Mo. Code Regs. tit. 15 § 30-51.170

Current through Register Vol. 49, No.12, June 17, 2024

Section 15 CSR 30-51.170 - Dishonest or Unethical Business Practices by Broker-Dealers and Agents

PURPOSE: This amendment adds provisions regarding disclosure when a broker-dealer or its agent incorporates a social objective or non-financial objective into certain aspects of their customer business.

(1) Grounds for the discipline or disqualification of broker-dealers or agents shall include, in addition to other grounds specified in section 409.4-412(d) of the Missouri Securities Act of 2003 (the Act), the following "dishonest or unethical practices in the securities business":

(A) Unreasonable and unjustifiable delaying or failing to execute orders, liquidating customers' accounts or in making delivery of securities purchased or in paying upon request of free credit balances reflecting completed transactions of any of its customers;

(B) Entering into a transaction with or for a customer at a price not reasonably related to the current market price of the security or receiving an unreasonable commission or profit;

(C) Effecting transactions in the account of a customer without authority to do so; 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 or price, or both, for the execution of orders;

(D) 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 for the purpose of accumulation or compounding commissions;

(E) Recommending to a customer the purchase, sale or exchange of any security commodity or other investment without reasonable grounds to believe that this transaction or recommendation is suitable for the customer based upon reasonable inquiry concerning the customer's investment objectives, financial situation and needs, and any other relevant information known by the applicant or registrant;

(F) Engaging in or aiding in boiler-room operations or high pressure tactics in connection with the promotion of speculative offerings or hot issues by means of an intensive telephone campaign or unsolicited calls to persons not known by, nor having an account with, the agent or broker-dealer represented by the agent, where the prospective purchaser is encouraged to make a hasty decision to buy, irrespective of his/her investment needs and objectives;

(G) Failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include all information set forth in the final prospectus, or making oral or written statements contrary to or inconsistent with the disclosures contained in the prospectus;

(H) Making false, misleading, deceptive, exaggerated or flamboyant representations or predictions in the solicitation or sale of a security, as, for example:

1. That the security will be resold or repurchased;

2. That it will be listed or traded on an exchange or established market;

3. That it will result in an assured, immediate or extensive increase in value, future market price or return on investment;

4. With respect to the issuer's financial condition, anticipated earnings, potential growth or success;

5. That there is a guarantee against risk or loss; or

6. A representation that a security is being offered to a customer at the market or a price related to the market price unless the applicant or registrant knows or has reasonable grounds to believe that-

A. A market for the security exists other than that made, created or controlled by the applicant or registrant, or by any person for whom s/he is acting or with whom s/he is associated in the distribution, or any person controlled by, controlling or under common control with the applicant or registrant; or

B. The security is traded in an established securities market, and the fact that the applicant or registrant is in a control position with respect to the market for that security is fully disclosed to the investor;

(I) Failing to disclose a dual agency capacity or effecting transactions upon terms and conditions other than those stated per confirmations; or failing to disclose that the applicant or registrant is controlled by, controlling, receiving compensation from, 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 the security, or if this disclosure is not made in writing, failing to give or send a written disclosure at or before the completion of the transaction;

(J) Failing to make a bona fide public offering of all the securities allotted to a broker-dealer for distribution, whether acquired as an underwriter, a selling group member, or from a member participating in the distribution as an underwriter or selling group member; or entering into an underwriting or selling group agreement which establishes unfair or unreasonable terms and conditions or compensation;

(K) Establishing fictitious accounts in order to execute transactions which would otherwise be prohibited;

(L) Entering into agreements for selling concessions, discounts, commissions or allowances as consideration for services in connection with the distribution or sale of a security in Missouri to any unregistered broker-dealer or agent, or dividing or otherwise splitting the agent's commissions, profits or other compensation from the purchase or sale of securities with any person not also registered as an agent for the same broker-dealer, or for a broker-dealer under direct or common control unless that person is not required to be registered in order to engage in the securities business in Missouri;

(M) Failing or refusing to furnish a customer, upon reasonable request, information to which s/he is entitled, or to respond to a formal written demand or complaint;

(N) Extending, arranging for, or participating in arranging for credit to a customer in violation of the regulations of the Securities and Exchange Commission or the regulations of the Federal Reserve Board;

(O) Failing to secure from the customer a properly executed written margin agreement that authorizes the existence of the margin account promptly after the initial transaction in the account;

(P) Failing to segregate customers' free securities or securities held in safekeeping;

(Q) Hypothecating a customer's securities without having a lien on the security unless the broker-dealer secures from the customer a properly executed written consent except as permitted by rules of the Securities and Exchange Commission;

(R) Charging unreasonable and inequitable fees 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;

(S) Offering to buy from or sell to any person any security at a stated price unless the applicant or registrant is prepared to purchase or sell, as the case may be, at a price and under the conditions as are stated at the time of the offer to buy or sell;

(T) Effecting any transaction in, or inducing the purchase or sale of, any security by means of any manipulative, deceptive or fraudulent device, practice, plan, program, design or contrivance, including, but not limited to:

1. Effecting any transaction in a security which involves no change in the beneficial ownership of the security; and

2. Effecting, alone or with one (1) or more other persons, a transaction or series of transactions in any security creating actual or apparent active trading in the security or raising or depressing the price of the security, for the purpose of inducing the purchase or sale of the security by others;

(U) Publishing or circulating or causing to be published or circulated, any notice, circular, advertisement, newspaper article, investment service or communication of any kind which purports to report any transaction as a purchase or sale of any security unless the applicant or registrant believes that the transaction was a bona fide purchase or sale of this security; or which purports to quote the bid or asked price for any security, unless the applicant or registrant believes that the quotation represents a bona fide bid for, or offer of, the security; or using any advertising or sales material in such a fashion as to be deceptive or misleading, such as the distribution of any nonfactual datum, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in any brochure, flyer, or display by words, pictures, graphs or otherwise, designed to supplement, detract from, supersede or defeat the purpose or effect of any prospectus or disclosure;

(V) Borrowing of money or securities from a customer by an agent, or for an agent to act as a custodian for money, securities or an executed stock power of a customer;

(W) Sharing, by an agent, directly or indirectly, in profits or losses in the account of any customer without the written authorization of the customer and the broker-dealer the agent represents;

(X) Effecting securities transactions not recorded on the regular books or records of the broker-dealer the agent represents, unless the transactions are authorized in writing by the broker-dealer prior to the execution of the transaction;

(Y) Stating, implying or otherwise indicating, in connection with the solicitation of the securities transaction, that the market price of a security is readily or generally available unless the market price of that security is reported at least daily in a bona fide newspaper that does not receive any special compensation for reporting the market price of securities or any particular issuer(s);

(Z) In connection with the solicitation of a sale or purchase of an Over the Counter (OTC) non-National Association of Securities Dealers Automated Quotation (NASDAQ) security, failing to promptly provide the most current prospectus or the most recently filed periodic report filed under Section 13 of the Securities Exchange Act when requested to do so by a customer;

(AA) Marking any order tickets or confirmations as unsolicited when in fact the transaction was solicited;

(BB) Failing to comply with any applicable provision of the Conduct Rules of Financial Industry Regulatory Authority (FINRA), any applicable fair practice or ethical standard promulgated by the Securities and Exchange Commission, or by a self-regulatory organization approved by the Securities and Exchange Commission;

(CC) Engaging in any acts or practices enumerated in 15 CSR 30-51.169; and

(DD) Aiding or abetting any of the acts or practices enumerated in this rule.

(2) It shall be a dishonest or unethical practice in the securities business for a broker-dealer or its agent to use a senior specific certification or designation in connection with the offer, sale, or purchase of securities that indicates or implies that the user has special certification or training in advising or servicing elderly persons, in such a way as to mislead any person.

(A) The prohibited use of such certifications or professional designation includes, but is not limited to, the following:

1. Use of a certification or professional designation by a person who has not actually earned or is otherwise ineligible to use such certification or designation;

2. Use of a nonexistent or self-conferred certification or professional designation;

3. Use of a certification or professional designation that indicates or 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

4. Use of a certification or professional designation that was obtained from a designating or certifying organization that is not qualified.

(B) A designating or certifying organization is "qualified" for purposes of paragraph (2)(A)4. above when the organization has been accredited by-

1. The American National Standards Institute;

2. The National Commission for Certifying Agencies; or

3. An organization that is on the United States Department of Education's list entitled "Accrediting Agencies Recognized for Title IV Purposes" and the designation or credential issued therefrom does not primarily apply to sales and/or marketing.

(C) 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 an adviser has special certification or training in advising or servicing senior citizens or retirees, factors to be considered shall include:

1. 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

2. The manner in which those words are combined.

(D) For purposes of this rule-

1. "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-

A. Indicates seniority or standing within the organization; or

B. Specifies an individual's area of specialization within the organization;

2. "Elderly person" is a person sixty (60) years of age or older; and

3. "Federal financial services regulatory agency" includes, but is not limited to, any agency that regulates-

A. Broker-dealers;

B. Investment advisers; or

C. Investment companies as defined under the Investment Company Act of 1940.

(E) Nothing in this rule shall limit the commissioner's authority to enforce existing provisions of law.

(F) This rule shall take effect on January 1, 2009.

(3) Failing to disclose to any customer or prospective customer the following material fact:

(A) The broker-dealer or its agent incorporates a social objective or non-financial objective into its discretionary investment decisions to buy or sell a security or commodity for its customers; and/or its recommendations or solicitations to its customers for the purchase or sale of a security or commodity;

(B) As used in this section, "incorporates a social objective" means the consideration of socially responsible criteria in the investment or commitment of customer funds for the purpose of obtaining an effect other than a maximized financial return to the customer. "Socially responsible criteria" includes any criterion that is intended to further, or is branded, advertised, or otherwise publicly described by the broker-dealer or its agent as furthering, any of the following:

1. International, domestic, or industry agreements relating to environmental or social goals;

2. Corporate governance structures based on social characteristics; or

3. Social or environmental goals; and

(C) The disclosure obligation of subsection (3)(A) is satisfied by providing prior disclosure and obtaining written consent and acknowledgment from the customer. Written consent shall be obtained-

1. At the initial opening of the customer's account; and

2. Prior to effecting any discretionary investment and/ or providing a recommendation or solicitation regarding the purchase or sale of a security or commodity in a customer's account; and

(D) Written consent required in subsection (3)(C) shall contain language that is substantially similar to the following:

I consent to my broker-dealer and/or its agent incorporating a social objective or non-financial objective into the discretionary investment decisions they make for my account and/or the recommendations/ solicitations they make to me for the purchase or sale of securities and/or commodities. Also, I acknowledge and understand that incorporating a social objective or non-financial objective into investment decisions and recommendations/solicitations will result in investments and recommendations/solicitations that are not solely focused on maximizing a financial return for me or my account.

(4) The conduct set forth above is not inclusive. Engaging in other conduct such as nondisclosure or incomplete disclosure of material fact, or other deceptive practices are dishonest or unethical business practices.

15 CSR 30-51.170

AUTHORITY: section 409.6-605, RSMo Supp. 2007.* Original rule filed June 25, 1968, effective Aug. 1, 1968. Amended: Filed May 21, 1969, effective Aug. 1, 1969. Amended: Filed July 21, 1972, effective Aug. 1, 1972. Amended: Filed Nov. 15, 1974, effective Nov. 25, 1974. Amended: Filed Oct. 13, 1983, effective Jan. 13, 1984. Amended: Filed Oct. 16, 1987, effective Feb. 12, 1987. Amended: Filed March 27, 1989, effective June 12, 1989. Amended: Filed July 3, 1989, effective Sept. 28, 1989. Amended: Filed Aug. 28, 1989, effective Feb. 11 , 1990. Amended: Filed June 29, 1990, effective Dec. 31, 1990. Emergency amendment filed Aug. 27, 2003, effective Sept. 12, 2003, expired March 9, 2004. Amended: Filed Aug. 28, 2003, effective Feb. 29, 2004. Amended: Filed April 8, 2004, effective Oct. 30, 2004. Amended: Filed March 31, 2008, effective Jan. 1, 2009.

Amended by Missouri Register December 16, 2019/Volume 44, Number 24, effective 1/30/2020

Amended by Missouri Register June 1, 2023/Volume 48, Number 11, effective 7/31/2023

*Original authority: 409.4-412, RSMo 2003 and 409.6-605, RSMo 2003.