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OKLAHOMA DEPARTMENT OF SECURITIES Introduction The National Securities Market Improvement Act of 1996 (NSMIA) was enacted into law in October of 1996. The federal legislation significantly impacts state securities laws, particularly in the regulation of investment advisers in the section called the Investment Advisers Supervision Coordination Act (Coordination Act). The provisions of the Coordination Act will take effect on July 8, 1997. In connection with the implementation of the Coordination Act, investment advisers are encouraged to review the instructions to Form ADV-T and SEC Release No. IA-1633. The Coordination Act created a two-tier system for the registration of investment advisers in the United States. The legislation reallocated responsibility for registering investment advisers between the states and the United States Securities and Exchange Commission (SEC). Generally, investment advisers with less than 25 million dollars of assets under management will register with the states and those with 25 million dollars or more of assets under management or that advise registered investment companies will register with the SEC. If a person is registered with the SEC under Section 203 of the Investment Advisers Act of 1940 (1940 Act) or is excepted from the definition of investment adviser under Section 202(a)(11) of the 1940 Act, the states may not require registration, licensing, or qualification of the investment adviser or its supervised persons; however, states may license, register, or otherwise qualify investment adviser representatives who have a place of business located within that state. The Oklahoma Legislature adopted Senate Bill 303 (SB 303) to make the necessary amendments to the Oklahoma Securities Act (Oklahoma Act) as a result of NSMIA. The provisions of SB 303 were effective July 1, 1997. The Oklahoma Act Section 201(c) and 201(d) of the Oklahoma Act provides that it is unlawful for any person to transact business in this state as an investment adviser or investment adviser representative unless he is registered under the Oklahoma Act or unless he is exempt from registration. Definitions Pursuant to Section 2(l) of the Oklahoma Act, "investment adviser" means "any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities." There are various exclusions from the definition set forth in Section 2(l) of the Oklahoma Act. Pursuant to Section 2(m) of the Oklahoma Act, "investment adviser representative" means "any partner, officer, director of, or a person occupying a similar status or performing similar functions for, an investment adviser, or other person employed by, supervised by, representing, or associated with an investment adviser, except clerical or ministerial personnel, who: (1) makes any recommendation or otherwise renders advice regarding securities; (2) manages accounts or portfolios of clients; (3) determines or has final authority as to which recommendations or advice regarding securities should be given; or (4) supervises employees who perform any of the acts described in this subsection." Exemptions From Registration The provisions of Section 201(c)(2) of the Oklahoma Act exempt the following persons from registration as an investment adviser: a. persons whose only clients in Oklahoma are investment companies as defined in and registered under the 1940 Act; b. persons licensed as an investment adviser under the laws of another state who have no place of business (FN 1) within Oklahoma and whose only clients are other investment advisers, broker-dealers or financial or institutional investors(FN 2); c. persons who have no place of business located in Oklahoma and during any period of 12 consecutive months, have no more than 5 clients(FN 3) who are residents of Oklahoma, other than other investment advisers, broker-dealers or financial or institutional investors; or d. persons who are registered under Section 203 of the 1940 Act or who are not registered under the 1940 Act because they are excepted from the definition of investment adviser under Section 202(a)(11) of the 1940 Act (SEC Registered Advisers).(FN 4) Under Section 201(d)(2) of the Oklahoma Act, an investment adviser representative, as defined in Section 2(m) of the Oklahoma Act, is exempt from registration as an investment adviser representative under the Oklahoma Act if he is (i) employed by, supervised by, representing or associated with an SEC Registered Adviser and (ii) has no place of business(FN 5) located within this state. The exemption for each such investment adviser representative is conditioned on payment of the $50 fee required under Section 202.1 of the Oklahoma Act. SEC Registered Advisers Investment Adviser Filing Requirements Pursuant to new Section 202.1 of the Oklahoma Act, unless otherwise exempt from registration as an investment adviser under Section 201(c)(2) of the Oklahoma Act, an SEC Registered Adviser intending to transact business in this state as an investment adviser must make the following filing with the Administrator of the Department (Notice Filing): a. such documents filed with the SEC as the Administrator may, by rule, prescribe;(FN 6) b. an annual fee of $300.00 as set forth in Section 412(a)(5) of the Oklahoma Act; and c. $50.00 for each investment adviser representative who is exempt from registration under Section 201(d) of the Oklahoma Act and who intends to transact business in this state as an investment adviser representative. The Notice Filing is effective from its date of filing and expires on December 31st of each year. "Date of filing" means the date all of the required documentation has been submitted to the Administrator and payment of the proper fees is made. The Notice Filing may be renewed annually as of January 1st as the Administrator of the Department (Administrator) prescribes by rule. For an SEC Registered Adviser registered under the Oklahoma Act as of July 1, 1997, a Notice Filing will not be required at this time. If the investment adviser intends to continue to transact business in this state as an investment adviser after December 31, 1997, a Notice Filing will be due prior to January 1, 1998. If an SEC Registered Adviser elects to withdraw its registration as an investment adviser under the Oklahoma Act prior to December 31, 1997, a Form ADV-W must be filed with the Administrator. If an SEC Registered Adviser that is registered under the Oklahoma Act does not file a Form ADV-W with the Administrator, its registration under the Oklahoma Act will remain in effect until December 31, 1997. Investment Adviser Representatives The Coordination Act preserves the state's authority to register or otherwise qualify an SEC Registered Adviser's investment adviser representatives who have a place of business located within this state. Based on the Coordination Act and rules adopted by the SEC, this authority is limited to supervised persons(FN 7) who have a place of business located within this state and more than 10% of whose clients are natural persons. This authority does not encompass supervised persons who do not, on a regular basis, solicit, meet with, or otherwise communicate with clients of the investment adviser, or who provide only impersonal investment advice. To register as an investment adviser representative of an SEC Registered Adviser, the following must be filed with the Administrator: 1. a completed Form U-4 (if the investment adviser representative is associated with an NASD member firm, the Administrator will accept the electronic filing of the Form U-4 with the Central Registration Depository system); 2. an executed Applicant/Management Certification form; 3. $50.00 filing fee; and 4. proof of successful completion of the Series 65 and Series 6 examinations. An investment adviser representative of an SEC Registered Adviser who is registered under the Oklahoma Act with no place of business located within this state may cancel his registration under the Oklahoma Act by submitting a Form U-5 or a letter requesting cancellation to the Administrator. Otherwise, his registration will expire on December 31, 1997. As investment adviser representatives with no place of business located within this state become employed by, supervised by, or associated with an SEC Registered Adviser, the investment adviser shall submit the name and social security number of each such investment adviser representative who intends to transact business in this state as an investment adviser representative as defined under the Oklahoma Act. The list may be provided in the form of a letter to the Administrator. A $50.00 fee for each investment adviser representative so listed must also be submitted. Investigation/Enforcement Actions The states retain the authority to investigate and bring enforcement actions in the case of fraud or deceit by SEC Registered Advisers and their investment adviser representatives. Dual Activities An entity that intends to register under the Oklahoma Act as a broker-dealer and is required to make a Notice Filing with the Administrator as an SEC Registered Adviser may not take advantage of the $450.00 combined broker-dealer/investment adviser registration fee set forth in Section 412(a)(7) of the Oklahoma Act. The $300.00 fee to register as a broker-dealer and the $300.00 investment adviser Notice Filing fee will be required. Likewise, a person who intends to register under the Oklahoma Act as an agent of a broker-dealer and who intends to act as an investment adviser representative of an SEC Registered Adviser, although exempt from registration under the Oklahoma Act, may not take advantage of the $60.00 combined agent/investment adviser representative registration fee set forth in Section 412(a)(8) of the Oklahoma Act. The $50.00 fee to register as an agent and the $50.00 fee required by Section 202.1 of the Oklahoma Act will be required. State Registered Advisers If an investment adviser is not an SEC Registered Adviser, its registration is governed by state laws. Consequently, persons not qualifying for SEC registration who intend to transact business in this state as an investment adviser must be registered or exempt from registration under the Oklahoma Act. Investment Adviser Filing Requirements To register as an investment adviser under the Oklahoma Act, the following must be filed with the Administrator: 1. a completed Form ADV, including Schedules A-I; 2. $300.00 filing fee; and 3. if the investment adviser maintains custody or possession of clients' funds or securities or requires prepayment of advisory fees six months or more in advance and in excess of $500.00 per client, audited financial statements as of the end of the investment adviser's most recent fiscal year updated as of a date within sixty (60) days of the date of application. The registration of an investment adviser expires on December 31st of each year. The registration may be renewed annually. For an investment adviser registered under the Oklahoma Act as of July 8, 1997, who is not qualified for SEC registration, no filing is required to be made with the Administrator to maintain registration through December 31, 1997. Investment Adviser Representative Filing Requirements To register as an investment adviser representative under the Oklahoma Act, the following must be filed with the Administrator: 1. a completed Form U-4 (if the investment adviser representative is associated with an NASD member firm, the Department will accept the electronic filing of the Form U-4 with the Central Registration Depository system); 2. an executed Applicant/Management Certification form; 3. $50.00 filing fee; and 4. proof of successful completion of the Series 65 and Series 6 examinations. The registration of an investment adviser representative expires on December 31st of each year. The registration may be renewed annually. Other Requirements Investment advisers registered under the Oklahoma Act must maintain the books and records required under the laws of the state in which the investment adviser maintains its principal place of business(FN 8) if the investment adviser is registered or licensed in such state and is in compliance with the applicable books and records requirements of such state. If the investment adviser is not registered or licensed in the state in which the investment adviser maintains its principal place of business or is not in compliance with the applicable books and records requirements of such state, the investment adviser shall maintain the books and records set forth in 660:10-7-41 of the Rules of the Oklahoma Securities Commission and the Administrator of the Department of Securities (Rules). An investment adviser that maintains its principal place of business in Oklahoma is subject to the recordkeeping requirements set forth in 660:10-7-41 of the Rules. Investment advisers and investment adviser representatives registered under the Oklahoma Act are subject to the standards of ethical practice set forth in 660:10-7-42 of the Rules. In addition, investment advisers registered under the Oklahoma Act are required to provide the written disclosure statement prescribed by 660:10-7-43 of the Rules to advisory clients and prospective advisory clients. There is no minimum net capital requirement or bonding requirement prescribed under the Oklahoma Act or the Rules. _____________________________ (FN 1) (FN 2) The exemption provided by this paragraph b. is not available to any person who acts as an investment adviser to the state of Oklahoma or any political subdivision of this state; any agency of any such entity; or any pension fund for the benefit of employees of any such entity. (FN 3) For purposes of counting “clients” in connection with this exemption from registration, refer to SEC Rule 203(b)(3)-1. (FN 4) Unlike the legislation of other states, SB 303 does not exclude SEC Registered Advisers from the definition of “investment adviser.” Rather, SEC Registered Advisers are exempt from registration as an investment adviser under Section 201(c)(2) of the Oklahoma Act. (FN 5) As set forth in Section 201(f) of the Oklahoma Act, “place of business” means “a place or office from which the investment adviser or investment adviser representative regularly provides advisory services or otherwise solicits, meets with, or communicates with clients.” (FN 6) As of the date of this release, the Administrator has not adopted and promulgated a rule specific to SEC Registered Advisers. The Administrator intends to adopt and promulgate a rule that specifies the contents of the Notice Filing for SEC Registered Advisers to be a completed Form ADV, including Schedules A-I. (FN 7) As set forth in the Coordination Act, “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.” (FN 8) In accordance with SEC Rule 203A-3(c), “principal place of business” shall mean “the executive office of the investment adviser from which the officers, partners, or managers of the investment adviser direct, control, and coordinate the activities of the investment adviser.” |