Tenn. Comp. R. & Regs. 0780-04-03-.14 - AGENCY CROSS TRANSACTIONS FOR INVESTMENT ADVISORY CLIENTS

(1) It shall constitute an act, practice, or course of business which operates or would operate as a fraud or deceit upon another person within the meaning of T.C.A. § 48-1-121(b)(2) of the Act for any investment adviser acting as principal for his own account to:

(a) Knowingly sell any security to or to purchase any security from a client without:

1. Disclosing to such client, in writing, before the completion of such transaction, the capacity in which he is acting; and

2. Obtaining the consent of the client to such transaction; or

(b) Knowingly effect any sale or purchase of any security for the account of such client, while acting as broker-dealer for a person other than such client, without:

1. Disclosing to such client, in writing, before the completion of such transaction, the capacity in which he is acting; and

2. Obtaining the consent of the client to such transaction.

The prohibitions of this paragraph (1) shall not apply to any transaction with a customer of a broker-dealer if such broker-dealer is not acting as an investment adviser in relation to such transaction.

(2) An investment adviser registered under T.C.A. § 48-1-109, or a person registered as a broker-dealer under T.C.A. § 48-1-109 and controlling, controlled by, or under common control with an investment adviser registered under T.C.A. § 48-1-109 shall be deemed not to be in violation of the provisions of this Rule and T.C.A. § 48-1-121(b)(2) in effecting an agency cross transaction for an advisory client, if:

(a) The advisory client has executed a written consent prospectively authorizing the investment adviser, or any other person relying on this Rule, to effect agency cross transactions for such advisory client, provided that such written consent is obtained after full written disclosure with respect to agency cross transactions for which the investment adviser or such other person will act as broker-dealer for, receive commissions from, and have a potentially conflicting division of loyalties and responsibilities regarding, both parties to such transactions;

(b) The investment adviser, or any other person relying on this Rule, sends to each client a written confirmation at or before the completion of each such transaction, which confirmation includes:

1. A statement of the nature of such transaction;

2. The date such transaction took place;

3. An offer to furnish upon request, the time when such transaction took place; and

4. The source and amount of any other remuneration received or to be received by the investment adviser and any other person relying on this paragraph (2) in connection with the transaction;

(c) The investment adviser, or any other person relying on this Rule, sends to each client, at least annually, and with or as part of any written statement or summary of such account form the investment adviser of such other person:

1. A written disclosure statement identifying the total number of such transactions during the period since the date of the last such statement or summary; and

2. The total amount of all commissions or other remuneration received or to be received by the investment adviser or any other person relying on this Rule in connection with such transactions during such period;

(d) Each written disclosure and confirmation required by this Rule includes a conspicuous statement that the written consent referred to in subparagraph (2)(a) of this Rule may be revoked at any time by written notice to the investment adviser, or any other person relying on this paragraph, from the advisory client; and

(e) No such transaction is effected in which the same investment adviser or an investment adviser and any person controlling, controlled by, or under common control with such investment adviser recommended the transaction to both any seller and any purchaser.

(3) For purposes of this Rule, the term "agency cross transaction for an advisory client" shall mean a transaction in which a person acts as an investment adviser in relation to a transaction in which such investment adviser, or any person controlling, controlled by, or under common control with such investment adviser, acts as broker-dealer for both such advisory client and for another person on the other side of the transaction.

(4) For purposes of part (2)(b)4. of this Rule, the written confirmation referred to in such Rule 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 if:

(a) In the case of a purchase, neither the investment adviser nor any other person relying on paragraph (2) was participating in a distribution; or

(b) In the case of a sale, neither the investment adviser nor any other person relying on this paragraph was participating in a tender offer.

(5) This Rule shall not be construed as relieving in any way the investment adviser or another person relying on this Rule from acting in the best interests of the advisory client, including fulfilling the duty with respect to the best price and execution for the particular transaction for the advisory client; nor shall it relieve such person or persons from any disclosure obligation which may imposed by T.C.A. § 48-1-121(b)(2) or by other applicable provisions of the Act.

Notes

Tenn. Comp. R. & Regs. 0780-04-03-.14

Original rule filed November 6, 1997; effective January 20, 1998. Repeal and new rule filed March 16, 2015; effective 6/14/2015.

Authority: T.C.A. §§ 48-1-109, 48-1-115, 48-1-116, 48-1-121, Public Acts of 1997, Chapter 164, §7, §222 of the Investment Advisers Act of 1940, as amended by §304 of the National Securities Markets Improvement Act of 1996, and 17 C.F.R. §275.206(3)-2.