N.M. Admin. Code § 12.11.5.7

Current through Register Vol. 35, No. 21, November 5, 2024

Section 12.11.5.7 - DEFINITIONS

The following definitions apply throughout this part.

A. "Custody" means holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them or having the ability to appropriate them.

(1) Custody includes:

(a) possession of client funds or securities, unless received inadvertently and returned to the sender promptly, but in any case within three business days of receiving them;

(b) 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 adviser's instruction to the custodian; and

(c) any capacity (such as a 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, an owner of the investment adviser, or a supervised person of the investment adviser legal ownership of or access to client funds or securities.

(2) Receipt of checks drawn by clients and made payable to unrelated third parties will not meet the definition of custody if forwarded to the third party within 24 hours of receipt and the adviser maintains the records required.

B. For purposes of 12.11.5 NMAC, an investment adviser shall not be deemed to be exercising "discretion" or "discretionary authority" when it places trade orders with a broker-dealer pursuant to a third party trading agreement if:

(1) the investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that a third party trading agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client's broker-dealer account;

(2) the investment adviser contract specifically states that the client does not grant discretionary authority to the investment adviser and the investment adviser in fact does not exercise discretion with respect to the account; and

(3) a third party trading agreement is executed between the client and a broker-dealer which specifically limits the investment adviser's authority in the client's broker-dealer account to the placement of trade orders and deduction of investment adviser fees.

N.M. Admin. Code § 12.11.5.7

12.11.5.7 NMAC - N, 1-1-2010