Cal. Code Regs. Tit. 10, § 260.216.2 - Confirmation of Transactions

Current through Register 2022 Notice Reg. No. 16, April 25, 2022

(a) The phrase "manipulative, deceptive, or other fraudulent scheme, device or contrivance," as used in subdivision (a) of Section 25216 of the Code, is hereby defined to include any act of any broker-dealer designed to effect for or with the account of a customer any transaction in, or to induce the purchase or sale by such customer of, any security (other than U.S. Savings Bonds or municipal securities) unless such broker-dealer at or before completion of such transaction, gives or sends to such customer written notification disclosing:

(1) Whether it is acting as agent for such customer, as agent for some other person, as agent for both such customer and some other person, or as principal for its own account; and

(2) The date and time of the transaction (or the fact that the time of the transaction will be furnished upon written request of such customer) and the identity, price and number of shares or units (or principal amount) of such security purchased or sold by such customer; and

(3) In the case of any transaction in a debt security subject to redemption before maturity, a statement to the effect that such debt security may be redeemed in whole or in part before maturity, that such a redemption could affect the yield represented and that additional information is available upon request; and

(4) In the case of a transaction in a debt security effected exclusively on the basis of a dollar price:

(A) The dollar price at which the transaction was effected, and

(B) The yield to maturity calculated from the dollar price; provided, however, that this paragraph (B) shall not apply to a transaction in a debt security with a maturity date that may be extended by the issuer thereof, with a variable interest rate payable thereon, or a participation interest in notes secured by liens upon real estate continuously subject to prepayment; and

(5) In the case of a transaction in a debt security effected on the basis of yield:

(A) The yield at which the transaction was effected, including percentage amount and its characterization (e.g., current yield, yield to maturity, or yield to call); and if effected at yield to call, the type of call, the call date and call price;

(B) The dollar price calculated from the yield at which the transaction was effected; and

(C) If effected on a basis other than yield to maturity and the yield to maturity is lower than the represented yield, the yield to maturity as well as the represented yield; provided, however, that this paragraph shall not apply to a transaction in a debt security with a maturity date that may be extended by the issuer thereof, with a variable interest rate payable thereon, or a participation interest in notes secured by liens upon real estate continuously subject to prepayment; and

(6) Whether any odd-lot differential or equivalent fee has been paid by such customer in connection with the execution of an order for an odd-lot number of shares or units (or principal amount) of a security and that the amount of any such differential or fee will be furnished upon oral or written request; provided, however, that such disclosure need not be made if the differential or fee is included in the remuneration disclosed, or exempted from disclosure, pursuant to subsection (a)(7)(B) of this section; and

(7) If it is acting as agent for such customer, for some other person, or for both such customer and some other person:

(A) The name of the person from whom the security was purchased or to whom it was sold, for such customer or the fact that such information will be furnished upon written request of such customer; and

(B) The amount of any remuneration received or to be received by it from such customer in connection with the transaction, unless remuneration paid by such customer is determined, pursuant to a written agreement with such customer, otherwise than on a transaction basis; and

(C) The source and amount of any other remuneration received or to be received by it in connection with the transaction; provided, however, that if, in the case of a purchase, the broker-dealer or agent was not participating in a distribution, or, in the case of a sale, was not participating in a tender offer, the written notification may state whether any other remuneration has been or will be received and that the source and amount of such other remuneration will be furnished upon written request of such customer; and

(8) If it is acting as principal for its own account:

(A)

1.If is not a market maker in that security and, if, after having received an order to buy from such customer, it purchased the security from another person to offset a contemporaneous sale to such customer, or, after having received an order to sell from such customer, it sold the security to another person to offset a contemporaneous purchase from such a customer, the amount of any mark-up, mark-down, or similar remuneration received in an equity security; or

2.In any other case of a transaction in a reported security, the trade price reported in accordance with an effective transaction reporting plan, the price to the customer in the transaction, and the difference, if any, between the reported trade price and the price to the customer.

(B) In the case of a transaction in an equity security, whether it is a market maker in that security (otherwise than by reason of its acting as a block positioner in that security).

(b) A broker-dealer may effect transactions for or with the account of a customer without giving or sending to such customer the written notification described in subsection (a) of this section if:

(1) Such transactions are effected pursuant to a periodic plan, an investment company plan; and

(2) Such broker-dealer gives or sends to such customer within five business days after the end of each quarterly period a written statement disclosing each purchase or sale, effected for or with, and each dividend or distribution credited to, or reinvested for, the account of such customer (pursuant to the plan) during the period; the date of each such transaction; the identity, number and price of any securities purchased or sold by such customer in each such transaction; the total number of shares of such securities in such customer's account; any remuneration received or to be received by the broker-dealer or agent in connection therewith; and that any other information required by subsection (a) will be furnished upon written request; provided, however, that the quarterly written statement may be delivered to some other person designated by the customer for distribution to the customer; and

(3) In the case of transactions effected pursuant to an investment company plan:

(A) Payments for the purchase of securities by such customer or by such customer's designated agent are made directly to, or made payable to, the registered investment company, or the principal underwriter, custodian, trustee, or other designated agent of the registered investment company; and

(B) The intention to give or send to the customer the written statement referred to in subsection (b)(2) of this section, in lieu of the written notification required by subsection (a), is disclosed in writing to such customer.

(c) A broker-dealer may effect transactions for or with the account of a customer without giving or sending to such customer the written notification described in subsection (a) of this section if:

(1) Such transactions are effected in shares of any no-load open-end investment company registered under the Investment Company Act of 1940 that attempts to maintain a constant net asset value per share and that holds itself out to be a "money market" fund or has an investment policy calling for investment of at least 80% of its assets in debt securities maturing in thirteen months or less; and

(2) Such broker-dealer gives or sends to such customer within five business days after the end of each monthly period a written statement disclosing each purchase or redemption, effected for or with, and each dividend or distribution credited to, or reinvested for, the account of such customer during the month; the date of each such transaction; the identity, number and price of any securities purchased or redeemed by such customer in each such transaction; the total number of shares of such securities in such customer's account; any remuneration received or to be received by the broker-dealer in connection therewith; and that any other information required by subsection (a) will be furnished upon written request; and

(3) Such customer is provided with prior notification in writing disclosing the intention to send the written information referred to in subsection (c)(1) on a monthly basis in lieu of an immediate confirmation.

(d) A broker-dealer shall give or send to a customer information requested pursuant to this section within five business days of receipt of the request; provided, however, that in the case of information pertaining to a transaction effected more than 30 days prior to receipt of the request, the information shall be given or sent to the customer within 15 business days.

(e) For the purposes of this section,

(1) "Customer" shall not include a broker-dealer or agent;

(2) "Completion of the transaction" shall have the meaning provided in Section 260.216.1;

(3) "Time of the transaction" means the time of execution, to the extent feasible, of the customer's order;

(4) "Debt security," as used in subsections (a)(3), (a)(4), and (a)(5) only, means any security, such as a bond, debenture, note, or any other similar instrument which evidences a liability of the issuer (including any such security that is convertible into stock or a similar security) and fractional or participation interests in one or more of any of the foregoing: Provided, however, that securities issued by an investment company registered under the Investment Company Act of 1940 shall not be included in this definition;

(5) "Periodic plan" means any written authorization for a broker-dealer or agent acting as agent to purchase or sell for a customer a specific security or securities (other than securities issued by an open-end investment company or unit investment trust registered under the Investment Company Act of 1940), ( 15 USC 80a-1 et seq), in specific amounts (calculated in security units or dollars), at specific time intervals and setting forth the commissions or charges to be paid by the customer in connection therewith (or the manner of calculating them); and

(6) "Investment company plan" means any plan under which securities issued by an open-end investment company or unit investment trust registered under the Investment Company Act of 1940 ( 15 USC 80a-1 et seq.) and the securities of which are qualified under Section 25111, 25112 or 25113 of the Code, or exempt from such qualification, are purchased or sold by a customer pursuant to:

(A) An individual retirement or individual pension plan qualified under the Internal Revenue Code; or

(B) A contractual or systematic agreement under which the customer purchases at the applicable public offering price, or redeems at the applicable redemption price, such securities in specified amounts (calculated in security units or dollars) at specified time intervals and setting forth the commissions or charges to be paid by such customer in connection therewith (or the manner of calculating them); or

(C) Any other arrangement involving a group of two or more customers and contemplating periodic purchases of such securities by each customer through a person designated by the group; provided, that such arrangement requires the registered investment company or its agent:

1.To give or send to the designated person, at or before the completion of the transaction for the purchase of such securities, a written notification of the receipt of the total amount paid by the group;

2.To send to anyone in the group who was a customer in the prior quarter and on whose behalf payment has not been received in the current quarter a quarterly written statement reflecting that a payment was not received on its behalf; and

3.To advise each customer in the group if a payment is not received from the designated person on behalf of the group within 10 days of a date certain specified in the arrangement for delivery of that payment by the designated person and thereafter to send to each such customer a written notification described in subsection (a) of this section for the next three succeeding payments.

(7) "Reported security" shall have the meaning provided in Rule 11Aa3-1 ( 17 CFR 240.11Aa3 - 1 ) under the Securities Exchange Act of 1934 ( 15 USC 78 a et seq.).

(8) "Effective transaction reporting plan" shall have the meaning provided in Rule 11Aa3-1 ( 17 CFR 240.11Aa3 - 1 ) under the Securities Exchange Act of 1934 ( 15 USC 78 a et seq.).

(f) The Commissioner may exempt any broker-dealer from the requirements of subsections (a) and (b) of this section with regard to specific transactions of specific classes of transactions for which the broker-dealer or agent will provide alternative procedures to effect the purposes of this section; any such exemption may be granted subject to compliance with such alternative procedures and upon such other stated terms and conditions as the Commissioner may impose.

Notes

Cal. Code Regs. Tit. 10, § 260.216.2

Note: Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

1. Amendment filed 7-10-75 as an emergency; effective upon filing (Register 75, No. 28).
2. Certificate of Compliance filed 11-5-75 (Register 75, No. 45).
3. Repealer and new section filed 6-22-79; effective thirtieth day thereafter (Register 79, No. 25).
4. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).
5. Amendment of subsections (a) (8) and (e) filed 1-7-88; operative 2-6-88 (Register 88, No. 4).
6. Editorial correction of subsection (e) printing error (Register 88, No. 16).