Ohio Admin. Code 1301:6-3-14.2 - Dealers not required under federal law or the law of this state to be registered as a broker or dealer with the securities and exchange commission
(A) Pursuant to
division (C) of section
1707.142 of the Revised Code, a
dealer that is not required under federal law or the law of this state to
register as a broker or dealer with the securities and exchange commission may
elect to comply with paragraphs (B) to (M) of this rule in lieu of requirement
contained in section 15 of the Securities and Exchange Act of 1934, 48 Stat.
881,
15 U.S.C.
78o, as amended, section 17 of the Securities
and Exchange Act of 1934, 48 State 881,
15 U.S.C.
78q, as amended, and rules of the securities
and exchange commission promulgated under those sections.
(B) As used in this rule:
"
(C) Records of dealer
(1) Every dealer licensed in this state shall
promptly furnish to the division , upon request by the division , legible, true
and complete copies of the records required to be preserved and retained
pursuant to this rule. The division , in its discretion, may examine the books
and records of any licensed dealer or any applicant for a dealer 's license.
(2) Every licensed dealer shall
preserve and retain for a period of not less than three years, the first two
years in an accessible place:
(a) All check
books, bank statements, cancelled checks and cash reconciliations;
(b) All bills receivable or payable, or
copies thereof, paid or unpaid, relating to the business of the dealer ;
(c) Originals of all
communications received and copies of all communications sent by the dealer ,
including interoffice memoranda and communications, relating to the dealer 's
business and all communications which are subject to rules of a self regulatory
organization of which the dealer is a member regarding communications with the
public. As used in this paragraph, the term "communications" includes sales
scripts;
(d) All trial balances,
computations of aggregate indebtedness and net capital and working papers in
connection therewith, financial statements, branch office reconciliations, and
internal audit working papers, relating to the business of the dealer ;
(e) All guarantees of accounts and
all powers of attorney and other evidence of the granting of any discretionary
authority given in respect of any account, and copies of resolutions empowering
an agent to act on behalf of a corporation;
(f) All written agreements or copies thereof
entered into by the dealer relating to its business, including agreements with
respect to any account;
(g) For
those dealers affiliated with a self-regulatory organization, records that
contain the following information in support of amounts included in the form
X-17A-5, "Financial and Operational Combined Uniform Single Report," part II,
part IIA, part IIB, part III and applicable schedules filed by dealers subject
to any minimum net capital requirement set forth in 17 C.F.R. 240.15 c3-1, as
amended;
(i) Money balance and security
position, long or short, including description, quantity, price and valuation
of each security including contractual commitments in customers' accounts, in
cash and fully secured accounts, partly secured accounts, unsecured accounts,
and in securities accounts payable to customers;
(ii) Money balance and security position,
long or short, including description, quantity, price and valuation of each
security including contractual commitments in non-customers' accounts, in cash
and fully secured accounts, partly secured and unsecured accounts, and in
securities accounts payable to non-customers;
(iii) Position, long or short, including
description, quantity, price and valuation of each security including
contractual commitments included in the computation of net capital as
commitments, securities owned, securities owned not readily marketable, and
other investments owned not readily marketable;
(iv) Amount of secured demand note,
description of collateral securing the demand note including quantity, price
and valuation of each security and cash balance securing the demand note;
(v) Description of futures
commodity contracts, contract value on trade date, market value, gain or loss,
and liquidating equity or deficit in customers' and non-customers' accounts;
(vi) Description of futures
commodity contracts, contract value on trade date, market value, gain or loss
and liquidating equity or deficit in trading and investment accounts;
(vii) Description, money balance,
quantity, price and valuation of each spot commodity position or commitments in
customers' and non-customers' accounts;
(viii) Description, money balance, quantity,
price and valuation of each spot commodity position or commitments in trading
and investment accounts;
(ix)
Number of shares, description of security, exercise price, cost and market
value of put and call options including short out of the money options having
no market or exercise value, showing listed and unlisted put and call options
separately;
(x) Quantity, price,
and valuation of each security underlying the haircut for undue concentration
made in the computation for net capital;
(xi) Description, quantity, price and
valuation of each security and commodity position or contractual commitment,
long or short, in each joint account in which the dealer has an interest,
including each participant's interest and margin deposit;
(xii) Description, settlement date, contract
amount, quantity, market price, and valuation for each aged failed to deliver
requiring a charge in the computation of net capital;
(xiii) Detail relating to information for
possession or control requirements under 17 C.F.R. 240.15 c3-3, as amended, and
reported on the schedule in part II or part IIA of form X-17A-5;
(xiv) Detail of all items, not otherwise
substantiated, which are charged or credited in the computation of net capital
including cash margin deficiencies, deductions related to securities values and
undue concentration, aged securities differences and insurance claims
receivable; and
(xv) Other
information or records specifically prescribed by the division .
(h) Dealers having physical
possession or control of fully paid and excess margin securities shall prepare
and maintain a current and detailed description of the procedures used to
comply with the possession or control requirements set forth in this rule.
(i) Internal risk management
control systems for OTC derivatives dealers.
(i) An OTC derivatives dealer shall
establish, document, and maintain a system of internal risk management controls
to assist it in managing the risks associated with its business activities,
including market, credit, leverage, liquidity, legal, and operational risks.
(ii) An OTC derivatives dealer
shall consider the following when adopting its internal control system
guidelines, policies, and procedures:
(a) The
ownership and governance structure of the OTC derivatives dealer ;
(b) The composition of the governing body of
the OTC derivatives dealer ;
(c)
The management philosophy of the OTC derivatives dealer ;
(d) The scope and nature of established risk
management guidelines;
(e) The
scope and nature of the permissible OTC derivatives activities;
(f) The sophistication and experience of
relevant trading, risk management, and internal audit personnel;
(g) The sophistication and functionality of
information and reporting systems; and
(h) The scope and frequency of monitoring,
reporting, and auditing activities.
(iii) An OTC derivatives dealer 's internal
risk management control system shall include the following elements:
(a) A risk control unit that reports directly
to senior management and is independent from business trading units;
(b) Separation of duties between personnel
responsible for entering into a transaction and those responsible for recording
the transaction in the books and records of the OTC derivatives dealer ;
(c) Periodic reviews that may be
performed by internal audit staff and annual reviews that must be conducted by
independent certified public accountants of the OTC derivatives dealer 's risk
management systems;
(d)
Definitions of risk, risk monitoring, and risk management; and
(e) Written guidelines, approved by the OTC
derivatives dealer 's governing body, that include and discuss the following:
(i) The OTC derivatives dealer 's
consideration of the elements in paragraph (C)(2)(i)(ii) of this rule ;
(ii) The scope, and the procedures
for determining the scope, of authorized activities or any non-quantitative
limitation on the scope of authorized activities;
(iii) Quantitative guidelines for managing
the OTC derivatives dealer 's overall risk exposure;
(iv) The type, scope, and frequency of
reporting by management on risk exposures;
(v) The procedures for and the timing of the
governing body's periodic review of the risk monitoring and risk management
written guidelines, systems, and processes;
(vi) The process for monitoring risk
independent of the business or trading units whose activities create the risks
being monitored;
(vii) The
performance of the risk management function by persons independent from or
senior to the business or trading units whose activities create the risks;
(viii) The authority and resources
of the groups or persons performing the risk monitoring and risk management
functions;
(ix) The appropriate
response by management when internal risk management guidelines have been
exceeded;
(x) The procedures to
monitor and address the risk that an OTC derivatives transaction contract will
be unenforceable;
(xi) The
procedures requiring the documentation of the principal terms of OTC
derivatives transactions and other relevant information regarding such
transactions;
(xii) The procedures
authorizing specified employees to commit the OTC derivatives dealer to
particular types of transactions;
(xiii) Any other procedures or steps taken to
prevent the OTC derivatives dealer from engaging in any securities transaction
that would cause it to violate laws to which it is subject; and
(xiv) The procedures to prevent the OTC
derivatives dealer from improperly determining whether a counterparty is acting
in the capacity of principal or agent.
(iv) Management must periodically review, in
accordance with written procedures, the OTC derivatives dealer 's business
activities for consistency with risk management guidelines including that:
(a) Risks arising from the OTC derivatives
dealer 's OTC derivatives activities are consistent with prescribed guidelines;
(b) Risk exposure guidelines for
each business unit are appropriate for the business unit;
(c) The data necessary to conduct the risk
monitoring and risk management function as well as the valuation process over
the OTC derivatives dealer 's portfolio of products is accessible on a timely
basis and information systems are available to capture, monitor, analyze, and
report relevant data;
(d)
Procedures are in place to enable management to take action when internal risk
management guidelines have been exceeded;
(e) Procedures are in place to monitor and
address the risk that an OTC derivatives transaction contract will be
unenforceable;
(f) Procedures are
in place to identify and address any deficiencies in the operating systems and
to contain the extent of losses arising from unidentified deficiencies;
(g) Procedures are in place to
authorize specified employees to commit the OTC derivatives dealer to
particular types of transactions, to specify any quantitative limits on such
authority, and to provide for the oversight of their exercise of such
authority;
(h) Procedures are in
place to prevent the OTC derivatives dealer from engaging in any securities
transaction that is not permitted under the laws to which the OTC derivatives
dealer is subject;
(i) Procedures
are in place to prevent the OTC derivatives dealer from improperly determining
whether a counterparty is acting in the capacity of principal or agent;
(j) Procedures are in place to
provide for adequate documentation of the principal terms of OTC derivatives
transactions and other relevant information regarding such transactions;
(k) Personnel resources with
appropriate expertise are committed to implementing the risk monitoring and
risk management systems and processes; and
(l) Procedures are in place for the periodic
internal and external review of the risk monitoring and risk management
functions.
(j) All notices relating to an internal
dealer system provided to the customers of the dealer that sponsors the
internal dealer system. Notices, whether written or communicated through the
internal dealer trading system or other automated means, shall be preserved
under this rule if they are provided to all customers with access to an
internal dealer system, or to one or more classes of classes of customers.
(3) Every dealer
subject to this rule shall preserve and retain for a period of not less than
six years after closing any customer's account any account cards or records
which relate the terms and conditions with respect to the opening and
maintenance of the account.
(4)
Every dealer subject to this rule shall preserve and retain during the life of
the enterprise and of any successor enterprise, all organizational documents of
the enterprise including partnership agreements, articles of incorporation or
charters, articles of organization, minute books and stock certificate books,
all forms BDW, all amendments to the foregoing forms, and all documentation
showing the licensure of the dealer with any regulatory authority.
(5) Each report that any securities regulator
has requested or required the dealer to make and furnish to the securities
regulator pursuant to an order or settlement, and each securities regulatory
examination report shall be retained by the dealer until three years after the
date of the report.
(6) Each
compliance, supervisory, and procedures manual, including any updates,
modifications, and revisions to the manual, describing the policies and
practices of the dealer with respect to compliance with applicable laws and
rules, and supervision of the activities of each natural person employed by or
associated with the dealer shall be retained by the dealer until three years
after the termination of the use of the manual.
(7) All reports produced to review for
unusual activity in customer accounts shall be retained by the dealer until
eighteen months after the date the report was generated. In lieu of maintaining
the reports, a dealer may produce promptly the reports upon request by the
division . If a report was generated in a computer system that has been changed
in the most recent eighteen month period in a manner such that the report
cannot be reproduced using historical data in the same format as it was
originally generated, the report may be produced by using the historical data
in the current system, but must be accompanied by a record explaining each
system change that affected the reports. If a report is generated in a computer
system that has been changed in the most recent eighteen month period in a
manner such that the report cannot be reproduced in any format using historical
data, the dealer shall promptly produce upon a request a record of the
parameters that were used to generate the report at the time specified by the
division , including a record of the frequency with which the report or reports
were generated.
(8) The records
required to be maintained and preserved pursuant to this rule may be
immediately produced or reproduced on microfilm, microfiche or any similar
medium, or by means of any digital storage medium or system that meet the
conditions set forth in this rule and be maintained and preserved for the
required time in that form.
(a) If a digital
storage medium or system is used by a dealer , the dealer shall comply with the
following requirements:
(i) Upon request by
the division , the dealer must be able to provide its own representation or one
from the storage medium vendor or other third party with appropriate expertise
that the selected storage media meets these conditions. The electronic storage
media must:
(a) Preserve the records
exclusively in a non-rewriteable, non-erasable format;
(b) Verify automatically the quality and
accuracy of the storage media recording process;
(c) Serialize the original and, if
applicable, duplicate units of storage media, and time-date for the required
period of retention, the information placed on such electronic storage media;
and
(d) Have the capacity to
readily download indices and records preserved on the electronic storage media
to any medium acceptable to the division .
(ii) Verify automatically the quality and
accuracy of the storage media recording process;
(iii) Serialize the original and, if
applicable, duplicate units of storage media, and time-date for the required
period of retention, the information placed on such electronic storage media;
and
(iv) Have the capacity to
readily download indices and records preserved on the electronic storage media
to any medium acceptable to the division .
(b) If digital storage medium or system or
microfilm, microfiche or similar medium is used by a dealer , the dealer shall:
(i) At all times have available, for
examination by the division , facilities for immediate, easily readable
projection or production of microfilm, microfiche or similar medium or digital
storage medium images and for producing easily readable images;
(ii) Be ready at all times to provide, and
immediately provide, any facsimile enlargement which the division may request;
(iii) Store separately from the
original, a duplicate copy of the record stored on any medium for the time
required;
(iv) Organize and index
accurately all information maintained on both original and any duplicate
storage media. At all times, a dealer must be able to have indices available
for examination by the division . Each index must be duplicated and the
duplicate copies must be stored separately from the original copy of each
index. Original and duplicate indices must be preserved for the time required
for the indexed records;
(v) The
dealer must have in place an audit system providing for accountability
regarding inputting of records required to be maintained and preserved pursuant
to this rule to digital storage media and inputting any changes made to every
original and duplicate record maintained and preserved. At all times, a dealer
must be able to have the results of the audit system available for examination
by the division . The audit results must be preserved for the time required for
the audited records;
(vi) The
dealer must maintain, keep current, and provide promptly upon request by the
division all information necessary to access records and indices stored on the
electronic storage media; or place in escrow and keep current a copy of the
physical and logical file format of the electronic storage media, the field
format of all different information types written on the electronic storage
media and the source code, together with the appropriate documentation and
information necessary to access records and indices; and
(vii) For every dealer exclusively using
electronic storage media for some or all of the dealer 's record preservation
under this rule, at least one third party who has access to and the ability to
download information from the dealer 's electronic storage media to any
acceptable medium under this rule, shall file with the division an undertaking
to promptly furnish to the division , upon reasonable request, information as is
deemed necessary by the division to download information kept on the dealer 's
electronic storage media to any medium acceptable to the division , and to take
reasonable steps to provide access to information contained on the dealer 's
electronic storage media, including arrangements for the downloading of any
record required to be maintained and preserved by the dealer by this rule. Such
arrangements will provide specifically that in the event of a failure on the
part of a dealer to download the record into a readable format and after
reasonable notice to the dealer , upon being provided with the appropriate
electronic storage medium, the undersigned will undertake to do so, as the
division may request.
(9) If a person who has been subject to this
rule ceases to transact a business in securities directly with others than
members of a national securities exchange or ceases to transact a business in
securities through the medium of a member of a national securities exchange,
the person shall, for the remainder of the periods of time specified in this
section, continue to preserve the records which he theretofore preserved
pursuant to this rule.
(10) For
purposes of transactions in municipal securities by municipal securities
dealers, compliance with rule G-9 of the "Municipal Securities Rulemaking
Board" as amended, will be deemed to be compliance with this rule.
(11) If the records required to be maintained
and preserved pursuant to this rule are prepared or maintained by an outside
service bureau, depository, bank which does not operate pursuant to paragraph
(C)(13)(y) of this rule , or other recordkeeping service on behalf of the dealer
required to maintain and preserve the records, the outside entity shall, upon
request by the division , be able to file with the division a written
undertaking in a form acceptable to the division , signed by a duly authorized
person, to the effect that the records are the property of the dealer required
to maintain and preserve the records and will be surrendered promptly on
request of the dealer and including the following provision:
With respect to any books and records maintained or preserved
on behalf of[name of
Agreement with an outside entity shall not relieve the
(12) Every dealer
subject to this rule shall furnish promptly to the division legible, true,
complete and current copies of those records of the dealer , that are required
to be preserved under this rule, or any other records of the dealer subject to
examination by the division , that are requested by the division .
(13) All dealers shall make and keep current
the following books and records relating to its business:
(a) As to each "office" which, for purposes
of paragraph (C)(13) of this rule is defined as any location where one or more
associated persons regularly conduct the business of handling funds or
securities or effecting any transactions in, or inducing or attempting to
induce the purchase or sale of any security, and for a period of not less than
six years, the first two years in an easily accessible place, blotters or other
records of original entry containing an itemized daily record of all purchases,
sales, receipts and deliveries of securities, including certificate numbers,
all receipts and disbursements of cash, and all other debits and credits. The
records shall show the account for which each transaction was effected, the
name of the security, the amount of securities, the unit and aggregate purchase
or sale price, if any, the trade or transaction date, and the name or other
designation and capacity of the person from whom the security was purchased or
received or to whom it was sold or delivered. For purposes of this rule ,
"associated person" is defined as a partner, officer, director, salesperson,
trader, manager, or any employee handling funds or securities or soliciting
transactions or accounts for the dealer .
(b) For a period of not less than six years,
the first two years in an easily accessible place, ledgers and other records
reflecting all assets and liabilities, income and expense and capital accounts.
(c) For a period of not less than
six years, the first two years in an easily accessible place, ledger accounts
or other records itemizing, separately as to each cash and margin account of
every customer and of the member, broker or dealer and partners thereof, all
purchases, sales, receipts and deliveries of securities and commodities for
each account, and all other debits and credits to each account.
(d) For a period of not less than three
years, the first two years in an easily accessible place, ledgers or other
records reflecting:
(i) All securities in
transfer;
(ii) Dividends and
interest received;
(iii)
Securities borrowed and securities loaned;
(iv) Monies borrowed and monies loaned
(together with a record of the collateral therefor and any substitutions in
collateral);
(v) Securities failed
to receive and failed to deliver;
(vi) All long and all short stock record
differences arising from the examination, count, verification and comparison,
by date of examination, count, verification and comparison showing for each
security the number of shares of long or short count differences; and
(vii) Repurchase and reverse
repurchase agreements.
(e) For a period of not less than six years,
the first two years in an easily accessible place, a securities ledger or other
record reflecting, separately for each security as of the clearance dates, all
long or short positions, including securities in safekeeping and securities
that are the subjects of repurchase or reverse repurchase agreements, carried
by the dealer for his account or for the account of its customers or partners
or others and, showing the location of all securities long and the offsetting
position to all securities short, including long security count differences and
short security count differences classified by the date of the physical count
and verification in which they were discovered, and in all cases the name or
designation of the account in which each position is carried.
(f) As to each office and for a period of not
less than three years, the first two years in an easily accessible place, a
memorandum of each brokerage order, and of any other instruction, given or
received for the purchase or sale of securities, whether executed or
unexecuted. The memorandum shall show the terms and conditions of the order or
instructions and of any modification or cancellation thereof, the account for
which entered, the time the order was received, the time of entry, the price at
which executed, the identity of each associated person, if any, responsible for
the account, the identity of any other person who entered or accepted the order
on behalf of the customer or, if a customer entered the order on an electronic
system, a notation of that entry, and, to the extent feasible, the time of
execution or cancellation. The memorandum need not show the identity of any
person, other than the associated person responsible for the account, who may
have entered or accepted the order if the order is entered into an electronic
system that generates the memorandum and if that system is not capable of
receiving an entry of the identity of any person other than the responsible
associated person. In that circumstance, the dealer shall produce upon request
by the division a separate record which identifies each other person. Orders
entered pursuant to the exercise of discretionary authority by the dealer or
any associated person thereof shall be so designated. This memorandum need not
be made as to a purchase, sale or redemption of a security on a subscription
way basis directly from or to the issuer, if the dealer maintains a copy of the
customer's subscription agreement regarding a purchase, or a copy of any other
document required by the issuer regarding a sale or redemption. The term
"instruction" shall include instructions between partners and employees of the
dealer . The term "time of entry" shall mean the time when the dealer
transmitted the order or instruction for execution.
(g) As to each office and for a period of not
less than three years, the first two years in an easily accessible place, a
memorandum of each purchase and sale for the account of the dealer showing the
price and, to the extent feasible, the time of execution; and, in addition,
where the purchase or sale is with a customer other than a broker or dealer , a
memorandum of each order received, showing the time of receipt, the terms and
conditions of the order, the account in which it was entered, the identity of
each associated person, if any, responsible for the account, the identity of
any other person who entered or accepted the order on behalf of the customer
or, if a customer entered the order on an electronic system, a notation of that
entry. The memorandum need not show the identity of any person other than the
associated person responsible for the account who may have entered the order if
the order is entered into an electronic system that generates the memorandum
and if that system is not capable of receiving an entry of the identity of any
person other than the responsible associated person. In that circumstance, the
dealer shall produce upon request by the division a separate record which
identifies each other person. An order with a customer other than a dealer
entered pursuant to the exercise of discretionary authority by the dealer or
associated person thereof, shall be so designated.
(h) For a period of not less than three
years, the first two years in an easily accessible place, copies of
confirmations of every purchase or sale of securities, including all repurchase
and reverse repurchase agreements, and copies of notices of any other debit or
credit for securities, cash and other items for the account of customers and
partners of the dealer .
(i) For a
period of not less than three years, the first two years in an easily
accessible place, a record of each cash and margin account showing:
(i) The name and address of the beneficial
owner of each account;
(ii) Except
with respect to exempt employee benefit plan securities, but only to the extent
the securities are held by employee benefit plans established by the issuer of
the securities, whether or not the beneficial owner of securities registered in
the name of the dealer , or a registered clearing agency or its nominee objects
to disclosure of his or her identity, address and securities positions to
issuers; and
(iii) In the case of
a margin account, the signature of the owner; provided that, in the case of a
joint account or an account of a corporation, the records are required only in
respect of the person or persons authorized to transact business for the
account.
(j) For a
period of not less than three years, the first two years in an easily
accessible place, a record of all puts, calls, spreads, straddles and other
options for which the dealer has any direct or indirect interest or which the
dealer has granted or guaranteed, containing, at least, an identification of
the security and the number of units involved. An OTC derivatives dealer shall
also keep a record of all eligible OTC derivative instruments in which the OTC
derivatives dealer has any direct or indirect interest or which it has written
or guaranteed, containing, at a minimum, an identification of the security or
other instrument, the number of units involved, and the identity of the
counterparty.
(k) A record of the
proof of money balances of all ledger accounts in the form of trial balances,
and a record of the computation of aggregate indebtedness and net capital, as
of the trial balance date, provided;
(l) For a period until at least three years
after the associated person's employment and any other connection with the
dealer has terminated, every dealer shall maintain for each office and with
regard to each associated person:
(i) A
record listing every associated person of the dealer ;
(ii) A record listing every office of the
dealer where the associated person regularly conducts the business of handling
funds or securities or effecting any transactions in, or inducing or attempting
to induce the purchase or sale of any security for the dealer ;
(iii) A record listing the central
registration depository number, if any, and every internal identification
number or code assigned to that person by the dealer ;
(iv) A questionnaire or application for
employment executed by each associated person of the dealer , which
questionnaire or application shall be approved in writing by an authorized
representative of the dealer and shall contain at least the following
information with respect to the person:
(a)
The associated person's name, address, social security number, and the starting
date of the associated person's employment or other association with the
dealer ;
(b) The associated
person's date of birth;
(c) A
complete, consecutive statement of all the associated person's business
connections for at least the preceding ten years, including whether the
employment was part-time or full-time;
(d) A record of any denial of membership or
registration, and of any disciplinary action taken, or sanction imposed, upon
the associated person by any federal or state agency, or by any national
securities exchange or national securities association, including any finding
that the associated person was a cause of any disciplinary action or had
violated any law;
(e) A record of
any denial, suspension, expulsion or revocation of membership or registration
of any dealer with which the associated person was associated in any capacity
when such action was taken;
(f) A
record of any permanent or temporary injunction entered against the associated
person or dealer with which the associated person was associated in any
capacity at the time the injunction was entered;
(g) A record of any arrest or indictment for
any felony, or any misdemeanor pertaining to securities, commodities, banking,
insurance or real estate, including, but not limited to, acting or being
associated with a broker, a dealer , investment company, investment adviser,
futures sponsor, bank, fraud, false statements or omissions, wrongful taking of
property or bribery, forgery, counterfeiting or extortion, and the disposition
of the foregoing; and
(h) A record
of any other name or names by which the associated person has been known or
which he has used; Notwithstanding paragraph (C)(13)(l) of this rule , if the
associated person has been registered as a salesperson of the dealer with, or
his employment has been approved by, the "Financial Industry Regulatory
Agency," or the American stock exchange, llc, the Boston stock exchange, inc.,
the Chicago stock exchange, inc., the Pacific exchange, inc., the Philadelphia
stock exchange, inc., the Chicago board options exchange, inc., the Cincinnati
stock exchange, inc., or the international securities exchange, then retention
of a full, correct, and complete copy of any and all applications for the
registration or approval shall be deemed to satisfy the requirements of
paragraph (C)(13)(l) of this rule .
(m) For a period until at least three years
after the associated person's employment and any other connection with the
dealer has terminated, every dealer shall maintain for each office and with
regard to each associated person records required to be maintained pursuant to
17 C.F.R. 240.17 f-2(d), as amended.
(n) For a period of at least three years,
every dealer shall maintain copies of all forms X-17F-1A "Report of Missing,
Lost, Stolen, or Counterfeit Securities", filed pursuant to 17 C.F.R. 240.17
f-1, as amended, all agreements between any national securities exchange,
member thereof, registered securities association, broker, dealer , municipal
securities dealer , government securities broker, government securities dealer ,
registered transfer agent, registered clearing agency, participant therein,
member of the "Federal Reserve System" and bank whose deposits are insured by
the "Federal Deposit Insurance Corporation", regarding registration or other
aspects of 17 C.F.R. 240.17 f-1, as amended, and all confirmations or other
information received from the "United States Securities and Exchange
Commission" or its designee as a result of inquiry.
(o) Every dealer subject to this rule shall
preserve and retain during the life of the enterprise and of any successor
enterprise, records required to be maintained pursuant to 17 C.F.R. 240.17
f-2(e), as amended.
(p) Records
required to be made pursuant to 17 C.F.R. 240.15 c3-3(o) as amended.
(q) For a period of not less than three
years, the first two years in an easily accessible place, the following records
regarding any internal dealer system of which a dealer is the sponsor:
(i) A record of the dealer 's customers that
have access to an internal dealer system sponsored by the dealer identifying
any affiliations between the customers and the dealer ;
(ii) Daily summaries of trading in the
internal dealer system including:
(a)
Securities for which transactions have been executed through use of the system;
and
(b) Transaction volume,
separately stated for trading occurring during hours when consolidated trade
reporting facilities are and are not in operation:
(i) With respect to equity securities, stated
in number of trades, number of shares, and total United States dollar value;
(ii) With respect to debt
securities, stated in total settlement value in United States dollars; and
(iii) With respect to other
securities, stated in number of trades, number of units of securities, and in
dollar value, or other appropriate commonly used measure of value of the
securities;
(iii) Time-sequenced records of each
transaction effected through the internal dealer system, including date and
time executed, price, size, security traded, counterparty identification
information, and method of execution if internal dealer system allows
alternative means or locations for execution, such as routing to another
market, matching with limit orders, or executing against the quotations of the
dealer sponsoring the system.
(iv)
For purposes of paragraph (C)(13)(q) of this rule , "internal dealer system"
shall mean any facility, other than a national securities exchange, an exchange
exempt from registration based on limited volume, or an alternative trading
system that provides a mechanism, automated in full or in part, for collecting,
receiving, disseminating, or displaying system orders and facilitating
agreement to the basic terms of a purchase or sale of a security between a
customer and the sponsor, or between two customers of the sponsor, through use
of the internal dealer system or through the dealer sponsor of the system.
(v) For purposes of paragraph
(C)(13)(q) of this rule "sponsor" shall mean any dealer that organizes,
operates, administers, or otherwise directly controls an internal dealer
trading system or, if the operator of the internal dealer system is not a
registered dealer , any dealer that, pursuant to contract, affiliation, or other
agreement with the system operator, is involved on a regular basis with
executing transactions in connection with use of the internal dealer system,
other than solely for its own account or as a customer with access to the
internal dealer system.
(vi) For
purposes of paragraph (C)(13)(q) of this rule , "system order" means any order
or other communication or indication submitted by any customer with access to
the internal dealer system for entry into a trading system announcing an
interest in purchasing or selling a security. "System order" does not include
inquiries or indications of interest that are not entered into the internal
dealer system.
(r) In
an easily accessible place, for a period until at least six years after the
earlier of the date an account is closed or the date on which the information
is replaced or updated and for each office and for each account with a natural
person as a customer or owner:
(i) For
purposes of this rule :
(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 associated person 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 associated
person responsible for the account, if any, and approved or accepted by a
"principal" which for purposes of paragraph (C)(13) of this rule is defined as
any individual registered with a registered national securities association as
a principal or branch manager of a dealer or any other person who has been
delegated supervisory responsibility over associated persons, of the dealer .
(b) A record indicating that:
(i) The dealer has furnished to each customer
or owner within thirty days of the opening of the account, and thereafter at
intervals no greater than thirty-six months, a copy of the account record or an
alternate document with all information required by paragraph (C)(13)(r) of
this rule . 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 alternative document furnished to the customer or
owner. The dealer shall include with the account record or alternative 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) For each
account record updated to reflect a change in the name or address of the
customer or owner, the dealer furnished a notification of that change to the
customer's old address, or to each joint owner, and the associated person, if
any, responsible for that account, on or before the thirtieth day after the
date the dealer received notice of the change.
(iii) For each change in the account's
investment objectives the dealer has furnished to each customer or owner, and
the associated person, if any, responsible for that account a copy of the
updated customer account record or alternative document with all information
required to be furnished by paragraph (C)(13)(r)(i)(b)(i) of this rule , on or
before the thirtieth day after the date the dealer received notice of any
change, or, if the account was updated for some reason other than the firm
receiving notice of a change, after the date the account record was updated.
The dealer may elect to send this notification with the next statement
scheduled to be mailed to the customer or owner.
(c) For purposes of paragraph (C)(13)(r) of
this rule , the neglect, refusal, or inability of a customer or owner to provide
or update any account record information required under paragraph
(C)(13)(r)(i)(a) of this rule shall excuse the dealer from obtaining that
required information.
(d) The
account record requirements in paragraph (C)(13)(r)(i)(a) of this rule shall
only apply to accounts for which the dealer is, or has within the past
thirty-six months been, required to make a suitability determination under the
federal securities laws or under the requirements of a self-regulatory
organization of which the dealer is a member. In addition, the furnishing
requirement in paragraph (C)(13)(r)(i)(b)(i) of this rule shall not be
applicable to an account for which, within the last thirty-six months, the
dealer has not been required to make a suitability determination under the
federal securities laws or under the requirements of a self-regulatory
organization of which it is a member. This does not relieve a dealer from any
obligation arising from the rules of a self-regulatory organization of which it
is a member regarding the collection of information from a customer or owner.
(ii) If an account is a
discretionary account, a record containing the dated signature of each customer
or owner granting the authority and the dated signature of each natural person
to whom discretionary authority was granted; and
(iii) A record for each account indicating
that each customer or owner was furnished with a copy of each written agreement
entered pertaining to that account and that, if requested by the customer or
owner, the customer or owner was furnished with a fully executed copy of each
agreement.
(s) A
record:
(i) For each office, for a period of
not less than three years, the first two years in an easily accessible place,
and as to each associated person of each written customer complaint received by
the dealer concerning that associated person. The record shall include the
complainant's name and address, and account number; the date the complaint was
received; the name of any other associated person identified in the complaint;
a description of the nature of the complaint; and the disposition of the
complaint. Instead of the record, a dealer may maintain a copy of each original
complaint in a separate file by the associated person named in the complaint
along with a record of the disposition of the complaint.
(ii) Indicating that each customer of the
dealer has been provided with a notice containing the address and telephone
number of the department of the dealer to which any complaints as to the
account may be directed.
(t) For a period of not less than three
years, the first two years in an easily accessible place, a record for each
office:
(i) As to each associated person
listing each purchase and sale of a security attributable, for compensation
purposes, to that associated person. The record shall include the amount of
compensation if monetary and a description of the compensation if non-monetary.
In lieu of making this record, a dealer may elect to produce the required
information promptly upon request of the division .
(ii) Of all agreements pertaining to the
relationship between each associated person and the dealer including a summary
of each associated person's compensation arrangement or plan with the dealer ,
including commission and concession schedules and, to the extent that
compensation is based on factors other than remuneration per trade, the method
by which the compensation is determined.
(u) For a period of not less than three
years, the first two years in an easily accessible place and for each office, a
record, which need not be separate from the advertisements, sales literature,
or communications, documenting that the dealer has complied with, or adopted
policies and procedures reasonably designed to establish compliance with this
rule and which require that advertisements, sales literature, or any other
communications with the public by the dealer or its associated persons be
approved by a principal.
(v) For a
period of not less than six years, the first two years in an easily accessible
place and for each office, a record for each office listing, by name or title,
each person and that office who, without delay, can explain the types of
records the firm maintains at that office and the information contained in
those records.
(w) For a period of
not less than six years, the first two years in an easily accessible place and
for each office, a record listing each principal of a dealer responsible for
establishing policies and procedures that are reasonably designed to ensure
compliance with the provisions of this rule and any applicable federal
requirements or rules of a self-regulatory organization of which the dealer is
a member that require acceptance or approval of a record by a principal.
(x) Paragraph (C)(13) of this rule
shall not be deemed to require a dealer to make or keep records of transactions
cleared for the dealer as are customarily made and kept by a clearing dealer
provided that the clearing dealer has and maintains net capital of not less
than that required by 17 C.F.R. 240.15 c3-1, as amended.
(y) Paragraph (C)(13) of this rule shall not
be deemed to require a dealer to make or keep records of transactions cleared
for the dealer by a bank as are customarily made and kept by a clearing dealer ,
provided the dealer obtains from the bank an agreement in writing to the effect
that the records made and kept by the bank are the property of the dealer and
that the bank files with the division a written undertaking in a form
acceptable to the division and signed by a duly authorized person, that the
books and records are available for examination by the division and that the
bank will furnish to the division , upon demand, true, correct, complete, and
current copies of any or all of the records. The undertaking shall include the
following provisions:
The undersigned hereby undertakes to maintain and preserve on
behalf of [
Nothing herein contained shall be deemed to relieve the
(z)
Any report the division , the securities and exchange commission or any
self-regulatory organization has requested pursuant to order or settlement, and
any examination report shall be retained in an easily accessible place by the
dealer for a period of not less than three years after the date of the report.
(aa) Any compliance, supervisory,
and procedures manual, including any updates, modifications, and revisions to
the manual, describing the policies and practices of the dealer with respect to
compliance and supervision of the activities of each natural person associated
with the dealer shall be retained in an easily accessible place by the dealer
until three years after the termination of the use of the manual.
(bb) All reports produced to review for
unusual activity in customer accounts shall be retained by the dealer in an
easily accessible place for a period until eighteen months after the date the
report was generated. In lieu of maintaining the reports, a dealer may produce
promptly the reports upon request by the division . If a report was generated in
a computer system that has been changed in the most recent eighteen month
period in a manner such that the report cannot be reproduced using historical
data in the same format as it was originally generated, the report may be
produced by using the historical data in the current system, but must be
accompanied by a record explaining each system change which affected the
reports. If a report is generated in a computer system that has been changed in
the most recent eighteen month period in a manner such that the report cannot
be reproduced in any format using the historical data, the dealer shall
promptly produce upon request a record of the parameters that were used to
generate the report at the time specified by the division , including a record
of the frequency with which the reports were generated.
(cc) Records for the most recent two year
period required to be made pursuant to paragraphs (C)(13)(a), (C)(13)(f),
(C)(13)(g), (C)(13)(l), (C)(13)(r), (C)(13)(s)(i), (C)(13)(t), (C)(13)(u),
(C)(13)(v), (C)(13)(w), and (C)(13)(bb) of this rule and paragraph (C)(2)(c) of
this rule which relate to an office shall be maintained at the office to which
they relate. If an office is a private residence where only one associated
person, or multiple associated persons who reside at that location and are
members of the same immediate family, regularly conducts business, and it is
not held out to the public as an office nor are funds or securities of any
customer of the dealer handled there, the dealer need not maintain records at
that office, but the records must be maintained at another location within the
same state as the dealer may select. Rather than maintain the records at each
office, the dealer may choose to produce the records promptly at the request of
the division .
(D) Branch offices
(1) Dealers shall file a paper uniform form
BR for each new and existing branch office through the CRD. A form BR is
considered filed with the division upon acceptance by the CRD.
(2) Dealers shall amend applicable paper
forms U4 through the CRD to assign any securities salespersons working in
existing branch offices, to the offices from which they work, and to record the
termination of securities salespersons.
(3) Dealers shall promptly file with the
division updates and amendments to paper forms BR, U4, and U5.
(E) Notice of change of dealer
information
Whenever there is any change in the principals, partners,
officers or directors of a
(F) Notice required
upon discontinuance of a salesperson's employment.
(1) Upon the resignation or discharge of a
salesperson, the dealer employing such salesperson shall, within thirty
calendar days, deliver to the division a request to cancel the license of the
salesperson. The request shall be made on form U-5, "Uniform Termination Notice
for Securities Industry Registration." Dealers shall submit changes to the
division on a paper form U-5.
(2)
Except as hereinafter provided, a request to cancel the license or withdraw the
license application of a salesperson shall become effective on the sixtieth day
after the filing thereof with the division , or within such shorter period of
time as the division may determine. If, prior to the effective date of a
request to cancel the license or withdraw the license application of a
salesperson, the division has instituted a proceeding to suspend or revoke the
license, or deny or refuse the license application of the salesperson, the
request to cancel the license or withdraw the license application of a
salesperson shall not become effective except at such time and upon such terms
and conditions as the division deems necessary or appropriate in the public
interest or for the protection of investors.
(G) Withdrawal. Except as hereinafter
provided, a notice to withdraw from licensure as a dealer shall become
effective on the sixtieth day after the filing thereof with the division , or
within such shorter period of time as the division may determine. If, prior to
the effective date of a notice of withdrawal from licensure as a dealer , the
division has instituted a proceeding to suspend, revoke, deny or refuse the
license of the dealer , the notice of withdrawal shall not become effective
except at such time and upon such terms and conditions as the division deems
necessary or appropriate in the public interest or for the protection of
investors.
(H) Sale of securities
on bank premises.
(1) Applicability.
Paragraphs (H)(1) to (H)(4) of this rule shall apply exclusively to
broker-dealer services conducted by dealers on the premises of a bank where
retail deposits are taken. Paragraph (H) of this rule does not alter or
abrogate a dealer 's obligations to comply with other applicable laws, rules, or
regulations that may govern the operations of dealers and their salespersons,
including but not limited to, supervisory obligations. These rules do not apply
to broker-dealer services provided to non-retail customers.
(2) For purposes of paragraphs (H)(1) to
(H)(4) of this rule , the following terms have the meanings indicated:
(a) "Bank" means any bank, trust company,
savings and loan association, savings bank, or credit union that is
incorporated or organized under the laws of the United states, any state of the
United States, Canada, or any province of Canada and that is subject to
regulation or supervision by that country, state, or province, that is located
in this state, and the service corporations located in this state of such bank,
trust company, savings and loan association, savings bank, or credit union.
(b) "Networking arrangement" means
a contractual or other arrangement between a dealer and a bank pursuant to
which the dealer conducts broker-dealer services on the premises of the bank
where retail deposits are taken.
(c) "Broker-dealer services" means the
investment banking or securities business carried on by a broker, dealer or
municipal securities dealer , other than a bank or department or division of a
bank, or government securities broker or dealer , of underwriting or
distributing issues of securities, or of purchasing securities and offering the
same for sale as a dealer , or of purchasing and selling securities upon the
order and for the account of others.
(3) Standards for dealer conduct. No dealer
shall conduct broker-dealer services on the premises of a bank where retail
deposits are taken unless the dealer complies initially and continuously with
the following requirements:
(a) Setting.
Wherever practical, broker-dealer services shall be conducted in a physical
location distinct from the area in which the bank's retail deposits are taken.
In all situations, the dealer shall identify its services in a manner that
clearly distinguishes those services from the bank's retail deposit-taking
activities. The dealer 's name shall be clearly displayed in the area in which
the dealer conducts its broker-dealer services.
(b) Networking arrangements shall be governed
by a written agreement that sets forth the responsibilities of the parties and
the compensation arrangements. Networking arrangements must provide that
supervisory personnel of the dealer and representatives of state securities
authorities, where authorized by state law, will be permitted access to the
bank's premises where the dealer conducts broker-dealer services in order to
inspect the books and records and other relevant information maintained by the
dealer with respect to its broker-dealer services. The dealer shall be
responsible for ensuring that the networking arrangement clearly outlines the
duties and responsibilities of all parties.
(c) Customer disclosure and written
acknowledgment.
(i) Subject to paragraph
(H)(4) of this rule , at or prior to the time that a customer's securities
brokerage account is opened by a dealer on the premises of a bank where retail
deposits are taken, the dealer shall:
(a)
Disclose, orally and in writing, that the securities products purchased or sold
in a transaction with the dealer :
(i) Are not
insured by the federal deposit insurance corporation;
(ii) Are not deposits or other obligations of
the bank and are not guaranteed by the bank; and
(iii) Are subject to investment risks,
including possible loss of the principal invested.
(b) Make reasonable efforts to obtain from
each customer during the account opening process a written acknowledgment of
the disclosures required by paragraph (H)(3)(c)(i)(a) of this rule .
(ii) If broker-dealer services
include any written or oral representations concerning insurance coverage,
other than federal deposit insurance corporation insurance coverage, then clear
and accurate written or oral explanations of the coverage must also be provided
to the customers when such representations are first made.
(d) Communications with the
public.
(i) Confirmations, advertisements and
recommendations:
(a) All of the dealer 's
confirmations and account statements must indicate clearly that the
broker-dealer services are provided by the dealer .
(b) Subject to paragraph (H)(4) of this rule ,
advertisements and sales literature that announce the location of a bank where
broker-dealer services are provided by the dealer , or that are distributed by
the dealer on the premises of a bank, must disclose that securities products:
(i) Are not insured by the federal deposit
insurance corporation;
(ii) Are
not deposits or other obligations of the bank and are not guaranteed by the
bank; and
(iii) Are subject to
investment risks, including possible loss of the principal invested. The
shorter, logo format described in paragraph (H)(3)(d)(ii)(a) of this rule may
be used to provide these disclosures.
(c) Recommendations by a dealer concerning
non-deposit investment products with a name similar to that of the bank must
only occur pursuant to a sales program designed to minimize the risk of
customer confusion.
(ii) Logo format disclosures:
(a) Subject to paragraph (H)(4) of this rule ,
the following shorter, logo format disclosures may be used by a dealer in
advertisements and sales literature, including material published, or designed
for use, in radio or television broadcasts, automated teller machine screens,
billboards, signs, posters and brochures, to comply with the requirements of
paragraph (H)(3)(d)(i)(b) of this rule , provided that such disclosures are
displayed in a conspicuous manner:
(i) Not
FDIC insured;
(ii) No bank
guarantee; and
(iii) May lose
value.
(b) As long as
the omission of the disclosures required by paragraph (H)(3)(d)(i)(b) of this
rule would not cause the advertisement or sales literature to be misleading in
light of the context in which the material is presented, such disclosures are
not required with respect to messages contained in:
(i) Radio broadcasts of thirty seconds or
less;
(ii) Electronic signs,
including billboard-type signs that are electronic, time, and temperature signs
and ticker tape signs, but excluding messages contained in such media as
television, on-line computer services, or automated teller machines; and
(iii) Signs, such as banners and
posters, when used only as location indicators.
(e) Notification of
termination. The dealer must promptly notify the bank if any salesperson of the
dealer who is employed by the bank is terminated for cause by the dealer .
(4) If paragraph (H) of
this rule requires a dealer to disclose that securities products are not
insured by the federal deposit insurance corporation, and the dealer is
providing broker-dealer services on the premises of a bank with deposits
insured by a program other than the federal deposit insurance corporation, the
dealer shall instead disclose that the securities products purchased or sold in
a transaction with the dealer are not insured by the other deposit insurance
program.
(I) As used in
this rule, all terms shall be construed pursuant to generally accepted
accounting principles, consistently applied.
(J) Financial requirement for dealer
applicant.
(1) An applicant for a dealer 's
license shall furnish to the division an audited financial statement, sworn by
the applicant, showing a net capital of at least twenty-five thousand dollars.
A licensed dealer shall at all times maintain a net capital of at least
twenty-five thousand dollars.
(2)
When the division determines that the net capital requirements of paragraph
(K)(1) of this rule are not necessary for the protection of investors, the
division may reduce the net capital requirement to not less than ten thousand
dollars. Any reduction shall be given in writing.
(3) A dealer may meet the financial
requirement of paragraph (J)(1) of this rule if:
(a) The dealer has executed and filed with
the division a bond in the amount of twenty-five thousand dollars, with a
surety approved by the division , effective for a period of at least one year,
and valid for the upcoming year in the case of the renewal of a dealer 's
license. The surety bond shall indemnify any person who may be damaged by a
failure of the dealer to conduct its business in accordance with Chapter 1707.
of the Revised Code or rules promulgated thereunder.
(b) The dealer , if a subsidiary corporation,
has obtained and filed with the division a guarantee of liabilities by the
corporation directly or indirectly controlling the voting common stock interest
of the dealer , effective for a period of at least one year, and valid for the
upcoming year in the case of the renewal of a dealer 's license. The guarantee
shall indemnify any person who may be damaged by a failure of the dealer to
conduct its business in accordance with Chapter 1707. of the Revised Code or
rules promulgated thereunder. Any guarantor under this paragraph shall itself
meet the net capital requirement set forth in paragraph (K)(1) of this rule .
(K)
Determination of net capital for dealer .
(1)
"Net capital," as used in this rule, shall mean the difference between total
assets and total indebtedness, as determined by generally accepted accounting
principles, consistently applied, and thereafter adjusted pursuant to paragraph
(K)(2) of this rule .
(2) In
determining the net capital of a dealer , adjustments to the financial statement
of the dealer shall be made in accordance with the following schedule:
(a) The following items shall be disallowed
as assets of a dealer :
(i) Furniture and
fixtures;
(ii) Vehicles,
machinery, and equipment;
(iii)
Real estate not used in the ordinary course of business, unless the value of
the real estate is supported by an appraisal prepared by a competent,
disinterested appraiser with professional qualifications acceptable to the
division ;
(iv) Prepaid items or
expenses;
(v) Unsecured notes or
accounts receivable not acquired in the ordinary course of business;
(vi) Fixed assets which cannot be readily
converted to cash; and
(vii)
Assets of doubtful or uncertain value.
(b) The following items shall be reduced or
increased as applicable:
(i) Securities owned
shall be adjusted to market values. Securities having no "readily determinable
value" as defined by rule
1301:6-3-01 of the
Administrative Code shall be valued at zero. Securities for which the dealer is
the primary market maker shall be valued at zero unless the dealer provides
substantial and reliable evidence satisfactory to the division supporting
another valuation;
(ii) Stock
exchange seats shall be adjusted to market values;
(iii) Where the market value of the
securities pledged as collateral to secure or partially secure accounts
receivable is less than the amount due or shown as secured, they shall be
reduced to the market value of the securities;
(iv) The net value of secured notes or
accounts receivable not acquired in the ordinary course of business shall be
reduced to the fair market value of the collateral pledged;
(v) The net value of notes or accounts
receivable acquired in the ordinary course of business shall be reduced by the
lesser of ten per cent of their book value or two hundred thousand dollars;
(vi) When an interest in real
property is exchanged in whole or in part for an equity interest in a dealer ,
the value of the interest in real estate, as reflected in the financial
statements of the dealer , shall be reduced (but not increased) to the value
supported by appraisals made by competent, disinterested appraisers with
professional designations and qualifications acceptable to the division ; and
(vii) Subordinated debt which is
subject to a subordination agreement satisfactory to the division may be added
to the net worth of a dealer .
(L) Financial statements and related
disclosures to be filed with the division by dealer .
(1) Annually, within ninety days of the end
of its fiscal year, every dealer shall file financial statements and related
disclosures required by generally accepted accounting principles with the
division prepared in accordance with the following requirements:
(a) The financial statements and related
disclosures required by generally accepted accounting principles shall be
audited by an independent certified public accountant who is duly registered
and in good public standing under the laws of the accountant's place of
residence or principal office.
(b)
The financial statements and related disclosures required by generally accepted
accounting principles shall be under the oath or affirmation of the dealer
attesting that, to the best knowledge and belief of the person making the oath
or affirmation, the financial statement and supporting schedules are true and
correct and neither the dealer nor any partner, officer or director of the
dealer has any proprietary interest in any account classified as that of a
customer.
(c) The financial
statements and related disclosures shall be prepared in accordance with
generally accepted accounting principles, consistently applied, and audited in
accordance with generally accepted auditing standards, and shall be accompanied
by a certificate of the independent public accountant who audited the
statement, which certificate shall:
(i) State
that the financial statements and related disclosures present fairly, in all
material respects, the financial position of the dealer ;
(ii) State that the audit was made in
accordance with the applicable generally accepted auditing standards;
(iii) Be dated, manually signed,
and identify the items of the report covered by the certificate;
(iv) State whether the audit omitted any of
the minimum audit requirements or any procedure deemed necessary by the
independent public accountant under the circumstances of the audit;
(v) State clearly the unqualified opinion of
the independent public accountant with respect to the accounting principles and
practices reflected in the financial statements and related disclosures covered
by the certificate; and
(vi)
Specifically identify any matters to which the independent public accountant
takes exception and the effect of each exception on the related item of the
report.
(2)
In lieu of the financial statements and related disclosures required by
generally accepted accounting principles required by paragraph (L)(1) of this
rule , a dealer may submit to the division a manually signed and duly verified
duplicate of the current fiscal year end report required by 17 C.F.R. 240.17
a-5, as amended.
(3) The division
may require other or additional reports during any calendar year and may
require that the reports be audited by an independent certified public
accountant and under the oath and affirmation of the dealer .
Notes
Promulgated Under: 119.03
Statutory Authority: 1707.20, 1707.142
Rule Amplifies: 1707.142
Prior Effective Dates: 01/28/2000, 11/27/2000, 08/05/2007, 01/15/2009
Promulgated Under: 119.03
Statutory Authority: 1707.20
Rule Amplifies: 1707.142
Prior Effective Dates: 1/28/00, 11/27/00
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