Proposed Rules Title 7

TITLE 7. BANKING AND SECURITIES

CHAPTER 7. TEXAS FINANCIAL EDUCATION ENDOWMENT FUND

The Finance Commission of Texas (commission) proposes amendments to §7.101 (relating to Applicability and Purpose), §7.103 (relating to TFEE Grant Program), §7.104 (relating to TFEE Gifts and Donations), and §7.105 (relating to TFEE Fund Management) in 7 TAC Chapter 7, concerning Texas Financial Education Endowment Fund.

The rules in 7 TAC Chapter 7 govern the Texas Financial Education Endowment (TFEE). The Texas Legislature established TFEE in 2011, in order to support statewide financial education and consumer credit building activities and programs. The commission and the OCCC have established a grant program to promote the purposes of TFEE.

In general, the purpose of the proposed rule changes to 7 TAC Chapter 7 is to implement changes resulting from the commission's review of the chapter under Texas Government Code, §2001.039. Notice of the review of 7 TAC Chapter 7 was published in the Texas Register on August 2, 2024 (49 TexReg 5783). The commission received no comments in response to that notice.

The OCCC distributed an early precomment draft of proposed changes to interested stakeholders for review. The OCCC received no informal precomments on the rule text draft.

The Texas Legislature passed SB 1371 in the 2023 regular legislative session. SB 1371 modernized, clarified, and corrected provisions of the Texas Finance Code administered by the OCCC. In particular, SB 1371 relocated and amended the statutory provision that establishes TFEE. SB 1371 relocated this section from previous Texas Finance Code, §393.628 to current Texas Finance Code, §14.113. SB 1371 also amended Texas Finance Code, §14.113(b) to specify that funds in TFEE will be invested under the prudent business person standard described by the Texas Constitution, replacing previous language that referred to investing funds in the same manner as funds of the Employees Retirement System of Texas (ERS).

A proposed amendment to §7.101(a) would replace a reference to Texas Finance Code, §393.628 with an updated reference to Texas Finance Code, §14.113. This amendment would correct the statutory reference and implement SB 1371's relocation of the section, as described earlier in this preamble.

Proposed amendments to §7.103(g) would specify requirements for the longitudinal report that grantees file after the end of a two-year grant cycle. The proposed amendments would specify that the longitudinal report is comprehensive, that the report must describe activity performed under the grant agreement, and that the report is due on June 30 following the end of the grant cycle. The proposed amendments are intended to clarify requirements for grantees and to provide a more specific deadline for the report.

Proposed amendments throughout §7.104(a) would replace references to Texas Finance Code, §393.628 with updated references to Texas Finance Code, §14.113. These amendments would correct statutory references and implement SB 1371's relocation of the section, as described earlier in this preamble.

A proposed amendment to §7.105 would replace a reference to Texas Finance Code, §393.628(b) with an updated reference to Texas Finance Code, §14.113(b). Another proposed amendment to §7.105 would replace the current reference to the ERS investment standard with a reference to the prudent person standard described by the Texas Constitution. These amendments would implement the changes contained in SB 1371, as described earlier in this preamble.

Mirand Diamond, Director of Licensing, Finance and Human Resources, has determined that for the first five-year period the proposed rule changes are in effect, there will be no fiscal implications for state or local government as a result of administering the rule changes.

Huffman Lewis, Director of Consumer Protection, has determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of the changes will be that the commission's rules will be more easily understood by persons required to comply with the rules, and will be consistent with legislation recently passed by the Texas Legislature.

The OCCC does not anticipate that the proposed rule changes will result in any economic costs to persons who are required to comply with the proposed rule changes.

The OCCC is not aware of any adverse economic effect on small businesses, micro-businesses, or rural communities resulting from this proposal. But in order to obtain more complete information concerning the economic effect of these rule changes, the OCCC invites comments from interested stakeholders and the public on any economic impacts on small businesses, as well as any alternative methods of achieving the purpose of the proposal while minimizing adverse impacts on small businesses, micro-businesses, and rural communities.

During the first five years the proposed rule changes will be in effect, the rules will not create or eliminate a government program. Implementation of the rule changes will not require the creation of new employee positions or the elimination of existing employee positions. Implementation of the rule changes will not require an increase or decrease in future legislative appropriations to the OCCC, because the OCCC is a self-directed, semi-independent agency that does not receive legislative appropriations. The proposal does not require an increase or decrease in fees paid to the OCCC. The proposal would not create a new regulation. The proposal would expand current §7.103 by specifying requirements for the six-month longitudinal report following the end of a grant programming cycle. The proposal would not limit or repeal an existing regulation. The proposed rule changes do not increase or decrease the number of individuals subject to the rule's applicability. The agency does not anticipate that the proposed rule changes will have an effect on the state's economy.

Comments on the proposal may be submitted in writing to Matthew Nance, General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705 or by email to rule.comments@occc.texas.gov. To be considered, a written comment must be received on or before the 30th day after the date the proposal is published in the Texas Register. After the 30th day after the proposal is published in the Texas Register, no further written comments will be considered or accepted by the commission.

The rule changes are proposed under Texas Finance Code, §14.113, which authorizes the commission to adopt rules to administer the Texas Financial Education Endowment. In addition, Texas Finance Code, §11.304 authorizes the commission to adopt rules necessary to supervise the OCCC and ensure compliance with Texas Finance Code, Title 4.

The statutory provisions affected by the proposal are contained in Texas Finance Code, Chapter 14.

§7.101.Applicability and Purpose

(a) Applicability. This chapter governs the administration of the Texas Financial Education Endowment (TFEE) fund as provided by Texas Finance Code, §14.113. [~~§393.628.~~]

(b) - (c) (No change.)

§7.103.TFEE Grant Program

(a) - (f) (No change.)

(g) Reporting and monitoring.

(1) General reporting requirements. To receive reimbursement of TFEE grant expenses, a grantee must:

(A) submit grant reports in a timely manner;

(B) maintain satisfactory compliance with the grant agreement and proposed grant activities;

(D) track and report participant demographic information.

(2) Semi-annual reports. A grantee must submit semi-annual reports that demonstrate performance outcomes and financial information over the term of the grant in accordance with and by the deadlines set forth in the grant agreement.

(3) Six-month longitudinal report. A grantee must submit a comprehensive six-month longitudinal report after program completion to demonstrate program objectives and describe activity performed under the grant agreement. The longitudinal report is due on June 30 following the end of the grant programming cycle.

(4) Monitoring. The grant coordinator or GAC may use the following methods to monitor a grantee's performance and expenditures:

(A) Desk review. The grant coordinator or GAC may conduct a desk review of a grantee to review and compare individual source documentation and materials to summary data provided during the reporting process.

(B) Site visits and inspection reviews. The grant coordinator or GAC may conduct a scheduled site visit to a grantee's place of business to review compliance and performance issues. Site visits may be comprehensive or limited in scope.

(h) (No change.)

§7.104.TFEE Gifts and Donations

(a) Authorized gifts and donations.

(1) TFEE purpose. Under Texas Finance Code, §14.113(d), [~~§393.628(d),~~] the finance commission may solicit gifts, grants, and donations that fulfill the purpose of TFEE to support statewide financial education and consumer credit building activities and programs in this state, including the specific purposes provided by Texas Finance Code, §14.113(c). [~~§393.628(c).~~]

(2) Consumer credit educational purpose. Under Texas Finance Code, §14.105(a), the commissioner may accept gifts, grants, and donations on behalf of the state for a purpose related to a consumer credit educational opportunity, unless prohibited by Texas Finance Code, §14.105(b) or other law. A consumer credit educational opportunity is also considered to be a consumer credit building activity under TFEE.

(3) From state agencies. Under Texas Finance Code, §14.113(e), [~~§393.628(e),~~] the finance commission may partner with other state agencies to administer the TFEE fund, including the acceptance of gifts and donations from other state agencies, for the purposes outlined in paragraphs (1) and (2) of this subsection.

(4) From other parties. Gifts and donations from parties other than state agencies must meet the same criteria required for grantees eligible under §7.103(b) of this title (relating to TFEE Grant Program).

(b) (No change.)

§7.105.TFEE Fund Management

In accordance with Texas Finance Code, §14.113(b), [~~§393.628(b),~~] TFEE funds will be remitted to the comptroller for deposit in the Texas Treasury Safekeeping Trust Company. TFEE funds may be invested and reinvested under the prudent person standard described by Texas Constitution, Article VII, Section 11b [~~in the same manner as funds of the Employees Retirement System of Texas under Texas Government Code, Chapter 815, Subchapter D~~].

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2024.

TRD-202405057

Matthew Nance

General Counsel, Office of Consumer Credit Commissioner

Finance Commission of Texas

Earliest possible date of adoption: December 8, 2024

For further information, please call: (512) 936-7660

CHAPTER 115. SECURITIES DEALERS AND AGENTS

7 TAC §§115.1 - 115.6, 115.8 - 115.11, 115.16, 115.21, 115.22, 115.24

The Texas State Securities Board proposes a new rule and amendments to thirteen rules in Chapter 115. Specifically, the Board proposes amendments to §115.1, concerning General Provisions; §115.2, concerning Application Requirements; §115.3, concerning Examination; §115.4, concerning Evidences of Registration; §115.5, concerning Minimum Records; §115.6, concerning Registration of Persons with Criminal Backgrounds; §115.8, concerning Fee Requirements; §115.9, concerning Post-Registration Reporting Requirements; §115.10, concerning Supervisory Requirements; §115.11, concerning Finder Registration and Activities; §115.16, concerning Use of Senior-Specific Certifications and Professional Designations; §115.21, concerning System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Section 45; and §115.22, concerning Electronic Submission of Forms and Fees; and proposes new §115.24, concerning Adoption by Reference of Conduct Rules.

The rules in 7 TAC Chapter 115 govern securities dealers and agents. The purpose of the proposed rule changes to this chapter is to implement changes pursuant to the agency's periodic review of its rules.

The references to sections of the Texas Securities Act (Act) in §§115.1, 115.3 -115.5, 115.8, 115.16, and 115.21 would be updated to refer to the correct sections in the codified version of the Act in the Texas Government Code. The codification was adopted by HB 4171, 86th Legislature, 2019 Regular Session, and became effective January 1, 2022 (HB 4171).

Sections 115.1 and 115.5 would also be amended to replace the references in those sections to the term "Securities and Exchange Commission" with the term "SEC." SEC is a defined term in §107.2, concerning Definitions.

Section 115.5 would also be amended to abbreviate a cite to the Code of Federal Regulations found in subsection (a). CFR is a defined term in §107.2, concerning Definitions.

Section 115.1 would also be amended to add "or 'in this state'" to paragraph (a)(8) to conform the definition of "within this state" to language used in the codified Act and to delete redundant language in subparagraph (b)(2)(D) that is also contained in subsection (d). In addition, paragraph (c)(2) would be amended to correct a cross reference.

Section 115.3 would also be amended to replace the reference to "North American Securities Administrators Association" with the term "NASAA" in paragraph (a)(1). NASAA is a defined term in §107.2, concerning Definitions. In addition, paragraph (b)(4) would be amended to update the names of two NASAA examinations.

Amendments to §§115.3(c)(3)(D), 115.5(b)(13), and 115.6(g) would be made to remove or update outdated language.

Section 115.5 would also be amended to abbreviate a reference to "Central Registration Depository" as "CRD" for consistency.

An additional proposed amendment to §115.1 relates to the definition of a dealer's branch office. The definition of a dealer's "branch office" set forth in §115.1(a)(2) would be amended to incorporate and recognize a new rule adopted by the Financial Industry Regulatory Authority (FINRA) establishing a new designated location category referred to as a "residential supervisory location" (or RSL). Dealer firms that are members of FINRA may designate certain locations where they do business as an RSL instead of a "branch office," if the firm and location meet specified criteria and conditions set forth in FINRA rules. A dealer that is registered in Texas must submit a notice filing for all of its Texas locations that meet the definition of "branch office" set forth in §115.(a)(2). Texas registered dealers do not submit notice filings for locations in Texas that are non-branch locations. This change would result in Texas locations that are designated by dealers registered in Texas as RSLs under FINRA rules being excluded from the definition of a dealer's "branch office." This change would also result in registered dealers no longer needing to make a notice filing with the agency for locations that are RSLs, which locations would be thereafter treated under the rules as non branch locations.

Section 115.2 would be reorganized, and a cross reference to §115.22 would be added to §115.2 to improve consistency and readability of provisions governing application requirements. In addition, subsection (d) would be amended to allow the agency registration staff the option to notify applicants by email (which is a faster and more reliable delivery method) rather than by certified mail of automatic withdrawal of applications that have been pending for more than 90 days. References to "certificate of formation" which is the name of the form used by the Texas Secretary of State for formation documents filed with it, would also be added to the respective lists of formation of organization documents (including articles of incorporation, partnership agreements, articles of association, and charters) found in §115.2(a)(2)(B), as well as in §115.5(e)(5), for clarity and to improve accuracy.

Generally applicants for registration are required to have passed various qualification examinations to become registered. Additional proposed amendments to §115.3 relate to waivers from these requirements. Specifically, section 115.3 would also be amended to add new subparagraphs (c)(5)(A) and (c)(5)(B) to recognize and grant waivers of examination or reexamination requirements for certain classes of applicants who are participating in FINRA or NASAA continuing education programs and meet other requirements. FINRA established a voluntary program in 2022 (the Maintaining Qualifications Program or MQP) that allows eligible individuals whose FINRA registration has terminated to maintain their FINRA qualifications for up to five years by completing annual continuing education requirements and by paying an enrollment fee to FINRA to participate in the MQP. Individuals participating in the MQP are not required to either take or retake a qualification exam, as applicable, to become registered with FINRA. Similarly, NASAA's voluntary Exam Validity Extension Program (EVEP) provides an opportunity for registered persons to extend their NASAA qualifications exams for up to five years by participating in the EVEP and maintaining certain continuing education requirements. Since there are no specific waiver provisions in the rules for applicants participating in the EVEP or the MQP, applicants (in the MQP or EVEP, as applicable) requesting waivers from examination requirements must be individually approved by the Securities Commissioner. The amendments to add additional waivers in the rule would reduce the application processing time for these eligible applicants.

Section 115.3 would also be amended to add subparagraph (c)(5)(C) to recognize and grant waivers of examination requirements for applicants who have received an examination waiver from FINRA. Recognizing the FINRA waiver in the rule would reduce the processing time for these types of waivers, provide more transparency, and reflect the agency's current practice of granting waivers of this type on request. In addition, updates and revisions to the Texas securities law examination process would be made to subsection (d) to more accurately reflect this process, and to specifically direct applicants with questions about the process to the Registration Division for information. The amendment would also impose a one-week waiting period to retake the examination for applicants who failed the exam to provide and encourage more time to study prior to retaking the exam.

Section 115.8, which relates to fee requirements, would also be amended to remove an incorrect reference in subsection (a) to fees for officers and partners of a securities dealer, to update the reference to the agency's website, and to clarify that persons seeking information on fee requirements may contact the Registration Division of the agency.

Section 115.9 sets out events that a registered dealer or agent must report to the Securities Commissioner after registration. Paragraph (a)(3) would be amended to clarify that misdemeanor offense actions that are listed in §115.6(c) must be reported. Section 115.6(c) provides a list of misdemeanors that directly relate to the duties and responsibilities of dealers and agents. The Securities Commissioner may revoke or suspend the registration of a person who has been convicted of a misdemeanor offense that directly relates to the person's duties and responsibilities. In addition, paragraph (a)(6) would be amended to clarify that registered entities must notify the Commissioner of changes in legal status of their entities. Applicants for registration are required to include their legal status in their registration application on Form BD, such as a sole proprietorship, partnership, corporation, or limited liability company.

Section 115.10, which relates to supervisory requirements of dealers, would be amended to incorporate and recognize another new FINRA rule that has established a pilot program (Remote Inspections Pilot Program (RIPP)) that allows participating FINRA members to conduct remote internal inspections of certain locations, subject to specified terms. Existing subsection (c) which governs internal inspections of dealers, would be divided into two paragraphs, with new paragraph (c)(1) to include the language in existing subsection (c) with slight amendments and additions, and paragraph (c)(2) being new language that would address the RIPP and its participants. This change would clarify that dealers registered in Texas that are participating in this FINRA pilot program may comply with this section by conducting internal inspections of certain branch offices and other non-branch locations remotely instead of in person. The change would also clarify the rule by including references to applicable FINRA rules governing internal inspections in the proposed new paragraphs in subsection (c) that registered Texas dealers participating in the RIPP would be in compliance with §115.10(c) if they conduct their internal inspections programs in compliance with FINRA rules.

Section 115.11(a) would be amended to remind and inform finder applicants that finders by the definition set forth in §115.1(a)(9) are not permitted to register in other capacities. In addition, subsection (f) would be amended to correct a cross reference and to remove an outdated reference to filings being in paper form.

Section 115.21 would also be renamed to refer to the applicable section of the codified Act.

Section 115.22 would be revised to add a reference to finder registration in subsection (b) for clarification that finder applicants may submit documents electronically, and to remove an unneeded reference to dealers and agents in subsection (c).

New rule §115.24 would adopt by reference an SEC rule governing dealer conduct referred to as the SEC Regulation Best Interest (or Regulation BI). The new rule would also adopt by reference other fair practice, ethical standard, or conduct rules promulgated by FINRA, the SEC, the United States Commodity Futures Trading Commission (CFTC), or any self-regulatory organization approved by the SEC or the CFTC. Regulation Best Interest is an SEC rule governing conduct of FINRA member dealers and their associated persons, which went into effect on June 30, 2020. The rule established and standardized a "best interest" standard of conduct for dealers and their agents when recommending securities transactions or investment strategies to retail investors. Activities and practices that do not comply with the requirements of Regulation BI or the other conduct rules enumerated in the proposed rule, may constitute bases for denials, suspensions, or revocations of the registrations of dealers or agents. A related change would amend §115.5, concerning Minimum Records, to require additional related recordkeeping requirements to verify compliance with new rule §115.24. Since Regulation BI went into effect, agency staff have used this standard for guidance as to what conduct constitutes an inequitable practice under the Act involving retail investors of dealers or agents registered in Texas. The adoption of these proposals would also allow the Securities Commissioner the flexibility to assess administrative fines against violators of these requirements, which will further the Board's mission to protect Texas investors.

Travis J. Iles, Securities Commissioner; Cristi Ramón Ochoa, Deputy Securities Commissioner; Emily Diaz, Director, Registration Division; and Tommy Green, Director, Inspections and Compliance Division, have determined that for the first five-year period the proposed new rule and amendments are in effect, there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the proposed new rule and amendments. While the adoption of the amendment to the definition of "branch office" proposed in §115.1 may reduce the number of branch office filings made with the agency, there will be no fiscal implications to the agency, because there are no fees collected for branch office filings. In addition, while the proposed amendments to §115.3 would add additional waivers from current examination requirements, there will be no fiscal implications to the agency because applicants for registration will still need to pay application fees, whether or not examination requirements are waived.

Mr. Iles, Ms. Ochoa, Ms. Diaz, and Mr. Green have also determined that for each year of the first five years the proposed new rule and amendments are in effect, the public benefits expected as a result of adoption of the proposed new rule and amendments will be (1) greater coordination with other securities regulators (particularly with respect to proposed amendments to §§115.1, 115.3, and 115.10, and proposed new rule §115.24), and (2) dealers and agents will be apprised of their obligations under the Act. Additional public benefits include that (3) administrative burdens for firms will be reduced by recognizing RSLs and RIPPs which will reduce compliance costs, and (4) dealers will be notified of required content for their supervisory systems which will improve their ability to carry out their supervisory duties. Additionally, the proposed amendments to §115.3 will (5) reduce administrative burdens for eligible applicants; (6) facilitate internal processing of registration applications, and (7) allow examination waivers to be processed more quickly, uniformly, and with more transparency. In addition, (8) proposed new §115.24 would further apprise persons of the types of activities or practices which may result in the assessment of sanctions under the Act. Finally, the proposals will (9) ensure the rules are current and accurate and that they conform to the codified version of the Act, which would promote transparency and efficient regulation.

There will be no adverse economic effect on micro or small businesses or rural communities. Since the proposed new rule and amendments will have no adverse economic effect on micro or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the new rule and amendments as proposed. Although applicants for agent registration incur costs to participate in the MQP and EVEP programs (which are paid to FINRA or NASAA) that would be recognized in proposed amendments to §115.3, participation in these programs is optional and not required for registration under the rules. There is no anticipated impact on local employment.

Mr. Iles, Ms. Ochoa, Ms. Diaz, and Mr. Green have also determined that for the first five-year period the proposed new rule and amendments are in effect: they do not create or eliminate a government program; they do not require the creation or elimination of existing employee positions; they do not require an increase or decrease in future legislative appropriations to this agency; they do not require an increase or decrease in fees paid to this agency; they do not increase or decrease the number of individuals subject to the rules' applicability; and they do not positively or negatively affect the state's economy. Additionally, the proposed amendments do not create a new regulation, or expand, limit, or repeal an existing regulation. The proposed amendments to §115.3 would add additional waivers from current examination requirements, which will reduce administrative burdens on eligible applicants for registration. The proposed amendments to 115.10 would provide clarity and harmonize the supervision with FINRA requirements and replace the current requirements with more flexible requirements.

Additionally, although proposed new §115.24 would create a new rule, the new rule would merely act to describe and formalize into a rule the types of conduct that are already considered to be inequitable practices under the Texas Securities Act. The new rule would not create any new obligations under the Act or make new types of conduct actionable under the Act that are currently not a violation of the Act.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed sections in the Texas Register. Written comments should be submitted to Cheryn Netz, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The new rule and amendments are proposed under the authority of Texas Government Code (TGC), §4002.151, as adopted by HB 4171. Section 4002.151 of the Act provides the Board with the authority to adopt rules as necessary to implement the provisions of the Act, including rules governing registration statements, applications, notices, and reports; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. In addition, the amendments to §115.3 are also proposed under the authority of TGC, §4004.151. Section 4004.151 of the Act provides the Board with authority to waive examination requirements for any applicant or class of applicants.

The proposed amendments to §§115.1 - 115.3, 115.9 - 115.11, and 115.22 affect the following sections of the Act: Texas Government Code (TGC) Chapter 4004, Subchapters A - D, and F - G. The proposed amendment to §115.21 affects Chapter 4004, Subchapter H of the Act. The proposed amendment to §115.22 also affects TGC §4006.001 of the Act. The proposed amendment to §115.1 also affects TGC §4007.052 of the Act. The proposed amendments to §115.5 and §115.21 and proposed new rule §115.24 affect TGC §4007.105. Finally, the proposed amendment to §115.5 and proposed new rule §115.24 also affect TGC §4007.106. Statutes affected by proposed amendments to §§115.4, 115.8, and 115.16: none.

§115.1.General Provisions.

(a) Definitions. Words and terms used in this chapter are also defined in §107.2 of this title (relating to Definitions). The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) (No change.)

(2) Branch office--Any location where one or more agents of a dealer regularly conduct the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of, any security, or that is held out as such.

(A) This definition excludes:

(i) - (vii) (No change.)

(viii) a location identified and designated with FINRA by the registered dealer as a residential supervisory location (RSL) in accordance with FINRA Rule 3110.19, and which location has been provided to FINRA in accordance with FINRA Rule 3110.19(d).

(B) Notwithstanding the exclusions in subparagraph (A) of this paragraph, any location other than an RSL that meets the requirements of §115.1(a)(2)(A)(viii) that is responsible for supervising the activities of persons associated with the dealer at one or more non-branch locations of the dealer is considered to be a branch office.

(3) - (4) (No change.)

(5) In this state--As used in the Texas Securities Act, §§4001.052, 4001.056, 4004.051, and 4004.101 [~~§12~~], has the same meaning as the term "within this state" as defined in §107.2 of this title [~~(relating to Definitions)~~] and paragraph (8) of this subsection.

(6) - (7) (No change.)

(8) Within this state or in this state--

(A) A person is a "dealer" who engages "within this state" or "in this state" in one or more of the activities set out in the Texas Securities Act, §4001.056 or §4004.051 [~~§4.C~~], if either the person or the person's agent is present in this state or the offeree/purchaser or the offeree/purchaser's agent is present in this state at the time of the particular activity. A person can be a dealer in more than one state at the same time.

(B) Likewise, a person is an "agent" who engages "within this state" or "in this state" in one or more of the activities set out in the Texas Securities Act, §4001.052 or §4004.101 [~~§4.D~~], whether by direct act or through subagents except as otherwise provided, if either the person or the person's agent is present in this state or the offeree/purchaser or the offeree/purchaser's agent is present in this state at the time of the particular activity. A person can be an agent in more than one state at the same time.

(9) - (10) (No change.)

(b) Registration requirements of dealers, issuers, and agents, and notice filings for branch offices.

(1) (No change.)

(2) Persons not required to register as an agent.

(A) - (C) (No change.)

[(D) Persons not required to register with the Securities Commissioner pursuant to subparagraph (A) of this paragraph, are reminded that the Texas Securities Act prohibits fraud or fraudulent practices in dealing in any manner in any securities whether or not the person engaging in fraud or fraudulent practices is required to be registered. The Agency has jurisdiction to investigate and bring enforcement actions to the full extent authorized in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct by a dealer or agent in connection with transactions involving securities in Texas.]

(1) (No change.)

(2) Restricted registration. The restricted registrations are as follows:

(A) The Securities Commissioner recognizes the specialized knowledge examinations administered by FINRA as restricted registration categories. The registration of an applicant passing a specialized knowledge examination in lieu of the general securities examination pursuant to §115.3(b) of this chapter [~~title~~] (relating to Examination [~~Examinations~~]) is restricted to and effective only for conducting the business and securities activities and effecting transactions associated with the specialized examination.

(B) (No change.)

(3) (No change.)

(d) Prohibition on fraud and availability of an exemption from registration. The Texas Securities Act prohibits fraud or fraudulent practices in dealing in any manner in any securities whether or not the person engaging in fraud or fraudulent practices is required to be registered. The Agency has jurisdiction to investigate and bring enforcement actions to the full extent authorized in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct by a dealer or agent in connection with transactions involving securities in Texas. However, the registration requirements detailed in this chapter do not apply to dealers and agents that are exempt from registration as such pursuant to the Texas Securities Act, Chapter 4005, Subchapter A [§5], or by Board rule pursuant to the Texas Securities Act, §4004.001 or §4005.024 [~~§5.T or §12.C~~], contained in Chapter 109 or 139 of this title.

§115.2.Application Requirements.

(a) Securities dealer application requirements. A complete application consists of the following [~~and must be filed in paper form with the Securities Commissioner~~]:

(1) items filed via the Central Registration Depository System (CRD) which is jointly operated by NASAA, the SEC, and FINRA, for FINRA member firms, or items filed either in paper form or as provided in §115.22 of this chapter (relating to Electronic Submission of Forms and Fees) for non-FINRA member firms, using the applicable uniform forms:

(A) Form BD;

(B) Form U-4 for the designated officer and a Form U-4 for each agent to be registered (officers of a corporation or partners of a partnership shall not be deemed agents solely because of their status as officers or partners); and

~~[(1) Form BD;]~~

(2) items filed with the Securities Commissioner either in paper form or as provided in §115.22 of this chapter:

(A) a copy of articles of incorporation, certificate of formation, partnership agreement, articles of association, trust agreement, or other documents which indicate the form of organization, certified by the appropriate jurisdiction or by an officer or partner of the applicant;

(B) a balance sheet prepared in accordance with United States generally accepted accounting principles reflecting the financial condition of the dealer as of a date not more than 90 days prior to the date of such filing. The balance sheet should be compiled, reviewed, or audited by independent certified public accountants or independent public accountants, or must instead be certified by the applicant's principal financial officer. If certified by the principal financial officer of the applicant, such officer shall make the certification on Form 133.18, Certification of Balance Sheet by Principal Financial Officer; and

(C) any other information deemed necessary by the Securities Commissioner to determine a dealer's financial responsibility or dealer's or agent's business repute or qualifications.

[(2) Form U-4 for the designated officer and a Form U-4 for each agent to be registered (officers of a corporation or partners of a partnership shall not be deemed agents solely because of their status as officers or partners);]

[(3) a copy of articles of incorporation, partnership agreement, articles of association, trust agreement, or other documents which indicate the form of organization, certified by the appropriate jurisdiction or by an officer or partner of the applicant;]

[(4) a balance sheet prepared in accordance with United States generally accepted accounting principles reflecting the financial condition of the dealer as of a date not more than 90 days prior to the date of such filing. The balance sheet should be compiled, reviewed, or audited by independent certified public accountants or independent public accountants, or must instead be certified by the applicant's principal financial officer. If certified by the principal financial officer of the applicant, such officer shall make the certification on Form 133.18, Certification of Balance Sheet by Principal Financial Officer.]

~~[(5) any other information deemed necessary by the Securities Commissioner to determine a dealer's financial responsibility or a dealer's or agent's business repute or qualifications; and]~~

~~[(6) the appropriate registration fee(s).]~~

(b) (No change.)

(1) A dealer may designate a branch office upon initial application of the dealer or by amendment to a current Form BR. No sales-related activity may occur in any branch office location until such time as the dealer has notified the Securities Commissioner that such location will function as a branch office by submitting Form BR on CRD for FINRA member firms. For non-FINRA member firms, the request is made by submitting Form BR [~~in paper form~~] to the Securities Commissioner.

(2) (No change.)

(3) Each branch office of a dealer that [~~who~~ ] is registered with the Securities Commissioner is subject to unannounced inspections at any time during normal business hours.

(d) Automatic withdrawal of a dealer or agent application for registration that has been pending for at least 90 days. If an application for dealer or agent registration has been pending for at least 90 days and the applicant has failed to substantively respond to a written request for information sent by either electronic mail or by certified mail to the applicant's address as set forth in the application, an automatic withdrawal will occur. The written request must have advised the applicant that if a substantive response is not received within 30 days from the date of the [~~certified~~ ] request, the application will be withdrawn automatically. Regardless of how long an application has been pending, it may not be withdrawn automatically without sending [~~certified~~] notice of this subsection to the address set forth in the application and allowing the applicant 30 calendar days from the date of the notice to provide a substantive written response. A copy of this subsection and the most recent written request for information will be included with the notice [~~certified letter~~].

(e) Central Registration Depository System (CRD).

(1) Whenever the Texas Securities Act or Board rules require the filing of an application with the Securities Commissioner for dealer or agent registration, members of FINRA or applicants for membership in FINRA shall make such filing electronically through [~~the~~] CRD [which is jointly operated by FINRA and the North American Securities Administrators Association, Inc. (NASAA). Applicants shall use the applicable uniform form for the submission of the filing in question and shall supplement their electronic filing by filing, in paper form, the items listed in paragraphs (3) - (6) of subsection (a)(3) - (6) of this section, directly with the Commissioner].

(2) (No change.)

§115.3.Examination.

(a) Requirement.

(1) To determine the applicant's qualifications and competency to engage in the business of dealing in and selling securities, the State Securities Board requires a written examination on general securities principles and on state securities law. Applicants must make a passing score, as determined by NASAA [~~the North American Securities Administrators Association~~], FINRA, or the Securities Commissioner, as appropriate, on any required examination.

(2) (No change.)

(b) Examinations accepted.

(1) - (3) (No change.)

(4) Each applicant must pass an examination on state securities law. This requirement may be satisfied by passing an examination on the Texas Securities Act administered by this Agency or by passing the NASAA Uniform Securities Agent State Law Examination (Series 63) or the NASAA Uniform Combined State Law Examination (Series 66).

(1) (No change.)

(2) A full waiver of the examination requirements of the Texas Securities Act, §4004.151 [~~§13.D~~], is granted by the Board to the following classes of persons:

(A) - (H) (No change.)

(3) A partial waiver of the examination requirements of the Texas Securities Act, §4004.151 [~~§13.D~~], is granted by the Board to the following classes of persons:

(A) applicants who have been continuously registered with the SEC [~~Securities and Exchange Commission~~], FINRA, or any other exchange listed in the Act, §4005.054 [~~§6.F~~], or recognized by the Board pursuant to §111.2 of this title (relating to Listed and Designated Securities) for 10 years immediately preceding the application for registration in Texas. These applicants are required to pass an examination on state securities law as required by subsection (b)(4) of this section;

(B) - (C) (No change.)

(D) applicants seeking registration for the purpose of dealing exclusively in oil and gas interests (other than interests in limited partnerships). Such persons are not required to take the general securities examination, but are required to pass an examination on state securities law as required by subsection (b)(4) of this section [~~. Provided, however, any persons registered prior to January 1, 1976, for the purpose of dealing exclusively in oil and gas interests, are not required to pass an examination~~]; and

(E) (No change.)

(4) The Securities Commissioner in his or her discretion is authorized by the Board to grant full or partial waivers of the examination requirements of the Texas Securities Act, §4004.151 [~~§13.D~~].

(5) The following classes of persons are granted a partial waiver by the Board of the examination requirements of §4004.151 of the Act and subsection (a)(1) of this section:

(A) NASAA Exam Validity Extension Program ("EVEP"). Applicants who previously took and passed an examination on state securities law as required by subsection (a)(1) of this section (State Law Requirement), whose registration with another state securities regulator has not lapsed for more than five years who have participated in the EVEP and have maintained compliance with the EVEP requirements are granted a waiver of the State Law Requirement.

(B) FINRA Maintaining Qualifications Program ("MQP").

(i) Applicants who previously took and passed an examination or examinations on general securities principles as required by subsection (a)(1) of this section (GSP Requirement), whose registration with FINRA and with another state securities regulator has not lapsed for more than five years who have participated in the MQP and have maintained compliance with the MQP requirements are granted a waiver of the GSP Requirement.

(ii) Applicants who previously took and passed an examination or examinations on one or more specialized knowledge examinations administered by FINRA as provided in subsection (b)(3) of this section, whose registration with FINRA and with another state securities regulator has not lapsed for more than five years who have participated in the MQP and have maintained compliance with the MQP requirements are granted a waiver of the requirements to pass the FINRA specialized knowledge examination(s) required to obtain the applicable restricted registration(s) as provided in subsection (b)(3) of this section.

(C) FINRA Examination Waivers. Applicants who have received a waiver of any examination requirement(s) by FINRA, including an examination on general securities principles, the SIE examination, or one or more specialized knowledge examinations administered by FINRA, are granted a waiver of the corresponding examination requirement(s) in this section.

(d) Texas securities law examination.

(1) The fee for each filing of a request to take the Texas securities law examination is $35. An admission letter issued by the Board is required for all entrants. The examination is given [~~at 9:00 a.m. on each Tuesday~~] at the main office of the State Securities Board in Austin and at the Agency's branch offices. [The examination may be taken at other locations near principal population centers across the state. Testing centers require reservations and may charge an additional (monitor) fee for administering the examination. A list of examination centers with additional details may be obtained from the State Securities Board.]

(2) (No change.)

(3) Reexamination. An applicant who fails the examination on the Texas Securities Act may request to retake the examination no sooner than after one week from the date of the examination [~~reexamination~~]. The applicant must bring his or her application up to date before retaking an examination.

(4) (No change.)

(5) Information about taking the examination and how to apply to take the examination in Austin or at an Agency branch office is available on the Agency's website located at www.ssb.texas.gov or by contacting the Registration Division of the State Securities Board.

§115.4.Evidences of Registration.

(a) (No change.)

(b) Amendments. Any changes in the information reflected on the evidence of registration must be submitted to the Securities Commissioner within 30 days of such change. An amendment fee, in the amount set forth in the Texas Securities Act, §4006.054 [~~§35~~], is required to amend the evidence of registration.

(e) Renewal.

(1) Procedures for renewing expired and unexpired registrations are set forth in the Texas Securities Act, Chapter 4004, Subchapter F [~~§19.C~~].

(2) - (3) (No change.)

§115.5.Minimum Records.

(a) Dealer records. Compliance with the record-keeping requirements of the United States SEC [~~Securities and Exchange Commission~~], found in 17 Code of Federal Regulations §240.17a-3 and §240.17a-4 (17 CFR §240.17a-3 and §240.17a-4, as amended), will satisfy the requirements of this section.

(b) Records to be made by certain dealers. A person or company registered in Texas as a securities dealer shall make and keep current the following minimum records or the equivalent thereof.

(1) - (11) (No change.)

(12) A record listing of every agent of the dealer that shows, for each agent, every office of the dealer where the agent regularly conducts the business of handling funds or securities or effecting any transaction in, or inducing or attempting to induce the purchase or sale of any security for the dealer, and the CRD [~~Central Registration Depository~~] number, if any, and every internal identification number or code assigned to that agent by the dealer.

(13) For each account with a natural person as a customer or owner:

(A) An account record including the customer's or owner's name, tax identification number, address, telephone number, date of birth, employment status (including occupation and whether the customer is an agent of a dealer), annual income, net worth (excluding value of primary residence), and the account's investment objectives. In the case of a joint account, the account record must include personal information for each joint owner who is a natural person; however, financial information for the individual joint owners may be combined. The account record shall indicate whether it has been signed by the agent responsible for the account, if any, and approved or accepted by a supervisor of the dealer. [~~For accounts in existence on the effective date of this section, the dealer must obtain this information within three years of May 2, 2003.~~]

(B) A record indicating that:

(i) The dealer has furnished to each customer or owner within [~~three years of May 2, 2003, and to each customer or owner who opened an account after May 2, 2003 within~~] 30 days of the opening of the account, and thereafter at intervals no greater than 36 months, a copy of the account record or an alternate document with all information required by subparagraph (A) of this paragraph. The dealer may elect to send this notification with the next statement mailed to the customer or owner after the opening of the account. The dealer may choose to exclude any tax identification number and date of birth from the account record or alternate document furnished to the customer or owner. The dealer shall include with the account record or alternate document provided to each customer or owner an explanation of any terms regarding investment objectives. The account record or alternate document furnished to the customer or owner shall include or be accompanied by prominent statements that the customer or owner should mark any corrections and return the account record or alternate document to the dealer, and that the customer or owner should notify the dealer of any future changes to information contained in the account record.

(ii) - (iii) (No change.)

(14) - (18) (No change.)

(1) A dealer is not required to make or keep such records of transactions cleared for such dealer by a member of FINRA, the American Stock Exchange, the Boston Stock Exchange, the Chicago Stock Exchange, the Pacific Stock Exchange, the Chicago Board Options Exchange, or any other recognized and responsible stock exchange approved by the Securities Commissioner pursuant to the Texas Securities Act, Chapter 4005, Subchapter C [~~§6.F~~], where such records are customarily made and kept by the clearing member.

(2) - (4) (No change.)

(d) (No change.)

(e) Records to be preserved by dealers.

(1) - (4) (No change.)

(5) Persons registered as dealers in Texas shall preserve for at least three years after the termination of the enterprise partnership articles and any amendments thereto, articles of incorporation, certificates of formation, charters, minute books, and stock certificate books of the dealer and of any predecessor, all Forms BD, all Forms BDW, all amendments to these forms, all licenses or other documentation showing the registration of the dealer with any securities regulatory authority.

(6) - (9) (No change.)

(f) - (g) (No change.)

(h) SEC Regulation Best Interest Records. In addition to the requirements in this section, a person or company registered in Texas as a securities dealer shall make and keep appropriate books and records to document compliance with the obligations set forth in SEC Regulation Best Interest (17 CFR §240.15l-1, as amended), including all records described in SEC Rule §240.17a-3(a)(35), and shall preserve the records required to be preserved by SEC Rule §240.17a-4(e)(5) for a period of not less than six years after the earlier of the date the account was closed or the date in which the information was collected, provided, replaced, or updated.

§115.6.Registration of Persons with Criminal Backgrounds.

(a) - (f) (No change.)

(g) State Auditor Applicant Best Practices Guide.

(1) The State Securities Board provides [~~shall post~~] a link on its website to the Applicant Best Practices Guide, which is [~~to be developed and~~] published by the state auditor as required by Texas Occupations Code, §53.026. This guide[~~, which shall be posted once it becomes available, shall set~~] sets forth best practices for an applicant with a prior conviction to use when applying for a license.

(2) (No change.)

§115.8.Fee Requirements.

(a) Registration and notice filing fees. Information about registration and notice filing fees for original and renewal applications for dealers and agents are [~~dealer, agents, officers, or partners of a securities dealer is~~] available on the Agency's website [~~web site~~] located at www.ssb.texas.gov [~~www.ssb.state.tx.us~~] or by contacting the Registration Division [~~an office~~] of the State Securities Board.

(b) Reduced fees for certain persons registered in multiple capacities.

(1) - (2) (No change.)

(3) Reduced fees. If the Securities Commissioner grants a person's request, the person must pay all applicable fees for securities agent or dealer registration as specified in the Texas Securities Act, §4006.001 [~~§35.A~~], but is exempt from the fees specified in the Texas Securities Act, §4006.001 [~~§35.A~~], in connection with original and renewal applications for investment adviser representative or sole proprietor investment adviser registration, as applicable at the time Form 133.36 is filed. The reduction in fees granted by the Securities Commissioner under this subsection shall continue in force, without any further filings, as long as a person remains registered in a multiple capacity status.

(d) Fees for concurrent registrations. Notwithstanding the Texas Securities Act, Chapter 4006 [~~§35~~], a person shall pay only one fee required under that section to engage in business in this state concurrently for the same person or company as:

(1) - (2) (No change.)

(e) (No change.)

§115.9.Post-Registration Reporting Requirements.

(a) Each person registered as a securities dealer shall report to the Securities Commissioner within 30 days after its occurrence or entry against the registered person or an agent thereof, the matters described in this subsection. Likewise, each person registered as an agent of a securities dealer shall report to the Commissioner within 30 days after its occurrence or entry against the agent the matters described in this subsection. The following matters must be reported:

(1) - (2) (No change.)

(3) any [~~misdemeanor~~] action or conviction of a misdemeanor offense that directly relates to the person's duties and responsibilities as a dealer or agent, including any criminal violation listed in §115.6(c) of this chapter (relating to Registration of Persons with Criminal Backgrounds) [~~based on fraud, deceit, or wrongful taking of property~~];

(4) - (5) (No change.)

(6) any change in any other information previously disclosed to the Securities Commissioner on any application form or filing, including change of legal status; and

(7) (No change.)

(b) - (c) (No change.)

§115.10.Supervisory Requirements.

(a) - (b) (No change.)

(c) Internal inspections. [Each dealer shall conduct a review, at least annually, of the businesses in which it engages, which review shall be reasonably designed to assist in detecting and preventing violations of and achieving compliance with applicable securities laws and regulations. The dealer shall document this review and provide the documentation to the Securities Commissioner upon request. Each dealer shall review the activities of each office, including the periodic examination of customer accounts to detect and prevent violations of applicable securities laws and regulations. Each branch office of the dealer shall be inspected according to a cycle which shall be set forth in the dealer's written supervisory and inspection procedures. In establishing such cycle, the dealer shall give consideration to the nature and complexity of the securities activities for which the location is responsible, the volume of business done, and the number of associated persons assigned to the location. Each dealer shall retain a written record of the dates upon which each review and internal inspection is conducted.]

(1) Each dealer shall conduct a review, at least annually or to be conducted within the timeframes in accordance with and as required by FINRA Rule 3110(c), of the businesses in which it engages, which review of locations shall be reasonably designed to assist in detecting and preventing violations of and achieving compliance with applicable securities laws and regulations. The dealer shall document this review and provide the documentation to the Securities Commissioner upon request. Each dealer shall review the activities of each office or location in accordance with and as required by FINRA Rule 3110(c), including the periodic examination of customer accounts to detect and prevent violations of applicable securities laws and regulations. Each branch office of the dealer shall be inspected according to a cycle which shall be set forth in the dealer's written supervisory and inspection procedures and in compliance with and as required by FINRA Rule 3110(c). In establishing such cycle, the dealer shall give consideration to the nature and complexity of the securities activities for which the location is responsible, the volume of business done, and the number of associated persons assigned to the location. Each dealer shall retain a written record of the dates upon which each review and internal inspection is conducted.

(2) For purposes of this subsection, registered dealers that have notified FINRA of their participation in the FINRA remote inspections pilot program established by FINRA Rule 3110.18, or any successor program established by FINRA, and which are in compliance with the requirements of FINRA Rule 3110.18 or successor program will satisfy the requirements of this subsection, provided however, that if a dealer or one or more of its locations becomes ineligible to participate in the program, the dealer must comply with the applicable requirements set forth in paragraph (1) of this subsection.

(d) (No change.)

§115.11.Finder Registration and Activities.

(a) Prohibited activities. A finder is not permitted to register in any other capacity and shall not:

(1) - (7) (No change.)

(b) - (e) (No change.)

(f) Filings.

(1) Application. In lieu of the application requirements listed in §115.2 of this chapter [~~title~~] (relating to Application Requirements), a complete application for a finder consists of the following and must be filed [~~in paper form~~] with the Securities Commissioner:

(A) - (D) (No change.)

(2) (No change.)

§115.16.Use of Senior-Specific Certifications and Professional Designations.

(a) The use of a senior specific certification or designation by any person 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 shall be an inequitable practice within the meaning of the Texas Securities Act, §4007.105(a)(3) [~~§14.A(3)~~]. The prohibited use of such certifications or professional designation includes, but is not limited to, the following:

(1) - (4) (No change.)

(b) - (f) (No change.)

§115.21.System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Chapter 4004, Subchapter H [~~Section 45~~].

(a) System. Each dealer shall establish, maintain, and enforce a written system of policies, programs, plans, or procedures to address suspected financial exploitation of vulnerable adults. The system must be reasonably designed to achieve compliance with the Texas Securities Act, Chapter 4004, Subchapter H [~~Section 45~~].

(b) Reporting. The report of suspected financial exploitation (complaint) required by the Texas Securities Act, §4004.352 [~~Section 45.C~~], must be made in writing to the Securities Commissioner. The complaint may be in the form of a letter or memorandum and submitted electronically, by facsimile, or any other method designed to assure its prompt receipt. A template for submitting the required information is available on the website of the Texas State Securities Board. The complaint shall include:

(1) - (5) (No change.)

§115.22.Electronic Submission of Forms and Fees.

(a) (No change.)

(b) Documents and fees submitted by applicants for finder registration or for dealer and agent registration may, at the option of the filer, be submitted electronically to the Securities Commissioner.

(c) Filings made and fees paid [~~by dealers and agents~~] may be submitted electronically, as the Agency's system is developed to accept them.

(d) (No change.)

§115.24.Adoption by Reference of Conduct Rules.

(a) Each dealer or agent, as defined by §4001.052 or §4001.056 of the Securities Act, when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, shall act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interests of the dealer or agent making the recommendation ahead of the interest(s) of the retail customer. The best interest obligation shall be satisfied if the dealer or agent complies with the obligations set forth in SEC Regulation Best Interest (17 CFR §240.15l-1, as amended).

(b) Each dealer or agent shall also comply with any other applicable fair practice or ethical standard rule that is promulgated by FINRA, the SEC, the Commodity Futures Trading Commission (CFTC), or any self-regulatory organization approved by the SEC or the CFTC.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2024.

TRD-202405045

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: December 8, 2024

For further information, please call: (512) 305-8303

CHAPTER 116. INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES

7 TAC §§116.1 - 116.6, 116.8, 116.9, 116.15, 116.16, 116.21

The Texas State Securities Board proposes amendments to eleven rules in Chapter 116. Specifically, the Board proposes amendments to §116.1, concerning General Provisions; §116.2, concerning Application Requirements; §116.3, concerning Examination; §116.4, concerning Evidences of Registration; §116.5, concerning Minimum Records; §116.6, concerning Registration of Persons with Criminal Backgrounds; §116.8, concerning Fee Requirements; §116.9, concerning Post-Registration Reporting Requirements; §116.15, concerning Advertising Restrictions; §116.16, concerning Use of Senior-Specific Certifications and Professional Designations; and §116.21, concerning System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Section 45.

The rules in 7 TAC Chapter 116 govern investment advisers and investment adviser representatives. The purpose of the proposed rule changes to this chapter is to implement changes pursuant to the agency's periodic review of its rules.

The references to sections of the Texas Securities Act (Act) in §§116.1, 116.3, 116.4, 116.8, 116.16, and 116.21 would be updated to refer to the correct sections in the codified version of the Act in the Texas Government Code. The codification was adopted by HB 4171, 86th Legislature, 2019 Regular Session, and became effective January 1, 2022, (HB 4171).

Sections 116.1 and 116.2 would also be amended to replace the references in those sections to the term "Securities and Exchange Commission" with the term "SEC." SEC is a defined term in §107.2, concerning Definitions.

Section 116.1 would also be amended to add references to "solicitor" in subsection (b) for clarification and to delete redundant language in subparagraph (b)(2)(D) that is also contained in subsection (d). A reference to the Form U4 would be added to subparagraph (b)(2)(C) for accuracy and consistency, and a reference to "notice filed" with the Securities Commissioner would be added for clarity and accuracy.

Section 116.2 would also be amended to replace the reference to "North American Securities Administrators Association" with the term "NASAA" in paragraph (a)(1). NASAA is a defined term in §107.2, concerning Definitions. Subsection (a) would also be amended to abbreviate Financial Industry Regulator Authority to "FINRA," which is a defined term in §107.2, concerning Definitions. In addition, paragraph (b)(1) would be amended to update the names of two NASAA examinations.

A cross reference to §116.22 would be added to §116.2 to improve consistency and readability of provisions governing application requirements. Subsection (d) would be amended to allow the agency registration staff the option to notify applicants by email (which is a faster and more reliable delivery method) rather than by certified mail of automatic withdrawal of applications that have been pending for more than 90 days. References to "certificate of formation" which is the name of the form used by the Texas Secretary of State for formation documents filed with it, would also be added to the respective lists of formation of organization documents (including articles of incorporation, partnership agreements, articles of association, and charters) found in §116.2(a)(2)(A), as well as in §116.5(b)(3), for clarity and to improve accuracy.

Generally, applicants for registration are required to have passed various qualification examinations to become registered. Additional proposed amendments to §116.3 relate to waivers from these requirements. Section 116.3(b)(2) would also be amended to reflect that the Form U-10 is no longer in use by FINRA. In addition, §116.3 would also be amended to add new subparagraphs (c)(3)(A) and (c)(5)(B) to recognize and grant waivers of examination or reexamination requirements for certain classes of applicants who are participating in FINRA or NASAA continuing education programs and who meet other requirements. FINRA established a voluntary program in 2022 (the Maintaining Qualifications Program or MQP) that allows eligible individuals whose FINRA registration has terminated to maintain their FINRA qualifications for up to five years by completing annual continuing education requirements and by paying an enrollment fee to FINRA to participate in the MQP. Individuals participating in the MQP are not required to either take or retake a qualification exam, as applicable, to become registered with FINRA. Similarly, NASAA's voluntary Exam Validity Extension Program (EVEP) provides an opportunity for registered persons to extend their NASAA qualifications exams for up to five years by participating in the EVEP and maintaining certain continuing education requirements. Since there are no specific waiver provisions in the rules for applicants participating in the EVEP or the MQP, these requests for waivers from examination requirements must be individually approved by the Securities Commissioner. The amendments to add additional waivers in the rule would reduce the application processing time for these eligible applicants.

Section 116.3 would also be amended to add subparagraph (c)(3)(C) to recognize and grant waivers of examination requirements for applicants who have received an examination waiver from FINRA. Recognizing the FINRA waiver in the rule would reduce the processing time for these types of waivers, provide more transparency, and reflect the agency's current practice of granting waivers of this type on request. In addition, updates and revisions to the Texas securities law examination process would be made to subsection (d) to more accurately reflect this process, and to specifically direct applicants with questions about the process to the Registration Division for information. The amendment would also impose a one-week waiting period to retake the examination for applicants who failed the exam to provide and encourage more time to study prior to retaking the exam.

Section 116.3 includes certain waivers from examination requirements for investment adviser applicants who have one or more of five different professional designations found in subparagraphs (c)(2)(B) - (F). The rule also requires these organizations to submit changes in their certification programs to the Securities Commissioner. The section would be amended in paragraph (c)(3) to remove this requirement which is no longer needed because a NASAA project group which monitors these programs has assumed this responsibility. This group, which maintains a list of eligible professional designations, has recently replaced a designation which is no longer active with a new eligible designation. In light of this change the section would also be amended in subparagraph (c)(2)(E) to replace the reference to the inactive "CIC" designation with the new "CIMA" designation and update the reference to another designation located in subparagraph (c)(2)(F).

Section 116.8, which relates to fee requirements, would also be amended to remove an incorrect reference in subsection (a) to fees for officers and partners of an investment adviser, to update the reference to the agency's website, and to clarify that persons seeking information on fee requirements may contact the Registration Division of the agency.

Section 116.9 sets out events that a registered investment adviser or investment adviser representative must report to the Securities Commissioner after registration. Paragraph (a)(3) would be amended to clarify that misdemeanor offense actions that are listed in §116.6(c) must be reported. Section 116.6(c) provides a list of misdemeanors that directly relate to the duties and responsibilities of investment advisers and investment adviser representatives. The Securities Commissioner may revoke or suspend the registration of a person who has been convicted of a misdemeanor offense that directly relates to the person's duties and responsibilities. In addition, paragraph (a)(6) would be amended to clarify that registered entities must notify the Commissioner of changes in legal status of their entities. Applicants for registration are required to include their legal status in their registration application on Form ADV, such as a sole proprietorship, partnership, corporation, or limited liability company.

Section 116.15, which was last amended in 2001, prohibits investment advisers registered in Texas from using testimonials in their advertisements and includes other advertising restrictions, mirroring (but not adopting by reference) SEC rules governing advertising that were in effect when the rule was adopted. The SEC Marketing Rule, which regulates how investment advisers registered with the SEC (SEC RIAs) may advertise their services, was amended in 2020, with a final compliance date of November 4, 2022. The change represented a broad, sweeping change in how the SEC regulates direct and indirect advertising and marketing activities of SEC RIAs, including the SEC RIAs doing business in Texas. The SEC rules have always prohibited advertising practices that are untrue, misleading, or deceptive. The new SEC rules relax prohibitions on certain types of practices, now allowing among other things, the use of endorsements or testimonials with certain safeguards. It also provides clearer guidelines concerning permitted marketing practices and increases disclosure requirements to investors, which improves investor confidence and transparency.

During the rule review of Chapter 116 the agency received two comment letters from the regulated industry requesting that §116.15 be amended to remove the current advertising restrictions in the section and instead harmonize it with the more flexible SEC Marketing Rule. The staff and Board agreed with the comments. In response, this section would be renamed and amended to adopt by reference the current SEC rules concerning marketing practices, while removing the existing regulatory restrictions in that section. This proposal if adopted would put advisers registered in Texas on a more level playing field with the SEC RIAs doing business in Texas because they would have the option to use testimonials and endorsements in their marketing and advertising as long as they otherwise comply with other applicable rules in Chapter 116. It would also conform rules relating to marketing practices to model rules which adopt the SEC advertising rules by reference which have been adopted by other state securities regulators. The proposal however would not change the registration requirements applicable to solicitors set forth in §116.1(b)(A).

A related proposal would amend the investment adviser recordkeeping requirements in §116.5 to require investment advisers to create and keep records to verify compliance with SEC Marketing Rule requirements.

The proposals to amend §116.15 and §116.5 would further the mission of the Board and the purposes of the Act by maximizing coordination with federal and other states' securities laws and administration by harmonizing the Board rules with SEC rules so that the same advertising rules would be applicable under the Act as well as SEC rules. The proposal would also further the Board's mission and Act's purposes to minimize regulatory burdens on Texas investment advisers, while ensuring that investors are adequately protected by ensuring they can make informed decisions.

Section 116.21 would also be renamed to refer to the applicable section of the codified Act.

Mr. Iles, Ms. Ochoa, Ms. Diaz, and Mr. Green have also determined that for each year of the first five years the proposed amendments are in effect, the public benefits expected as a result of adoption of the proposed amendments will be (1) greater coordination with other securities regulators (particularly with respect to proposed amendments to §116.3 and §116.15); and (2) investment advisers and investment adviser representatives will be apprised of their obligations under the Act. Additionally, the proposed amendments to §116.3 will (3) reduce administrative burdens for eligible applicants; (4) facilitate internal processing of registration applications; and (5) allow examination waivers to be processed more quickly, uniformly, and with more transparency. Additional public benefits with respect to proposed amendments to §116.15 include (6) clearer guidelines for advisers concerning permitted marketing practices; and (7) increased disclosure requirements to investors, which improves investor confidence and transparency. Finally, the proposals will (8) ensure the rules are current and accurate and that they conform to the codified version of the Act, which would promote transparency and efficient regulation.

There will be no adverse economic effect on micro or small businesses or rural communities. Since the proposed amendments will have no adverse economic effect on micro or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the amendments as proposed. Although applicants for investment adviser registration incur costs to participate in the MQP and EVEP programs (which are paid to FINRA or NASAA) that would be recognized in proposed amendments to §116.3, participation in these programs is optional and not required for registration under the rules. In addition, although investment advisers would be permitted to use certain marketing practices in the proposed amendment to §116.15, if adopted, the use of such expanded marketing practices that would be permitted is optional and not required for registration under the rules. There is no anticipated impact on local employment.

Mr. Iles, Ms. Ochoa, Ms. Diaz, and Mr. Green have also determined that for the first five-year period the proposed amendments are in effect: they do not create or eliminate a government program; they do not require the creation or elimination of existing employee positions; they do not require an increase or decrease in future legislative appropriations to this agency; they do not require an increase or decrease in fees paid to this agency; they do not increase or decrease the number of individuals subject to the rules' applicability; and they do not positively or negatively affect the state's economy. Additionally, the proposed amendments do not create a new regulation, or expand, limit, or repeal an existing regulation. The proposed amendments to §116.3 would add additional waivers from current examination requirements, which will reduce administrative burdens on eligible applicants for registration. Additionally the proposed amendment to §116.15 would remove existing regulatory restrictions on marketing and advertising and replace them with more flexible regulatory guidelines.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed sections in the Texas Register. Written comments should be submitted to Cheryn Netz, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendments are proposed under the authority of the Texas Government Code (TGC), §4002.151, as adopted by HB 4171. Section 4002.151 provides the Board with the authority to adopt rules as necessary to implement the provisions of the Act, including rules governing registration statements, applications, notices, and reports; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. In addition, the amendments to §116.3 are also proposed under the authority of TGC, §4004.151 of the Act. Section 4004.151 provides the Board with authority to waive examination requirements for any applicant or class of applicants. Finally, the amendments to §116.1 are also proposed under the authority of TGC, §4004.001 of the Act. Section 4004.001 provides the Board with the authority to prescribe new dealer, agent, investment adviser, or investment adviser representative registration exemptions by rule.

The proposed amendments affect the following sections of the Texas Securities Act: TGC Chapter 4004, Subchapters B - F, and H. The proposed amendments to §§116.1, 116.2, 116.4, 116.5, 116.9, 116.15, and 116.16 also affect TGC Chapter 4007, Subchapter B of the Act. The proposed amendments to §§116.1, 116.5, 116.9, 116.15, and 116.16 also affect TGC §4007.105 and §4007.106 of the Act.

§116.1.General Provisions.

(1) - (4) (No change.)

(5) In this state--

(A) A person renders services as an investment adviser "in this state" as set out in the Texas Securities Act, §4004.052 [~~§12.B~~], if either the person or the person's agent is present in this state or the client/customer or the client/customer's agent is present in this state at the time of the particular activity. A person can be an investment adviser in more than one state at the same time.

(B) Likewise, a person renders services as an investment adviser representative "in this state" as set out in the Texas Securities Act, §4004.102 [~~§12.B~~], whether by direct act or through subagents except as otherwise provided, if either the person or the person's agent is present in this state or the client/customer or the client/customer's agent is present in this state at the time of the particular activity. A person can be an investment adviser representative in more than one state at the same time.

(6) - (10) (No change.)

(11) Registered investment adviser--An investment adviser who has been issued a registration certificate by the Securities Commissioner under the Texas Securities Act, §4004.054 [~~§15~~]. (A federal covered investment adviser is not prohibited from being registered with the Securities Commissioner. If a federal covered investment adviser elects to register with the Securities Commissioner, it is subject to all of the registration requirements of the Act.)

(12) (No change.)

(b) Registration of investment advisers and investment adviser representatives, and notice filings for branch offices.

(1) (No change.)

(2) Exemption from the registration requirements. The Board pursuant to the Texas Securities Act, §§4004.001 and 4005.024 [~~§§12.C and 5.T~~], exempts from the registration provisions of the Act, §§4004.052 and 4004.102 [~~§12~~], persons not required to register as an investment adviser or an investment adviser representative on or after July 8, 1997, by act of Congress in Public Law Number 104-290, Title III.

(A) Registration as an investment adviser is not required for the following:

(i) (No change.)

(ii) an investment adviser registered with the SEC [~~Securities and Exchange Commission~~] pursuant to a rule or order adopted under the Investment Advisers Act of 1940, §203A(c);

(iii) - (iv) (No change.)

(B) (No change.)

(C) Notice filing requirements and fees for investment advisers and investment adviser representatives, including solicitors, exempted from registration pursuant to this subsection only.

(i) Initially, the provisions of subparagraphs (A) and (B) of this paragraph are available provided that the investment adviser files:

(I) Form ADV and Form U-4 for each individual to be notice filed as an investment adviser representative or solicitor through the IARD designating Texas as a jurisdiction in which the filing is to be made; and

(II) an initial fee equal to the amount that would have been paid had the investment adviser and each investment adviser representative or solicitor filed for registration in Texas.

(ii) Annually, the investment adviser files renewal fees which would have been paid had the investment adviser and each investment adviser representative or solicitor been registered in Texas.

[(D) Persons not required to register with the Securities Commissioner pursuant to subparagraphs (A) and (B) of this paragraph, are reminded that the Texas Securities Act prohibits fraud or fraudulent practices in dealing in any manner in any securities whether or not the person engaging in fraud or fraudulent practices is required to be registered. The Agency has jurisdiction to investigate and bring enforcement actions to the full extent authorized in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct by an investment adviser or investment adviser representative in connection with transactions involving securities in Texas.]

(d) Prohibition on fraud and availability of an exemption from registration. The Texas Securities Act prohibits fraud or fraudulent practices in dealing in any manner in any securities whether or not the person engaging in fraud or fraudulent practices is required to be registered or notice filed with the Securities Commissioner. The Agency has jurisdiction to investigate and bring enforcement actions to the full extent authorized in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct by an investment adviser or investment adviser representative in connection with transactions involving securities in Texas. However, the registration requirements detailed in this chapter do not apply to investment advisers and investment adviser representatives that are exempt from registration as such pursuant to the Texas Securities Act, Chapter 4005, Subchapter A [§5], or by Board rule pursuant to the Texas Securities Act, §4004.001 or §4005.024 [~~§5.T or §12.C~~], contained in Chapters 109 or 139 of this title.

§116.2.Application Requirements.

(a) Investment adviser and investment adviser representative application requirements. A complete application consists of the following:

(1) items filed electronically via the Investment Adviser Registration Depository (IARD), which is jointly operated by NASAA, the SEC, and FINRA, or items filed either in paper form or as provided in §116.22 of this chapter (relating to Electronic Submission of Forms and Fees) [~~the North American Securities Administrators Association, Inc. (NASAA), the Securities and Exchange Commission (SEC), and Financial Industry Regulatory Authority (FINRA)~~] using the applicable uniform forms:

(A) - (D) (No change.)

(2) items filed [~~in paper form~~] with the Securities Commissioner either in paper form or as provided in §116.22 of this chapter:

(A) a copy of articles of incorporation, certificate of formation, partnership agreement, articles of association, trust agreement, or other documents which indicate the form of organization, certified by the jurisdiction or by an officer or partner of the applicant;

(B) - (E) (No change.)

(b) (No change.)

(1) - (2) (No change.)

(3) Each branch office of an investment adviser that [~~who~~] is registered with the Commissioner is subject to unannounced inspections at any time during normal business hours.

(d) Automatic withdrawal of an investment adviser or investment adviser representative application for registration that has been pending for at least 90 days. If an application for investment adviser or investment adviser representative registration has been pending for at least 90 days and the applicant has failed to substantively respond to a written request for information sent by either electronic mail or by certified mail to the applicant's address as set forth in the application, an automatic withdrawal will occur. The written request must have advised the applicant that if a substantive response is not received within 30 days from the date of the [~~certified~~ ] request, the application will be withdrawn automatically. Regardless of how long an application has been pending, it may not be withdrawn automatically without sending [~~certified~~] notice of this subsection to the address set forth in the application and allowing the applicant 30 calendar days from the date of the notice to provide a substantive written response. A copy of this subsection and the most recent written request for information will be included with the notice [~~certified letter~~].

(e) (No change.)

§116.3.Examination.

(a) (No change.)

(b) Examinations accepted.

(1) Each applicant for registration as an investment adviser or investment adviser representative must pass:

(A) the NASAA Uniform Investment Adviser Law Examination (Series 65) [~~(the new entry level competency examination, Series 65, administered after December 31, 1999)~~]; or

(B) the following combination of examinations:

(i) (No change.)

(ii) the NASAA Uniform Combined State Law Examination (Series 66), the Uniform Investment Advisers State Law Examination (Series, 65, as it existed and was administered on or before December 31, 1999), or an examination of the Texas Securities Act Administered by this Agency.

(2) The [~~Each of these~~] examinations (except the Texas Securities Act examination) listed in paragraph (1) of this subsection are [is] administered by FINRA [~~and can be scheduled by submitting a Form U-10 to FINRA~~].

(1) (No change.)

(2) A full waiver of the examination requirements of the Texas Securities Act, §4004.151 [~~§13.D~~], is granted by the Board to the following classes of persons:

(A) - (D) (No change.)

(E) applicants who are designated by the Investment & Wealth Institute as Certified Investment Management Analysts ("CIMA") [~~Investment Adviser Association, or its predecessor, the Investment Counsel Association of America, Inc., as Chartered Investment Counselors (CIC)~~];

(F) applicants who are designated by the American College of Financial Services [~~, Bryn Mawr, Pennsylvania,~~] as chartered financial consultants (ChFC);

(G) - (H) (No change.)

(3) The following classes of persons are granted a partial waiver by the Board of the examination requirements of §4004.151 of the Act and subsection (a) of this section:

(A) NASAA Exam Validity Extension Program ("EVEP"). Applicants who previously took and passed the NASAA qualification examinations accepted in subsection (b) of this section whose registration with another state securities regulator has not lapsed for more than five years who have participated in the EVEP and have maintained compliance with the EVEP requirements are granted a waiver of the NASAA qualification examination requirements of this section.

(B) FINRA Maintaining Qualifications Program ("MQP"). Applicants whose registration with FINRA and with another state securities regulator have not lapsed for more than five years, who have participated in the MQP and maintained compliance with the MQP requirements are granted a waiver of the corresponding appropriate FINRA qualifying examinations requirement(s) in this section.

(C) FINRA Examination Waivers. Applicants who have received a waiver of any examination requirement(s) by FINRA, are granted a waiver of the corresponding examination requirement(s) in this section.

(D) Successful participation in the MQP shall not extend to the Series 65 or Series 66 for purposes of investment adviser representative registration.

[(3) The CFA Institute, the Certified Financial Planner Board of Standards, Inc., the American Institute of Certified Public Accountants, the American College, and the Investment Adviser Association are required to submit to the Securities Commissioner any changes to their certification programs as such changes occur.]

(4) A partial waiver of the examination requirements of the Texas Securities Act, §4004.151 [~~§13.D~~], is granted by the Board to solicitor applicants. Such persons are required to pass only an examination on state securities law.

(5) The Securities Commissioner in his or her discretion is authorized by the Board to grant full or partial waivers of the examination requirements of the Texas Securities Act, §4004.151 [~~§13.D~~].

(d) Texas securities law examination.

(2) (No change.)

(3) The passing score for all applicants on the examination on the Texas Securities Act is 70%. An applicant who fails the examination on the Texas Securities Act may request to retake the examination no sooner than after one week from the date of the examination [~~reexamination~~]. The applicant must bring his or her application up to date before retaking an examination.

(4) (No change.)

§116.4.Evidences of Registration.

(a) (No change.)

(1) Succession by application.

(A) If a succession results in a surviving entity that is not currently registered as an investment adviser, the successor entity must file a new application, including the fees, as required in §116.2 of this chapter [~~title~~] (relating to Application Requirements). Such a succession may include, but is not limited to, any of the following that results in either a change in control of the beneficial owners, or a change in management:

(i) - (iv) (No change.)

(B) - (C) (No change.)

(2) - (3) (No change.)

(d) (No change.)

(e) Renewal.

(1) Procedures for renewing expired and unexpired registrations are set forth in the Texas Securities Act, Chapter 4004, Subchapter F, and §4004.304 [~~§19.C and §12-1.C~~].

(2) - (3) (No change.)

§116.5.Minimum Records.

(a) Records to be made by investment advisers. Persons registered as investment advisers whose principal place of business is located in another state shall maintain records at least in accordance with the minimum record-keeping requirements of that state. Persons registered as investment advisers whose principal place of business is located in Texas shall make and keep current the following minimum records or the equivalent thereof:

(1) - (12) (No change.)

(13) a file containing all the information required to be retained pursuant to SEC Rule 204-2(a)(11) (17 CFR §275.204-2(a)(11), as amended).

(b) Records to be preserved by investment advisers.

(1) - (2) (No change.)

(3) Persons registered as investment advisers in Texas shall preserve for at least three years after the termination of the enterprise partnership articles and any amendments thereto, articles of incorporation, certificates of formation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor.

(4) - (5) (No change.)

§116.6.Registration of Persons with Criminal Backgrounds.

(a) - (f) (No change.)

(g) State Auditor Applicant Best Practices Guide.

(1) The State Securities Board provides [~~shall post~~] a link on its website to the Applicant Best Practices Guide, which is [~~to be developed and~~] published by the state auditor as required by Texas Occupations Code, §53.026. This guide sets [~~, which shall be posted once it becomes available, shall set~~] forth best practices for an applicant with a prior conviction to use when applying for a license.

(2) (No change.)

§116.8.Fee Requirements.

(a) Registration and notice filing fees. Information about registration and notice filing fees for original and renewal applications for investment adviser and investment adviser representatives [~~, officers, partners,~~] or solicitors of an investment adviser is available on the Agency's website [~~web site~~] located at www.ssb.texas.gov [~~www.ssb.state.tx.us~~ ] or by contacting the Registration Division [~~an office~~] of the State Securities Board.

(b) Reduced fees for certain persons registered in multiple capacities.

(1) - (2) (No change.)

(3) Reduced fees. If the Securities Commissioner grants a person's request, the person must pay all applicable fees for registration as a dealer or dealer's agent as specified in the Texas Securities Act, §4006.001 [~~§35.A~~], but is exempt from the fees specified in the Texas Securities Act, §4006.001 [~~§35.A~~], in connection with original and renewal applications for registration as an investment adviser representative or sole proprietor investment adviser, as applicable at the time Form 133.36 is filed. The reduction in fees granted by the Securities Commissioner under this subsection shall continue in force, without any further filings, as long as a person remains registered in a multiple capacity status.

(1) - (2) (No change.)

(e) (No change.)

§116.9.Post-Registration Reporting Requirements.

(a) Each person registered as an investment adviser shall report to the Securities Commissioner within 30 days after its occurrence or entry against the registered person or an investment adviser representative thereof, the matters described in this subsection. Likewise, each person registered as an investment adviser representative shall report to the Commissioner within 30 days after its occurrence or entry against the investment adviser representative the matters described in this subsection. The following matters must be reported:

(1) - (2) (No change.)

(3) any [~~misdemeanor~~] action or conviction of a misdemeanor offense that directly relates to the person's duties and responsibilities as an investment adviser or investment adviser representative, including any criminal violation listed in §116.6(c) of this chapter (relating to Registration of Persons with Criminal Backgrounds) [~~based on fraud, deceit, or wrongful taking of property~~];

(4) - (5) (No change.)

(6) any change in any other information previously disclosed to the Securities Commissioner on any application form or filing, including change of legal status; and

(7) (No change.)

(b) - (d) (No change.)

§116.15.Adoption by Reference of Investment Adviser Marketing Rules [~~Advertising Restrictions~~].

The antifraud provisions of the Texas Securities Act prohibit an investment adviser from using any advertisement that contains any untrue statement of material fact or that is otherwise misleading. The prohibition would include any notice, circular, letter, or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio, television, Internet, the World Wide Web, or similar proprietary or common carrier electronic systems, that offers any service as an investment adviser. Specifically, a registered investment adviser shall not publish, circulate, or distribute any advertisement which does not comply with SEC Rule 206(4)-1 (17 CFR §275.206(4)-1, as amended) under the Investment Advisers Act of 1940.

~~[(1) Specifically, an advertisement of a registered investment adviser may not:]~~

~~[(A) use or refer to testimonials (including any statement of a client's experience or endorsement);]~~

[(B) refer to past, specific recommendations made by an investment adviser that were profitable, unless the advertisement sets out a list of all recommendations made by the investment adviser within the preceding period of not less than one year, and complies with paragraph (2) of this subsection;]

[(C)represent that any graph, chart, formula, or other device can, in and of itself, be used to determine which securities to buy or sell, or when to buy or sell securities, or assist persons in making those decisions, unless the advertising prominently discloses the limitations thereof and the difficulties regarding its use; and]

~~[(D) represent that any report, analysis, or other service will be provided without charge unless the report, analysis, or other service will be provided without any obligation whatsoever.]~~

[(2) A registered investment adviser may advertise its past performance (both actual performance and hypothetical or model results) only if the advertisement discloses all material facts necessary to avoid any unwarranted inference. An investment adviser may not advertise its performance data if the advertisement:]

~~[(A) fails to disclose the effect of material market or economic conditions on the results advertised;]~~

~~[(B) fails to disclose whether and to what extent the advertised results reflect the reinvestment of dividends or other earnings;]~~

~~[(C) suggests or makes claims about the potential for profit without disclosing the potential for loss; or]~~

~~[(D) omits any of the facts material to the performance figures.]~~

[(3) In addition, generally a registered investment adviser may not advertise gross performance data (i.e., performance data that does not reflect the deduction of various fees, commissions, and expenses that a client would pay) unless the investment adviser also includes net performance information in an equally prominent manner.]

§116.16.Use of Senior-Specific Certifications and Professional Designations.

(a) The use of a senior specific certification or designation by any person in connection with the provision of advice as to the value of or the advisability of investing in, purchasing, or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to 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 shall be an inequitable practice within the meaning of the Texas Securities Act, §4007.105(a)(3) [~~§14.A(3)~~]. The prohibited use of such certifications or professional designation includes, but is not limited to, the following:

(1) - (4) (No change.)

(b) - (f) (No change.)

§116.21.System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Chapter 4004, Subchapter H [~~Section 45~~].

(a) System. Each investment adviser shall establish, maintain, and enforce a written system of policies, programs, plans, or procedures to address suspected financial exploitation of vulnerable adults. The system must be reasonably designed to achieve compliance with the Texas Securities Act, Chapter 4004, Subchapter H [~~Section 45~~].

(1) - (5) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 25, 2024.

TRD-202405048

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: December 8, 2024

For further information, please call: (512) 305-8303