W. Va. Code R. § 111-1-11

Current through Register Vol. XLI, No. 36, September 6, 2024

Section 111-1-11 - Registration of broker-dealers and agents

Each of the rules of this section (11 through 11.2) is a legislative rule, and each is adopted pursuant to the provisions of section four hundred twelve, article four, chapter thirty-two of the West Virginia Code and sections two hundred one, two hundred two, two hundred three and two hundred four, article two, chapter thirty-two of the Code, and each rule relates to sections two hundred one, two hundred two, two hundred three and two hundred four, article two, chapter thirty-two of the Code.

11.1. Registration requirement.

(a) (Reserved)

(b)

(1) (Reserved)

(2) Prohibition against dual registration. -- No person shall be concurrently registered as an agent of more than one broker-dealer or issuer. The Commissioner may waive this requirement upon a finding that control and management of the multiple broker-dealers or issuers, as the case may be, are substantially identical. No waiver will be considered, in any case, except upon written application to the Commissioner for such and including with said application all pertinent materials relating to the reason(s) which the applicant believes entitles him/her to a waiver.

(c) Registration expiration date. Every registration of a broker-dealer, agent, issuer agent or investment adviser, expires:

(1) In the case of a broker-dealer, issuer agent and investment adviser, one (1) year from its effective date, unless renewed or sooner revoked, canceled or withdrawn;

(2) In the case of an agent of a broker-dealer who is not a member of the National Association of Securities Dealers, Inc., one (1) year from its effective date or concurrently with the expiration, revocation or cancellation of the registration of the associated broker-dealer or issuer, whichever is sooner, unless said agent registration is renewed or sooner revoked, canceled or withdrawn.

(3) In the case of an agent employed by a broker-dealer that is a member of the National Association of Securities Dealers, Inc., on December 31 of each year, unless renewed or sooner revoked, canceled or withdrawn.

(4) In the case of a broker-dealer who is a member of the National Association of Securities Dealers, Inc., on December 31 of each year; this expiration provision for such broker-dealers shall be effective when such broker-dealers are informed that the Commissioner is participating in the NASD's Central Registration Depository System with respect to broker-dealers.

11.2. Registration procedure.

(a)

(1) An application for registration as a broker-dealer in West Virginia shall contain:

A) A copy of Revised SEC Form BD as adopted by the SEC effective January 1, 1984; the Commissioner will be participating in the NASD's CRD System with respect to broker-dealers when the CRD System makes such an arrangement possible; at that time all applicants will be informed of and will follow the procedures for such participation as the Commissioner finds appropriate.

B) A nonrefundable filing fee in the amount provided in subsection (b), section two hundred two, article two, chapter thirty-two of the West Virginia Code, made payable to "State Auditor of West Virginia";

C) Form U-2;

D) Form U-2A;

E) Form U-4, and a nonrefundable filing fee in the amount provided in subsection (b), section two hundred two, article two, chapter thirty-two of the West Virginia Code, for each agent except as provided in Section 11.2(a)(2) of these rules;

F) A list by location of each branch office in the state, including for each location the identity of the registered agent and the designated supervisor;

G) A statement of financial condition of the applicant prepared in accordance with the generally accepted accounting principles and accompanied by an auditor's report containing an unqualified opinion of an independent certified public account. For an applicant that has not yet commenced to act as a registered broker-dealer in another state, the statement of financial condition shall consist of the applicant's most recent audited financial statement and an interim unaudited financial condition, the Commissioner may require the filing of separate schedules:

(i) Listing the securities owned by the applicant valued at the market;

(ii) stating material contractural commitments of the applicant not otherwise reflected in such statements, and

(iii) describing contingent liabilities of the applicant not otherwise reflected in such statements, the realization of which would have a material effect on the applicant's net capital.

(2) Agent registration procedure.

(a) A broker-dealer which is not a member of the National Association of Securities Dealers, Inc. ("N.A.S.D."), and which seeks registration of an agent in this state shall file Form U-4 and a nonrefundable filing fee in the amount provided in subsection (b), section two hundred two, article two, chapter thirty-two of the West Virginia Code, for each agent to be registered. Broker-dealers which are members of the NASD, and which seek registration of an agent in this state shall, in lieu of filing Form U-4 or Form U-5 directly with this State, file Form U-4 through the NASD's Central Registration Depository System. The Central Registration Depository ("CRD") System shall be maintained by NASDAQ, Inc., a subsidiary of the NASD pursuant to an agreement with, and under the guidelines established by, the North American Securities Administrators Association, Inc. This alternative method of filing agent application forms shall be in effect so long as the Commissioner is a participant in the CRD System.

Filings through the CRD System shall be forwarded to Membership Department, National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, with appropriate fees. These fees shall be known as "In Lieu Filing Fees." Only current Forms U-4 and Forms U-5 will be accepted for filing to register, amend information or terminate a registration.

Although filings shall be made by the NASD member firm on behalf of the agent, nothing in this procedure shall be construed to, or shall relieve the individual agent of any responsibility or liability under chapter thirty-two of the Code.

Should the statutory registration fee be increased for filing directly with this state, the CRD filing fee shall be increased by a like amount.

(b) Examination requirement - agents/broker-dealers. -- All applicants for initial registration as an agent:

(1) Shall pass, with a minimum grade of seventy percent (70%), the applicable qualifying examination required by the NASD, National Securities or Commodities Exchanges, and/or the SEC, and

(2) Shall pass, with a minimum grade of seventy percent (70%), the Uniform Securities Agent State Law Examination (USASLE) administered by the NASD.

Applicants for initial registration as broker-dealers shall pass, with a minimum grade of seventy percent (70%), the applicable qualifying examinations required by the NASD, National Securities or Commodities Exchanges and/or the SEC. The Commissioner does not administer examinations, but reserves the right to require an applicant for initial registration as a broker-dealer to pass a written or oral examination or both administered by the Commissioner or his designee.

11.2.(a)(2)(b)(2) Waiver of examination requirement. -- For purposes of the examination requirement of the agents and broker-dealers set out in Section 11.2.(a)(2)(b)(1) of these rules, a waiver from this requirement may be considered in the following circumstances:

(1) Where the applicant has remained continuously registered in the capacity to be filled in this state without interruption for at least two (2) years prior to the date of application for which the waiver is sought;

(2) Where the applicant submits to the Commissioner written evidence of effective registration in the capacity to be filled in a different state without interruption for at least two (2) years prior to the date of application for which waiver is sought;

(3) Where due to the nature of such combined circumstances as the applicant's education, employment experience and the limited nature of the proposed offering or sale of securities in conjunction for which registration is sought, the applicant appears to be adequately qualified to transact business in this state, so that investor protection should not require the examination otherwise imposed by Section 11.2.(a)(2)(b)(1).

Application for a waiver of the examination requirement shall be limited to the three (3) sets of circumstances detailed above. The applicant may apply for a waiver by submitting a letter to the Commissioner describing the applicable circumstances for which a waiver may be appropriate. Such a letter shall include such evidence as is necessary to demonstrate the applicant's entitlement to a waiver. No oral applications will be acceptable under any circumstances. Waiver shall not be effective unless it is provided to the applicant in writing by the Commissioner.

(4) Issuer-agent registration. -- An issuer which seeks registration of an agent in this State shall file Form U-4 and a nonrefundable filing fee in the amount provided by subsection (b), section two hundred two, article two, chapter thirty-two of the Code for each agent to be registered.

(5) Investment adviser registration. -- An applicant which seeks registration as an investment adviser in this State shall file the following with the Commissioner:

(A) An exact copy of SEC Form ADV, including all schedules and continuation sheets required in connection with the submission of said form as filed with the Securities and Exchange Commission;

(B) A nonrefundable filing fee in the amount specified by subsection (b), section two hundred two, article two, chapter thirty-two of the Code, made payable to "State Auditor of West Virginia";

(C) Form U-2 and Form U-2A;

(D) A statement of the financial condition of the applicant prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an unqualified opinion of an independent certified public accountant. For an applicant that has not yet commenced to act as a registered investment adviser in any state, his statement of financial condition shall have been prepared within forty-five (45) days prior to the date on which such application is filed. For an applicant that has commenced to act as a registered investment adviser in another state, the statement of financial condition shall consist of the applicant's most recent audited financial statement and an interim unaudited financial statement prepared within forty-five (45) days prior to the date on which the application is filed. As part of the statement of financial condition, the Commissioner may require the filing of separate schedules:

(i) Listing the securities owned by the applicant valued at the market;

(ii) stating material contractual commitments of the applicant not otherwise reflected in such statements;

(iii) describing contingent liabilities of the applicant not otherwise reflected in such statements, the realization of which would have a material effect on the applicant's net capital.

11.2.(a)(2)(b)(5) Date registration becomes effective. -- If no denial, suspension or revocation order is in effect and no proceeding therefor is pending, registration becomes effective at noon of the thirtieth day after the filing of an application is complete, unless an earlier effective date is specified in writing by the Commissioner. No broker-dealer, no agent who is employed by a broker-dealer who is not an NASD member, issuer-agent or investment adviser shall transact business in this State until informed, in writing, by the Commissioner that the registration is effective. Additional exhibits or information not specifically required but essential to a full presentation of all material facts relating to the qualifications of the application should be furnished and properly identified. The Commissioner may make such examination of the applicant and request additional information as he deems appropriate in the consideration of eligibility for registration. A filing shall be considered complete when the application and all attachments and exhibits thereto, as required by the Commissioner, have been filed with and are satisfactory to the Commissioner. Applications filed with the NASD's CRD are not considered filed with the Commissioner until all data deficiencies, according to the NASD or the Commissioner, are corrected. Agents who are employed by NASD-member broker-dealers and who file applications for registration with the NASD's CRD shall not transact business in this State until informed by the Commissioner that registration with this State is effective. An agent may be deemed to have been informed by the Commissioner that registration is effective upon receipt of the NASD's written confirmation of registration for this State. An agent who becomes registered with the Commissioner pursuant to a filing with the NASD's CRD shall retain at all times while so registered, the written confirmation of such registration which is sent to the agent's employer by the NASD. Retention of the confirmation by the employer shall be sufficient compliance with this requirement.

(6) Broker-dealer, agent, issuer-agent and investment adviser renewals. -- All registrations shall automatically expire as provided in Section 11.1.(2)(c) of these rules, unless sooner revoked, canceled or withdrawn.

A broker-dealer which is not a member of the NASD, wishing to renew its registration and that of its agents, shall file Form 16, including all information required by said form, Form 16-A, and the appropriate renewal fees not earlier than the first day, nor later than the tenth day of the month in which the registration would otherwise expire by law.

A broker-dealer which is a member of the NASD wishing to renew its registration shall file Form 16, including all information required by said form, and the appropriate renewal fee not earlier than the first day, nor later than the tenth day of the month for which the registration would otherwise expire by law. An NASD member broker-dealer which wishes to renew the registration of its agents shall file the appropriate forms with, submit the appropriate renewal fees to and accomplish said renewal through the NASD's CRD, on or before December 31 of each year.

An issuer which wishes to renew the registration of its agents shall file Form 16-A and the appropriate renewal fee no earlier than the first day, nor later than the tenth day of the month in which the registration would normally expire by law.

An investment adviser which wishes to renew its registration shall file West Virginia Form ADV (3-74) and the appropriate renewal fee not earlier than the first day, nor later than the tenth day of the month in which the registration would normally expire by law.

The Commissioner will provide the appropriate renewal forms on, or about, the first day of the month for which the registration of the particular registrant would normally expire in each year, where appropriate. All renewal filings received other than in the above manner shall be deemed to be an initial filing and must meet the requirements of Section 11.2(a) of these rules.

(7) Agent and issuer-agent transfers. -- When an agent or issuer-agent transfers his connection from one (1) broker-dealer or issuer to another, the broker-dealer or issuer shall file Form U-4 and a nonrefundable filing fee in the amount prescribed by subsection (b), section two hundred two, article two, chapter thirty-two of the Code, with the Commissioner, or, for agents connected with NASD-member broker-dealers, with the NASD's CRD. No agent or issuer-agent may transact business in the state until notified in writing his transfer is effective.

(8) Abandoned applications. -- The Commissioner may order an application for registration as a broker-dealer, agent, issuer-agent or investment adviser deemed abandoned when an applicant fails to adequately respond to any request for additional information required under the Code or the regulations thereunder. The Commissioner shall provide written notice of warning thirty (30) calendar days before such order is entered. The applicant may, with the consent of the Commissioner, withdraw the application.

(b) (Reserved)

(c) Successor broker-dealer registration.

(1) A registered broker-dealer which seeks to register a successor pursuant to section two hundred two, article two, chapter thirty-two of the Code shall file:

(A) A copy of SEC Form BD (excluding Schedule F),

(B) Form U-2 and

(C) a list of all registered agents associated or to be associated with the successor and a nonrefundable fee in the amount prescribed by subsection (c), section two hundred two, article two, chapter thirty-two of the Code.

(2) In the event that a broker-dealer succeeds to and continues the business of another registered broker-dealer, the registration of the predecessor shall be deemed to remain effective as the registration of the successor for a period of sixty (60) days after such succession, or until the last day of the month in which the predecessor's registration would normally have expired, whichever is sooner: Provided, That Form BD is filed by such successor within thirty (30) days after such succession or before the last day of the month in which the predecessor's registration would normally have expired, whichever is sooner.

(3) A Form BD, filed by a broker-dealer partnership which is not registered when such form is filed and which succeeds as a broker-dealer, shall be deemed to be an application for registration, even though designated as an amendment, if it is filed to reflect the changes in the partnership and to furnish required information concerning any new partners.

(4) There shall be no fee as prescribed by subsection (b), section two hundred two, article two, chapter thirty-two of the Code for filing Form BD pursuant to Section 11.1(c) of these rules.

(d) Minimum capital requirements.

(1) A broker-dealer, investment adviser, or issuer having agents registered in this State, shall comply with SEC Rules 15c3-1 (net capital requirements for broker-dealers, 17 CFR 240.15c3 - 3), and shall maintain net capital in such minimum amounts as are prescribed therein, or in the amount of twenty-five thousand dollars ($25,000), whichever is greater.

(2) A broker-dealer shall comply with SEC Rule 17a-11, as amended by FOCUS Report (supplemental current financial and operational reports, 17 CFR 240.17a-11) and shall simultaneously file with the Commissioner copies of all reports and notices that said rule requires, and the Commissioner may by order prescribe as to such broker-dealer such conditions on its right to transact business in the state as he deems appropriate for the protection of the public.

(3) The Commissioner may by order exempt any broker-dealer from the provisions of this section, either unconditionally or upon specified conditions, if by reason of the broker-dealer's membership on a national securities exchange or the special nature of its business and its financial position, and the safeguards that have been established for the protection of customers' funds and securities, the provisions are not necessary in the public interest or for the protection of investors.

(e) Any broker-dealer, any issuer having agents registered in this State or wishing to have agents so registered, and any investment adviser which fails to meet, or does not at all times maintain the minimum net capital defined and required by Section 11.2(d) of these rules shall be required to furnish a surety bond in the amount of ten thousand dollars ($10,000), as a condition for said registration becoming, or remaining effective. Said surety bond shall be submitted on the form prescribed by, or on a form acceptable to the Commissioner, and shall acknowledge the registrant, as principal, and the surety indebted and firmly bound unto this State. The conditions of said bond shall be satisfied if the principal:

(i) Discharges all obligations imposed on him under chapter thirty-two of the Code;

(ii) performs all contracts entered into in connection with the sale of securities, and accounts for all money and securities coming into his hands for the use of investors, in a manner prescribed by the Commissioner; and

(iii) such other conditions as the Commissioner shall deem to be in the public interest. Said bond shall not be effective for the purpose of this section until approval is given by the Commissioner in such manner as he deems appropriate. Every bond given under this section shall provide for suit thereon by any person who has a cause of action under section four hundred ten, article four, chapter thirty-two of the Code, and every bond shall provide that no suit may be maintained to enforce any liability on the bond unless brought within two (2) years after the sale or other act upon which it is based.

Any appropriate deposit of cash or securities shall be accepted in lieu of the bond required under this section, but approval of such deposit shall not be effective until given by the Commissioner, in writing. Said deposit shall be made in a manner acceptable to the Commissioner.

W. Va. Code R. § 111-1-11