RULES OF THE ARKANSAS SECURITIES COMMISSIONER

Arkansas Securities Department

No. 214.00

EFFECTIVE – August 1, 2022

ARKANSAS SECURITIES DEPARTMENT

1 COMMERCE WAY

SUITE 402

LITTLE ROCK, AR 72202

TABLE OF CONTENTS

Chapter 1 GENERAL PROVISIONS

Rule 101 Title ......................................................................................................................p. 1

Rule 102 Definitions............................................................................................................p. 1

Chapter 2 ADMINISTRATION

Rule 204 Rules, Forms, and Orders of Securities Commissioner .....................................p. 11

Rule 205 Investigations. [Reserved]

Rule 206 Records of Securities Commissioner-Generally-Interpretive Opinions ............p. 14

Rule 207 Public Inspection of Records-Exceptions. [Reserved]

Rule 208 Cooperation with Other Regulatory Agencies. [Reserved]

Rule 209 Injunction, Mandamus, or Other Ancillary Relief. [Reserved]

Rule 210 Judicial Review. [Reserved]

Rule 211 Disposition of Fees. [Reserved]

Rule 212 Registration or Availability of Exemption Not Construed as Approval

By Commissioner – Inconsistent Representation. [Reserved]

Rule 213 Disposition of Fines-Investor Education Fund ..................................................p. 16

Chapter 3 BROKER-DEALERS AND INVESTMENT ADVISERS

Rule 301 Registration Required ........................................................................................p. 18

Rule 302 Registration Procedure .......................................................................................p. 22

302.01 Broker-dealer or Agent ......................................................................................p. 22

302.02 Investment Adviser or Representative ...............................................................p. 31

Rule 303 Minimum Net Capital Requirement ...................................................................p. 48

Rule 304 Filing Fees. [Reserved]

Rule 305 Corporate Surety Bonds .....................................................................................p. 49

Rule 306 Records and Reports – Examinations ................................................................p. 49

Rule 307 Unlawful Acts by Investment Advisers .............................................................p. 58

307.01 Performance-Based Compensation Exemption .................................................p. 58

307.02 Custody of Client Funds or Securities by Investment Adviser ..........................p. 60

Rule 308 Denial, Suspension, Revocation or Withdrawal of Registration .......................p. 66

308.01 Unfair, Misleading, and Unethical Practices of Broker-dealer

or Agent .............................................................................................................p. 66

308.02 Fraudulent, Deceptive, Dishonest or Unethical Practices of

Investment Advisers...........................................................................................p. 73

Rule 309 Protections of Vulnerable Adults from Financial Exploitation .........................p. 87

Chapter 4 REGISTRATION OF SECURITIES

Rule 401 Registration by Notification ...............................................................................p. 88

Rule 402 Registration by Coordination .............................................................................p. 89

Rule 403 Registration by Qualification .............................................................................p. 90

TABLE OF CONTENTS

Rule 404 Registration Statements Generally .....................................................................p. 91

Rule 405 Stop Order Denying, Suspending, or Revoking Registration Statement ...........p. 95

Chapter 5 REGULATION OF TRANSACTIONS

Rule 501 Sale of Unregistered Non-Exempt Securities. [Reserved]

Rule 502 Filing of Prospectus, Sales Literature, Etc. ........................................................p. 96

Rule 503 Exempted Securities...........................................................................................p. 98

Rule 504 Exempted Transactions ....................................................................................p. 107

Rule 505 Denial or Revocation of Exemptions ...............................................................p. 127

Rule 506 Burden of Proof of Exemption .........................................................................p. 127

Rule 507 Fraud or Deceit in Connection with Offer, Sale, or Purchase of

Securities. [Reserved]

Rule 508 Market Manipulation. [Reserved]

Rule 509 Covered Securities ...........................................................................................p. 128

Chapter 6 PRACTICE AND PROCEDURE

Rule 601 General Provisions ...........................................................................................p. 131

Rule 602 Investigations, Proceedings, and Hearings ......................................................p. 132

Rule 603 Pleadings and Practice .....................................................................................p. 134

Rule 604 Hearing Procedures ..........................................................................................p. 138

Rule 605 Securities Registration .....................................................................................p. 143

Rule 606 Exempt Securities ............................................................................................p. 145

Rule 607 Registration of Individuals ...............................................................................p. 147

CHAPTER 1

GENERAL PROVISIONS

RULE 101 TITLE.

[RESERVED]

RULE 102

102.01 DEFINITIONS.

When the terms listed below are used in the Act, Arkansas Code Sections 23-42-101 through

509, these Rules, the forms, and the instructions and orders of the Commissioner, the following

definitions shall apply (unless the context indicates otherwise), together with the definitions

which may hereinafter appear, to the extent that they are not inconsistent with the definitions

provided in Section 23-42-102 of the Act.

(1) ACCESS TO OR FURNISHING OF INFORMATION. Access to or furnishing of

information can only exist by reason of the purchaser’s position with respect to the

issuer or seller. Position means an employment or family relationship or economic

bargaining power that enables the purchaser to obtain information from the issuer or

seller in order to evaluate the merits and risks of a prospective investment. In any

event, each purchaser or his legal, financial or other representative(s), or both, shall

have access to or have been furnished during the course of the transaction and prior to

the sale, by the issuer or any person acting on its behalf, or the seller or any person

acting on its behalf, the same kind of information that is required by a registration

under the Act, to the extent that the issuer or seller possesses the information or can

acquire it without reasonable effort or expense. This condition shall be deemed to be

satisfied if the purchaser or his legal, financial or other representative(s) is furnished

with information, either in the form of documents actually filed with the

Commissioner or otherwise. The issuer or seller shall make available, during the

course of the transaction and prior to sale, to each purchaser or his legal, financial or

other representative(s) or both, the opportunity to ask questions of, and receive

answers from, the issuer or seller, or any person acting on the issuer’s or seller’s

behalf, concerning the terms and conditions of the offering and to obtain any

additional information, to the extent that the issuer or seller possesses the information

or can acquire it without unreasonable effort or expense, necessary to verify the

accuracy of the information obtained. Audited, unaudited or other financial

statements must be sworn to with a statement from a responsible representative of the

issuer as follows: “To the best of my knowledge and belief these financial statements

and supporting schedules or documents of the issuer are true, correct and fairly

represent the financial position of the issuer.”

(2) ACCREDITED INVESTOR. See definition of “Accredited Investor” found in SEC

Rule 501 of Regulation D, promulgated under the Securities Act of 1933, 17 C.F.R. §

230.501.

(3) ACT. The Arkansas Securities Act, as amended, codified at Arkansas Code Sections

23-42-101 through 509.

(4) ADVISORY AFFILIATE. A person that directly or indirectly controls or is

controlled by a person who either is registered as an investment adviser or has filed

an application to become registered as an investment adviser, including any current

employee except one performing only clerical, administrative, support or similar

functions.

(5) AFFILIATE. The term “affiliate” of or “affiliated” with a person means a person

that directly or indirectly through one (1) or more intermediaries’ controls, or is

controlled by, or is under common control with the person.

(6) APA. The Arkansas Administrative Procedures Act (“APA”), as amended, codified

at Arkansas Code Sections 25-15-201 through 25-15-220.

(7) APPLICANT. A person who submits an application for registration of securities, for

an exemption procedure or for registration as a broker-dealer, broker-dealer agent,

agent of the issuer, investment adviser, or investment adviser representative who files

an application for an order of the Commissioner.

(8) APPLICATION. The form prescribed by the Commissioner for filing in connection

with the registration of securities, for an exemption procedure and as a broker-dealer,

broker-dealer agent, agent of the issuer, investment adviser, or investment adviser

representative, including all amendments, papers, documents and exhibits incidental

thereto.

(9) CLIENT. For purposes of Sections 23-42-102(9)(E)(ii) of the Act, the following

shall be deemed a single client:

(A) A natural person, and:

(i) Any minor child of the natural person;

(ii) Any relative, spouse, or relative of the spouse of the natural person

who has the same principal residence;

(iii) All accounts of which the natural person and/or the persons referred to

in this subsection (A) are the only primary beneficiaries; and

(iv) All trusts of which the natural person and/or the persons referred to in

this subsection (A) are the only primary beneficiaries;

(B) A corporation, general partnership, limited partnership, limited liability

company, trust (other than a trust referred to in Rule 102.01(9)(A)(iv) above),

or other legal organization that receives investment advice based on its

investment objectives rather than the individual investment objectives of its

shareholders, partners, limited partners, members, or beneficiaries, or any two

(2) or more legal organizations that have identical owners, provided however,

an owner must be counted as a client if the investment adviser provides

investment advisory services to the owner separate and apart from the

investment advisory services provided to the legal organization, and a limited

partnership shall be deemed a client of any general partner or other person

acting as investment adviser to the partnership.

(10) COMMISSIONER. The Arkansas Securities Commissioner.

(11) CONTROL. Including the terms “controlling,” “controlled by,” and “under common

control with,” means the possession, directly or indirectly, of the power to direct or

cause the direction of the management or policies of a person, whether through the

ownership of securities, by contract, or otherwise. Control of a person is presumed

when any individual or firm does the following:

(A) Is a director, partner or officer exercising executive responsibility or has a

similar status or performs similar functions;

(B) Directly or indirectly has the right to vote twenty-five percent (25%) or more

of the voting securities of a person; or

(12) CONTROL AFFILIATE. Any person that directly or indirectly controls, is

controlled by, or under common control with an applicant or registrant, including any

current employee except one performing only clerical, administrative, support or

similar functions, or who, regardless of title, performs no executive duties or has no

senior policy making authority.

(13) CRD. The Central Registration Depository operated by FINRA.

(14) CUSTODY. Holding, directly or indirectly, client funds or securities, having any

authority to obtain possession of them, or having the ability to appropriate them. An

investment adviser has custody if a related person, as defined in Rule 307.02, holds,

directly or indirectly, client funds or securities, or has any authority to obtain

possession of them, in connection with advisory services the investment adviser

provides to clients.

(A) Custody includes the following:

(i) Possession of client funds or securities unless the investment adviser

receives them inadvertently and returns them to the sender promptly

but in any case within three (3) business days of receiving them;

(ii) Any arrangement (including a general power of attorney) under which

the investment adviser is authorized or permitted to withdraw client

funds or securities maintained with a custodian upon the investment

adviser’s instruction to the custodian; and

(iii) Any capacity, such as general partner of a limited partnership,

managing member of a limited liability company or a comparable

position for another type of pooled investment vehicle, or trustee of a

trust, that gives the investment adviser or its supervised person legal

ownership of or access to client funds or securities.

(B) Receipt of checks drawn by clients and made payable to third parties will not

meet the definition of custody if forwarded to the third party within three (3)

business days of receipt and the investment adviser maintains a record of the

transfer.

(15) CUSTOMER. The person being charged a commission or fee, being rendered a

service, being sold a security, being solicited to sell a security, or receiving

investment advice. However, the term “customer” shall not include the broker-dealer

or investment adviser charging the commission or fee, offering the services, or

rendering the investment advice.

(16) DEPARTMENT. The Arkansas Securities Department.

(17) DISCRETION OR DISCRETIONARY AUTHORITY. The authority that an

investment adviser or broker-dealer possesses by virtue of a limited power of attorney

or other grant of authority enabling the investment adviser or broker-dealer to

determine what securities shall be purchased or sold by or for an account, or make

decisions as to what securities or other property shall be purchased or sold by or for

an account even though some other person may have responsibility for the investment

decisions. A firm also has discretionary authority if it has the authority to decide

which investment advisers to retain on behalf of the client.

(18) ENGAGED IN THE BUSINESS OF EFFECTING TRANSACTIONS IN

SECURITIES. As used in Section 23-42-102(3) of the Act, the term “engaged in the

business of effecting transactions in securities,” includes any person who holds

himself out as being able to effect transactions in securities for the accounts of others

or for his own account regardless of whether any transactions have actually been

effected.

(19) EXEMPTED OR EXEMPTION. Securities or transactions meeting the

requirements of Section 23-42-503 or Section 23-42-504 of the Act, and the

applicable Rules, are exempt from the registration requirements contained in Section

23-42-501 and Section 23-42-502 of the Act. These securities or transactions are not

exempted from any other provisions of the Act or applicable Rules.

(20) FINRA. The Financial Industry Regulatory Authority.

(21) FORMS. See Rule 204.01(c).

(22) IARD. The Investment Adviser Registration Depository operated by FINRA.

(23) INDICATIONS OF INTEREST. Communications and/or actions on the part of a

customer, or the solicitation thereof, that give rise to the inference that the customer may

purchase the yet-to-be issued securities.

(24) INVESTMENT INTENT. Securities purchased under the Act and Rules with

“investment intent” cannot be purchased with a view to, or for resale in connection with

any sale or hypothecation. Securities purchased with investment intent cannot be

disposed of unless the securities are registered under the Act or, in the opinion of counsel

for the issuer, an exemption from the registration requirements of the Act is available. As

a result, the purchaser of these securities must be prepared to bear the economic risk of

the investment for an indefinite period of time and have no need of liquidity of the

investment. Where securities are purchased under the Act for investment, investment

intent shall be presumed if the purchaser retains the securities for one year from the date

of consummation of the sale. However, any disposition of the securities within one year

of the date of purchase, in the absence of an unforeseeable change of circumstances, shall

create a presumption that the person did not purchase the securities with investment

intent.

(25) LIFE SETTLEMENT CONTRACT. An agreement for the purchase, sale,

assignment, transfer, devise, or bequest of any portion of the death benefit or ownership

of a life insurance policy or certificate for consideration that is less than the expected

death benefit of the life insurance policy or certificate. Life settlement contract does

not include the following:

(A) The assignment, transfer, sale, devise or bequest of a death benefit, life

insurance policy or certificate of insurance by the insured to the life settlement

provider pursuant to the Life Settlements Act, Ark. Code Ann. Sections 23-

81-801 through 23-81-818;

(B) The assignment, transfer, sale, devise or bequest of a life insurance policy, for

any value less than the expected death benefit, by the insured to a friend or

family member who enters into no more than one such agreement in a

calendar year;

loan association, credit union or other licensed lending institution as collateral

for a loan; or

(D) The exercise of accelerated benefits pursuant to the terms of the Arkansas

Insurance Code and of the life insurance policy.

(26) MSRB. Municipal Securities Rulemaking Board.

(27) NASAA. North American Securities Administrators Association, Inc.

(28) NOTICE FILING. A filing made pursuant to Section 23-42-301(c)(1) of the Act in the

case of investment advisers, and Section 23-42-509 of the Act in the case of persons

issuing or offering securities.

(29) OFFER OR OFFER TO SELL. For the purposes of Sections 23-42-501 and 23-42-

502 of the Act, the term “offer” or “offer to sell” as defined in Section 23-42-

102(15)(A)(ii) of the Act shall not include negotiations, agreements or similar

communications with respect to a proposed reorganization provided the negotiations,

agreements or similar communications are incidental to the formulation of a proposal of a

reorganization and, except for the merger of a subsidiary entity into its parent, a vote of

approval and consent of security holders is required to effectuate the proposed

transactions.

(30) PARENT. An affiliate controlling another person.

(31) PLACE OF BUSINESS. The term “place of business” means the following:

(A) Any office or other location at or from which an investment adviser,

investment adviser representative, broker-dealer, or agent regularly provides

investment advisory or broker-dealer services, solicits, meets with, or

otherwise communicates with clients; and

(B) Any other location that is held out to the general public as a location at which

the investment adviser, investment adviser representative, broker-dealer, or

agent provides investment advisory or broker-dealer services, solicits, meets

with, or otherwise communicates with clients.

(32) PRINCIPAL PLACE OF BUSINESS. The executive office of a registrant from

which the officers, partners, or managers of the registrant direct, control, and

coordinate the activities of the registrant.

(33) PROMOTER. A person who, acting alone or in conjunction with others, takes the

initiative in founding, organizing or incorporating the business or enterprise. A

promoter does not include a lawyer or accountant acting as an independent contractor.

(34) PROOF OF EXEMPTION. “Proof of Exemption” as used in Sections 23-42-

503(d) and 23-42-504(b) of the Act shall mean the filing made by an applicant, together

with any supporting documents and written statements of the applicant as set forth in

the appropriate Rule, whereby the applicant describes his expected conduct during the

exemption process and demonstrates his disclosure and antifraud responsibilities

required in order to qualify for the exemption. A proof of exemption is not in and of

itself an exemption. It is merely the filing by which an applicant requests the

Commissioner not to withdraw the availability of use of the exemption based on the

applicant’s demonstration of his recognition of the technical requirements necessary

to qualify.

(35) PUBLIC ADVERTISING. Any form of general solicitation, offer, invitation to

invest, or other writing that could be easily understood to be designed to attract

investors, general advertising or any other communication directed to persons whose

background is unknown to the communicant, including, but not limited to, the

following:

(A) Any advertisement, article, notice or other communication published in any

newspaper, magazine, or similar medium or broadcast over television, radio or

other electronic media;

(B) Any seminar or meeting or invitation to or promotion of a meeting or seminar;

(D) Any solicitation by telephone or other electronic media; or

(E) A solicitation that is maintained on or disseminated by way of any webpage,

site on the Internet, or other electronic posting.

(36) PURCHASER. For purposes of computing the number of purchasers, offerees,

investors, or subscribers, a husband and wife who purchase or contemplate

purchasing in the joint names of both spouses shall be deemed to be one offer or sale.

(37) REGISTRANT. An applicant for whom a registration has been declared effective.

(38) RESTRICTIVE LEGEND. An appropriate restrictive legend shall conform to the

NASAA Uniform Disclosure Guidelines for Cover Legends.

(39) REORGANIZATION. Any merger, consolidation, reclassification of

securities, sale of assets in consideration of the issuance of securities of

another person, exchange of outstanding securities for the issuance of

securities or assets of another person, or other similar reorganization, pursuant

to applicable statutory provisions of the jurisdiction under which the

corporation or other person is organized, or pursuant to the provisions of its

Articles of Incorporation or similar controlling instrument, which the approval

or consent of the security holders is required to effectuate, or any merger of a

subsidiary entity into its parent where a vote, approval or consent is not

required by the applicable statute.

(40) RULES. The Rules of the Arkansas Securities Commissioner.

(41) SEC. The United States Securities and Exchange Commission.

(42) SPONSOR. A person or a member of the immediate family of a person who acts as

a general partner, manager or management company of a program including an affiliate

of, or a person associated with, a sponsor, except as otherwise provided.

(43) SUBSIDIARY. An affiliate controlled by another person.

(44) STAFF. The Staff of the Arkansas Securities Department.

(45) TRANSACT BUSINESS. As used in Sections 23-42-301(a) and 23-42-301(c) of the

Act, the term “transact business” includes representing a person or entity as being

able to effect transactions in securities for the account of others or for his or her own

account regardless of whether any transactions have actually been effected, or being

able to serve as an investment adviser regardless of whether any investment advice or

service has actually been rendered. The term shall not include communications,

postings, or distributions of information set forth on the Internet or other mass media

outlet if each of the following conditions are met:

(A) The Internet or other mass media outlet communication contains a legend in

which the following is clearly stated:

(i) The broker-dealer, investment adviser, broker-dealer agent, agent of

the issuer, or investment adviser representative in question may only

transact business in this state if first registered, or exempted from

registration as a broker-dealer, investment adviser, broker-dealer

agent, agent of the issuer, or investment adviser representative,

whichever is applicable; and

(ii) Follow-up, individualized responses to persons in this state by a

broker-dealer, investment adviser, broker-dealer agent, agent of the

issuer, or investment adviser representative that involve either the

effecting of or the attempt to effect transactions in securities, or the

rendering of personalized investment advice for compensation or

attempt to render advice, as may be, will not be made absent

compliance with state broker-dealer, investment adviser, broker-dealer

agent, agent of the issuer, or investment adviser representative

requirements, or an applicable exemption;

(B) The Internet or other mass media outlet communication contains a

mechanism, including and without limitation, technical “firewalls” or other

implemented policies and procedures, designed reasonably to ensure that prior

to any subsequent, direct communication with prospective customers or

clients in this state, the broker-dealer, investment adviser, agent of the issuer,

broker-dealer agent, or investment adviser representative is first registered in

this state or is exempt from registration under the Act. Nothing in this Rule

shall be construed to relieve a broker-dealer, investment adviser, broker-dealer

agent, agent of the issuer, or investment adviser representative from any

applicable securities registration requirements in this state;

either effecting or attempting to effect transactions in securities, or rendering

of or attempting to render personalized investment advice for compensation,

as may be, in this state over the Internet, but is limited to the dissemination of

general information on products and services; and

(D) In the case of an agent or representative:

(i) The affiliation with the broker-dealer or investment adviser of the

agent, or representative is prominently disclosed within the

communication;

(ii) The broker-dealer or investment adviser with which the agent or

representative is associated retains responsibility for reviewing and

approving the content of any Internet or other mass media outlet

communication by the agent or representative;

(iii) The broker-dealer or investment adviser with which the agent or

representative is associated first authorizes the distribution of

information on the particular products and services through the

Internet or other mass media outlet communication; and

(iv) In disseminating information through the Internet or other mass media

outlet communication, the agent or representative acts within the scope

of the authority granted by the broker-dealer or investment adviser

with which the agent or representative is associated.

(46) UNDERWRITER. Any person who has purchased from an issuer with a view to, or

offers or sells for an issuer in connection with, the distribution of any security, or

participates or has a direct or indirect participation in any such undertaking, or

participates or has a participation in the direct or indirect underwriting of any such

undertaking; but the term shall not include a person whose interest is limited to a

commission from an underwriter or broker-dealer not in excess of the usual and

customary distributors’ or sellers’ commission.

RULE 103 APPLICABILITY.

[RESERVED]

RULE 104 CRIMINAL PENALTIES.

[RESERVED]

RULE 105 PROSECUTION OF CRIMINAL OFFENSES.

[RESERVED]

RULE 106 CIVIL LIABILITY.

[RESERVED]

RULE 107 CONSENT TO SERVICE OF PROCESS.

[RESERVED]

RULE 108 RIGHTS AND REMEDIES CUMULATIVE.

[RESERVED]

RULE 109 WAIVER OF COMPLIANCE VOID.

[RESERVED]

RULE 110 FALSE OR MISLEADING STATEMENTS UNLAWFUL.

[RESERVED]

CHAPTER 2

ADMINISTRATION

RULE 201 ADMINISTRATION BY SECURITIES COMMISSIONER - CONFLICTS

OF INTEREST.

[RESERVED]

RULE 202 DELEGATION OF AUTHORITY BY SECURITIES COMMISSIONER.

[RESERVED]

RULE 203 CONFIDENTIALITY OF INFORMATION OR PROCEEDINGS -

GENERALLY.

[RESERVED]

RULE 204 RULES, FORMS, AND ORDERS OF SECURITIES COMMISSIONER.

204.01 GENERAL.

The following provisions apply to all applications, petitions, notice filings, amendments, reports,

complaints, or other documents required under the Act, Rules, or any order of the Commissioner:

(a) FILING. A document is deemed filed when it is received in the office of the

Commissioner.

(1) All communications and inquiries shall be addressed or delivered to: Arkansas

Securities Commissioner, 1 Commerce Way, Suite 402, Little Rock, Arkansas

72202, Telephone 501.324.9260.

(2) The Office of the Commissioner shall be open for business between the hours

of 8:00 a.m. and 4:30 p.m. on weekdays, except for legally declared holidays.

(3) The original of each form or exhibit is required. Additional copies of certain

documents may be requested or required by other provisions of the Act or

Rules.

(4) When a document is required to be signed, the signature shall be an original

signature of the person signing or if submitted electronically, the signature

shall be verified through a certification authority that shall verify for the

Department that the electronic signature is authentic.

(5) A filing shall be deemed incomplete until all requested information and

applicable fees are received.

(b) FEES.

(1) Unless a filing is made electronically or as otherwise set forth specifically in

the Rules, all filing fees must accompany the application, or supplemental

amendment to which they pertain.

(2) Filing fees for notice filings shall accompany the notice filing when possible

or as soon thereafter as is practical.

(3) Copies of documents filed and recorded in the office of the Commissioner will

be provided at a charge of ten cents (10¢) per page.

(4) Certified copies will be provided at an additional charge of one dollar ($1.00)

per document.

(5) Postage, shipping fees, and additional costs related to providing information to

the public may be charged.

(6) Unless paid electronically, fee payments made directly to the Department

shall be by check or money order made payable to the Arkansas Securities

Department.

(1) BROKER-DEALER REGISTRATION.

(A) Uniform Application for Broker-Dealer Registration (Form BD).

(B) Uniform Application for Securities Industry Registration or Transfer

(Form U4).

(D) Uniform Termination Notice for Securities Industry Registration

(Form U5).

(E) Uniform Request for Broker-Dealer Withdrawal (Form BDW).

(F) Broker-Dealer Independent Contractor Acknowledgement Form.

(G) Life Disclosure Settlement Document I and II.

(2) INVESTMENT ADVISER REGISTRATION.

(A) Uniform Application for Investment Adviser Registration (Form

ADV).

(B) Uniform Surety Bond (Form USB)

ADV-W).

(D) Investment Adviser Independent Contractor Acknowledgement Form.

(E) Certificate of Accounting of Client Securities and Funds in the

Possession or Custody of an Investment Adviser (Form ADV-E).

(F) Bond Continuation Certificate

(3) SECURITIES AGENT, AGENT OF AN ISSUER AND INVESTMENT

ADVISER REPRESENTATIVE.

(A) Uniform Application for Securities Industry Registration (Form U4).

(B) Uniform Surety Bond (Form USB).

(D) Uniform Examination Request for Non-FINRA Candidates (Form

U10).

(E) Agreement of Joint Supervision for Dual Registration.

(F) Agent of the Issuer Renewal Registration Application.

(G) Model Accredited Investor Exemption Uniform Notice of Transaction.

(4) SECURITIES REGISTRATION AND EXEMPTION.

(A) Uniform Application to Register Securities (Form U-1).

(B) Uniform Consent to Service of Process (Form U-2).

(D) Small Corporate Offering Registration (Form U-7).

(E) Registration Statement under the Securities Act of 1933 (Form S-1).

(F) Notice of Sales of Securities Pursuant to Regulation D, Section 4(6),

and/or Uniform Limited Offering Exemption (Form D).

(G) Model Accredited Investor Exemption.

(5) NOTICE FILINGS.

(A) Uniform Investment Company Notice Filing (Form NF).

(B) Uniform Application for Investment Adviser Registration (Form

ADV).

RULE 205 INVESTIGATIONS.

[RESERVED]

RULE 206 RECORDS OF SECURITIES COMMISSIONER – GENERALLY -

INTERPRETIVE OPINIONS.

206.01 GUIDELINES FOR INTERPRETIVE OPINIONS AND NO-ACTION

LETTERS.

(a) GENERAL. In most circumstances persons requesting informal advice from the

Staff should submit a request for an interpretive opinion or no-action letter. In an

interpretive opinion, the Staff provides its views on the interpretation of a specific

statute or rule in the context of an actual and narrow fact situation. A no-action letter

is one in which the Staff indicates that it will not recommend enforcement action to

the Commissioner if a proposed course of action described in the request occurs just

as described in the request. In some instances, the Staff may indicate that it is unable

to assure the requesting party that it will not recommend enforcement action and may

allow the requesting party to withdraw the request. A no-action letter expresses the

Staff’s position on enforcement action only and does not represent any legal

conclusion on the question presented. Requests for no-action letters or interpretive

opinions should comply with the following:

(1) Each request for no-action letter or an interpretive opinion shall be in writing.

The requesting party must submit an original and one (1) copy of each

request.

(2) The specific subsection of the particular statute to which the request pertains

must be indicated in the request. Thus, for example, a letter requesting an

interpretation of the Section 23-42-504(a)(9) exemption would be captioned

“Section 23-42-504(a)(9) Exemption” and a letter requesting an interpretation

of Rule 504.01(a)(9) under the Act would be captioned “Rule 504.01(a)(9).”

(3) The request must contain the names of each person and entity involved in the

underlying facts. Requests relating to unnamed persons or entities, or to

hypothetical situations, will not be answered.

(4) The request must be limited to the particular situation involving the problem

at hand and should not attempt to include every possible type of situation

which may arise in the future. The facts and representations must be specific,

not general.

(5) While it is essential that the request contain all of the facts necessary to reach

a conclusion in the matter, the request should be concise and to the point.

(6) The requesting party must indicate why he thinks a problem exists, his own

opinion in the matter and the basis for that opinion. If the requesting party

seeks confidential treatment, a separate letter requesting confidential treatment

and stating the basis for confidential treatment must be submitted with the

interpretive request. Confidential treatment will generally not be available

unless necessary to protect bona fide trade secrets or unless clearly authorized

by some other provision of law.

(7) In responding to a properly submitted request for interpretive opinion or no-

action letter, the Staff will use an endorsement to the incoming request. The

Staff will state its position on a separate page attached to the incoming

request. Both the incoming letter and the Staff’s endorsement response will

be sent to the requesting party, made publicly available, and posted to the

Department’s website.

(b) LIMITATIONS. All forms of informal advice, including no-action letters and

interpretive opinions, are subject to substantial limitations. These limitations include

the following:

(1) All informal advice is subject to reconsideration and is not precedent binding

on the Commissioner. Informal advice sets forth the Staff’s position only

with respect to the particular facts posed by the particular requesting party and

does not constitute an official expression of the Commissioner’s views.

(2) In responding to any request for informal advice, the advice given will be

limited to and conditional upon the specific representations made to the Staff

by the requesting party. The Staff’s position will be based solely upon the

facts and representations provided by the requesting party. These facts and

representations must be specific rather than general. Any different facts,

representations, or circumstances might require the Staff to reach a different

conclusion.

(3) All informal advice applies only to the requesting party. Persons in similar

circumstances should not rely on previous no-action letters or interpretive

opinions, but submit their own request for informal advice.

(4) All informal advice shall be limited to the specific law administered by the

Department as stated in the Staff’s response, and will not address the

applicability of any other federal, state, or local law, rule, or regulation.

(5) The Staff may decline to express any view on the application of law to a

particular set of facts. There are several reasons why the Staff may feel it

inappropriate in a particular instance to express an opinion. For example: (i)

the Staff may be in no position to verify the facts and circumstances which are

the basis of the request; (ii) the Staff may be concerned that its position may

be misconstrued in somewhat different factual circumstances; and (iii) in

some areas policy concerns dictate that the Staff may not express a view.

RULE 207 PUBLIC INSPECTION OF RECORDS-EXCEPTIONS.

[RESERVED]

RULE 208 COOPERATION WITH OTHER REGULATORY AGENCIES.

[RESERVED]

RULE 209 INJUNCTION, MANDAMUS, OR OTHER ANCILLARY RELIEF.

[RESERVED]

RULE 210 JUDICIAL REVIEW.

[RESERVED]

RULE 211 DISPOSITION OF FEES.

[RESERVED]

RULE 212 REGISTRATION OR AVAILABILITY OF EXEMPTION NOT

CONSTRUED AS APPROVAL BY COMMISSIONER - INCONSISTENT

REPRESENTATION.

[RESERVED]

RULE 213 DISPOSITION OF FINES-INVESTOR EDUCATION FUND.

213.01 INVESTOR EDUCATION PROGRAM.

(a) GENERAL. Utilizing the Investor Education Fund described in Section 23-42-213

of the Act, the Commissioner may administer an investor education program for the

citizens of the State of Arkansas. The purpose of the program will be to inform and

educate the public regarding investments in securities in order to help investors and

potential investors evaluate their investment decisions; protect themselves from

unfair, inequitable and fraudulent offerings; choose their broker-dealers, agents, and

investment advisers more carefully; be alert for false or misleading advertising or

other harmful practices; and know their rights as investors.

(b) GRANT PROGRAM. Utilizing the Investor Education Fund described in Section

23-42-213 of the Act, the Commissioner may administer a grant program to solicit

grant proposals from public schools and non-profit organizations (Internal Revenue

Code Section 501(c)(3), tax-exempt organizations) for the purpose of providing

securities/investment education to teachers and students about the securities industry,

securities markets, and investment decisions.

(1) Eligible applicants are public schools and non-profit groups that provide

investment education to Arkansas students in grades five (5) through twelve

(12).

(2) The Commissioner may establish the number of grant awards available as

well as the amount of monies available for award through the grant program.

(3) Grant funds awarded may be used to procure any appropriate educational,

resource, software materials and equipment consistent with the purpose of the

grant program, this Rule and Section 23-42-213 of the Act.

(4) The Commissioner may establish a grant proposal process by which eligible

applicants may submit an application for a grant award.

(5) A grant award by the Commissioner will be based upon the merit of the grant

proposal considering:

(A) Educational need for the project;

(B) Learning objectives to be accomplished by the project;

(D) Number of students educated;

(E) Description of measurable project outcomes; and

(F) Other school resources dedicated to the project.

(6) Each grant recipient shall file a final grant report detailing the measurable

project outcomes and a financial accounting of actual program expenditures.

CHAPTER 3

BROKER-DEALERS AND INVESTMENT ADVISERS

RULE 301 REGISTRATION REQUIRED.

301.01 GENERAL PROVISIONS

(a) ELIGIBILITY REQUIREMENTS.

(1) Each non-resident broker-dealer, agent, investment adviser, or representative

must be registered, exempt, excepted from registration, or qualified to engage

in business as a broker-dealer, agent, investment adviser, or representative in

the state of the registrant’s primary residence or, in the case of broker-dealers or

investment advisers that are not natural persons, in the state in which the

broker-dealer or investment adviser has its principal place of business.

(2) Each partner or officer of a registered broker-dealer or issuer may act as an

agent only if registered as an agent as required by the Act.

(3) Except upon approval of the Commissioner, an agent or representative may

not be registered with more than one broker-dealer, investment adviser, issuer,

or any combination thereof, unless the business entities are affiliated. An

Agreement of Joint Supervision for Dual Registration from all unaffiliated

firms shall be submitted to the Commissioner for approval.

(4) Each registered broker-dealer shall have at least one (1) registered agent and

each registered investment adviser shall have at least one (1) registered

representative.

(b) EXPIRATION AND RENEWAL OF REGISTRATION. All broker-dealer, agent,

investment adviser, and representative registrations hereunder, and SEC registered

investment adviser notice filings, shall automatically expire on December 31 of each

year without notification by the Commissioner, unless the registration or notice filing

has been properly renewed, or is withdrawn, terminated or cancelled.

(1) When a registration or notice filing expires without the filing of a renewal, a

subsequent application shall be considered in all respects as an original

application or notice filing unless an extension has been requested and granted

in writing by the Commissioner prior to expiration.

(2) The registration of an agent or representative terminates upon the termination

of the registrant’s employment with the broker-dealer or investment adviser.

A Form U5 must be used to report a termination of an agent or representative.

If a Form U4 is received from the agent or representative whose employment

has terminated and is processed by the Commissioner prior to the receipt of

the Form U5 from the broker-dealer or investment adviser with which the

registrant was formerly employed, the Form U4 shall be considered not only

an application for initial registration with the new broker-dealer or investment

adviser, but also notification of termination or withdrawal of the previous

registration or application unless the agent or representative has complied with

the dual registration requirements of Rule 301.01(a)(3).

(3) Termination of a broker-dealer or investment adviser registration for any

reason shall automatically constitute a termination of all underlying agent or

representative registrations.

(1) Supervisor.

(A) Broker-dealer. An agent of a broker-dealer appointed to carry out

supervisory responsibilities for a broker-dealer, pursuant to Section

23-42-301 of the Act, shall be registered in this state and comply with

the examination requirements of Rule 302.01(c)(3) and (4).

(B) Investment adviser. A representative of an investment adviser

appointed to carry out supervisory responsibilities for an investment

adviser, pursuant to Section 23-42-301 of the Act, shall be registered

in this state as a representative.

(2) Written Policies and Procedures. As evidence of compliance with the

supervisory obligations imposed by Section 23-42-301 of the Act, every

broker-dealer and investment adviser shall implement written policies and

procedures, a copy of which shall be kept in each location at which the

broker-dealer or investment adviser conducts business, and shall establish,

maintain and enforce those written policies and procedures designed to

achieve compliance with the Act and to detect and prevent violations. With

consideration for the size and number of locations of the broker-dealer or

investment adviser, the written policies and procedures, at a minimum, shall

address the following:

(A) The supervision of every agent or investment adviser representative,

by a designated supervisor. This shall include the following: names,

titles, registration status, and locations of all supervisors; the names of

the agents or investment adviser representatives the supervisor will

supervise, and the responsibilities of each supervisor.

(B) Methods to be used to determine that all supervisors are qualified by

virtue of character, experience and training to carry out their assigned

responsibilities.

qualifications, and experience of any applicant prior to making

application for registration of that person with the Commissioner and

hiring that person.

(D) The review and written approval by a supervisor of the opening of

each new customer account.

(E) The frequent examination of customer accounts to detect and prevent

violations, irregularities or abuses.

(F) The prompt review and documentation of the handling of customer

complaints.

(G) The prompt review and written approval by a supervisor of all

securities transactions, investment advice, and correspondence

pertaining to the securities business of registrants.

(H) The review and written approval by a supervisor of the delegation by a

customer of discretionary authority with respect to the customer’s

account and frequent examination of discretionary accounts to prevent

violations, irregularities or abuses.

(I) The participation of each registrant either individually or collectively,

no less than annually, in an interview or meeting conducted by a

supervisor at which compliance matters relevant to the activities of the

registrant are discussed. Written records shall be maintained reflecting

the interview or meeting.

(J) Periodic Inspections.

(i) Each place of business shall be periodically inspected to ensure

that the written policies and procedures and systems are

enforced.

(a) An office of supervisory jurisdiction of a broker-dealer

shall be inspected at least annually. For the purposes of

this section, the term “office of supervisory

jurisdiction” shall have the same meaning as that term

is defined in FINRA Rule 3110(f).

(b) The principal place of business of each investment

adviser shall be inspected at least annually.

and investment adviser shall give consideration to:

(1) The size of the broker-dealer or investment

adviser;

(2) The number and location of the offices;

(3) The volume of business and the number of

agents or investment adviser representatives

assigned to the location;

(4) The nature and complexity of the securities

products and services offered from the location;

and

(5) The disciplinary history of the registered agents

and investment adviser representatives working

at the location.

(ii) The obligation of diligent supervision required by this Rule

may require that one (1) or more locations of a broker-dealer or

investment adviser in this state receive more inspections or be

on a periodic inspection cycle different than other locations of

the broker-dealer or investment adviser, and that inspections be

unannounced. Unannounced visits may be appropriate when

there are indicators of misconduct such as receipt of significant

customer complaints, personnel with disciplinary records, or

excessive trade corrections.

(K) Every broker-dealer and investment adviser shall establish, implement,

and maintain written policies and procedures relating to a Business

Continuity and Succession Plan. The plan shall provide for at least the

following:

(i) The protection, backup, and recovery of books and records.

(ii) Alternate means of communications with customers, key

personnel, employees, vendors, service providers, including

third-party custodians, and regulators, including but not limited

to providing notice of a significant business interruption or the

death or unavailability of key personnel or other disruptions or

cessation of business activities.

(iii) Office relocation in the event of temporary or permanent loss

of a principal place of business.

(iv) Assignment of duties to qualified responsible persons in the

event of the death or unavailability of key personnel.

(v) Otherwise minimizing service disruptions and client harm that

could result from a sudden significant business interruption.

An investment adviser should periodically test the Business Continuity

and Succession Plan to ensure that it is adequate, effective, and

current.

(3) All written policies and procedures and evidence of compliance with written

policies and procedures shall be maintained for three (3) years, the first two

(2) years being in an easily accessible place. The retention and preservation

of records may be on electronic medium if adequate facilities are maintained

for examination.

(4) To the extent that this Rule imposes any recordkeeping requirement on an

investment adviser registered under Section 23-42-301 of the Act, the

recordkeeping requirement does not apply if the investment adviser meets the

following conditions:

(A) Has its principal place of business in a state other than this state;

(B) Is licensed as an investment adviser in the state where it has its

principal place of business; and

which it has its principal place of business.

(5) Final responsibility for proper supervision shall rest with the broker-dealer or

investment adviser. It is the responsibility of the broker-dealer or investment

adviser to ensure through inspections of each business location that the written

policies and procedures are enforced and the supervisory obligations imposed

by this Rule are being honored.

RULE 302 REGISTRATION PROCEDURE.

302.01 BROKER-DEALER OR AGENT.

(a) FILINGS MADE THROUGH CRD. Pursuant to Sections 23-42-208 and 23-42-

302 of the Act, the Commissioner designates the CRD to receive and store filings and

collect related fees from broker-dealers and broker-dealer agents on behalf of the

Commissioner.

(b) APPLICATION. Each filing for initial and renewal registration shall be complete

only if it contains the information set forth in Sections 23-42-302 through 23-42-305

of the Act in the manner prescribed by the Commissioner. The requirements listed

below are subject to change pursuant to Section 23-42-208 of the Act.

(1) BROKER-DEALER APPLICATIONS. An applicant for initial broker-dealer

registration shall:

(A) Submit to the CRD a completed Form BD and Form BR designating

Arkansas as a state in which the applicant requests to be registered,

along with the fees set forth in Section 23-42-304 of the Act and any

other fee required by FINRA; and

(B) Submit the following to the Commissioner:

(i) Audited financial statements for the most recently ended fiscal

year, if the applicant has been in existence for twelve (12)

months or more. If the applicant has been in existence less

than twelve (12) months and no audited financial statement has

been prepared within thirty (30) days of filing the application,

the most recent unaudited balance sheets certified as correct by

the president, chief financial officer, or similar executive

officer. All financial statements, unless otherwise permitted,

shall be prepared in accordance with generally accepted

accounting principles and practices. All audited financial

statements shall be prepared by an independent certified public

accountant in accordance with generally accepted auditing

standards and in conformity with generally accepted

accounting principles;

(ii) Proof of bonding coverage as prescribed by FINRA;

(iii) Independent Contractor Acknowledgement Form

acknowledging responsibility for registered agents, employees,

and independent contractors; and

(iv) Any other information deemed necessary by the Commissioner

to determine whether the applicant should be registered.

(2) AGENT APPLICATIONS.

(A) Initial agent applications for a broker-dealer registered or to be

registered with FINRA must be submitted directly to the CRD system

and shall include the following:

(i) A Form U4;

(ii) The initial agent registration fee as set forth in Section 23-42-

304 of the Act and any other fee required by FINRA;

(iii) Any attachments as required by the instructions on the Form

U4; and

(iv) Compliance with the examination requirements of Rule

302.01(c).

(B) Initial agent applications for an agent of an issuer must be submitted

directly to the Commissioner and shall include the following:

(i) A Form U4;

(ii) The initial agent registration fee as set forth in Section 23-42-

304 of the Act;

(iii) Proof of processed Federal Bureau of Investigation (FBI)

fingerprint background check;

(iv) A surety bond in the amount of twenty-five thousand dollars

($25,000.00);

(v) Any attachments as required by the instructions on the Form

U4; and

(vi) Submission of Form U10 in accordance with the form

instructions and compliance with the examination requirements

of Rule 302.01(c).

agent of an issuer shall not be complete until the applicant has

furnished, in addition to the requirements set forth in Rule

302.01(b)(2), any other information not specifically required by the

Act or the Rules that the Commissioner may reasonably require,

including, but not limited to, copies of any litigation, regulatory

proceedings, and customer complaints.

(D) Each applicant for registration as an agent of a broker-dealer or issuer

shall as a part of his application, be properly fingerprinted.

(i) Any applicant subject to the fingerprinting requirements of the

Securities Exchange Act of 1934 shall submit to the CRD

system a fingerprint card along with a fingerprint record

transmittal form (both supplied by the CRD) which will be

processed by the Federal Bureau of Investigation (FBI) by the

CRD system. The applicant may be registered after submission

of the fingerprint card and completion of all other registration

requirements. Notification of the results of the processed card

will be made available to the Department via the CRD system.

(ii) An agent of the issuer applicant shall submit an identification

record request with fingerprints directly to the FBI. Proof of

submission of the request with the FBI and a copy of the results

of the processed identification request shall be submitted

directly to the Commissioner.

(3) BROKER-DEALER RENEWAL APPLICATIONS.

(A) An applicant for the renewal of a registration as a broker-dealer shall,

prior to expiration of its current registration, submit to the CRD all

appropriate amendments and fees.

(B) No documents are required to be filed directly with the Commissioner;

however, the Commissioner may request other information not

specifically required by the Act or the Rules, including, but not limited

to, copies of any litigation, regulatory proceedings, and customer

complaints.

(4) AGENT RENEWAL APPLICATIONS.

(A) Renewal registration of agents of a broker-dealer shall be submitted to

the CRD along with the fee set forth in Section 23-42-304 of the Act

and any other fee required by FINRA prior to expiration of

registration.

(B) For agents renewing registration with a broker-dealer, no documents

are required to be filed directly with the Commissioner; however, the

Commissioner may request other information not specifically required

by the Act or the Rules, including, but not limited to, copies of any

litigation, regulatory proceedings, and customer complaints.

Commissioner prior to the expiration of registration and shall include

the following:

(i) A completed Agent of the Issuer Renewal Application;

(ii) The agent renewal registration fee as set forth in Section 23-42-

304 of the Act;

(iii) Proof of continued surety bond coverage;

(iv) Any amendments to the documents on file; and

(v) Any other information not specifically required by the Act or

the Rules that the Commissioner may reasonably require,

including, but not limited to, copies of any litigation, regulatory

proceedings, and customer complaints.

(5) Additional exhibits or information not specifically required by the application

but essential to a full presentation of all material facts relating to the

applicant’s qualifications shall be furnished and properly identified.

requires that written examinations on general securities knowledge and state

securities law be taken and passing scores achieved within a two (2) year period

immediately preceding the filing date of the application before an applicant will be

considered eligible for registration.

(1) Agent. An applicant to be an agent must achieve passing scores for the

appropriate FINRA examinations. FINRA rules effective October 1, 2018

require agents to pass the Securities Industry Essentials Exam (SIE) and a

specialized knowledge exam appropriate to their job function. Agent

applicants must also pass the Series 63 or Series 66 exam that addresses state

law. Prior to October 2018 agents were required to pass a Series 7 or Series 1

exam along with an exam covering state law.

(2) Limited Agent. Applicants successfully completing a limited knowledge

examination will only be eligible for registration to effect transactions in those

securities that were covered by the limited examination. Applicants shall

satisfy the state law examination requirement by passing the Series 63 or

Series 66 examination and the knowledge requirement by passing at least one

limited knowledge securities examination.

(3) Supervisor. An agent designated as a supervisor must achieve passing scores

for the appropriate FINRA examinations. FINRA rules effective October 1,

2018 require agents to pass the SIE and a specialized knowledge exam

appropriate to their job function. Agent applicants must also pass the Series 63

or Series 66 exam that addresses state law. Prior to October 2018 agents were

required to pass the Agent exams along with a Series 24 exam or the Series 9

and Series 10 exams combined with the Series 23 exam.

(4) Limited Supervisor. If the firm is limited in its scope of business and provides

verification of the same to the Commissioner then at least one (1) agent

designated as a limited supervisor must achieve passing scores for the

appropriate FINRA examinations.

(5) Any individual who has been registered as a general securities agent, general

securities principal, or investment adviser representative in any state,

commonwealth, territory, district, or province in the United States or Canada

within the two (2) years immediately preceding the filing of an application

and who has at any time in the past met the requirements of Rule 302.01(c)

shall not be required to repeat the examinations in order to become registered.

(6) Solely in those cases where circumstances warrant because of the limited

time; amount; nature of the issue or transaction involved; or the specific

circumstances unique to the applicant, the Commissioner may, upon petition

and good cause shown by the applicant, waive any or all of the examination

requirements set forth above.

(d) REGISTRATION. Upon completion of the application, compliance with the

examination(s) requirement, payment of the fees and acceptance by the

Commissioner, initial registration will become effective.

(1) For agents and broker-dealers filing an application as set forth in Rule

302.01(b), the Commissioner will either accept the application or notify the

applicant of the matters that need to be resolved.

(2) Broker-dealers may access the registration status of the broker-dealer or

agents through the CRD.

(e) POST-REGISTRATION REQUIREMENTS.

(1) Registered broker-dealers and agents shall file amendments to Form BD and

Form U4 with the CRD in the manner required by the forms and the CRD.

Changes necessitating a filing shall include, but may not be limited to, the

following:

(A) Change in firm name, ownership, management or control of a broker-

dealer, or a change in any of its partners, officers or persons in similar

positions, or its businesses address, or the creation or termination of a

branch office in Arkansas.

(B) Change in type of entity, general plan or character of a broker-dealer’s

business, method of operation or type of securities in which the

registrant is dealing or trading.

impairment of working capital, or noncompliance with the minimum

capital or bond requirements hereinabove provided.

(D) The filing of a criminal charge or civil action against a registrant, or a

partner or officer, in which an alleged violation of a securities law,

threats of violence against any person, dishonesty, wrongful taking of

any property or any manner of fraud is involved, and the result of any

hearing, proceeding, or action in the matter, as well as any subsequent

action taken on appeal by any reviewing agency or court.

(E) The filing of a complaint or the commencement of a proceeding by an

administrative agency, regulatory agency, self-regulatory agency, or

court, or a written notice of intention to do so, to consider whether to

deny, suspend or revoke a registration, impose a fine or other penalty

upon the registration, or to enjoin the registrant from engaging in or

continuing any conduct or practice in the securities business, the results

of the hearing or proceeding, as well as any subsequent actions taken

by any reviewing agency or court.

(F) The registrant shall be deemed to have complied with immediate

notification pursuant to this subsection if the information has been

filed with CRD as soon as possible but in no event more than thirty

(30) calendar days after the registrant has knowledge of the

circumstances requiring the notification.

(2) Any broker-dealer registered under the Act shall give timely notice to each

agent registered with the broker-dealer of the results of any hearing or

proceeding referred to in Rule 302.01(e)(1) to the extent the agent is required

to disclose the matters on his application.

(f) REGISTRATION EXEMPTION FOR MERGER AND ACQUISITION

BROKERS.

(1) Except as provided in subsections (2) and (3), a merger and acquisitions

broker shall be exempt from registration pursuant to Section 23-42-301 of the

Act.

(2) Excluded Activities. A merger and acquisition broker is not exempt from

registration under this section if the merger and acquisition broker:

(A) Directly or indirectly, in connection with the transfer of ownership of

an eligible privately held company, receives, holds, transmits, or has

custody of the funds or securities to be exchanged by the parties to the

transaction;

(B) Engages on behalf of an issuer in a public offering of any class of

securities that is registered, or is required to be registered, with the

SEC under section 12 of the Securities Exchange Act of 1934, 15

U.S.C. § 78l or with respect to which the issuer files, or is required to

file, periodic information, documents, and reports under 15 U.S.C. §

78o(d); or

company.

(3) Disqualifications. A merger and acquisition broker is not exempt from

registration under this section if the merger and acquisition broker is subject

to:

(A) Suspension or revocation of registration under section 15(b)(4) of the

Securities Exchange Act of 1934, 15 U.S.C. § 78o(b)(4);

(B) A statutory disqualification described in section 3(a)(39) of the

Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(39);

926 of the Dodd-Frank Wall Street Reform and Consumer Protection

Act, 15 U.S.C. § 77d; or

(D) A final order described in paragraph (4)(H) of Section 15(b) of the

Securities Exchange Act of 1934, 15 U.S.C. § 78o(b)(4)(H).

(4) Definitions – for the purposes of this Rule:

(A) CONTROL – The term “control” means the power, directly or

indirectly, to direct the management or policies of a company, whether

through ownership of securities, by contract, or otherwise. There is a

presumption of control for any person who:

(i) Is a director, general partner, managing member, or manager

of a limited liability company, or officer exercising executive

responsibility (or has similar status or functions);

(ii) Has the right to vote 20 percent (20%) or more of a class of

voting securities or the power to sell or direct the sale of 20

percent (20%) or more of a class of voting securities; or

(iii) In the case of a partnership or limited liability company, has

the right to receive upon dissolution, or has contributed, 20

percent (20%) or more of the capital.

(B) ELIGIBLE PRIVATELY HELD COMPANY. The term “eligible

privately held company” means a company meeting both of the

following conditions:

(i) The company does not have any class of securities registered,

or required to be registered, with the SEC under section 12 of

the Securities Exchange Act of 1934, 15 U.S.C. 78l, or with

respect to which the company files, or is required to file,

periodic information, documents, and reports under subsection

(d), 15 U.S.C. 78o(d).

(ii) In the fiscal year ending immediately before the fiscal year in

which the services of the merger and acquisition broker are

initially engaged with respect to the securities transaction, the

company meets either or both of the following conditions

(determined in accordance with the historical financial

accounting records of the company):

(a) The earnings of the company before interest, taxes,

depreciation, and amortization are less than

$25,000,000.

(b) The gross revenues of the company are less than

$250,000,000.

Broker” means any broker and any person associated with a broker

engaged in the business of effecting securities transactions solely in

connection with the transfer of ownership of an eligible privately held

company, regardless of whether that broker acts on behalf of a seller

or buyer, through the purchase, sale, exchange, issuance, repurchase,

or redemption of, or a business combination involving, securities or

assets of the eligible privately held company:

(i) If the broker reasonably believes that upon consummation of

the transaction, any person acquiring securities or assets of the

eligible privately held company, acting alone or in concert,

will control and, directly or indirectly, will be active in the

management of the eligible privately held company or the

business conducted with the assets of the eligible privately

held company; and

(ii) If any person is offered securities in exchange for securities or

assets of the eligible privately held company, such person

will, prior to becoming legally bound to consummate the

transaction, receive or have reasonable access to the most

recent fiscal year-end financial statements of the issuer of the

securities as customarily prepared by its management in the

normal course of operations and, if the financial statements of

the issuer are audited, reviewed, or compiled, any related

statement by the independent accountant; a balance sheet

dated not more than 120 days before the date of the exchange

offer; and information pertaining to the management,

business, results of operations for the period covered by the

foregoing financial statements, and any material loss

contingencies of the issuer.

(D) PUBLIC SHELL COMPANY. “Public Shell Company” is a company

that at the time of a transaction with an eligible privately held

company:

(i) Has any class of securities registered, or required to be

registered with the SEC under Section 12, 15 U.S.C. 78l, or

with respect to which the company files, or is required to file,

periodic information, documents, and reports under

subdivision (d), 15 U.S.C. 78o(d); and

(ii) Has no or nominal operations; and

(iii) Has:

(a) No or nominal assets;

(b) Assets consisting solely of cash and cash equivalents;

equivalents and nominal other assets.

(E) INFLATION ADJUSTMENT

(i) On the date that is five years after the date of the enactment of

the rule, and every five years thereafter, each dollar amount in

subparagraph (B)(ii) shall be adjusted by:

(a) Dividing the annual value of the Employment Cost

Index For Wages and Salaries, Private Industry Workers

(or any successor index), as published by the Bureau of

Labor Statistics, for the calendar year preceding the

calendar year in which the adjustment is being made by

the annual value of such index (or successor) for the

calendar year ending December 31, 2019; and

(b) Multiplying such dollar amount by the quotient

obtained under sub clause (i).

(ii) ROUNDING – Each dollar amount determined under clause (i)

shall be rounded to the nearest multiple of $100,000.

302.02 INVESTMENT ADVISER.

(a) FILINGS MADE THROUGH IARD. Pursuant to Sections 23-42-208 and 23-43-

302 of the Act, the Commissioner designates the IARD to receive and store filings

and collect related fees from investment advisers and investment adviser

representatives on behalf of the Commissioner.

(b) APPLICATION FOR INVESTMENT ADVISER REGISTRATION.

(1) INITIAL APPLICATIONS. The application for initial registration as an

investment adviser pursuant to Section 23-42-302 of the Act shall be made by

doing the following:

(A) Completing and filing Form ADV, in accordance with the form

instructions, along with the fee as set forth in Section 23-42-304(a) of

the Act, with the IARD; and

(B) Submitting directly to the Commissioner the following:

(i) Financial Statements. Each investment adviser applying for

initial registration must submit an unaudited balance sheet in a

form prepared in accordance with generally accepted

accounting principles dated within thirty (30) days of the filing.

The balance sheet shall be certified as true and accurate by the

chief financial officer of the applicant as indicated on the Form

ADV, or, if there is no chief financial officer, the person

executing the Form ADV. If the applicant has been engaged in

business for one (1) year or more preceding the filing of the

applicant, the applicant may submit audited financial

statements for the last fiscal period along with an unaudited

balance sheet in a form acceptable to the Commissioner dated

within thirty days (30) of the filing;

(ii) For an investment adviser applicant that maintains a principal

place of business in a state other than Arkansas, the

requirements of Rule 302.02(b)(1)(B)(i) above may be satisfied

by filing with the commissioner a copy of any financial reports

required by and filed with the securities commissioner or

director in the other state. When deemed necessary, the

applicant shall furnish any further information required by the

Commissioner;

(iii) A corporate surety bond of fifty thousand dollars ($50,000.00)

covering the applicant and each representative if the applicant

has custody of any customer funds or securities, unless the

applicant has custody solely as a consequence of its authority

to make withdrawals from client accounts to pay its advisory

fee and complies with the terms described under Rule

307.02(b)(3)(A)(B) and (C). However, no surety bond is

required if an applicant maintains its principal place of

business in a state other than Arkansas and is the following:

(a) Registered or licensed as an investment adviser in that

state; and

(b) Is in compliance with the applicable bonding

requirements of that state;

(iv) Copies of investment advisory contracts to be used by the

investment adviser. All investment advisory contracts entered

into by the investment adviser with any client shall be fair and

reasonable and indicate the customer’s risk tolerance,

investment objectives, annual income, net worth, and liquid net

worth, and shall be signed and dated by all persons having an

interest in the account;

(v) Independent Contractor Acknowledgement Form; and

(vi) Any other information not specifically required by the Act or

the Rules that the Commissioner may reasonably require,

including, but not limited to, copies of orders, pleadings, or

documents relating to any past or present litigation, regulatory

proceedings, and customer complaints.

(2) ANNUAL RENEWAL. The application for annual renewal registration as an

investment adviser shall be accomplished by filing for renewal with the IARD

in accordance with the form instructions, along with the fee as set forth in

Section 23-42-304(a) of the Act.

(3) UPDATES AND AMENDMENTS.

(A) Each year, an investment adviser must file an annual updating

amendment for Form ADV with IARD within ninety (90) days after

the end of the registrant’s fiscal year. In addition to the annual

updating amendment, any material information that becomes

inaccurate must be filed promptly, (within thirty (30) days of the event

that requires the filing of the amendment), according to the Form ADV

general instructions.

(B) Each year, an investment adviser must file directly with the

Commissioner, within ninety (90) days after the close of the fiscal year

unless written permission to file at some other date is granted by the

Commissioner in advance of the date for filing, the following:

(i) proof of corporate surety bond coverage for the investment

adviser and each representative if the investment adviser has

custody of any customer funds or securities, unless the custody is

solely as a consequence to the authority to make withdrawals

from client accounts to pay advisory fees and the investment

adviser complies with the terms described under Rule

307.02(b)(3)(A)(B) and (C);

(ii) any amendments to its investment advisory contracts;

(iii) annual financial statements as follows:

(a) An investment adviser that has custody of client funds or

securities, or that requires prepayment of client fees of

more than five hundred dollars ($500) per client and more

than six (6) months in advance, shall submit audited

financial statements with the Commissioner, if that

investment adviser has been in business for twelve (12)

months or more. All audited financial statements shall be

prepared in accordance with generally accepted accounting

principles and audited by an independent certified public

accountant in conformity with generally accepted auditing

standards.

(b) Notwithstanding Rule 302.02(b)(3)(B)(iii)(a), an

investment adviser that has custody of client funds or

securities solely due to its role as the adviser to a private

fund or pooled investment vehicle, when all conditions of

Rule 307.02(b)(4) are met, including a proper audit of the

fund that is provided to the Commissioner and all investors,

shall submit an unaudited balance sheet in a form prepared

in accordance with generally accepted accounting

principles;

investment adviser that has custody of client funds or

securities solely as a consequence of its authority to make

withdrawals from client accounts to pay its advisory fee

and that complies with the terms described under Rule

307.02(b)(3)(A)(B) and (C), shall submit an unaudited

balance sheet in a form prepared in accordance with

generally accepted accounting principles;

(d) An investment adviser that does not have custody of client

funds or securities, or that has not been in business for at

least twelve (12) months, shall submit an unaudited balance

sheet in a form prepared in accordance with generally

accepted accounting principles;

(e) An unaudited balance sheet filed with the Commissioner

shall be certified as true and accurate by the chief financial

officer of the registrant as indicated on the Form ADV, or if

there is no chief financial officer, by the person executing

the Form ADV; and

(f) For an investment adviser registrant that maintains a

principal place of business in a state other than Arkansas,

the requirements of Rule 302.02(b)(3)(B)(iii) may be

satisfied by filing with the Commissioner a copy of any

financial reports required by and filed with the securities

commissioner in the other state. When deemed necessary,

the registrant shall furnish any further information as

required by the Commissioner.

(4) COMPLETION OF FILING. An application for initial or renewal registration

is not considered filed for purposes of Section 23-42-302(a) of the Act until the

required fee and all required sections of Form ADV are received and accepted

by the IARD and all other required submissions have been received and

accepted by the Commissioner.

REGISTRATION.

(1) Initial Applications. The application for initial registration as an investment

adviser representative pursuant to Section 23-42-302(a) of the Act shall be

made by completing Form U4 in accordance with the form instructions and

filing the Form U4 with the IARD. The application for initial registration

shall also include the following:

(A) The fee required by Section 23-42-304 of the Act;

(B) Compliance with the examination requirements of Rule 302.02(f); and

Rules but essential to a full presentation of all material facts relating to

an applicant’s qualifications or registration.

(2) Annual Renewal. The application for annual renewal of registration for a

registered representative shall be made by filing necessary amendments to

Form U4, in accordance with the form instructions, with the IARD. The

application for annual renewal of registration shall include the fee required by

Section 23-42-304 of the Act.

(3) Updates and Amendments. The registered representative is under a

continuing obligation to update information required by the Form U4 as

changes occur. Any amendments to the representative’s Form U4 must be

filed promptly with the IARD. An amendment will be considered promptly

filed if received by the IARD within thirty (30) days of the event that requires

the filing of the amendment.

(4) Completion of Filing. An application for initial or renewal registration is not

considered filed for purposes of Section 23-42-302(a) until the required fee

and all required submissions have been received and accepted by IARD and

all other required submissions have been received and accepted by the

Commissioner.

(d) ACCEPTANCE OF REGISTRATION.

(1) Promptly upon the filing of an application for registration the Commissioner

will either accept the application or notify the applicant of any information,

documents, or other matters necessary to complete the application.

(2) The date of effectiveness of registration shall be governed by Section 23-42-

302(f) of the Act.

(3) Notification of the effectiveness of registration shall be available to an

applicant through IARD.

(e) NOTICE FILING REQUIREMENTS FOR SEC REGISTERED

INVESTMENT ADVISERS.

(1) Notice Filing. The notice filing for an SEC registered investment adviser

pursuant to Section 23-42-301(c) of the Act shall be filed with IARD on an

executed Form ADV. A notice filing of an SEC registered investment adviser

shall be deemed filed when the fee required by Section 23-42-304 of the Act

and the Form ADV are filed with and approved by SEC.

(2) Annual Renewal. The annual renewal of the notice filing for an SEC

registered investment adviser pursuant to Section 23-42-301(c) of the Act

shall be filed with IARD. The renewal of the notice filing for an SEC

registered investment adviser shall be deemed filed when the fee required by

Section 23-42-304 of the Act is filed with and approved by SEC.

(3) Updates and Amendments. An SEC registered investment adviser must file

with IARD, in accordance with the instructions in the Form ADV, any

amendments to the SEC registered investment adviser’s Form ADV.

(f) EXAMINATION OF INVESTMENT ADVISER REPRESENTATIVE.

(1) Examination Requirements. An individual applying to be registered as an

investment adviser representative under the Act shall provide the

Commissioner with proof of knowledge of the investment advisory business

and the Act by obtaining a passing score(s) within the two (2) year period

immediately preceding the filing date of the application, on either of the

following examinations:

(A) Series 65 - Uniform Investment Adviser Law; or

(B) Appropriate FINRA examinations for registration as a Broker-dealer

Agent set out in Rule 302.01(c)(1), combined with the Series 66,

Uniform Combined State Law

(2) Waivers. The examination requirements under Rule 302.02(f)(1) shall not

apply to an individual who currently holds and maintains in good standing one

(1) of the following professional designations:

(A) Certified Financial Planner (CFP) awarded by the Certified Financial

Planner Board of Standards;

(B) Chartered Financial Consultant (ChFC) awarded by the American

College, Bryn Mawr, Pennsylvania;

of Certified Public Accountants;

(D) Chartered Financial Analyst (CFA) awarded by the CFA Institute;

(E) Chartered Investment Counselor (CIC) awarded by The Investment

Adviser Association; or

(F) Any other professional designation as the Commissioner may by rule

or order accept.

(3) Any individual who has been registered as an investment adviser

representative or broker-dealer agent in any state, commonwealth, territory,

district, or province in the United States or Canada within the two years

immediately preceding the filing of an application and who has at any time in

the past met the requirements of Rule 302.02(f)(1) shall not be required to

repeat the examinations in order to become registered as an investment

adviser representative.

(4) Solely in those cases where circumstances warrant because of the limited

time; amount; or nature of the issue or transaction involved; or the specific

circumstances unique to the applicant, the Commissioner may, upon petition

and good cause shown by the applicant, waive, any or all of the examination

requirements set forth above.

(5) An applicant who is an agent for a broker-dealer/investment adviser and who

is not required by the agent’s home jurisdiction to make a separate filing on

CRD as an investment adviser representative but who has previously met the

requirements of Rule 302.02(f)(1) shall not be required to repeat the

examinations in order to become registered as an investment adviser

representative in this state.

(g) BROCHURE REQUIREMENT. Unless otherwise provided in this Rule, an

investment adviser registered or required to be registered pursuant to Section 23-42-301

of the Act shall furnish each advisory client and prospective advisory client with a

written disclosure statement that shall be Form ADV Part 2A, the brochure; Part 2B,

the brochure supplement; and any other information as the Commissioner may

require.

(1) Delivery.

(A) An investment adviser shall deliver the brochure to an advisory client

or prospective advisory client either:

(i) At a time not less than forty-eight (48) hours prior to entering

into any investment advisory contract with the prospective

client, or

(ii) At the time of entering into the contract so long as the advisory

client has a right to terminate the contract without penalty

within five (5) business days after entering into the contract.

(B) Delivery of the brochure need not be made in connection with entering

into a contract for impersonal advisory services.

(2) Offer to Deliver.

(A) An investment adviser shall annually, within one hundred and twenty

(120) days of its fiscal year end, without charge, deliver or offer in

writing to deliver, upon written request, a brochure to its advisory

clients.

(B) The delivery or offer required by subdivision (A) need not be made to

advisory clients receiving advisory services solely pursuant to a

contract for impersonal advisory services of less than five hundred

dollars ($500).

advisory services pursuant to a contract for impersonal advisory

services that requires a fee of five hundred dollars ($500) or more, an

offer of the type specified in subdivision (A), shall also be made at the

time of entering into an advisory contract.

(3) Receipt of Request. Any statement requested in writing by an advisory client

or prospective advisory client required by this subsection must be mailed or

delivered within seven (7) days of the receipt of the request.

(4) Omission of Inapplicable Information. If an investment adviser renders

substantially different types of investment advisory services to different

advisory clients, any information required by Form ADV Part 2A, the brochure,

and Part 2B, the brochure supplement, may be omitted from the statement

furnished to an advisory client or prospective advisory client if the

information is not applicable to the type of investment advisory service or fee

that is rendered or charged, or proposed to be rendered or charged, to that

client or prospective client.

(5) Other Disclosures. Nothing in this Rule shall relieve any investment adviser

from any obligation pursuant to any provision of the Act or Rules or other

federal or state law to disclose any information to its advisory clients or

prospective advisory clients not specifically required by this Rule.

(h) REGISTRATION EXEMPTION FOR INVESTMENT ADVISERS TO

PRIVATE FUNDS.

(1) Definitions. For purposes of this regulation, the following definitions shall

apply:

(A) “Value of primary residence” means the fair market value of a

person’s primary residence, subtracted by the amount of debt secured

by the property up to its fair market value.

(B) “Private fund adviser” means an investment adviser who provides

advice solely to one or more qualifying private funds.

definition of a qualifying private fund in Rule 203(m)-1 of the

Investment Advisers Act of 1940, 17 C.F.R. 275.203(m)-1.

(D) “3(c)(1) fund” means a qualifying private fund that is eligible for the

exclusion from the definition of an investment company under section

3(c)(1) of the Investment Company Act of 1940, 15 U.S.C. 80a-

3(c)(1).

(E) “Venture capital fund” means a private fund that meets the definition

of a venture capital fund in Rule 203(l)-1 of the Investment Advisers

Act of 1940, 17 C.F.R. § 275.203(l)-1, and is a private fund ultimately

comprised of only investors that are accredited investors as defined in

Rule 501 of Regulation D, promulgated under the Securities Act of

1933, 17 C.F.R. § 230.501.

(2) Exemption for private fund advisers. Subject to the additional requirements

of paragraph (3) below, a private fund adviser shall be exempt from the

registration requirements of Section 23-42-301 if the private fund adviser

satisfies each of the following conditions:

(A) neither the private fund adviser nor any of its advisory affiliates are

subject to an event that would disqualify an issuer under Rule

506(d)(1) of SEC Regulation D, 17 C.F.R. § 230.506(d)(1);

(B) the private fund adviser files with the state each report and amendment

thereto that an exempt reporting adviser is required to file with the

Securities and Exchange Commission pursuant to SEC Rule 204-4, 17

C.F.R. § 275.204-4. These filings are to be made electronically

through the Investment Adviser Registration Depository (IARD); and

304(a)(6) of the Act.

(3) Additional requirements for private fund advisers to certain 3(c)(1) funds. In

order to qualify for the exemption described in paragraph (2) of this

regulation, a private fund adviser that advises at least one (3)(c)(1) fund that

is not a venture capital fund shall, in addition to satisfying each of the

conditions specified in paragraphs (2)(A) through (2)(C), comply with the

following requirements:

(A) The private fund adviser shall advise only those 3(c)(1) funds (other

than venture capital funds) whose outstanding securities (other than

short-term paper) are beneficially owned entirely by persons who, after

deducting the value of the primary residence from the person’s net

worth, would each meet the definition of a qualified client in Rule

205-3 of the Investment Advisers Act of 1940, 17 C.F.R. § 275.205-3,

at the time the securities are purchased from the issuer;

(B) At the time of purchase, the private fund adviser shall disclose the

following in writing to each beneficial owner of a 3(c)(1) fund that is

not a venture capital fund:

(i) all services, if any, to be provided to individual beneficial

owners;

(ii) all duties, if any, the investment adviser owes to the beneficial

owners; and

(iii) any other material information affecting the rights or

responsibilities of the beneficial owners.

financial statements of each 3(c)(1) fund that is not a venture capital

fund, and shall deliver a copy of such audited financial statements to

each beneficial owner of the fund.

(4) Federal covered investment advisers. If a private fund adviser is registered

with the Securities and Exchange Commission, the adviser shall not be

eligible for this exemption and shall comply with the state notice filing

requirements applicable to federal covered investment advisers in Section 23-

42-301(c)(1).

(5) Investment adviser representatives. A person is exempt from the registration

requirements of Section 23-42-301(c) if he or she is employed by or

associated with an investment adviser that is exempt from registration in this

state pursuant to this regulation and does not otherwise act as an investment

adviser representative.

(6) Electronic filing. The report filings described in paragraph (2)(B) above shall

be made electronically through the IARD. A report shall be deemed filed

when the report and the fee required by Section 23-42-304(a)(6) are filed and

accepted by the IARD on the state's behalf.

(7) Transition. An investment adviser that becomes ineligible for the exemption

provided by this rule must comply with all applicable laws and rules

requiring registration or notice filing within ninety (90) days from the date

the investment adviser’s eligibility for this exemption ceases.

(8) Waiver Authority with Respect to Statutory Disqualification. Paragraph

(2)(A) shall not apply upon a showing of good cause and without prejudice to

any other action of the commissioner, if the commissioner determines that it

is not necessary under the circumstances that an exemption be denied.

(9) Grandfathering for investment advisers to 3(c)(1) funds with non-qualified

clients. An investment adviser to a 3(c)(1) fund (other than a venture capital

fund) that has one or more beneficial owners who are not qualified clients as

described in subparagraph (c)(1) is eligible for the exemption contained in

paragraph (2) of this regulation if the following conditions are satisfied:

(A) the subject fund existed prior to the effective date of this regulation;

(B) as of the effective date of this regulation, the subject fund ceases to

accept beneficial owners who are not qualified clients, as described in

subparagraph (3)(A) of this regulation;

in paragraph (3)(B) to all beneficial owners of the fund; and

(D) as of the effective date of this regulation, the investment adviser

delivers audited financial statements as required by paragraph (3)(C).

(10) Requests for records.

(A) Upon a written request from the commissioner or the commissioner’s

authorized representative, an investment adviser relying on an

exemption provided by this section shall make available to the

commissioner all records subject to the custody or control of the

investment adviser related to any private fund to which the

investment adviser provides investment advice.

(B) Failure to comply with this subsection will result in the loss of the

exemption provided by this section.

(i) INFORMATION SECURITY AND PRIVACY.

(1) Physical Security and Cybersecurity Policies and Procedures. Every

investment adviser registered or required to be registered shall establish,

implement, update, and enforce written physical security and cybersecurity

policies and procedures reasonably designed to ensure the confidentiality,

integrity, and availability of physical and electronic records and information.

The policies and procedures must be tailored to the investment adviser’s

business model, taking into account the size of the firm, type(s) of services

provided, and the number of locations of the investment adviser.

(A) The physical security and cybersecurity policies and procedures must:

(i) Protect against reasonably anticipated threats or hazards to the

security or integrity of client records and information;

(ii) Ensure that the investment adviser safeguards confidential

client records and information; and

(iii) Protect any records and information the release of which

could result in harm or inconvenience to any client.

(B) The physical security and cybersecurity policies and procedures must

cover at least five functions:

(i) Identify. Develop the organizational understanding to manage

information security risk to systems, assets, data, and

capabilities;

(ii) Protect. Develop and implement the appropriate safeguards to

ensure delivery of critical infrastructure services;

(iii) Detect. Develop and implement the appropriate activities to

identify the occurrence of an information security event;

(iv) Respond. Develop and implement the appropriate activities to

take action regarding a detected information security event;

and

(v) Recover. Develop and implement the appropriate activities to

maintain plans for resilience and to restore any capabilities or

services that were impaired due to an information security

event.

than annually, and modify, as needed, these policies and procedures

to ensure the adequacy of the security measures and the effectiveness

of their implementation.

(2) Privacy Policy. The investment adviser must deliver upon the investment

adviser’s engagement by a client, and on an annual basis thereafter, a privacy

policy to each client that is reasonably designed to aid in the client’s

understanding of how the investment adviser collects and shares, to the

extent permitted by state and federal law, non-public personal information.

The investment adviser must promptly update and deliver to each client an

amended privacy policy if any of the information in the policy becomes

inaccurate.

(j) PROXY VOTING POLICIES AND PROCEDURES.

(1) If an investment adviser registered or required to be registered pursuant to

Section 23-42-301 of the Act has the authority to vote client securities:

(A) The investment adviser must establish, maintain, and enforce

written proxy voting policies and procedures that are reasonably

designed to ensure that the investment adviser votes client securities

in the best interest of clients. These procedures must include how the

investment adviser addresses material conflicts that may arise

between its interests and those of the investment adviser’s clients;

(B) Disclose to clients how they may obtain information from the

investment adviser about how it voted with respect to their securities;

and

and procedures and, upon request, furnish a copy of the policies and

procedures to the requesting client.

(2) If the investment adviser does not have the authority to vote client securities

then this information must be disclosed to clients.

(k) CODE OF ETHICS.

(1) An investment adviser registered or required to be registered pursuant to

Section 23-42-301 of the Act must establish, maintain, and enforce a written

code of ethics that, at a minimum, includes:

(A) A standard (or standards) of business conduct that the investment

adviser requires of its supervised persons, which must reflect the

investment adviser’s fiduciary obligations and those of its supervised

persons;

(B) Provisions requiring the investment adviser’s supervised persons to

comply with applicable State and Federal securities laws;

to report, and the investment adviser to review, their personal

securities transactions and holdings periodically as provided below;

(D) Provisions requiring supervised persons to report any violations of

the investment adviser’s code of ethics promptly to its chief

compliance officer or, provided the investment adviser’s chief

compliance officer also receives reports of all violations, to other

persons designated in the investment adviser’s code of ethics; and

(2) Holdings reports. The code of ethics must require the investment

adviser’s access persons to submit to its chief compliance officer or other

persons designated in the investment adviser’s code of ethics a report of

the access person’s current securities holdings that meets the following

requirements:

(A) Content of holdings reports. Each holdings report must

contain, at a minimum:

i. The title and type of security, and as applicable the

exchange ticker symbol or CUSIP number, number of

shares, and principal amount of each reportable security

in which the access person has any direct or indirect

beneficial ownership;

ii. The name of any broker, dealer, or bank with which the access

person maintains an account in which any securities are held for

the access person’s direct or indirect benefit; and

iii. The date the access person submits the report.

(B) Timing of holdings reports. The investment adviser’s

access persons must each submit a holdings report:

i. No later than 10 days after the person becomes an

access person, and the information must be current as of

a date no more than 45 days prior to the date the person

becomes an access person.

ii. At least once each 12-month period thereafter on a date

selected by the investment adviser, and the information

must be current as of a date no more than 45 days prior

to the date the report was submitted.

(3) Pre-approval of certain investments. The investment adviser’s code

of ethics must require its access persons to obtain the investment adviser’s

approval before they directly or indirectly acquire beneficial ownership in

any security in an initial public offering or in a limited offering.

(4) Small advisers. If the investment adviser has only one access

person, it is not required to submit reports to itself or to obtain its own

approval for investments in any security in an initial public offering or in a

limited offering, if the investment adviser maintains records of all of its

holdings and transactions that this section would otherwise require the

investment adviser to report.

(5) Definitions. For purposes of this rule concerning Code of Ethics the following

definitions apply:

(A) Supervised person means any partner, officer, director (or other person

occupying a similar status or performing similar functions), or

employee of an investment adviser, or other person who provides

investment advice on behalf of the investment adviser and is subject to

the supervision and control of the investment adviser. The definition

includes investment adviser representatives, employees, independent

contractors, or other associated persons and supervised personnel, or

other person acting on the behalf of the investment adviser.

(B) Chief compliance officer means a supervised person with the authority

and resources to develop and enforce the investment adviser’s policies

and procedures. The individual designated to serve as chief

compliance officer must be registered as an investment adviser

representative and must have the background and skills appropriate for

fulfilling the responsibilities of the position.

(i) Any of the investment adviser’s supervised persons:

(a) Who has access to non-public information regarding

any client’s purchase or sale of securities, or non-public

information regarding the portfolio holdings of any

reportable fund, or

(b) Who is involved in making securities recommendations

to clients, or who has access to such recommendations

that are non-public.

(ii) If providing investment advice is the investment adviser’s

primary business, all of its directors, officers and partners are

presumed to be access persons.

(l) MATERIAL NON-PUBLIC INFORMATION.

An investment adviser registered or required to be registered pursuant to Section 23-42-

301 of the Act must establish, maintain, and enforce written policies and procedures

reasonably designed to prevent the misuse of material, non-public information by the

investment adviser or any person associated with the investment adviser.

(m) INVESTMENT ADVISER REPRESENTATIVE CONTINUING EDUCATION.

(1) Every investment adviser representative registered under Section 301 of the

Act must complete the following investment adviser representative (IAR)

continuing education requirements each Reporting Period:

(A) IAR Ethics and Professional Responsibility Requirement. An

investment adviser representative must complete six (6) Credits of

IAR Regulatory and Ethics Content offered by an Authorized

Provider, with at least three (3) hours covering the topic of ethics; and

(B) IAR Products and Practice Requirement. An investment adviser

representative must complete six (6) Credits of IAR Products and

Practice Content offered by an Authorized Provider.

(2) Agent of FINRA-Registered Broker-dealer Compliance. An investment

adviser representative who is also registered as an agent of a FINRA member

broker-dealer and who complies with FINRA’s continuing education

requirements is considered to be in compliance with the subrule (1)(B), IAR

Products and Practice Requirement, for each applicable Reporting period so

long as FINRA continuing education content meets all of the following

baseline criteria as determined by NASAA:

(A) The continuing education content focuses on compliance, regulatory,

ethical, and sales practices standards.

(B) The continuing education content is derived from state and federal

investment advisory statutes, rules and regulations, securities industry

rules and regulations, and accepted standards and practices in the

financial services industry.

demonstrate proficiency in the subject matter of the educational

materials.

(3) Credentialing Organization Continuing Education Compliance. Credits of

continuing education completed by an investment adviser representative who

was awarded and currently holds a credential that qualifies for an examination

waiver under Rule 302.02(f)(2) comply with subrules (1)(A) and (1)(B) of this

rule provided all of the following are true:

(A) The investment adviser representative completes the credits of

continuing education as a condition of maintaining the credential for

the relevant Reporting Period.

(B) The credits of continuing education completed during the relevant

Reporting Period by the investment adviser representative are

mandatory to maintain the credential.

organization during the relevant Reporting Period is Approved IAR

Continuing Education Content.

(4) IAR Continuing Education Reporting. Every investment adviser

representative is responsible for ensuring that the Authorized Provider reports

the investment adviser representative’s completion of the applicable IAR

continuing education requirements.

(5) No Carry-Forward. An investment adviser representative who completes

Credits of continuing education in excess of the amount required for the

Reporting Period may not carry forward excess credits to a subsequent

Reporting Period.

(6) Failure to Complete or Report. An investment adviser representative who fails

to comply with this rule by the end of a Reporting Period will renew as “CE

Inactive” at the close of the calendar year in this state until the investment

adviser representative completes and reports all required IAR continuing

education Credits for all Reporting Periods as required by this rule. An

investment adviser who is CE inactive at the close of the next calendar year is

not eligible for investment adviser representative registration or renewal of an

investment adviser representative registration.

(7) Discretionary Waiver by the Administrator. The administrator may, in its

discretion, waive any requirements of this rule.

(8) Home State. An investment adviser representative registered or required to be

registered in this state who is registered as an investment adviser

representative in the individual’s Home State is considered to be in

compliance with this rule provided that both of the following are true:

(A) The investment adviser representative’s Home State has continuing

education requirements that are at least as stringent as the NASAA

Model Rule on Investment Adviser Representative Education.

(B) The investment adviser representative is in compliance with the

Home State’s investment adviser representative continuing education

requirements.

(9) Unregistered Periods. An investment adviser representative who was

previously registered under the Act and became unregistered must complete

IAR continuing education for all reporting periods that occurred between the

time that the investment adviser representative became unregistered and

when the person became registered again under the Act unless the investment

adviser representative takes and passes the examination or receives an

examination waiver as required by Rule 302.02(f) in connection with the

subsequent application for registration.

(10) Definitions. As used in this rule, the following terms mean:

(A) “Approved IAR Continuing Education Content” means the materials,

written, oral, or otherwise that have been approved by NASAA or its

designee and which make up the educational program provided to an

investment adviser representative under this rule.

(B) “Authorized Provider” means a person that NASAA or its designee

has authorized to provide continuing education content required by

this rule.

designee as at least 50 minutes of educational instruction.

(D) “Home State” means the state in which the investment adviser

representative has its principal office and place of business.

(E) “IAR Ethics and Professional Responsibility Content” means

Approved IAR Continuing Education Content that addresses an

investment adviser representative’s ethical and regulatory obligations.

(F) “IAR Products and Practice Content” means Approved IAR

Continuing Education Content that addresses an investment adviser

representative’s continuing skills and knowledge regarding financial

products, investment features, and practices in the investment advisory

industry.

(G) “Reporting Period” means one twelve-month (12) period as

determined by NASAA. An investment adviser representative’s initial

Reporting Period with this state commences the first day of the first

full Reporting Period after the individual is registered or required to be

registered with this state.

RULE 303 MINIMUM NET CAPITAL REQUIREMENT.

303.01 CAPITAL REQUIREMENTS FOR BROKER-DEALER.

GENERAL REQUIREMENT. All broker-dealers registered under the Act shall at all times

have and maintain net capital of no less than the required amount for each broker-dealer as

established by SEC Rule 15c3-1 promulgated pursuant to the Securities Exchange Act of 1934,

which is hereby incorporated by reference.

303.02 CAPITAL REQUIREMENTS FOR INVESTMENT ADVISERS.

(a) Except as otherwise provided in the Act or in the Rules, each registered investment

adviser shall at all times have and maintain not less than the minimum net capital

required by Section 23-42-303(a) of the Act.

(b) Net capital for purposes of Rule 303.02 shall mean the net worth of an applicant or

registrant calculated in accordance with generally accepted accounting principles.

place of business is located in a state other than Arkansas, provided that the

investment adviser is registered or licensed as an investment adviser in that state and

is in compliance with the net capital requirements of that state.

RULE 304 FILING FEES.

[RESERVED]

RULE 305 CORPORATE SURETY BONDS.

305.01 SURETY BONDS.

A surety bond, as required by Section 23-42-305 of the Act, for a registered broker-dealer,

investment adviser, or agent of the issuer shall be maintained and in effect at all times as follows:

(a) A broker-dealer shall satisfy the fidelity bond requirements imposed by FINRA.

(b) An investment adviser that has custody of customer funds or securities shall have a

surety bond in the amount of fifty thousand dollars ($50,000). An investment adviser

that has custody solely due to direct fee deduction and that complies with the terms

described under Rule 307.02(b)(3)(A)(B) and (C) and related books and records

requirements, shall not be required to comply with this bonding requirement.

thousand dollars ($25,000).

RULE 306 RECORDS AND REPORTS – EXAMINATIONS.

306.01 RECORDS AND REPORTS OF BROKER-DEALERS.

(a) Each broker-dealer shall make, maintain, and preserve books and records as required

for brokers or dealers under the rules promulgated under the Securities Exchange Act

of 1934, as amended.

(b) The Commissioner may, by order, upon written request and for good cause shown,

waive any of the requirements of this Rule.

306.02 RECORDS AND REPORTS OF INVESTMENT ADVISERS.

(a) GENERAL. All registered investment advisers shall make and keep true, accurate

and current books and records relating to their investment advisory business. The

records required to be maintained shall be maintained for a minimum of five (5) years

from the date on which the transaction occurred shall include the specific records set

forth below. The provisions of this Rule shall not apply to an investment adviser

whose principal place of business is located in a state other than Arkansas, provided

that the investment adviser is registered or licensed as an investment adviser in that

other state and is in compliance with the applicable books and records requirements of

that other state.

(b) BUSINESS RECORDS. The business records required to be maintained shall

include:

(1) A journal or journals, including cash receipts and disbursements records, and

any other records of original entry forming the basis of entries in any ledger.

(2) General and auxiliary ledgers (or other comparable records) reflecting asset,

liability, reserve, capital, income, and expense accounts.

(3) A memorandum of each order given by the investment adviser for the

purchase or sale of any security, of any instruction received by the investment

adviser from the client concerning the purchase, sale, receipt of delivery of a

particular security, and of any modification or cancellation of any such order or

instruction. Such memoranda shall show the term and conditions of the order,

instruction, modification, or cancellation; shall identify the person connected

with the investment adviser who recommended the transaction to the client and

the person who placed the order; and shall show the account

for which entered,

the date of entry, and the bank or broker-dealer by or through whom executed

where appropriate. Orders entered pursuant to the exercise of discretionary

power shall be so designated.

(4) All checkbooks, bank statements, canceled checks, and cash reconciliations of

the investment adviser.

(5) All bills or statements (or copies thereof) paid or unpaid, relating to the

business of the investment adviser as such.

(6) All trial balances, financial statements prepared in accordance with generally

accepted accounting principles, and internal audit working papers relating to

the business of the investment adviser. For purposes of this Rule, “financial

statements” shall mean a balance sheet prepared in accordance with generally

accepted accounting principles, and income statement, a cash flow statement,

and a net worth computation as required by Rule 303.02.

(7) Originals or electronic copies of all written communications received and

copies of all written communications sent by such investment adviser relating

to the following:

(A) Any recommendation made or proposed to be made and any advice

given or proposed to be given;

(B) Any receipt, disbursement, or delivery of funds or securities; or

(D) Notwithstanding the provisions of Rule 306.02, an investment adviser

shall not be required to keep the following:

(i) Any unsolicited market letters and other similar

communications of general public distribution not prepared by

or for the investment adviser; and

(ii) A record of the names and addresses of the persons to whom

any notice, circular or other advertisement offering any report,

analysis, publication, or other investment advisory service to

more than ten (10) persons was sent, unless the notice, circular

or other advertisement is distributed to persons named on any

list, in which case, the investment adviser shall retain with the

copy of the notice, circular or other advertisement, a

memorandum describing the list and the source thereof.

(8) A list or other record of all accounts in which the investment adviser is vested

with custody or any discretionary power with respect to the funds, securities,

or transactions of any client.

(9) All powers of attorney and other evidences of the granting of any

discretionary authority by any client to the investment adviser, or copies

thereof.

(10) All investment advisory contracts and other written agreements (or copies

thereof) entered into by the investment adviser with any client or otherwise

relating to the business of the investment adviser. The contracts shall be fair

and reasonable and indicate the customer’s risk tolerance, investment

objectives, annual income, net worth, and liquid net worth, and shall be signed

and dated by all persons having an interest in the account.

(11) A copy of each notice, circular, advertisement, newspaper article, investment

letter, bulletin, or other communication, which the investment adviser

circulates or distributes, directly or indirectly, to two (2) or more persons

(other than persons connected with the investment adviser), and all

documentation necessary to show the investment adviser is not in violation of

Rule 308.02(m).

(12) A record of every transaction in a security in which the investment adviser or

any advisory representative of the investment adviser has, or by reason of the

transaction acquires, any direct or indirect beneficial ownership. These

records shall state the title and amount of the security involved, the date and

nature of the transaction (including the purchase, sale, acquisition, or

disposition), the price at which it was effected, and the name of the broker-

dealer through which the transaction was effected. These records may also

contain a statement declaring that the reporting or recording of a transaction

shall not be construed as an admission that the investment adviser or

representative has any direct or indirect beneficial ownership in the security.

A transaction shall be recorded not later than ten (10) days after the end of the

calendar quarter in which the transaction was effected. The records required

by this subsection shall not include the following:

(A) Transactions effected in any account over which neither the investment

adviser nor any representative of the investment adviser has any direct

or indirect influence or control; and

(B) Transactions in securities which are direct obligations of the United

States.

(13) A copy of each written statement and each amendment or revision, given or

sent to any client or prospective client of the investment adviser in accordance

with the provisions of the Brochure Requirement found in Rule 302.02(g), and

a record of the dates that each written statement, and each amendment or

revision, was given, or offered to be given, to any client or prospective client

who subsequently becomes a client.

(14) For each client that was obtained by the adviser by means of a referral from a

third party to whom a cash fee was paid by the adviser, the following is

required:

(A) Evidence of a written agreement, to which the adviser is a party,

related to the payment of the fee;

(B) A signed and dated acknowledgement of receipt from the client

evidencing the client’s receipt of the investment adviser’s disclosure

statement; and

(15) All accounts, books, internal working papers, and any other records or

documents that are necessary to form the basis for or demonstrate the

calculation of the performance or rate of return of all management accounts or

securities recommendations in any notice, circular, advertisement, newspaper

article, investment letter, bulletin, or other communication, including, but not

limited to, electronic media that the investment adviser circulates or

distributes, directly or indirectly, to two (2) or more persons (other than

persons connected with the investment adviser); provided, however, that, with

respect to the performance of management accounts, the retention of all

account statements, if they reflect all debits, credits, and other transactions in

a client’s account for the period of the statement, and all worksheets necessary

to demonstrate the calculation of the performance or rate of return of all

managed accounts shall be deemed to satisfy the requirements of this

paragraph.

(16) A file containing a copy of all written communications received or sent

regarding any litigation involving the investment adviser, any investment

adviser representative, or employee, and regarding any written customer or

client complaint.

(17) Written information about each investment advisory client that is the basis for

making any recommendation or providing any investment advice to the client.

(18) Written procedures to supervise the activities of employees and investment

adviser representatives that are reasonably designed to achieve compliance

with applicable securities laws and regulations.

(19) A file containing a copy of each document (other than any notices of general

dissemination) that was filed with or received from any state or federal agency

that pertains to the registrant or its investment adviser representatives, which

file should contain, but is not limited to, all applications, amendments,

renewal filings, and registration-related correspondence.

(20) Where the adviser inadvertently held or obtained a client’s securities or funds

and returned them to the client within three (3) business days of receiving

them, or has forwarded checks drawn by a client and made payable to a third

party within three (3) business days of receiving them, the adviser will be

considered as not having custody, but shall keep for all securities or funds

inadvertently held, a ledger containing the following information:

(A) Issuer;

(B) Type of security and series;

(D) For debt instruments, the denomination, interest rate, and maturity

date;

(E) Certificate number, including alphabetical prefix or suffix;

(F) Name in which registered;

(G) Date given to the adviser;

(H) Date sent to client or sender;

(I) Form of delivery to client or sender, or copy of the form of delivery to

client or sender;

(J) Mail confirmation number, if applicable, or confirmation by client or

sender of the fund’s or security’s return; and

(K) Date each check was received and forwarded.

(21) If an investment adviser obtains possession of securities that are acquired

from the issuer in a transaction or chain of transactions not involving any

public offering that comply with the exception from custody under Rule

307.02(b)(2), the adviser shall keep the following records:

(A) A record showing the issuer or current transfer agent’s name, address,

phone number, and other applicable contract information pertaining to

the party responsible for recording client interests in the securities; and

(B) A copy of any legend, shareholder agreement, or other agreement

showing that those securities that are transferable only with prior

consent of the issuer or holders of the outstanding securities of the

issuer.

(22) For an investment adviser that has custody of a client’s funds or securities, all

records and evidence of compliance required by Rule 307.02.

(23) If an investment adviser has custody, unless it has custody solely as a

consequence of its authority to make withdrawals from client accounts to pay

its advisory fee and complies with the terms described under Rule

307.02(b)(3)(A)(B) and (C), the records required to be made and kept shall

include the following:

(A) A copy of any and all documents executed by the client (including a

limited power of attorney) under which the adviser is authorized or

permitted to withdraw a client’s funds or securities maintained with a

custodian upon the adviser’s instruction to the custodian;

(B) A journal or other record showing all purchases, sales receipts and

deliveries of securities (including certificate numbers) for the accounts

and all other debits and credits to the accounts;

receipts, and deliveries of securities, the date and price of each

purchase and sale, and all debits and credits;

(D) Copies of confirmations of all transactions effected by or for the

account of any client;

(E) A record for each security in which any client has a position, which

record shall show the name of each client having any interest in each

security, the amount of interest of each client, and the location of each

security;

(F) A copy of each of the client’s quarterly account statements, as

generated and delivered by the qualified custodian. If the adviser also

generates a statement that is delivered to the client, the adviser shall

also maintain copies of the statements along with the date the

statements were sent to the clients;

(G) If applicable to the adviser’s situation, a copy of the special

examination report verifying the completion of the examination by an

independent certified public accountant and describing the nature and

extent of the examination;

(H) A record of any finding by the independent certified public accountant

of any material discrepancies found during the examination; and

(I) If applicable, evidence of the client’s designation of an independent

representative.

(24) If an investment adviser has custody because it advises a pooled investment

vehicle, the adviser shall also keep the following records:

(A) True, accurate, and current account statements;

(B) Where the adviser complies with Rule 307.02(b)(4), the records

required to be made and kept shall include the following:

(i) The date(s) of the audit;

(ii) A copy of the audited financial statements; and

(iii) Evidence of the mailing of the audited financial to all limited

partners, members, or other beneficial owners within one

hundred twenty (120) days of the end of its fiscal year.

(25) All payroll records, corporate charters, certificates of incorporation,

partnership articles, minute books and other records routinely kept in the

course of operating a business.

(26) Physical Security and Cybersecurity Policies and Procedures and Privacy

Policy

(A) The investment adviser must maintain a current copy of these policies

and procedures pursuant to Rule 302.02(i) either in hard copy in a

separate location or stored on electronic storage media that is separate

from and not dependent upon access to the investment adviser’s

computers or a network;

(B) All records documenting the investment adviser's compliance with

Rule 302.02(i) including, but not limited to, evidence of the annual

review of the policies and procedures;

as a result of the violation.

(27) Proxy Voting Policies and Procedures. If an investment adviser has

authority to vote client securities, the written proxy voting policies and

procedures required by Rule 302.02(j).

(28) Code of Ethics. The written code of ethics and holdings reports required

by Rule 302.02(k).

(29) Material Non-Public Information. Written policies and procedures to

prevent misuse of material non-public information required by Rule

302.02(l).

all books and records shall be maintained and preserved in an easily accessible place

for a period of not less than five (5) years from the end of the fiscal year during which

the last entry was made on the record.

(d) FORM OF RECORDS AND SAFETY.

(1) Records required to be maintained and preserved may be maintained and

preserved for the required time, and immediately produced or reproduced by

the investment adviser by:

(A) Paper or hard copy form, as those records are kept in their original

form;

(B) Electronic storage media, including any digital storage medium or

system that meets and complies with the other requirements of this

Rule; or

requirements of this Rule.

(2) Records must be easily accessible and retrievable in a form that is legible,

true, and complete.

(3) Records created or maintained on electronic storage media:

(A) Must be maintained and preserved in a manner to reasonably

safeguard them from loss, alteration, or destruction;

(B) Must be only accessible to properly authorized personnel and the

Commissioner or representatives of the Commissioner.

(e) SEGREGATED ACCOUNTS. Registered investment advisers shall at all times

keep their customers’ securities and funds in trust and segregated from their own

securities and funds.

(f) SUPERVISED OR MANAGED ACCOUNTS. Every registered investment

adviser who renders any investment supervisory or management service to any client

shall, with respect to the portfolio being supervised or managed and to the extent that

the information is reasonably available to or obtainable by the investment adviser,

make and keep true, accurate, and current, the following:

(1) Records showing separately for each client the securities purchased and sold,

and the date, amount and price of each purchase and sale.

(2) For each security in which any client has a current position, information from

which the investment adviser can promptly furnish the name of each client,

and the current amount or interest of the client.

(g) COMMINGLING OF ACCOUNTS PROHIBITED. When a registered

investment adviser is engaged in more than one enterprise or activity, it shall maintain

separate books of accounts and records relating to its securities business and the

assets shall not be commingled with those of other businesses, and there shall be a

clearly defined division with respect to income and expenses.

(h) COMPLAINT FILE. Every registered investment adviser shall keep and maintain

for a period of five (5) years a complaint file or compliance file which shall contain

all complaints made against the firm or its representatives by individuals, financial

institutions and other investors. The complaint file should disclose any legal action in

process, settled, or threatened against the investment adviser or its representatives. If

the original documents are not maintained in the complaint file, the copy of the

document should show the disposition of the original document. If the home office of

the investment adviser is not in Arkansas, then branch office located in Arkansas shall

maintain this complaint file for any complaints involving Arkansas representatives or

customers.

(i) RECORD SYSTEM. In accordance with Section 23-42-205(d)(2) of the Act, any

books or records required by this Rule may be maintained by the investment adviser

in a manner that the identity of any client to whom such investment adviser renders

investment supervisory services is indicated by numerical or alphabetical code or

some similar designation.

(j) An investment adviser subject to subsection (a) of this Rule, before ceasing to

conduct or discontinuing business as an investment adviser shall arrange for and be

responsible for the preservation of the books and records required to be maintained

and preserved under this Rule for the remainder of the period specified in this Rule,

and shall notify the Commissioner in writing of the exact address where the books

and records will be maintained during the period.

306.03 FINANCIAL STATEMENTS.

(a) Unless otherwise provided herein, audited financial statements shall be prepared by

an independent certified public accountant in accordance with generally accepted

auditing standards in conformity with generally accepted accounting principles and

accompanied by an opinion acceptable to the Commissioner.

(b) An unaudited balance sheet shall be prepared in accordance with generally accepted

accounting principles

annual filing requirement shall be public when filed, except that if the balance sheet

for a broker-dealer is in a format which is separate from the remainder of the audited

financial statements and is identified as confidential, then it will be so treated.

RULE 307 UNLAWFUL ACTS BY INVESTMENT ADVISERS.

307.01 PERFORMANCE - BASED COMPENSATION EXEMPTION.

(a) Notwithstanding Section 23-42-307(b)(1) of the Act, an investment adviser may enter

into, extend or renew an investment advisory contract which 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 if the

following conditions are met:

(1) The client entering into the contract is a “qualified client”, as defined by Rule

205-3 under the Investment Advisers Act of 1940 (17 Code of Federal

Regulations §275.205-3); and

(2) To the extent not otherwise disclosed on Form ADV Part 2, the investment

adviser must disclose in writing to the client all material information

concerning the proposed advisory arrangement, including the following:

(A) That the fee arrangement may create an incentive for the investment

adviser to make investments that are riskier or more speculative than

would be the case in the absence of a performance fee;

(B) Where relevant, that the investment adviser may receive increased

compensation with regard to unrealized appreciation as well as

realized gains in the client’s account;

throughout the contract and their significance in the computation of

the fee;

(D) The nature of any index which will be used as a comparative measure

of investment performance, the significance of the index, and the

reason the investment adviser believes that the index is appropriate;

and

(E) Where the investment adviser’s compensation is based in part on the

unrealized appreciation of securities for which market quotations are

not readily available within the meaning of Rule 2a-4(a)(1) under the

Investment Company Act of 1940, 17 C.F.R. 270.2a-4(a)(1), how the

securities will be valued and the extent to which the valuation will be

independently determined.

(b) In the case of a private investment company, as defined in subsection (d)(2) of this

rule, an investment company registered under the Investment Company Act of 1940,

or a business development company, as defined in section 202(a)(22) of the

Investment Advisers Act of 1940 [15 U.S.C. 80b-2(a)(22)], each equity owner of any

such company (except for the investment adviser entering into the contract and any

other equity owners not charged a fee on the basis of a share of capital gains or

capital appreciation) will be considered a client for purposes of subsection (a) of this

rule.

(1) If an investment adviser entered into a contract and satisfied the conditions of

this rule that were in effect when the contract was entered into, the adviser

will be considered to satisfy the conditions of this rule; Provided, however,

that if a natural person or company who was not a party to the contract

becomes a party (including an equity owner of a private investment company

advised by the adviser), the conditions of this rule in effect when the person or

company becomes a party to the contract will apply with regard to that person

or company.

(2) If an investment adviser was not required to register pursuant to Section 23-

42-301 of the Act and was not registered, Section 23-42-307(b)(1) of the Act

shall not apply to an advisory contract entered into when the investment

adviser was not required to register and was not registered, provided,

however, that the investment adviser was in compliance with all rules and

regulations regarding performance based compensation in any jurisdiction in

which the investment adviser was registered or required to be registered at the

time of entering into the advisory contract.

(3) Solely for purposes of subsections (c)(1) and (c)(2) of this rule, a transfer of

an equity ownership interest in a private investment company by gift or

bequest, or pursuant to an agreement related to a legal separation or divorce,

will not cause the transferee to “become a party” to the contract, and will not

cause Section 23-42-307(b)(1) of the Act to apply to such transferee.

(d) The following definitions apply for purposes of this rule:

(1) “Company” shall have the same meaning as in section 202(a)(5) of the

Investment Advisers Act of 1940 [15 U.S.C. 80b-2(a)(5)], but does not

include a company that is required to be registered under the Investment

Company Act of 1940 but is not registered.

(2) “Private investment company” shall mean a company that would be defined

as an investment company under section 3(a) of the Investment Company Act

of 1940 [15 U.S.C. 80a-3(a)] but for the exception provided from that

definition by section 3(c)(1) of such Act [15 U.S.C. 80a-3(c)(1)].

(e) INDEPENDENT AGENT. Nothing in this Rule shall relieve a client’s independent

agent from any obligation to the client under applicable law.

307.02 CUSTODY OF CLIENT FUNDS OR SECURITIES BY INVESTMENT

ADVISERS.

(a) SAFEKEEPING REQUIRED. It is unlawful and deemed to be a fraudulent,

deceptive, or manipulative act, practice, or course of business for an investment

adviser, registered or required to be registered, to have custody of client funds or

securities unless the following occurs:

(1) Notice to Commissioner. The investment adviser notifies the Commissioner

promptly in writing that the investment adviser has or may have custody. This

notification is required to be given on Form ADV;

(2) Qualified Custodian. A qualified custodian maintains those funds and

securities:

(A) In a separate account for each client under that client’s name; or

(B) In accounts that contain only the investment adviser’s clients’ funds

and securities, under the investment adviser’s name as agent or

trustee for the clients, or, in the case of a pooled investment vehicle

that the investment adviser manages, in the name of the pooled

investment vehicle

(3) Notice to Clients. If an investment adviser opens an account with a qualified

custodian on behalf of a client, under the client’s name, under the name of the

investment adviser as agent, or under the name of a pooled investment

vehicle, the investment adviser must notify the client in writing of the

qualified custodian’s name, address, and the manner in which the funds or

securities are maintained, promptly when the account is opened and following

any changes to this information. If the investment adviser sends account

statements to a client to which the investment adviser is required to provide

this notice, the investment adviser must include in the notification provided to

that client and in any subsequent account statement the investment adviser

sends that client a statement urging the client to compare the account

statements from the custodian with those from the investment adviser.

(4) Account Statements. The investment adviser has a reasonable basis, after due

inquiry, for believing that the qualified custodian sends an account statement,

at least quarterly, to each client for which it maintains funds or securities,

identifying the amount of funds and of each security in the account at the end

of the period and setting forth all transactions in the account during that

period.

(5) Special Rule for Limited Partnerships and Limited Liability Companies. If

the investment adviser or a related person is a general partner of a limited

partnership (or managing member of a limited liability company, or holds a

comparable position for another type of pooled investment vehicle), the

account statements required under Rule 307.02(a)(4) must be sent to each

limited partner (or member or other beneficial owner).

(6) Independent Verification. The client funds and securities of which the

investment adviser has custody are verified by actual examination at least

once during each calendar year, by an independent certified public accountant,

pursuant to a written agreement between the investment adviser and the

independent certified public accountant, at a time that is chosen by the

independent certified public accountant without prior notice or announcement

to the investment adviser and that is irregular from year to year. The written

agreement must provide for the first examination to occur within six (6)

months of becoming subject to this paragraph, except that, if the investment

adviser maintains client funds or securities pursuant to this Rule as a qualified

custodian, the agreement must provide for the first examination to occur no

later than six (6) months after obtaining the internal control report. The

written agreement must require the independent certified public accountant to

do the following:

(A) File a certificate on Form ADV-E with the Commissioner within one

hundred and twenty (120) days of the time chosen by the independent

certified public accountant in Rule 307.02(a)(6), stating that it has

examined the funds and securities and describing the nature and extent

of the examination.

(B) Upon finding any material discrepancies during the course of the

examination, notify the Commissioner within one (1) business day of

the finding, by means of a facsimile transmission or electronic mail,

followed by first class mail, directed to the attention of the

Commissioner; and

engagement, or upon removing itself or being removed from

consideration for being reappointed, file within four (4) business days

Form ADV-E accompanied by a statement that includes the following:

(i) The date of the resignation, dismissal, removal, or other

termination, and the name, address, and contact information of

the independent certified public accountant; and

(ii) An explanation of any problems relating to examination scope

or procedure that contributed to the resignation, dismissal,

removal, or other termination.

(7) Investment Advisers Acting As Qualified Custodians. If the investment

adviser maintains, or if the investment adviser has custody because a related

person maintains, client funds or securities pursuant to this Rule as a qualified

custodian in connection with advisory services the investment adviser

provides to clients:

(A) The independent certified public accountant the investment adviser

retains to perform the independent verification required by Rule

307.02(a)(6) must be registered with, and subject to regular inspection

as of the commencement of the professional engagement period, and as

of each calendar year-end, by the Public Company Accounting

Oversight Board in accordance with its rules; and

(B) The investment adviser must obtain, or receive from its related person,

within six (6) months of becoming subject to this paragraph and

thereafter no less frequently than once each calendar year a written

internal control report prepared by an independent certified public

accountant:

(i) The internal control report must include an opinion of an

independent certified public accountant as to whether controls

have been placed in operation as of a specific date, and are

suitably designed and are operating effectively to meet control

objectives relating to custodial services, including the

safeguarding of funds and securities held by either the

investment adviser or a related person on behalf of the

investment advisers clients, during the year;

(ii) The independent certified public accountant must verify that

the funds and securities are reconciled to a custodian other than

the investment adviser or the investment adviser’s related

person; and

(iii) The independent certified public accountant must be registered

with, and subject to regular inspection as of the commencement

of the professional engagement period, and as of each calendar

year-end, by the Public Company Accounting Oversight Board

in accordance with its rules.

(8) Independent Representatives. A client may designate an independent

representative to receive, on his behalf, notices and account statements as

required under Rule 307.02(a)(3) and (4).

(b) EXCEPTIONS.

(1) Shares of Mutual Funds. With respect to shares of an open-end company as

defined in Section 5(a)(1) of the Investment Company Act of 1940 (“mutual

fund”), the investment adviser may use the mutual fund’s transfer agent in lieu

of a qualified custodian for purposes of complying with paragraph (a) of this

Rule;

(2) Certain Privately Offered Securities.

(A) The investment adviser is not required to comply with Rule

307.02(a)(2) with respect to securities that are the following:

(i) Acquired from the issuer in a transaction or chain of

transactions not involving any public offering;

(ii) Uncertificated and ownership thereof is recorded only on the

books of the issuer or its transfer agent in the name of the

client; and

(iii) Transferable only with prior consent of the issuer or holders of

the outstanding securities of the issuer.

(B) Notwithstanding Rule 307.02(b)(2)(A), the provisions of this Rule

307.02(b)(2) are available with respect to securities held for the account

of a limited partnership (or limited liability company, or other type of

pooled investment vehicle) only if the limited partnership is audited,

and the audited financial statements are distributed, as described in

Rule 307.02(b)(4) and the investment adviser notifies the

Commissioner in writing that the investment adviser intends to provide

audited financial statements, as described above. The notification is

required to be provided on Form ADV.

(3) Fee Deduction. Notwithstanding Rule 307.02(a)(6), an investment adviser is

not required to obtain an independent verification of client funds and

securities maintained by a qualified custodian if all of the following are met:

(A) The investment adviser has custody of the funds and securities solely as

a consequence of its authority to make withdrawals from client

accounts to pay its advisory fee;

(B) The investment adviser has written authorization from the client to

deduct advisory fees from the account held with the qualified

custodian;

investment adviser concurrently:

(i) Sends the qualified custodian an invoice or statement of the

amount of the fee to be deducted from the client’s account; and

(ii) Sends the client an invoice or statement itemizing the fee.

Itemization includes the formula used to calculate the fee, the

amount of assets under management the fee is based on, and

the time period covered by the fee.

(D) The investment adviser notifies the Commissioner in writing that the

investment adviser intends to use the safeguards provided above. The

notification is required to be given on Form ADV.

(4) Limited Partnerships Subject to Annual Audit. An investment adviser is not

required to comply with Rules 307.02(a)(3) and (a)(4) and shall be deemed to

have complied with Rule 307.02(a)(6) with respect to the account of a limited

partnership (or limited liability company, or another type of pooled

investment vehicle) if each of the following conditions are met:

(A) At least annually the fund is subject to an audit and distributes its

audited financial statements prepared in accordance with generally

accepted accounting principles to all limited partners (or members or

other beneficial owners) and the Commissioner within one hundred and

twenty (120) days of the end of its fiscal year;

(B) The audit is performed by an independent certified public accountant

that is registered with, and subject to regular inspection as of the

commencement of the professional engagement period, and as of each

calendar year-end, by, the Public Company Accounting Oversight

Board in accordance with its rules;

financial statements prepared in accordance with generally accepted

accounting principles to all limited partners (or members or other

beneficial owners) and the Commissioner promptly after the

completion of the audit. If liquidation occurs within six months of the

previous fiscal year end, the limited partnership (or like entity) may

incorporate the previous year annual audit into the final audit;

(D) The written agreement with the independent certified public accountant

must require the independent certified public accountant to, upon

resignation or dismissal from, or other termination of, the engagement,

or upon removing itself or being removed from consideration for being

reappointed, notify the Commissioner within four (4) business days

accompanied by a statement that includes the following:

(i) The date of the resignation, dismissal, removal, or other

termination, and the name, address, and contact information of

the independent certified public accountant; and

(ii) An explanation of any problems relating to audit scope or

procedure that contributed to the resignation, dismissal,

removal, or other termination.

(E) The investment adviser must also notify the Commissioner in writing

that the investment adviser intends to employ the use of the statement

delivery and audit safeguards described above. Such notification is

required to be given on Form ADV.

(5) Registered Investment Companies. The investment adviser is not required to

comply with this Rule with respect to the account of an investment company

registered under the Investment Company Act of 1940.

307.02(a)(5) or distributing audited financial statements under Rule 307.02(b)(4)

shall not satisfy the requirements of this Rule if the account statements or financial

statements are sent solely to limited partners (or members or other beneficial owners)

that themselves are limited partnerships (or limited liability companies, or another

type of pooled investment vehicle) and are related persons of the investment adviser.

(d) DEFINITIONS. For purposes of this Rule:

(1) Qualified Custodian means:

(A) A bank or savings association that has deposits insured by the Federal

Deposit Insurance Corporation under the Federal Deposit Insurance

Act;

(B) A broker-dealer registered in this jurisdiction and with the SEC holding

the client assets in customer accounts;

4f(a) of the Commodity Exchange Act, holding the client assets in

customer accounts, but only with respect to clients’ funds and security

futures, or other securities incidental to transactions in contracts for the

purchase or sale of a commodity for future delivery and options

thereon; and

(D) A foreign financial institution that customarily holds financial assets for

its customers, provided that the foreign financial institution keeps the

advisory clients’ assets in customer accounts segregated from its

proprietary assets.

(2) Related Person means:

(A) Individual control. The person is controlled or significantly

influenced by a member of key management personnel or by a person

who controls the entity;

(B) Common control. The person is, directly or indirectly, either under

common control with the entity or has significant or joint control over

the entity;

(D) Family member. The person is a close family member of a person

who is part of key management personnel or who controls the entity.

A close family member is an individual's domestic partner and

children, children of the domestic partner, and dependents of the

individual or the individual's domestic partner.

(e) Rule 307.02 shall not apply to an investment adviser also registered as a broker-dealer

in Arkansas who is the following:

(1) Subject to and in compliance with SEC Rule 15c3-1 (Net Capital

Requirements for Brokers or Dealers), promulgated under the Securities

Exchange Act of 1934; or

(2) A member of an exchange whose members are exempt from SEC Rule 15c3-

1, under the provisions of paragraph (b)(2) thereof, and the broker-dealer is in

compliance with all rules and settled practices of the exchange imposing

requirements with respect to financial responsibility and the segregation of

funds or securities carried for the account of customers.

RULE 308 DENIAL, SUSPENSION, REVOCATION, OR WITHDRAWAL OF

REGISTRATION.

308.01 UNFAIR, MISLEADING, AND UNETHICAL PRACTICES OF BROKER-

DEALER OR AGENT.

Each broker-dealer and agent shall observe high standards of commercial honor and just and

equitable principles of trade in the conduct of their business. The following conduct shall be

considered unethical and grounds for denial, suspension or revocation of a broker-dealer or agent

registration, in addition to other unethical practices within the meaning of Sections 23-42-308

and 23-42-507 of the Act:

(a) FAILURE TO TIMELY COMPLETE THE TRANSACTION. Engaging in a

pattern of unreasonable delays in delivery of securities or remittance of funds

necessary to complete the transaction within the time frame customary in the trade.

(b) MISREPRESENTATIONS. Guaranteeing a customer against loss in any securities

account of the customer carried by the broker-dealer or in any securities transaction

effected by the broker-dealer with or for the customer, or making unjustified or

untruthful representations that securities sold will subsequently become listed or

traded, or making representations that a market will be established or that the securities

will be subject to an increase in value.

for services performed, including miscellaneous services such as collection of monies

due for principal, dividends or interest, exchange or transfer of securities, appraisals,

safekeeping, or custody of securities and other services related to its securities

business, except where the fees are negotiated or have been previously disclosed to the

customer.

(d) RECOMMENDATIONS TO CUSTOMERS. Recommending to a customer the

purchase, sale or exchange of any security when a broker-dealer or agent does not have

reasonable grounds for believing that the recommendation is suitable for the customer

upon the basis of the facts, if any, disclosed by the customer as to his other security

holdings and as to his financial situation and needs, or encouraging a customer to

invest beyond his immediate financial resources. It may be presumed that

investments in non-traded direct participation programs including non-traded real

estate investment trusts by unaccredited investors are deemed to be unsuitable if the

aggregate investment in these securities exceeds 10% of the investor’s liquid net

worth.

(e) EXCESSIVE TRADING. Inducing trading in a customer’s account that is excessive

in size or frequency in view of the financial resources and character of the account

exclusively for the purpose of accumulating profits.

(f) BOND PRE-SALES.

(1) Entering into a pre-sale contract with respect to any bond that is required by

laws of the State of Arkansas to be sold at public sale, or to obtain any

beneficial interest, direct or indirect, in the initial purchase of any bonds with

respect to which the broker-dealer has acted as fiscal agent. This section shall

not apply to industrial bonds issued under the Municipalities and Counties

Industrial Development Revenue Bond Law, Ark. Code Ann. Section 14-164-

201 through 224, to school bonds for school districts if the requirements set

forth in Rule 308.01(f)(2) are met, or to any other bonds provided that it is

shown to the satisfaction of the Commissioner in the case of the other bonds

that such an arrangement is to the benefit of the issuer. For the purposes of

this section the following terms shall have the indicated meanings, unless the

context requires otherwise:

(A) “Bonds” means bond, notes and other evidence of indebtedness, both

in definitive and in temporary form, whether as notes or bonds, issued

by or in the name of any county, city, town, school district,

improvement district, state educational institution, or other public

issuer.

(B) “Pre-Sale Contract” means any contract for the sale and purchase of

bonds entered into prior to the date advertised for the public sale of the

bonds.

to advise and assist in the sale of an issuer’s bonds.

(2) The prohibition set forth in Rule 308.01(f)(1) shall not apply to school bonds

for a school district for which a broker-dealer serves as fiscal agent if each of

the following conditions are met:

(A) The broker-dealer shall disclose in the preliminary official statement

for each bond issue that it has reserved the right to submit a

competitive bid;

(B) The broker-dealer shall advise the school district prior to the date bids

are to be received whether it will submit a bid;

broker-dealer, acceptance of the bid by the school district is subject to

same day review and approval by the Commissioner;

(D) The broker-dealer will receive prior to the date bids are received,

written authorization from the issuer in compliance with MSRB Rule

G-23; and

(E) All bids shall be submitted by electronic or sealed bid only.

(g) FISCAL AGENT OR UNDERWRITER. Encouraging a person to issue bonds in

amount exceeding those not reasonable within its ability to repay, falsely and

willfully leading a person to believe the broker-dealer will see that all bonds will be

sold or failing to reveal to the person with which it is doing business a financial interest

in other enterprises, such as construction companies, who may receive proceeds from

the sale of the bonds.

(h) ADJUSTED TRADING.

(1) Utilizing a trading technique whereby a transaction or a series of transactions

is executed wherein a party to the transaction or series of transactions attempts

to defer the recognition of a decrease in the value of a security by the

following:

(A) The sale of a security at a price other than at market value;

(B) The purchase of a security at a price other than at market value; or,

the composite design of the related transactions is to defer the

recognition of a loss or decrease.

(2) Adjusted trading may occur if more than one (1) broker-dealer or more than

one (1) customer is involved in the transaction. Adjusted trading may occur

whether the security is for future delivery, current delivery or if the security is

not yet issued. If any consideration is given, other than normal payment for

the security at its market value, by any party to the series of purchases or

sales, the consideration shall be considered in determining if the trading

technique as a whole constitutes adjusted trading.

(i) MARKUPS. Charging excessive markups or entering into a transaction with or for a

customer at a price not reasonably related to the current market price of the security.

Bids and offers should correspond with the actual market. Markups may vary, for

among other reasons, as a result of such factors as quantity, quality, market

conditions, risk to the broker-dealer and maturity, but should in all transactions be

reasonable and fully competitive.

(j) MARKET VALUE. Representing that a security is being offered to a customer “at

the market” or a price relevant to the market price unless the broker-dealer knows or

has reasonable grounds to believe that a market for the security exists other than that

made, created or controlled by the broker-dealer, or by any person for whom the

broker-dealer is acting or with whom the broker-dealer is associated in the

distribution, or any person controlled by, controlling or under common control with

the broker-dealer; or offering to buy from or sell to any person any security at a stated

price unless such broker-dealer is prepared to purchase or sell, as the case may be, at

such price and under such conditions as are stated at the time of such offer to buy or

sell.

(k) FAVORABLE PRICE. Effecting a transaction for or with a customer without

exercising reasonable diligence to ascertain the best market price for the subject

security so that the resultant price to the customer is as favorable as possible under

prevailing market conditions.

(l) INTERPOSITIONING. Interjecting a third party between the broker-dealer and the

best available market or the broker-dealer and the customer except in cases where the

broker-dealer can demonstrate that based on knowledge at the time of the transaction,

the total cost of proceeds of the transaction, was equal to or better than the prevailing

inter-dealer market for the security.

(m) CONTROLLING PERSONS OR AFFILIATES. Failing to disclose that the

broker-dealer is controlled by, controlling, affiliated with or under common control

with the issuer of any security before entering into any contract with or for a customer

for the purchase or sale of a security, the existence of the control to the customer, and

if the disclosure is not made in writing, it shall be supplemented by the giving or

sending of written disclosure at or before the completion of the transaction.

(n) FICTITIOUS ACCOUNTS. Establishing or maintaining an account containing

fictitious or disguised information.

(o) UNAUTHORIZED TRANSACTIONS. Causing the execution of a transaction

which is unauthorized by a customer or the sending of a confirmation in order to

cause a customer to accept transactions not actually agreed upon or exercising any

discretionary power in effecting a transaction for a customer’s account without first

obtaining written discretionary authority from the customer, unless the discretionary

power relates solely to the time and/or price for the execution of orders.

(p) MISUSE OF CUSTOMERS’ FUNDS OR SECURITIES. Borrowing or

unauthorized use of customers’ funds or securities.

(q) MISLEADING ADVERTISING. Using any advertising or sales material in such a

fashion as to be deceptive or misleading.

(r) OUTSIDE SALES ACTIVITIES. Effecting securities or non-securities

transactions not recorded on the regular books or records of the broker-dealer unless

the activity is authorized in writing by the broker-dealer and the authorization is

maintained in the broker-dealer’s records.

(s) SHARING PROFITS. Sharing directly or indirectly in profits or losses in the

account of any customer without the written authorization of the customer and the

broker-dealer which the agent represents; or without notice to the customer dividing

or otherwise splitting the agent’s commission, profits or other compensation from the

purchase or sale of securities.

(t) FURNISHING INFORMATION. Failing or refusing to furnish a customer, upon

reasonable request, information to which he is entitled, or to respond to a formal

written demand or complaint.

(u) MISUSE OF FIRM NAME. Implying that a broker-dealer is a bank or other kind of

financial institution, provided this does not prohibit the use of the term “investment

banker.”

(v) FURNISHING DOCUMENTS AND TESTIMONY. Unreasonably failing to

promptly deliver or provide documents or information in possession of or under

control of the registrant, or appear to provide testimony or documents to the

Commissioner after receipt of a written request from the Commissioner.

(w) DISHONEST USE OF CERTIFICATIONS, PROFESSIONAL

DESIGNATIONS, SENIOR-SPECIFIC CERTIFICATIONS, OR SENIOR-

SPECIFIC PROFESSIONAL DESIGNATIONS.

(1) The use of a certification, professional designation, senior-specific

certification, or senior-specific professional designation by any person in

connection with the offer, sale, or purchase of securities, or the provision of

advice as to the value of or the advisability of investing in, purchasing, or

selling securities, either directly or indirectly or through publications or

writings, or by issuing or promulgating analyses or reports relating to

securities, that indicates or implies that the user has special certification or

training in advising or servicing clients, in such a way as to mislead any

person shall be a dishonest and unethical practice within the meaning of Rule

308.01.

(2) The prohibited use of certifications or professional designations includes, but

is not limited to, the following:

(A) Use of a certification or professional designation by a person who has

not actually earned or is otherwise ineligible to use the certification or

designation;

(B) Use of a nonexistent or self-conferred certification or professional

designation;

implies a level of occupational qualifications obtained through

education, training, or experience that the person using the

certification or professional designation does not have; and

(D) Use of a certification or professional designation that was obtained

from a designating or certifying organization that meets the following:

(i) Is primarily engaged in the business of instruction in sales

and/or marketing;

(ii) Does not have reasonable standards or procedures for assuring

the competency of its designees or certificants;

(iii) Does not have reasonable standards or procedures for

monitoring and disciplining its designees or certificants for

improper or unethical conduct; or

(iv) Does not have reasonable continuing education requirements

for its designees or certificants in order to maintain the

designation or certificate.

(3) There is a rebuttable presumption that a designation or certifying organization

is not disqualified solely for purposes of Rule 308.01(w)(2)(D) when the

organization has been accredited by the following:

(A) The American National Standards Institute;

(B) The National Commission for Certifying Agencies; or

Education’s list entitled “Accrediting Agencies Recognized for Title

IV Purposes” and the designation or credential issued there from does

not primarily apply to sales and/or marketing.

(4) In determining whether a combination of words (or an acronym standing for a

combination of words) constitutes a certification or professional designation

indicating or implying that a person has special certification or training in

advising or servicing clients, factors to be considered shall include the

following:

(A) Use of one (1) or more words such as “senior,” “retirement,” “elder,”

or like words, combined with one (1) or more words such as

“certified,” “registered,” “chartered,” “adviser,” “specialist,”

“consultant,” “planner,” or like words, in the name of the certification

or professional designation; and

(B) The manner in which those words are combined.

(5) For purposes of this Rule, a certification or professional designation does not

include a job title within an organization that is licensed or registered by a

state or federal financial services regulatory agency, when that job title

indicates seniority or standing within the organization, or specifies an

individual’s area of specialization within the organization. For purposes of

this subsection, financial services regulatory agency includes, but is not

limited to, an agency that regulates broker-dealers, investment advisers, or

investment companies as defined under the Investment Company Act of 1940.

(6) Nothing in this Rule shall limit the Commissioner’s authority to enforce

existing provisions of law.

(x) FAILING TO COMPLY WITH LAWS OR RULES. Failing to comply with any

applicable provision of conduct rules, any applicable fair practice or ethical standard,

or any other applicable law or rule related to conducting business involving securities

promulgated by the SEC or any self-regulatory organization.

(y) OTHER UNFAIR, MISLEADING AND UNETHICAL PRACTICES. The

unfair, misleading or unethical practices set forth above are not exclusive of other

activities, such as forgery, embezzlement, non-disclosure or misstatement of material

facts, manipulations and various deceptions, which shall be considered grounds for

suspension or revocation and the Commissioner may suspend or revoke a registration

when necessary or appropriate in the public interest.

308.02 FRAUDULENT, DECEPTIVE, DISHONEST OR UNETHICAL

PRACTICES OF INVESTMENT ADVISERS AND INVESTMENT

ADVISER REPRESENTATIVES.

Investment advisers and representatives have a duty to act primarily for the benefit of their

clients. All investment advisers and representatives shall observe high standards of commercial

honor and just and equitable principles of trade in the conduct of their business. The following

conduct shall constitute fraudulent or deceptive practices and shall be considered grounds for

denial, suspension or revocation of an investment adviser or representative registration, or for the

issuance of a cease and desist order or other action under Section 23-42-209 of the Act, in

addition to other dishonest or unethical practices within the meaning of Sections 23-42-307 and

23-42-308 of the Act. The provisions of this Rule shall apply to investment advisers and

representatives that are neither registered nor required to register pursuant to Section 23-42-

301(c) of the Act only to the extent permitted by the National Securities Markets Improvement

Act of 1996.

(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, risk tolerance, and

any other information known or acquired by the investment adviser after reasonable

analysis of the client’s information and records as may be provided to the investment

adviser. Investments in non-traded direct participation programs including non-traded

real estate investment trusts by unaccredited investors are deemed to be unsuitable if

the aggregate investment in these securities exceeds 10% of the investor’s liquid net

worth.

(b) Placing an order to purchase or sell a security for the account of a client without

authority to do so.

instruction of a third party without first having obtained a written third-party trading

authorization from the client.

(d) Exercising any discretionary authority in placing an order for the purchase or sale of

securities for a client without obtaining written discretionary authority from the client,

unless the discretionary authority relates solely to the price at which, or the time

when, an order involving a definite amount of specified securities shall be executed,

or both.

(e) 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.

(f) Borrowing money, securities, or anything of value 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 or securities.

(g) Loaning money to a client unless the investment adviser is a financial institution

engaged in the business of loaning funds, a broker-dealer, or the client is an affiliate

of the investment adviser.

(h) Misrepresenting to any 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 the 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 a report in the normal course of providing

service.)

(j) Charging a client an advisory fee that is unreasonable in light of: the type of service

to be provided; the experience and expertise of the investment adviser; or the

bargaining power of the client; or, without notice to the client, dividing or otherwise

splitting the advisory fee or other compensation derived from the advisory services.

(k) Failing to disclose to a client in writing before entering into or renewing an advisory

agreement with that client any material conflict of interest relating to the adviser or

any of its employees that could reasonably be expected to impair the rendering of

unbiased and objective advice including, but not limited to, the following:

(1) Compensation arrangements connected with advisory services to clients which

are in addition to compensation from the clients for the services; and

(2) The fact that an advisory fee for rendering advice will be charged to the client

when a commission for executing securities transactions pursuant to the

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) as a

result of the advice that will be rendered.

(m) As a means reasonably designed to prevent fraudulent, deceptive, or manipulative

acts, practices, or courses of business within the meaning of the Act, it is unlawful for

any investment adviser registered or required to be registered under the Act, directly

or indirectly, to disseminate any advertisement that violates any of paragraphs (1)

through (4) of this section.

(1) General prohibitions. An advertisement may not:

(A) Include any untrue statement of a material fact, or omit to state a

material fact necessary in order to make the statement made, in the

light of the circumstances under which it was made, not misleading;

(B) Include a material statement of fact that the adviser does not have a

reasonable basis for believing it will be able to substantiate upon

demand by the Commissioner;

or misleading implication or inference to be drawn concerning a

material fact relating to the investment adviser;

(D) Discuss any potential benefits to clients or investors connected with or

resulting from the investment adviser’s services or methods of

operation without providing fair and balanced treatment of any

material risks or material limitations associated with the potential

benefits;

(E) Include or exclude performance results, or present performance time

periods, in a manner that is not fair and balanced; or

(F) Otherwise be materially misleading.

(2) Testimonials and endorsements. An advertisement may not include any

testimonial or endorsement, and an adviser may not provide compensation,

directly or indirectly, for a testimonial or endorsement, unless the investment

adviser complies with the conditions in paragraphs (2)(A) through (C) of this

section, subject to the exemptions in paragraph (2)(D) of this section.

(A) Required disclosures. The investment adviser discloses, or reasonably

believes that the person giving the testimonial or endorsement

discloses, the following at the time the testimonial or endorsement is

disseminated:

(i) Clearly and prominently:

(a) That the testimonial was given by a current client or

investor, and the endorsement was given by a person

other than a current client or investor, as applicable;

(b) That cash or non-cash compensation was provided for

the testimonial or endorsement, if applicable; and

the part of the person giving the testimonial or

endorsement resulting from the investment adviser's

relationship with such person;

(ii) The material terms of any compensation arrangement, including

a description of the compensation provided or to be provided,

directly or indirectly, to the person for the testimonial or

endorsement; and

(iii) A description of any material conflicts of interest on the part of

the person giving the testimonial or endorsement resulting from

the investment adviser's relationship with such person and/or

any compensation arrangement.

(B) Adviser oversight and compliance. The investment adviser must have:

(i) A reasonable basis for believing that the testimonial or

endorsement complies with the requirements of this section, and

(ii) A written agreement with any person giving a testimonial or

endorsement that describes the scope of the agreed-upon

activities and the terms of compensation for those activities.

person, directly or indirectly, for a testimonial or endorsement if the

adviser knows, or in the exercise of reasonable care should know, that

the person giving the testimonial or endorsement is an ineligible

person at the time the testimonial or endorsement is disseminated.

(D) Exemptions.

(i) A testimonial or endorsement disseminated for no compensation

or de minimis compensation is not required to comply with

paragraphs (2)(B)(ii) and (C) of this section;

(ii) A testimonial or endorsement by the investment adviser's

partners, officers, directors, or employees, or a person that

controls, is controlled by, or is under common control with the

investment adviser, or is a partner, officer, director or employee

of such a person is not required to comply with paragraphs

(2)(A) and (B)(ii) of this section, provided that the affiliation

between the investment adviser and such person is readily

apparent to or is disclosed to the client or investor at the time

the testimonial or endorsement is disseminated and the

investment adviser documents such person's status at the time

the testimonial or endorsement is disseminated;

(3) Third-party ratings. An advertisement may not include any third-party rating,

unless the investment adviser:

(A) Has a reasonable basis for believing that any questionnaire or survey

used in the preparation of the third-party rating is structured to make

it equally easy for a participant to provide favorable and unfavorable

responses, and is not designed or prepared to produce any

predetermined result; and

(B) Clearly and prominently discloses, or the investment adviser

reasonably believes that the third-party rating clearly and prominently

discloses:

(i) The date on which the rating was given and the period of time

upon which the rating was based;

(ii) The identity of the third party that created and tabulated the

rating; and

(iii) If applicable, that compensation has been provided directly or

indirectly by the adviser in connection with obtaining or using

the third-party rating.

(4) Performance. An investment adviser may not include in any advertisement:

(A) Any presentation of gross performance, unless the advertisement also

presents net performance:

(i) With at least equal prominence to, and in a format designed to

facilitate comparison with, the gross performance; and

(ii) Calculated over the same time period, and using the same type

of return and methodology, as the gross performance.

(B) Any performance results, of any portfolio or any composite

aggregation of related portfolios, in each case other than any private

fund, unless the advertisement includes performance results of the

same portfolio or composite aggregation for one-, five-, and ten-year

periods, each presented with equal prominence and ending on a date

that is no less recent than the most recent calendar year-end; except

that if the relevant portfolio did not exist for a particular prescribed

period, then the life of the portfolio must be substituted for that

period.

of performance results in the advertisement has been approved or

reviewed by the Commissioner.

(D) Any related performance, unless it includes all related portfolios,

provided that related performance may exclude any related portfolios

if:

(i) The advertised performance results are not materially higher

than if all related portfolios had been included; and

(ii) The exclusion of any related portfolio does not alter the

presentation of any applicable time periods prescribed by

paragraph (4)(B) of this section.

(E) Any extracted performance, unless the advertisement provides, or

offers to provide promptly, the performance results of the total

portfolio from which the performance was extracted.

(F) Any hypothetical performance unless the investment adviser:

(i) Adopts and implements policies and procedures reasonably

designed to ensure that the hypothetical performance is

relevant to the likely financial situation and investment

objectives of the intended audience of the advertisement;

(ii) Provides sufficient information to enable the intended

audience to understand the criteria used and assumptions

made in calculating such hypothetical performance; and

(iii) Provides (or, if the intended audience is an investor in a

private fund, provides, or offers to provide promptly)

sufficient information to enable the intended audience to

understand the risks and limitations of using such

hypothetical performance in making investment decisions;

Provided that the investment adviser need not comply with

the other conditions on performance in paragraphs (4)(B),

(D), and (E) of this section.

(G) Any predecessor performance unless:

(i) The person or persons who were primarily responsible for

achieving the prior performance results manage accounts at

the advertising adviser;

(ii) The accounts managed at the predecessor investment adviser

are sufficiently similar to the accounts managed at the

advertising investment adviser that the performance results

would provide relevant information to clients or investors;

(iii) All accounts that were managed in a substantially similar

manner are advertised unless the exclusion of any such

account would not result in materially higher performance

and the exclusion of any account does not alter the

presentation of any applicable time periods prescribed in

paragraph (4)(B) of this section; and

(iv) The advertisement clearly and prominently includes all

relevant disclosures, including that the performance results

were from accounts managed at another entity.

(5) Definitions. For purposes of this section:

(A) Advertisement means:

(i) Any direct or indirect communication an investment adviser

makes to more than one person, or to one or more persons if

the communication includes hypothetical performance, that

offers the investment adviser's investment advisory services

with regard to securities to prospective clients or investors in

a private fund advised by the investment adviser or offers

new investment advisory services with regard to securities to

current clients or investors in a private fund advised by the

investment adviser, but does not include:

(a) Extemporaneous, live, oral communications;

(b) Information contained in a statutory or regulatory

notice, filing, or other required communication,

provided that such information is reasonably designed

to satisfy the requirements of such notice, filing, or

other required communication; or

performance that is provided:

(1) In response to an unsolicited request for such

information from a prospective or current

client or investor in a private fund advised by

the investment adviser; or

(2) To a prospective or current investor in a

private fund advised by the investment adviser

in a one-on-one communication; and

(ii) Any endorsement or testimonial for which an investment

adviser provides compensation, directly or indirectly, but

does not include any information contained in a statutory or

regulatory notice, filing, or other required communication,

provided that such information is reasonably designed to

satisfy the requirements of such notice, filing, or other

required communication.

(B) De minimis compensation means compensation paid to a person for

providing a testimonial or endorsement of a total of $50.00 or less (or

the equivalent value in non-cash compensation) during the preceding

12 months.

securities regulator barring, suspending, or prohibiting the person

from acting in any capacity under securities laws.

(D) A disqualifying event is any of the following events that occurred

within ten years prior to the person disseminating an endorsement or

testimonial:

(i) A conviction by a court of competent jurisdiction within the

United States of any felony or a misdemeanor involving

conduct described in sub-section (a)(2)(C) of section 23-42-

308 of the Act;

(ii) An injunction by a court of competent jurisdiction within the

United States from engaging in or continuing any conduct or

practice involving any aspect of the securities business;

(iii) The entry of any final order by the Commissioner or a

securities administrator of another state, any national

securities, commodities, banking, or insurance agency,

jurisdiction, exchange, or self-regulatory organization to

include all orders listed within section 23-42-308(a)(2)(F) of

the Act;

(E) Endorsement means any statement by a person other than a current

client or investor in a private fund advised by the investment adviser

that:

(i) Indicates approval, support, or recommendation of the

investment adviser or its supervised persons or describes that

person's experience with the investment adviser or its

supervised persons;

(ii) Directly or indirectly solicits any current or prospective client

or investor to be a client of, or an investor in a private fund

advised by, the investment adviser; or

(iii) Refers any current or prospective client or investor to be a

client of, or an investor in a private fund advised by, the

investment adviser.

(F) Extracted performance means the performance results of a subset of

investments extracted from a portfolio.

(G) Gross performance means the performance results of a portfolio (or

portions of a portfolio that are included in extracted performance, if

applicable) before the deduction of all fees and expenses that a client

or investor has paid or would have paid in connection with the

investment adviser's investment advisory services to the relevant

portfolio.

(H) Hypothetical performance means performance results that were not

actually achieved by any portfolio of the investment adviser.

(i) Hypothetical performance includes, but is not limited to;

(a) Performance derived from model portfolios;

(b) Performance that is backtested by the application of a

strategy to data from prior time periods when the

strategy was not actually used during those time

periods; and

to any portfolio or to the investment advisory services

with regard to securities offered in the advertisement,

however:

(ii) Hypothetical performance does not include:

(a) An interactive analysis tool where a client or investor,

or prospective client, or investor, uses the tool to

produce simulations and statistical analyses that

present the likelihood of various investment outcomes

if certain investments are made or certain investment

strategies or styles are undertaken, thereby serving as

an additional resource to investors in the evaluation of

the potential risks and returns of investment choices;

provided that the investment adviser:

(1) Provides a description of the criteria and

methodology used, including the investment

analysis tool's limitations and key

assumptions;

(2) Explains that the results may vary with each

use and over time;

(3) If applicable, describes the universe of

investments considered in the analysis,

explains how the tool determines which

investments to select, discloses if the tool

favors certain investments and, if so, explains

the reason for the selectivity, and states that

other investments not considered may have

characteristics similar or superior to those

being analyzed; and

(4) Discloses that the tool generates outcomes that

are hypothetical in nature; or

(b) Predecessor performance that is displayed in

compliance with paragraph (4)(G) of this section.

(I) Ineligible person means a person who is subject to a disqualifying

action or is subject to any disqualifying event, and the following

persons with respect to the ineligible person:

(i) Any employee, officer, or director of the ineligible person and

any other individuals with similar status or functions within

the scope of association with the ineligible person;

(ii) If the ineligible person is a partnership, all general partners;

and

(iii) If the ineligible person is a limited liability company managed

by elected managers, all elected managers.

(J) Net performance means the performance results of a portfolio (or

portions of a portfolio that are included in extracted performance, if

applicable) after the deduction of all fees and expenses that a client or

investor has paid or would have paid in connection with the

investment adviser's investment advisory services to the relevant

portfolio, including, if applicable, advisory fees, advisory fees paid to

underlying investment vehicles, and payments by the investment

adviser for which the client or investor reimburses the investment

adviser. For purposes of this rule, net performance:

(i) May reflect the exclusion of custodian fees paid to a bank or

other third-party organization for safekeeping funds and

securities; and/or

(ii) If using a model fee, must reflect one of the following:

(a) The deduction of a model fee when doing so would

result in performance figures that are no higher than if

the actual fee had been deducted; or

(b) The deduction of a model fee that is equal to the

highest fee charged to the intended audience to whom

the advertisement is disseminated.

(K) Portfolio means a group of investments managed by the investment

adviser. A portfolio may be an account or a private fund and includes,

but is not limited to, a portfolio for the account of the investment

adviser or its advisory affiliate (as defined in the Form ADV Glossary

of Terms).

(L) Predecessor performance means investment performance achieved by

a group of investments consisting of an account or a private fund that

was not advised at all times during the period shown by the investment

adviser advertising the performance.

(M) Private fund has the same meaning as in Rule 302.02(h).

(N) Related performance means the performance results of one or more

related portfolios, either on a portfolio-by-portfolio basis or as a

composite aggregation of all portfolios falling within stated criteria.

(O) Related portfolio means a portfolio with substantially similar

investment policies, objectives, and strategies as those of the services

being offered in the advertisement.

(P) Supervised person has the same meaning as in Rule 302.02(k)(5)(A).

(Q) Testimonial means any statement by a current client or investor in a

private fund advised by the investment adviser:

(i) About the client or investor's experience with the investment

adviser or its supervised persons;

(ii) That directly or indirectly solicits any current or prospective

client or investor to be a client of, or an investor in a private

fund advised by, the investment adviser; or

(iii) That refers any current or prospective client or investor to be a

client of, or an investor in a private fund advised by, the

investment adviser.

(R) Third-party rating means a rating or ranking of an investment adviser

provided by a person who is not a related person (as defined in the

Form ADV Glossary of Terms), and such person provides such ratings

or rankings in the ordinary course of its business.

(n) Disclosing the identity, affairs, or investment of any client to any third party unless

required by law to do so, or unless consented to by the client.

(o) Taking any action, directly or indirectly, with respect to those securities or funds in

which any client has any beneficial interest, where the investment adviser has custody

or possession of securities or funds in the absence of compliance with the provisions

of Rule 307.02.

(p) Entering into, extending, or renewing any investment advisory contract, other than a

contract for impersonal advisory services, unless the contract is fair and reasonable, in

writing, dated, and discloses, in substance, the following:

(1) The services to be provided;

(2) The term of the contract;

(3) The investment objectives, risk tolerance levels, annual income, net worth,

and liquid net worth for the client;

(4) The advisory fee or the formula for computing the fee;

(5) The amount or the manner of calculation of the amount of the prepaid fee to be

returned in the event of contract termination or non-performance;

(6) Whether the contract grants discretionary power to the adviser; and

(7) That no assignment of the contract shall be made by the investment adviser

without the consent of the other party to the contract.

(q) Limiting, attempting to limit, or representing to a client the existence of any

limitation on the client’s ability to execute recommended transactions through any

broker-dealer he may choose. An affiliate of the investment adviser may be

recommended as long as the affiliate relationship is fully disclosed to the client in

writing, and that the recommended affiliate is in the client’s best interest.

(r) Unreasonably failing to deliver or provide documents or information in possession of

or under control of the registrant, or appear to provide testimony or documents to the

Commissioner, after receipt of a written request from the Commissioner.

(s) Failing to establish, maintain, and enforce written policies and procedures reasonably

designed to prevent the misuse of material nonpublic information contrary to the

provisions of Section 204A of the Investment Advisers Act of 1940.

(t) Entering into, extending, or renewing any advisory contract contrary to the provisions

of Section 205 of the Investment Advisers Act of 1940. This provision shall apply to

all advisers and investment adviser representatives registered or required to be

registered under this Act, notwithstanding whether the adviser or representative

would be exempt from federal registration pursuant to Section 203(b) of the

Investment Advisers Act of 1940.

(u) Indicating, in an advisory contract, any condition, stipulation, or provision binding

any person to waive compliance with any provision of the Act or of the Investment

Advisers Act of 1940, waive rights to seek remedies under state or federal securities

laws, or any other practice contrary to the provisions of Section 215 of the Investment

Advisers Act of 1940.

(v) Engaging in any act, practice, or course of business which is fraudulent, deceptive, or

manipulative and contrary to the provisions of Section 206(4) of the Investment

Advisers Act of 1940, notwithstanding the fact that the investment adviser or

investment adviser representative is not registered or required to be registered under

Section 203 of the Investment Advisers Act on 1940.

(w) Engaging in conduct or any act, indirectly or through or by any other person, which

would be unlawful for a person to do directly under the provisions of the Act or

Rules.

(x) Dishonest Use of Certifications, Professional Designations, Senior-Specific

Certifications, or Senior-Specific Professional Designations.