Mich. Admin. Code R. 451.4.21 - Investment adviser policies and procedures
Rule 4.21.
(1) As
used in this rule:
(a) "Access person" means a
supervised person of an investment adviser who meets any of the following:
(i) Has access to either nonpublic
information regarding a client's purchase or sale of securities or nonpublic
information regarding the portfolio holdings of a reportable fund.
(ii) Is involved in making securities
recommendations to clients, or who has access to nonpublic
recommendations.
(iii) Provides
investment advice that is an investment adviser's primary business and is a
director, officer, or partner of that business.
(b) "Beneficial ownership" means that term as
defined in rule 16a-1,
17 CFR
240.16a-1, in determining whether a person
has beneficial ownership of a security for purposes of section 16 of the
Securities Exchange Act of 1934,
15 USC
78p, and the rules and regulations pursuant
to the act.
(c) "Chief compliance
officer" means a supervised person who is an investment adviser representative
with the authority, background, skills, and resources to develop and enforce an
investment adviser's policies and procedures.
(d) "Federal securities laws" means all of
the following:
(vi) The Sarbanes-Oxley Act of 2002,
Pub.
L. 107-204 .
(vii) Any rules adopted by the SEC under any
of the statutes in paragraphs (i) to (vi) of this subdivision.
(e) "Fund" means an investment
company registered under the Investment Company Act of 1940,
15 USC
80a-1 to
80a-64.
(f) "Initial public offering" means an
offering of securities registered under the Securities Act of 1933,
15
USC 77a to
77aa,
the issuer of which, immediately before the registration, was not subject to
the reporting requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934,
15 USC
78m or
78o(d).
(g) "Limited offering" means an offering that
is exempt from registration under 4(a)(2) or (5) of the Securities Act of 1933,
15 USC 77d(a)(2) or
(5), or
17
CFR 230.504 to 230.506.
(h)
"Reportable security" means a security as defined in section 202(a)(18) of the
Investment Advisers Act of 1940,
15
USC 80b-2(a)(18), except
that it does not include any of the following:
(i) Direct obligations of the United
States.
(ii) Bankers' acceptances,
bank certificates of deposit, commercial paper, and high-quality short-term
debt instruments, including repurchase agreements.
(iii) Shares issued by money market
funds.
(iv) Shares issued by
open-end funds other than reportable funds.
(v) Shares issued by unit investment trusts
that are invested exclusively in 1 or more open-end funds, none of which are
reportable funds.
(i)
-'-'Supervised person'' means any of the following:
(i) A partner, officer, director, or other
person occupying a similar status or performing similar functions.
(ii) An employee of an investment adviser, or
other person who provides investment advice on behalf of the investment adviser
and is subject to the supervision and control of the investment adviser. This
includes investment adviser representatives, employees, independent
contractors, or other associated persons and supervised personnel, or other
persons acting on the behalf of the investment adviser.
(2) An investment adviser
registered or required to be registered under section 403 of the act, MCL
451.2403, shall not provide investment advice to clients unless the investment
adviser establishes, maintains, and enforces written policies and procedures
tailored to the investment adviser's business model, accounting for the size of
the firm, the services provided, and the number of locations of the investment
adviser. The written policies and procedures must include both of the
following:
(a) Compliance policies and
procedures reasonably designed to prevent violations by the investment adviser
of the act and the rules adopted under the act.
(b) Supervisory policies and procedures
reasonably designed to prevent violations of the act and the rules adopted
under the act by the investment adviser's supervised persons.
(3) An investment adviser, which is
registered or is required to be registered, who has authority to vote client
securities shall do all of the following:
(a)
Establish, maintain, and enforce written proxy voting policies and procedures
that are reasonably designed to ensure that the investment adviser votes client
securities in the best interest of clients. These procedures must include how
the investment adviser addresses material conflicts that may arise between its
interests and those of the investment adviser's clients.
(b) Disclose to clients how they may obtain
information from the investment adviser about how it voted with respect to
their securities.
(c) Describe to
clients the investment adviser's proxy voting policies and procedures and, upon
request, furnish a copy of the policies and procedures to the requesting
client.
(d) An investment adviser
who does not have the authority to vote client securities shall disclose that
fact to clients.
(4) An
investment adviser shall establish, maintain, and enforce written physical
security and cybersecurity policies and procedures reasonably designed to
ensure the confidentiality, integrity, and availability of physical and
electronic records and information. The policies and procedures must be
tailored to the investment adviser's business model, taking into account the
investment adviser's size, services provided, and the number of locations. The
physical security and cybersecurity policies and procedures must do all of the
following:
(a) Protect against reasonably
anticipated threats or hazards to the security or integrity of client records
and information.
(b) Ensure that
the investment adviser safeguards confidential client records and
information.
(c) Protect any
records and information the release of which could result in harm or
inconvenience to any client.
(d)
Contain provisions that assist the investment adviser to do all of the
following:
(i) Identify potential threats to
the investment adviser's information and records and develop the organizational
understanding to manage information security risk to systems, assets, data, and
capabilities.
(ii) Protect the
investment adviser's information and records from threats, including the
development and implementation of appropriate safeguards, to ensure delivery of
critical infrastructure services.
(iii) Detect breaches of the investment
adviser's records and information, and identify the occurrence of an
information security event.
(iv)
Respond to breaches of the investment adviser's information and records, and
implement the appropriate activities to take action regarding a detected
information security event.
(v)
Recover any of the investment adviser's information or records that are
breached. An investment adviser shall develop, implement, and maintain plans
for information and data resilience and to restore any capabilities or services
that are impaired due to an information security event.
(5) An investment adviser,
registered or required to be registered, shall deliver upon the investment
adviser's engagement by a client, and annually thereafter, a privacy policy to
each client that is reasonably designed to aid in the client's understanding of
how the investment adviser collects and shares, to the extent permitted by
state and federal law, nonpublic personal information. An investment adviser
shall promptly update and deliver to each client an amended privacy policy, if
any of the information in the policy becomes inaccurate.
(6) An investment adviser shall establish,
maintain, and enforce a written code of ethics that, at a minimum, includes all
of the following:
(a) Standards of business
conduct that the investment adviser requires of its supervised persons that
must reflect the investment adviser's fiduciary obligations and those of its
supervised persons.
(b) Provisions
requiring the investment adviser's supervised persons to comply with applicable
state and federal securities laws.
(c) Provisions requiring all of the
investment adviser's access persons to report, and the investment adviser to
review, their personal securities transactions and holdings periodically as
provided in subdivisions (f) and (g) of this subrule.
(d) Provisions requiring supervised persons
to report any violations of the investment adviser's code of ethics promptly to
its chief compliance officer or, if the investment adviser's chief compliance
officer also receives reports of all violations, to other persons designated in
the investment adviser's code of ethics.
(e) Provisions requiring the investment
adviser to provide each of its supervised persons with a copy of the investment
adviser's code of ethics and any amendments, and requiring the investment
adviser's supervised persons to provide it with a written acknowledgment of
their receipt of the code and any amendments.
(f) An investment adviser registered or
required to be registered under the act shall create holdings reports that
comply with all of the following:
(i) The code
of ethics required by this subrule must require the investment adviser's access
persons to submit to its chief compliance officer or other persons designated
in the investment adviser's code of ethics a report of the access person's
current securities holdings that meets the following requirements. Each
holdings report must contain, at a minimum all of the following:
(A) The title and type of security, and as
applicable the exchange ticker symbol or Committee on Uniform Securities
Identification Procedures (CUSIP) number, number of shares, and principal
amount of each reportable security in which the access person has any direct or
indirect beneficial ownership.
(B)
The name of any broker, dealer, or bank with which the access person maintains
an account in which any securities are held for the access person's direct or
indirect benefit.
(C) The date the
access person submits the report.
(ii) The investment adviser's access persons
shall each submit a holdings report that complies with both of the following:
(A) Is submitted no later than 10 days after
the person becomes an access person, and the information must be current as of
a date no more than 45 days before the date the person becomes an access
person.
(B) Is submitted at least
once each 12-month period thereafter on a date selected by the investment
adviser, and the information must be current as of a date no more than 45 days
before the date the report was submitted.
(g) The code of ethics required by this
subrule must require access persons to submit to the investment adviser's chief
compliance officer or other persons designated in the investment adviser's code
of ethics quarterly securities transactions reports that comply with all of the
following:
(i) Each transaction
report must contain, at a minimum, all of the following information about each
transaction involving a reportable security in which the access person had, or
as a result of the transaction acquired, any direct or indirect beneficial
ownership:
(A) The date of the transaction,
the title, and, as applicable, the exchange ticker symbol or CUSIP number,
interest rate and maturity date, number of shares, and principal amount of each
reportable security involved.
(B)
The nature of the transaction such as the purchase, sale, or any other type of
acquisition or disposition.
(C) The
price of the security at which the transaction was effected.
(D) The name of the broker, dealer, or bank
with or through which the transaction was effected.
(E) The date the access person submits the
report.
(ii) An access
person shall submit a transaction report no later than 30 days after the end of
each calendar quarter. The report must cover, at a minimum, all transactions
during the quarter.
(h) The code of ethics
required by this subrule does not have to require an access person to submit
any of the following:
(i) A report about
securities held in accounts over which the access person had no direct or
indirect influence or control.
(ii)
A transaction report about transactions effected pursuant to an automatic
investment plan in which regular periodic purchases or withdrawals are made
automatically in or from investment accounts pursuant to a predetermined
schedule and allocation, including a dividend reinvestment plan.
(iii) A transaction report, if the report
would duplicate information contained in broker trade confirmations or account
statements that the investment adviser holds in its records as long as the
investment adviser receives the confirmations or statements no later than 30
days after the end of the applicable calendar quarter.
(iv) Pre-approval of certain investments: the
investment adviser's code of ethics must require its access persons to obtain
the investment adviser's approval before they directly or indirectly acquire
beneficial ownership in any security in an initial public offering or in a
limited offering.
(i) An
investment adviser with only 1 access person is not required to submit reports
to itself or to obtain its own approval for investments in any security in an
initial public offering or in a limited offering, if the investment adviser
maintains records of all of its holdings and transactions that subdivisions (f)
and (g)of this subrule would otherwise require the investment adviser to
report.
(j) A report required by
SEC rule 204A-1(b),
17 CFR
275.204A-1(b), may contain a
statement that the report will not be construed as an admission that the person
making the report has any direct or indirect beneficial ownership in the
security to which the report relates.
(7) An investment adviser shall establish,
maintain, and enforce written policies and procedures reasonably designed to
prevent the misuse of material, nonpublic information by the investment adviser
or any person associated with the investment adviser.
(8) An investment adviser shall establish,
implement, and maintain written procedures relating to a business continuity
and succession plan. The plan must be based upon the facts and circumstances of
the investment adviser's business model including the size of the firm, type or
types of services provided, and the number of locations of the investment
adviser. The plan must provide for at least all of the following:
(a) The protection, backup, and recovery of
books and records.
(b) Alternate
means of communication with customers, key personnel, employees, vendors,
service providers, third-party custodians, and regulators, including, but not
limited to, providing notice of a significant business interruption or the
death or unavailability of key personnel or other disruptions or cessation of
business activities.
(c) Office
relocation, if there is a temporary or permanent loss of a principal place of
business.
(d) Assignment of duties
to qualified responsible persons upon the death of or unavailability of key
personnel.
(e) Steps and methods
reasonably designed to minimize service disruptions and client harm that could
reasonably be anticipated to result from a sudden, significant business
interruption.
(9) An
investment adviser shall review, at least annually, the adequacy of the
policies and procedures established pursuant to this rule and the effectiveness
of their implementation.
(10) An
investment adviser shall designate a supervised person who is an investment
adviser representative as the chief compliance officer responsible for
administering the investment adviser's policies and
procedures.
Notes
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