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The Oregon Administrative Rules contain OARs filed through November 15, 2014
 
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DEPARTMENT OF CONSUMER AND BUSINESS SERVICES,
DIVISION OF FINANCE AND CORPORATE SECURITIES

 

DIVISION 205

DENIAL, SUSPENSION, OR REVOCATION OF LICENSE

 

441-205-0010

Dishonest, Fraudulent, Unfair and Unethical Practices

As used in section (2) of ORS 59.205, the terms "dishonest, fraudulent, or illegal practices or conduct," and "unfair or unethical practices or conduct," separately or in any combination thereof, shall include, but not be limited to, those acts defined herein as "manipulative, deceptive, or fraudulent device or contrivance" or "fraudulent, deceptive or manipulative act or practice."

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2 and 815-030-0115

441-205-0020

General Definition

"Manipulative, Deceptive, or Fraudulent Device or Contrivance" and "Fraudulent, Deceptive, or Manipulative Act or Practice" are defined to include:

(1) Any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

(2) The making of any untrue statement of a material fact and any omission to state a material fact necessary in order to make the statements made in the light of the circumstances under which they are made not misleading.

(3) Any representation by a person that the registration of any person with the Director or the failure of the Director to deny or revoke such registration indicates in any way that the Director has passed upon or approved the financial standing, business, or conduct of any person or the merits of any security or any transaction or transactions therein.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-1 and 815-030-0120

441-205-0030

Confirmation of Transaction

The term "Manipulative, Deceptive, or Fraudulent Device or Contrivance" as used in these rules is defined to include:

(1) Any act of any broker-dealer designed to effect with or for 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. Tax Savings Notes, U.S. Defense Savings Stamps, or U.S. Defense Savings Bonds, Series E, F, and G), unless such broker-dealer, at or before the completion of each such transaction, gives or sends to such customer at a bona fide address written notification disclosing:

(a) Whether he is acting as a broker-dealer for such customer, as a broker-dealer for his own account, as a broker-dealer for some other person, or as a broker-dealer for both such customers and some other persons; and

(b) In any case in which he is acting as a broker-dealer for such customer or for both such customer and some other person, either the name of the person from whom the security was purchased or to whom it was sold for such customer and the date and time when such transaction took place or the fact that such information will be furnished upon the request of such customer and the source and amount of any commission or other remuneration received or to be received by him in connection with the transaction.

(2) As used in these rules, the term "Bona Fide Address" means the last-known home address, business address, or post office box of a customer. Copies of the notification may be mailed to an accountant, adviser, bank, or such other person or firm as authorized in writing by the customer. The address of a broker-dealer or the address of an associated person or employee (unless the transaction is for the account of the associated person or employee) is not a "Bona Fide Address" for a customer within the meaning of these rules.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-2 and 815-030-0125

441-205-0040

Disclosure of Control

The term "Manipulative, Deceptive, or Other Fraudulent Device or Contrivance," as used in these rules, is hereby defined to include any act of any broker-dealer controlled by, controlling, or under common control with, the issuer of any security, designed to effect with or for the account of a customer any transaction in, or to induce the purchase or sale by such customer of, such security, unless such broker-dealer, before entering into any contract with or for such customer for the purchase or sale of such security, discloses to such customer the existence of such control and unless such disclosure, if not made in writing, is supplemented by the giving or sending of written disclosure at or before the completion of the transaction.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73 ef. 9-1-73, Renumbered from 815-030-0205.2-3 and 815-030-0130

441-205-0050

Disclosure of Interest in Distributions

The term "Manipulative, Deceptive or Other Fraudulent Device or Contrivance," as used in these rules, is hereby defined to include any act of any broker-dealer who is acting for a customer or for both such customer and some other person, or of any broker-dealer who receives or has promise of receiving a fee from a customer for advising such customer with respect to securities, designed to effect with or for the account of such customer any transaction in, or to induce the purchase or sale by such customer of, any security in the primary or secondary distribution of which such broker-dealer is participating or is otherwise financially interested unless such broker-dealer at or before the completion of each such transaction, gives or sends to such customer written notification of the existence of such participation or interest.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-4 and 815-030-0135

441-205-0060

Sales at the Market

The term "Manipulative, Deceptive, or Other Fraudulent Device or Contrivance," as used in these rules, is hereby defined to include any representation made to a customer by a broker-dealer that such security is being offered to such customer "At the Market" or at a price related to the market price, unless such broker-dealer knows or has reasonable grounds to believe that a market for such security exists other than that made, created, or controlled by him, or by any person for whom he is acting or with whom he is associated in such distribution, or by any person controlled by, controlling or under common control with him.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-5 and 815-030-0140

441-205-0070

Use of Pro Forma Balance Sheets

The term "Manipulative, Deceptive, or Other Fraudulent Device or Contrivance," as used in these rules, is hereby defined to include the use of financial statements purporting to give effect to the receipt and application of any part of the proceeds from the sale or exchange of securities, unless the assumptions upon which each such financial statement is based are clearly set forth as part of the caption to each such statement in type at least as large as that used generally in the body of the statement.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-6 and 815-030-0145

441-205-0080

Disclosure and Other Requirements When Extending or Arranging Credit in Certain Transactions

(1) It shall constitute a "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, for any broker-dealer to offer or sell any security to, or to attempt to induce the purchase of any security by, any person in connection with which such broker-dealer, directly or indirectly, offers to extend any credit to or to arrange any loan for such person, or extends any credit to or participates in arranging any loan for such person, unless such broker-dealer, before any purchase, loan or other related element of the transaction is entered into:

(a) Delivers to such person a written statement setting forth the exact nature and extent of:

(A) Such person's obligations under the particular loan arrangement, including among other things, the specific charges which such person will incur under such loan in each period during which the loan may continue or be extended;

(B) The risks and disadvantages which such person will incur in the entire transaction, including the loan arrangement; and

(C) All commissions, discounts, and other remuneration received and to be received, in connection with the entire transaction, including the loan arrangement, by the broker-dealer, by any person controlling, controlled by, or under common control with the broker-dealer and by any other person participating in the transaction; and

(b) Obtains from such person information concerning his financial situation and needs, reasonably determines that the entire transaction, including the loan arrangement, is suitable for such person and delivers to such person a written statement setting forth the basis upon which the broker-dealer made such determination.

(2) This rule shall not apply to any credit extended or any loan arranged by any broker-dealer subject to the provisions of Regulation T (issued by the Board of Governors of the Federal Reserve System), if such credit is extended or such loan is arranged, in compliance with the requirements of such regulation, only for the purpose of purchasing or carrying the security offered or sold.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-7 and 815-030-0150

441-205-0090

Identification of Quotations

(1) It shall constitute a "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, for any broker-dealer to effect any transaction in, or induce or attempt to induce the purchase or sale of any security by making a fictitious quotation.

(2) It shall constitute an attempt to induce the purchase or sale of a security by making a "Fictitious Quotation," within the meaning of these rules, for any broker-dealer to furnish or submit, directly or indirectly, any quotation for a security to an inter-dealer-quotation system, unless:

(a) The inter-dealer-quotation system is informed, if such is the case, that the quotation is furnished or submitted:

(A) By a correspondent broker-dealer for the account or in behalf of another broker-dealer and, if so, the identity of such other broker-dealer; and/or

(B) In furtherance of one or more other arrangements (including a joint account, guarantee of profit, guarantee against loss, commission, markup, markdown, indication of interest and accommodation arrangement) between or among broker-dealers and, if so, the identity of each broker-dealer participating in any such arrangement or arrangements; provided, however, that the provisions of this subparagraph shall not apply if only one of the broker-dealers participating in any such arrangement or arrangements furnishes or submits a quotation with respect to the security to an inter-dealer-quotation system.

(b) The inter-dealer-quotation system to which the quotation is furnished or submitted makes it a general practice to disclose with each published quotation, by appropriate symbol or otherwise, the category or categories (paragraphs (2)(a)(A) and/or (B) of this rule) in furtherance of which the quotation is submitted, and the identities of all other broker-dealers referred to in paragraphs (2)(a)(A) and (B) of this rule where such information is supplied to the inter-dealer-quotation system under the provisions of subsection (2)(a) of this rule.

(3) It shall constitute an attempt to induce the purchase or sale of a security by making a "Fictitious Quotation," within the meaning of these rules, for a broker-dealer to enter into any correspondent or other arrangement (including a joint account, guarantee of profit, guarantee against loss, commission, markup, markdown, indication of interest and accommodation arrangement) in furtherance of which two or more broker-dealers furnish or submit quotations with respect to a particular security, unless such broker-dealer informs all broker-dealers furnishing or submitting such quotations of the existence of such correspondent and other arrangements and the identity of the parties thereto.

(4) For purposes of this rule:

(a) The term "Inter-Dealer-Quotation System" shall mean any system of general circulation to broker-dealers in Oregon which regularly disseminates quotations of identified broker-dealers, but shall not include a quotation sheet prepared and distributed by a broker-dealer in the regular course of his business and containing only quotations of such broker-dealer;

(b) The term "Quotation" shall mean any bid or offer, or any indication of interest (such as OW or BW) in any bid or offer;

(c) The term "Correspondent" shall mean a broker-dealer who has a direct line of communication to another broker-dealer located in a different city or geographic area.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-8 and 815-030-0155

441-205-0100

Discretionary Accounts

(1) The term "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, is hereby defined to include any act of any broker-dealer or associated person designed to effect with or for any customer's account with respect to which he is vested with any discretionary power, any transactions of purchase or sale which are excessive in size or frequency in view of the financial resources and character of such account.

(2) The term "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, is hereby defined to include any act of any broker-dealer designed to effect with or for any customer's account with respect to which such broker-dealer or associated person is vested with any discretionary power any transaction of purchase or sale, unless immediately after effecting such transaction such broker-dealer makes a record of such transaction, which record includes the name of such customer; the name, amount and price of the security; and the date and time when such transaction took place.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-9 and 815-030-0160

441-205-0110

Hypothecation of Customer's Securities

(1) General Provisions. The term "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, is hereby defined to include the direct or indirect hypothecation by a broker-dealer, or his arranging for or permitting, directly or indirectly, the continued hypothecation of any securities carried for the account of any customer under circumstances:

(a) That will permit the commingling of securities carried for the account of any such customer with securities carried for the account of any other customer, without first obtaining the written consent of each such customer to such hypothecation;

(b) That will permit such securities to be commingled with securities carried for the account of any person other than a bona fide customer of such broker-dealer under a lien for a loan made to such broker-dealer; or

(c) That will permit securities carried for the account of customers to be hypothecated, or subjected to any lien or liens or claims of the pledgee or pledgees, for a sum which exceeds the aggregate indebtedness of all customers in respect of securities carried for their accounts; except that this clause shall not be deemed to be violated by reason of an excess arising on any day through the reduction of the aggregate indebtedness of customers on such day; provided that funds or securities in an amount sufficient to eliminate such excess are paid or placed in transfer to pledgee for the purpose of reducing the sum of the liens or claims to which securities carried for the account of customers are subject as promptly as practicable after such reduction occurs, but before the lapse of one-half hour after the commencement of banking hours on the next banking day at the place where the largest principal amount of loans of such broker-dealer are payable and, in any event, before such broker-dealer on such day has obtained or increased any bank loan collateralized by securities carried for the account of customers.

(2) Definitions. For the purposes of this rule:

(a) The term "Customer" shall not be deemed to include any general or special partner or any director or officer of such broker-dealer, or any participant, as such, in any joint, group, or syndicate account with such broker-dealer or with any partner, officer, or director thereof;

(b) The term "securities carried for the account of any customer" shall be deemed to mean:

(A) Securities received by or on behalf of such broker-dealer for the account of any customer;

(B) Securities sold and appropriated by such broker-dealer to a customer, except that, if such securities were subject to a lien when appropriated to a customer, they shall not be deemed to be "Securities Carried for the Account of Any Customer" pending their release from such lien as promptly as practicable;

(C) Securities sold, but not appropriated, by such broker-dealer to a customer who has made any payment therefor, to the extent that such broker-dealer owns and has received delivery of securities of like kind, except that, if such securities were subject to a lien when such payment was made, they shall not be deemed to be "Securities Carried for the Account of Any Customer" pending their release from such lien as promptly as practicable.

(c) "Aggregate Indebtedness" shall not be deemed to be reduced by reason of uncollected items. In computing aggregate indebtedness, related guaranteed and guarantor accounts shall be treated as a single account and considered on a consolidated basis, and balances in accounts carrying both long and short positions shall be adjusted by treating the market value of the securities required to cover such short positions as though such market value were a debit; and

(d) In computing the sum of the liens or claims to which securities carried for the account of customers of a broker-dealer are subject, any rehypothecation of such securities by another broker-dealer who is subject to this rule shall be disregarded.

(3) Exemption for Cash Accounts. The provisions of subsection (1)(a) of this rule shall not apply to any hypothecation of securities carried for the account of a customer in a special cash account within the meaning of section 4(c) of Regulation T of the Board of Governors of the Federal Reserve System; provided that, at or before the completion of the transaction of purchase of such securities for, or of sale of such securities to such customer, written notice is given or sent to such customer disclosing that such securities are or may be hypothecated under circumstances which will permit the commingling thereof with securities carried for the account of other customers.

(4) Exemption for Clearing Liens. The provisions of subsections (1)(b) and (c), and section (6) of this rule shall not apply to any lien or claim of the clearing corporation, or similar department or association, of a national securities exchange or a registered national securities association, for a loan made and to be repaid on the same calendar day, which is incidental to the clearing of transactions in securities or loans through such corporation, department, or association; provided, however, that for the purpose of subsection (1)(c) of this rule, "Aggregate Indebtedness of All Customers in Respect of Securities Carried for Their Accounts" shall not include indebtedness in respect of any securities subject to any lien or claim exempted by this paragraph.

(5) Exemption for Certain Liens on Securities of Noncustomers. The provisions of subsection (1)(b) of this rule shall not be deemed to prevent such broker-dealer from permitting securities not carried for the account of a customer to be subjected:

(a) To a lien for a loan made against securities carried for the account of customers; or

(b) To a lien for a loan made and to be repaid on the same calendar day. For the purpose of this exemption, a loan shall be deemed to be "made against securities carried for the account of customers" if only securities carried for the account of customers are used to obtain or to increase such loan or as substitutes for other securities carried for the account of customers.

(6) Notice and Certification Requirements. No person subject to this rule shall hypothecate any security carried for the account of a customer unless, at or prior to the time of each such hypothecation, he gives written notice to the pledgee that the security pledged is carried for the account of a customer and that such hypothecation does not contravene any provision of this rule, except that, in the case of an omnibus account, the broker-dealer for whom such account is carried may furnish a signed statement to the person carrying such account that all securities carried therein by such broker-dealer will be securities carried for the account of his customers and that the hypothecation thereof by such broker-dealer will not contravene any provision of this rule. The provisions of this clause shall not apply to any hypothecation of securities under any lien or claim of a pledgee securing a loan made and to be repaid on the same calendar day.

(7) The fact that securities carried for the accounts of customers and securities carried for the accounts of others are represented by one or more certificates in the custody of a clearing corporation or other subsidiary organization of either a national securities exchange or of a registered national securities association, or of a custodian bank, in accordance with a system for the central handling of securities established by a national securities exchange or a registered national securities association, pursuant to which system the hypothecation of such securities is effected by bookkeeping entries without physical delivery of such securities, shall not, in and of itself, result in a commingling of securities prohibited by subsection (1)(a) or (b) of this rule, whenever a participating broker-dealer hypothecates securities in accordance with such system; provided, however, that:

(a) Any such custodian of any securities held by or for such system shall agree that it will not for any reason, including the assertion of any claim, right, or lien of any kind, refuse or refrain from promptly delivering any such securities (other than securities then hypothecated in accordance with such system) to such clearing corporation or other subsidiary organization or as directed by it, except that nothing in such agreement shall be deemed to require the custodian to deliver any securities in contravention of any notice of levy, seizure, or similar notice or order, or judgment, issued or directed by a governmental agency or court or officer thereof, having jurisdiction over such custodian, which on its face affects such securities;

(b) Such systems shall have safeguards in the handling, transfer, and delivery of securities and provisions for fidelity bond coverage of the employees and agents of the clearing corporation or other subsidiary organization and for periodic examinations by independent public accountants; and

(c) The provisions of section (7) of this rule shall not be effective with respect to any particular system unless the agreement required by subsection (a) of this section and the safeguards and provisions required by subsection (b) of this section shall have been deemed adequate by the Director or the Securities and Exchange Commission for the protection of investors, and unless any subsequent amendments to such agreements, safeguards, or provisions shall have been deemed adequate by the Director or the Securities and Exchange Commission for the protection of investors.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-10 and 815-030-0165

441-205-0120

Transmission or Maintenance of Payments Received in Connection With Underwritings

It shall constitute a "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, for any broker-dealer participating in any distribution of securities, other than a firm commitment underwriting, to accept any part of the sale price of any security being distributed unless:

(1) The money or other consideration received is promptly transmitted to the persons entitled thereto; or

(2) If the distribution is being made on an "all-or-none" basis, or subject to an order of the Director under ORS 59.085 (3)(b), or on any other basis which contemplates that payment is not to be made to the person on whose behalf the distribution is being made until some further event or contingency occurs:

(a) The money or other consideration received is promptly deposited in a separate bank account, as agent or trustee for the persons who have the beneficial interests therein, until the appropriate event or contingency has occurred, and then the funds are promptly transmitted or returned to the persons entitled thereto; or

(b) All such funds are promptly transmitted to an escrow agent who has agreed in writing to hold all such funds in escrow for the persons who have the beneficial interests therein and to transmit or return such funds directly to the persons entitled thereto when the appropriate event or contingency has occurred.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-11 and 815-030-0170

441-205-0130

Fair Dealing with Customers

The term "Manipulative, Deceptive, or Other Fraudulent Act or Practice," as used in these rules, is hereby defined to include:

(1) Recommending speculative low-priced securities to customers without knowledge of or attempt to obtain information concerning the customers' other securities holdings, their financial situation, and other necessary data.

(2) Trading in mutual fund shares on a short-term basis.

(3) Recommending the purchase of securities or the continuing purchase of securities in amounts which are inconsistent with the reasonable expectation that the customer has the financial ability to meet such a commitment.

(4) In any transaction for or with a customer failing to use reasonable diligence to ascertain the best inter-dealer market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.

(5) In any transaction for or with a customer, interjecting a third party between a broker-dealer and the best available market, except in cases where the broker-dealer can demonstrate that, to his knowledge at the time of the transaction, the total cost or proceeds of the transaction, as confirmed to the broker-dealer acting for or with the customer, was better than the prevailing inter-dealer market for the security.

(6) Failing to make a bona fide public distribution at the public offering price of securities of a public offering which immediately trade at a premium in the secondary market, regardless of whether such securities are acquired by the broker-dealer as an underwriter, a selling group member, or from a member participating in the distribution as an underwriter or selling group member, or otherwise.

(7) Establishment of fictitious accounts in order to execute transactions which otherwise would be prohibited, such as the purchase of "Hot Issues."

(8) Causing the execution of transactions which are unauthorized by customers or the sending of confirmations in order to cause customers to accept transactions not actually agreed upon.

(9) Giving, permitting to be given, or offering to give, directly or indirectly, anything of value to any person for the purpose of influencing or rewarding the action of such person in connection with the publication or circulation in any newspaper, investment service, or similar publication, of any matter which has, or is intended to have, an effect upon the market price of any security; provided that this rule shall not be construed to apply to matter which is clearly distinguishable as paid advertising.

(10) Guaranteeing a customer against loss in any securities account of such customer carried by the broker-dealer or in any securities transaction effected by the broker-dealer with or for such customer.

(11) Sharing directly or indirectly in the profits or losses in any account of a customer carried by the broker-dealer or any other broker-dealer, unless such broker-dealer or person associated with a broker-dealer obtains prior written authorization from the broker-dealer carrying the account; and unless such a broker-dealer or person associated with such broker-dealer shares in the profits or losses in any account of such customer only in direct proportion to the financial contributions made to such account by either the broker-dealer or person associated with a broker-dealer; provided, however, that this subsection shall not apply to accounts of the immediate family of such broker-dealer or person associated with a broker-dealer. For purposes of this rule, "Immediate Family" shall include parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose support the broker-dealer or person associated with a broker-dealer otherwise contributes directly or indirectly.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-12 and 815-030-0175

441-205-0135

Sales of Securities or Investment Advisory Services at Financial Institutions or Trust Companies

(1) This rule applies exclusively to securities sales activity conducted by a broker-dealer or salesperson, and to investment advisory services conducted by an investment adviser or investment adviser representative, on the premises of a financial institution or trust company as defined in ORS 706.008 and the premises of any Oregon-based service corporation of a financial institution or trust company. This rule does not alter or eliminate the obligations of a securities licensee to comply with all other securities laws and rules.

(2) A broker-dealer, salesperson, investment adviser or investment adviser representative shall not conduct securities sales or advisory activities on the premises of a financial institution or trust company unless the licensee complies initially and continuously with the following requirements:

(a) The activities shall be conducted, wherever practical, in a physical location distinct from the areas where the financial institution's or trust company's activities are conducted;

(b) The securities sales or advisory activities shall be identified in a manner that is clearly distinguished from the financial institution's or trust company's activities, including clearly displaying the name of the licensed firm conducting the securities activities;

(c) Contractual or other arrangements between the financial institution or trust company and licensee must be governed by a written agreement that sets forth:

(A) The responsibilities of the parties;

(B) The compensation arrangements;

(C) That a qualified securities supervisor will properly supervise the activities of the salesperson or investment adviser representative; and

(D) A requirement that securities regulators be permitted access during normal business hours to the area of the premises where securities sales or advisory activities are conducted and records are kept for purposes of routine or for-cause examinations or investigations of the securities sales or advisory activities;

(d) At or before a salesperson or investment adviser representative opens a customer account, the licensee shall:

(A) Disclose, both orally and in writing, that the securities products or services offered:

(i) Are not insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA), as applicable;

(ii) Are not deposits or other obligations of the financial institution or trust company;

(iii) Are not guaranteed by the financial institution or trust company; and

(iv) Are subject to investment risks, including possible loss of any principal that is invested;

(B) Obtain a written acknowledgment of receipt of the disclosures required by paragraph (2)(d)(A) of this rule from each customer during the account opening process; and

(C) Provide clear and accurate explanations of coverage including a clear and accurate description of any guarantee provided with the insurance, if making any written or oral representations concerning insurance coverage other than FDIC or NCUA insurance;

(e) All confirmations and account statements provided to customers must clearly indicate that the services are provided by the broker-dealer or investment adviser, as applicable;

(f) Except as permitted in subsections (2)(g) and (2)(h) of this rule, the disclosures described in paragraph (2)(d)(A) of this rule must be incorporated into:

(A) Advertisements and sales literature that announce the location of a financial institution where broker-dealer or investment advisory services are provided;

(B) Advertisements and sales literature distributed by or for the regulated person on the premises of a financial institution or trust company; and

(C) Correspondence, including electronic mail, with a current or potential customer;

(g) A broker-dealer or investment adviser may use the following shorter logo format disclosures in advertisements, sales literature, and written communications, including material published or designed for use in radio or television broadcasts, ATM screens, billboards, signs, posters and brochures, provided that the applicable disclosures are displayed in a conspicuous manner:

(A) Not FDIC or NCUA Insured;

(B) No Bank or Credit Union Guarantee;

(C) May Lose Value;

(h) As long as the omission of the disclosures required by paragraph (2)(d)(A) 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, the broker-dealer or investment adviser is not required to provide disclosures for the following:

(A) Radio broadcasts of 30 seconds or less;

(B) Electronic billboard-type time and temperature, or ticker tape signs; and

(C) Signs such as banners and posters when used only as location indicators;

(i) Recommendations by a regulated person concerning nondeposit investment products with a name similar to that of a financial institution or trust company may occur only pursuant to policies and procedures reasonably designed to minimize risk of customer confusion.

(3) The broker-dealer or investment adviser must promptly notify the financial institution or trust company of the termination of a salesperson or investment adviser representative conducting securities sales or investment advisory activities on the premises of the financial institution or trust company, and the reason for the termination.

Stat. Auth.: ORS 59.285
Stats. Implemented: ORS 59.135, 59.195, 59.205
Hist.: FCS 4-2007, f. 10-11-07, cert. ef. 1-1-08

441-205-0140

Suitability of Recommendations

It shall constitute a "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, for any broker-dealer or associated person to recommend to a customer the purchase, sale, or exchange of any security, unless such broker-dealer or associated person shall have reasonable grounds to believe that the recommendation is suitable for such customer on the basis of information furnished by such customer after reasonable inquiry concerning the customer's investment objectives, financial situation and needs and any other information known by such broker-dealer or associated person.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-13; CC 2-1981, f. & ef. 6-2-81; Renumbered from 815-030-0180

441-205-0145

Unethical Business Practices of State Investment Advisers and Their Investment Adviser Representatives

(1) A person who is a State Investment Adviser or an Investment Adviser Representative for a State Investment Adviser is a fiduciary and has a duty to act primarily for the benefit of the Adviser's clients. The provisions of this rule apply to state investment advisers and their investment adviser representatives. While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser and its clients and the circumstances of each case, a state investment adviser or its investment adviser representatives shall not engage in unethical business practices, including the following:

(a) Recommending to a client to whom investment supervisory, management or consulting services are provided the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known by the investment adviser.

(b) Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without first obtaining written discretionary authority from the client unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.

(c) Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives and character of the account if that adviser in such situations can directly benefit from the number of securities transactions effected in a client's account.

(d) Placing an order to purchase or sell a security for the account of a client without authority to do so.

(e) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third-party trading authorization from the client.

(f) Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds.

(g) Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.

(h) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser or any employee of the investment adviser, or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omitting to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.

(i) Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing that fact. This prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.

(j) Charging a client an unreasonable advisory fee.

(k) Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the adviser or any of its employees which could reasonably be expected to impair the rendering of unbiased and objective advice including:

(A) Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; or

(B) Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees.

(l) Guaranteeing a client that a specific result will be achieved (gain or no loss) with advice which will be rendered.

(m) Disclosing the identity, affairs, or investments of any client unless required by law to do so, or unless consented to by the client.

(n) Entering into, extending or renewing any investment advisory contract unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or non-performance, and whether the contract grants discretionary power to the adviser.

(o) Engaging in conduct or any act, indirectly or through or by any other person, which would be unlawful for such person to do directly under the provisions of this rule or the Oregon Securities Law.

(p) Indicating, in an advisory contract, any condition, stipulation, or provisions binding any person to waive compliance with any provision of the Oregon Securities Law, this rule, or the Investment Advisers Act of 1940.

(2) The conduct set forth above is not inclusive. Engaging in other conduct such as non-disclosure, incomplete disclosure, or deceptive practices shall be deemed a dishonest, fraudulent or unethical business practice.

Stat. Auth.: ORS 59.285
Stats. Implemented: ORS 59.205
Hist.: FCS 7-2000, f. & cert.ef. 6-2-00

441-205-0165

Investment Adviser Brochure

It shall constitute a "Fraudulent, Deceptive, or Manipulative Act or Practice" as used in these rules for any investment adviser to enter into or offer to enter into an investment advisory contract, or in any way perform an investment advisory contract, if the investment adviser:

(1) Fails to provide the customer with a written disclosure statement which may be either a copy of Part II of Form ADV or a written document containing at least the information required by Part II of Form ADV:

(a) At least 48 hours prior to entering into any written or oral investment advisory contract with a customer; or

(b) At the time of entering into any advisory contract, if the customer has a right to terminate the contract without penalty within five business days after entering the contract.

(2) Fails to offer an existing customer a copy of the written disclosure statement, without charge, at least annually.

Stat. Auth.: ORS 59.175(1), ORS 59.205(2) & ORS 59.285
Stats. Implemented: ORS 59.205(2)
Hist.: FCS 8-1994, f. & cert. ef. 6-1-94

441-205-0170

Compensation of Investment Advisers

(1) The term "Fraudulent, Deceptive, or Manipulative Act or Practice," as used in these rules, is hereby defined to include entering into, extending, or renewing any investment advisory contract, or in any way performing any investment advisory contract entered into, extended or renewed after the effective date of this rule, if such contract:

(a) Provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client, except as permitted in section (3) of this rule;

(b) Fails to provide, in substance, that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract; or

(c) Fails to provide, in substance, that the investment adviser, if a partnership, will notify the other party to the contract of any change in the membership of such partnership within a reasonable time after such change.

(2) As used in this rule, "Investment Advisory Contract" means any contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account for a person other than an investment company, as defined in the Investment Company Act of 1940, as amended.

(3) An investment adviser may enter into, perform, renew or extend an investment advisory contract that provides for compensation to the investment adviser on the basis of a share of the capital gains upon, or the capital appreciation, of the funds, or any portion of the funds, if the contract does not contain a management fee exceeding 1% of the total funds to be managed pursuant to the contract and the contract is with a person who is:

(a) A natural person who or a company that immediately after entering into the contract has at least $750,000 under the management of the investment adviser;

(b) A natural person who or a company that the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract, either:

(A) Has a net worth (together, in case of a natural person, with assets held jointly with a spouse) of more than $1,500,000; or

(B) Is a qualified purchaser as defined in Section (4) of this rule; or

(c) A natural person who immediately prior to entering into the contract is:

(A) The president, any vice president in charge of a principal business unit, division, or function, any other officer who performs a policy-making function or any other person who performs similar policy-making functions for the investment adviser, any director, trustee, general partner or person serving in a similar capacity of the investment adviser; or

(B) An employee of the investment adviser (other than an employee performing solely clerical, secretarial or administrative functions with regard to the investment adviser) who, in connection with his or her regular functions or duties, participates in the investment activities of such investment adviser, providing that such employee has been performing such functions and duties for or on behalf of the investment adviser, or substantially similar functions or duties for or on behalf of another company for at least 12 months.

(4) A qualified purchaser is:

(a) Any natural person who owns not less than $5,000,000 in investments;

(b) Any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments;

(c) Any company that owns not less than $5,000,000 in investments and that is owned directly or indirectly by or for 2 or more natural persons who are related as siblings or spouse (including former spouse), or direct lineal descendants by birth or adoption, spouses of such person, the estates of such person or foundations, charitable organizations, or trusts established by or for the benefit of such person; and

(d) Any trust that is not covered by (4)(c), was not formed for the specific purpose of acquiring the securities offered and for which the trustee or other person authorized to make decisions with respect to the trust and each person who has contributed assets to the trust is a person described in (a), (b), or (c).

Stat. Auth.: ORS 59.285
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-2005.2-14 and 815-030-0185; FCS 12-2001, f. 12-27-01, cert. ef. 1-1-02

441-205-0180

Custody or Possession of Funds or Securities of Clients by Investment Advisers

(1) It shall constitute a "Fraudulent, Deceptive, or Manipulative Act or Practice," within the meaning of these rules, for any investment adviser who has custody or possession of any funds or securities in which any client has any beneficial interest, to do any act or take any action, directly or indirectly, with respect to any such funds or securities, unless:

(a) All such securities of each such client are segregated, marked to identify the particular client who has the beneficial interest therein, and held in safekeeping in some place reasonably free from risk of destruction or other loss; and

(b)(A) All such funds of such clients are deposited in one or more bank accounts which contain only clients' funds;

(B) Such account or accounts are maintained in the name of the investment adviser as agent or trustee for such clients; and

(C) The investment adviser maintains a separate record for each such account which shows the name and address of the bank where such account is maintained, the dates and amounts of deposits in and withdrawals from such account and the exact amount of each client's beneficial interest in such account; and

(c) Such investment adviser, immediately after accepting custody or possession of such funds or securities from any client, notifies such client in writing of the place and manner in which such funds and securities will be maintained, and thereafter, if and when there is any change in the place or manner in which such funds or securities are being maintained, gives each such client written notice thereof; and

(d) Such investment adviser sends to each client, not less frequently than once every three months, an itemized statement showing the funds and securities in the custody or possession of the investment adviser at the end of such period; and

(e) All such funds and securities of clients are verified by actual examination at least once during each calendar year by an independent public accountant. A certificate of such accountant, stating that he has made an examination of such funds and securities and describing the nature and extent of such examination, shall be filed with the Director promptly after such examination.

(2) This rule shall not apply to an investment adviser also registered as a broker-dealer under ORS 59.165.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-15 and 815-030-0190

441-205-0190

Disclosure of Capacity

It shall constitute a "Manipulative, Deceptive, or Other Fraudulent Act or Practice," within the meaning of these rules, for an investment adviser acting as principal for his own account, knowingly to sell any security to or purchase any security from a client for whom he is acting as investment adviser, or acting as broker-dealer for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of the transaction the capacity in which he is acting and obtaining the consent of the client to such transaction.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-030-0205.2-16 and 815-030-0196

441-205-0200

Advertisements by Investment Advisers

(1) It shall constitute a "Fraudulent, Deceptive, or Manipulative Act or Practice," within the meaning of these rules, for any investment adviser, directly or indirectly, to publish, circulate, or distribute any advertisement:

(a) Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser; or

(b) Which refers, directly or indirectly, to past specific recommendations of such investment adviser which were or would have been profitable to any person; provided, however, that this shall not prohibit an advertisement which sets out or offers to furnish a list of all recommendations made by such investment adviser within the immediately preceding period of not less than one year if such advertisement and such list if it is furnished separately:

(A) State the name of each such security recommended, the date and nature of each such recommendation (e.g., whether to buy, sell, or hold), the market price at that time, the price at which the recommendation was to be acted upon and the market price of each such security as of the most recent practicable date; and

(B) Contain the following cautionary legend on the first page thereof in print or type as large as the largest print or type used in the body or text thereof: "It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities in this list;" or

(c) Which represents, directly or indirectly, that any graph, chart, formula, or other device being offered can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them; or which represents, directly or indirectly, that any graph, chart, formula, or other device being offered will assist any person in making his own decisions as to which securities to buy or sell, or when to buy or sell them, without prominently disclosing in such advertisement the limitations thereof and the difficulties with respect to its use; or

(d) Which contains any statement to the effect that any report, analysis, or other service will be furnished free or without charge, unless such report, analysis or other service actually is or will be furnished entirely free and without any condition or obligation, directly or indirectly; or

(e) Which contains any untrue statement of a material fact, or which is otherwise false or misleading.

(2) For the purposes of this rule, the term "Advertisement" shall include any notice, circular, letter, or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television which offers:

(a) Any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or

(b) Any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security or which security to buy or sell; or

(c) Any other investment advisory service with regard to securities.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(2)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-205-0210.2-17 and 815-030-0201

441-205-0210

Supervision of Associated Persons

(1) Every broker-dealer shall exercise diligent supervision over the securities activities of all of his associated persons.

(2) Every associated person of the broker-dealer shall be subject to the supervision of a supervisor designated by such broker-dealer. The supervisor may be the broker-dealer in the case of a sole proprietor, or a partner, officer, office manager, or any other qualified associated person.

(3) As part of his responsibility under this rule, every broker-dealer shall establish, maintain, and enforce written procedures, a copy of which shall be kept in each business office, which shall set forth the procedures adopted by the broker-dealer to comply with the following duties imposed by this rule, and shall state at which business office or offices the broker-dealer keeps and maintains the records required by OAR 441-195-0010:

(a) The review and written approval by the designated supervisor of the opening of each new customer account;

(b) The frequent examination of all customer accounts to detect and prevent irregularities or abuses, including a review for churning and switching of securities in customers' accounts, as well as unsuitable recommendations and sales of unregistered securities;

(c) The prompt review and written approval by the designated supervisor of all securities transactions by associated persons and all correspondence pertaining to the solicitation or execution of all securities transactions by associated persons;

(d) The review of back office operations, i.e., all systems and procedures, including the currency and accuracy of books and records, the status and causes of "Fails to Receive" and "Fails to Deliver," net capital, credit extensions and financial reports;

(e) The review of form, content, and filing of all correspondence related in any way to the purchase or sale or solicitation for the purchase or sale of securities;

(f) The review and written approval by the designated supervisor of the delegation by any customer of discretionary authority with respect to his account to a stated associated person or persons of the broker-dealer and the prompt written approval of each discretionary order entered on behalf of that account; and

(g) The prompt review and written approval of the handling of all customer complaints. As used in these rules, a "Complaint" is considered to be any written statement by a customer, or by any person acting for a customer, which complains about the activities of the broker-dealer or any associated person in connection with the solicitation or execution of a transaction or the disposition of funds of that customer.

(4) Every broker-dealer who has designated more than one supervisor pursuant to section (2) of this rule shall designate from among his partners, officers, or other qualified associated persons, a person or group of persons who shall periodically inspect each business office of the broker-dealer to insure that the written procedures are enforced.

Stat. Auth.: ORS 59
Stats. Implemented: ORS 59.205(13)
Hist.: CC 12, f. 7-12-73, ef. 9-1-73, Renumbered from 815-205-0210.12 and 815-030-0205

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