policies, and interpretations of the NASD or SEC, including: the Conduct Rules; the Marketplace Rules; and the Uniform Practice Code, as published in the NASD Manual as of July 1998 and any amendments as existed on July 1, 2003;

2. For members of the New York Stock Exchange, Rule 405, 412, or 435, or 445 of the New York Stock Exchange, as such rules existed on May 31, 2006.  The foregoing New York Stock Exchange rules, including the interpretative supplementary materials, are incorporated by reference. July 1, 2003, interpreted in accordance with the guidelines, policies, and interpretations of the NYSE or SEC.;

3. Sections 2, 4, 5, or 6 of the Securities Act of 1933, 15 U.S.C.A. §§  77b, 77d, 77e, or 77f (Thomson/West 2006 (current through P.L. 109-229)), or SEC Rules  134, 134a, 135a, 144, 144A, 156, 419, 481, or 482, 17 C.F.R. §§  230.134,  230.134a, 230.135a, 230.144, 230.144A, 230.156, 230.419, 230.481 or 230.482 (2006).  The foregoing sections of the Securities Act of 1933 and rules of the SEC are incorporated by reference.  134, (17 CFR 230.134); 134a (17 CFR 230.134a); 135a (17CFR 230.135a); 144 (17 CFR 230.144); 144A (17 CFR 230.144A); 156 (17 CFR 230.156); 419 (17 CFR 230.419); 481 (17 CFR 230.481); or 482 (17 CFR 230.482) promulgated pursuant thereto, as such provisions existed on July 1, 2003, interpreted in accordance with the guidelines, policies, and interpretations of the NASD or SEC;

4. Section 15(b)(4)(E) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78o(b)(4)(E) (Thomson/West 2006 (current through P.L. 109-229)); Regulation SHO, Regulation of Short Sales, 17 C.F.R §§  242.200 - 242.203 (2006); or NASD Conduct Rule 3210.  The foregoing provisions of the Securities Exchange Act of 1934 and Regulation SHO, Regulation of Short Sales, are incorporated by reference.  NASD Conduct Rule 3210, as it existed on July 3, 2006, is incorporated by reference. as it existed on July 1, 2003; or

5.  Section 15B of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78o-4 (Thomson/West 2006 (current through P.L. 109-229)), or the following rules of the Municipal Securities Rulemaking Board (MSRB), which have been promulgated under Section 15B:  MSRB Definitional Rules D-1 to D-12, inclusive, and General Rules G-1 to G-34, inclusive, as those rules existed on May 31, 2006.  Section 15B of the Securities Act of 1934 and the foregoing MSRB rules, including the MSRB interpretative letters and notices construing those rules, are incorporated by reference. Any rule of the Municipal Securities Rulemaking Board(“MSRB”) including the Definitional Rules (Rules D-1 through D-11, inclusive), and the General Rules with the exception of Rule G-35 (Rules G-1 through G-34, inclusive), promulgated pursuant to section 15B of the Securities Exchange Act of 1934, as such rules existed on July 1, 2003, interpreted in accordance with the guidelines, policies, and interpretations of the MSRB, NASD, or SEC;

6. To the extent that any of the rules described in subparagraphs 1. through 5. of this section or their interpretation by the NASD, NYSE, MSRB, or SEC, as appropriate, conflict or are inconsistent with other provisions of the Florida Securities and Investor Protection Act or rules promulgated pursuant thereto, this paragraph of this rule shall not be deemed controlling.;

(i)(q) Failing to furnish to a customer purchasing securities in an offering, not 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.;

(j)(r) Introducing customer transactions on a “fully disclosed” basis to another dealer that is not registered under Chapter 517, F.S., unless the customer is a person described in Section 517.061(7), F.S.;

(k)(s) Recommending to a customer that the customer engage the services of an investment advisor that is not registered or exempt from registration under Chapter 517, F.S., unless the customer is a person described in Section 517.061(7), F.S.;

(l)(t) Recommending to a customer that the customer engage the services of an investment advisor in connection with which the dealer receives a fee or remuneration (other than directed business) from the investment advisor, except as permitted in Rule 69W-600.003, F.A.C.;

(m)(u) Selling or offering for sale any security in a transaction exempt from registration pursuant to Section 517.061(17)(a)1., F.S., where the issuer of such securities has not filed with the SEC within the specified period of time all reports required by Sections 13 or 15D 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. A. §§ 78m, 78o-6 (Thomson/West 2006 (current through P.L. 109-229)). The foregoing sections of the Securities Exchange Act of 1934 are incorporated by reference. as such sections existed on July 1, 2003;

(n)(v) Giving false or otherwise misleading customer information to any financial institution or regulatory agency.

(2) The following are deemed demonstrations of unworthiness by an associated person of a dealer under Section 517.161(1)(h), F.S., without limiting that term to the practices specified herein:

(a) Borrowing money or securities from a customer, except when persons are in compliance with NASD Conduct Rule 2370(a)(1), (a)(2)(A)-(C) only, and NASD Conduct Rule 2370(b)-(c), which are incorporated by reference in subparagraph (1)(h)1.; customer;

(b) Acting as a custodian for money, securities or an executed stock power of a customer;

(c) Effecting transactions in securities, or investments as defined by Section 517.301(2), F.S., not recorded on the regular books or records of the dealer, which the associated person represents, unless the transactions are disclosed to, and authorized in writing by, the dealer prior to execution of the transactions;

(d) Operating an account under a fictitious name, unless disclosed to the dealer, which the associated person represents;

(e) Sharing directly or indirectly in profits or losses in the account of any customer without the written authorization of the customer and the dealer, which the associated person represents;

(f) Dividing or otherwise splitting commissions, profits or other compensation in connection with the purchase or sale of securities in this state with any person not also licensed as an associated person for the same dealer, or for a dealer under direct or in indirect common control;

(g) Failing to furnish to each offeree of a Small Corporate Offering Registration (SCOR) SCOR registration a copy of the “Florida Guide to Small Business Investments”, OFR-S-13-97, revised May 1, 2004, which is incorporated by reference; and

(h) Engaging in any of the practices specified in paragraph (1) (a), (b), (e), (f), (g), (h), (i), (k), (l), (m), or (n). (1)(b), (c), (d), (e), (f), (g), (m), (n), (o), (p), (q), (s), (t), (u), or (v).

(3) All materials incorporated by reference in this rule may be obtained by mail from the Office of Financial Regulation, Bureau of Securities Regulation, 200 E. Gaines Street, Tallahassee, Florida 32399-0374.

Specific Authority 517.03(1), 517.1217 FS. Law Implemented 517.081, 517.1217, 517.161(1) FS. History–New 12-5-79, Amended 9-20-82, Formerly 3E-600.13, Amended 8-1-91, 6-16-92, 1-11-93, 11-7-93, 5-5-94, 9-9-96, 10-20-97, 1-25-00, 10-30-03,________.

 

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Andrea Moreland, Executive Senior Attorney, Office of Financial Regulation, 200 E. Gaines Street, The Fletcher Building, Tallahassee, Florida 32399-0375, [phone], [e-mail].