[48 Pa.B. 389]
[Saturday, January 13, 2018]

[Continued from previous Web Page]

§ 203.186. Employee takeovers.

 (a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) of securities issued under an investment plan for employees of an existing person designed to purchase securities of a newly created person in transactions if:

 (1) The proceeds from the sale of the securities will be used to purchase assets and operations of the existing person.

 (2) The employees will preserve their jobs through their employment with the newly created person.

 (3) The employees' participation in the investment plan is not required as a condition of employment.

 (4) The employees being solicited to purchase securities under the investment plan receive, at least 7 days before entering into a binding obligation to purchase or subscribe for the purchase of securities issued or to be issued under the investment plan:

 (i) Written offering materials that fully and adequately disclose all material facts about the investment plan, including detailed risk factors explaining the potential loss of their investment.

 (ii) An opinion of counsel that the security, when sold, will be legally issued, fully paid and nonassessable and, if a debt security, a binding obligation of the issuer.

 (5) The prospective financial statements used in connection with soliciting the purchase of securities under the investment plan comply with § 609.010(c) (relating to use of prospective financial statements).

 (b) The exemption contained in this section may not be available for a transaction entered into primarily to avoid the provisions of section 201 of the act.

§ 203.187. Small issuer exemption.

 (a) General rule. Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer and sale of securities by an issuer if:

 (1) The issuer has not sold securities in or out of this Commonwealth to more than ten persons.

 (2) The issuer, in connection with offers made for the sale of securities under this section, has not made offers to sell securities to more than 90 persons in this Commonwealth in a period of 12 consecutive months.

 (3) The issuer is either organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.

 (4) The issuer or a promoter, officer or director of the issuer is not subject to the disqualifications in § 204.010(b) (relating to increasing the number of purchasers and offerees).

 (5) General solicitation through public media advertisement, mass mailing, the Internet or other means does not occur in connection with the offers and sales under this section.

 (6) Cash or securities are not given or paid, directly or indirectly, to a person as compensation in connection with a sale under this section unless:

 (i) The compensation is given or paid in connection with a sale made by a broker-dealer who either is registered under section 301 of the act (70 P.S. § 1-301) or exempt from registration under section 302(a) of the act (70 P.S. § 1-302(a)).

 (ii) The person receiving compensation is either the broker-dealer or an agent of the broker-dealer who either is registered under section 301 of the act or exempt from registration under section 302(b) of the act.

 (b) Integration.

 (1) Offers and sales made by the issuer under this section are counted as offers and sales under applicable numerical limitations set forth in § 204.010(a)(1) and (2) if offers and sales under § 204.010 occur within a period of 12 consecutive months of an offer or sale made under this section.

 (2) Offers and sales made by the issuer under this section are counted as offers and sales under the applicable numerical limitations in section 203(s) of the act if offers and sales under section 203(s) of the act occur within a period of 6 consecutive months of an offer or sale made under this section.

 (c) Computation. Section 609.012 (relating to computing the number of offerees, purchasers and clients) applies to offers and sales of securities made under this section.

§ 203.188. Cooperative Business Associations Exemption.

 (a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require registration of securities transactions under section 201 of the act (70 P.S. § 1-201) if all of the following conditions are met:

 (1) The issuance, offer and sale of securities of a cooperative business association is made only to persons who are members of the cooperative business association or, on the purchase of the security offered, will become members of a cooperative business association.

 (2) The transfer of the securities for value is restricted to the cooperative business association, members of the cooperative business association or a successor in interest of a transferor who qualifies for membership, as may be further limited by the articles of incorporation of the cooperative business association, if certificates evidencing the securities bear a legend setting forth the restrictions.

 (3) A person does not receive a commission or other compensation directly or indirectly as a result of or based on the sale of securities of a cooperative business association other than in connection with the solicitation of nonmembers for membership.

 (b) Section 209.010(b) (relating to required records; report on sales of securities and use of proceeds) does not apply to the offer and sale of securities without registration under this section.

§ 203.189. Isolated transaction exemption.

 (a) General. Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer and sale of securities by an issuer if:

 (1) Sales made under this section do not result in the issuer having made sales of its securities to more than two persons in this Commonwealth during a period of 12 consecutive months. Only sales described in subsection (c) will be counted as sales for purposes of the numerical limitations contained in this paragraph.

 (2) Offers made under this section do not result in the issuer having made offers to sell its securities to more than 90 persons in this Commonwealth during a period of 12 consecutive months. Only offers described in subsection (c) will be counted as offers for purposes of the numerical limitations contained in this paragraph.

 (3) The issuer either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.

 (4) The issuer or a promoter, officer or director of the issuer are not subject to the disqualifications in § 204.010(b) (relating to increasing the number of purchasers and offerees).

 (5) General solicitation through public media advertisement, mass mailing, the Internet or other means does not occur in connection with offers and sales made under this section.

 (6) Cash or securities are not given or paid, directly or indirectly, to a person as compensation in connection with a sale under this section unless:

 (i) The compensation is given or paid in connection with a sale made by a broker-dealer who is either:

 (A) Registered under section 301 of the act (70 P.S. § 1-301).

 (B) Exempt from registration under section 302(a) of the act (70 P.S. § 1-302(a)).

 (ii) A person receiving compensation is either the broker-dealer or an agent of the broker-dealer who is either:

 (A) Registered under section 301 of the act.

 (B) Exempt from registration under section 302(b) of the act.

 (b) Waivers.

 (1) Subsection (a)(2), (3) and (5) does not apply if the following criteria are met:

 (i) The securities to be sold in reliance on this section are registered with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 (1933 Act) (15 U.S.C.A. § 77e) or exempt from registration under Regulation A adopted under section 3(b) of the 1933 Act (15 U.S.C.A. § 77c(b)).

 (ii) The issuer has complied with section 203(h) of the act.

 (2) Subsection (a)(3) does not apply if the following criteria are met:

 (i) The offers and sales of securities made in reliance on this section would qualify for an exemption from registration under section 5 of the 1933 Act under Rule 505 or Rule 506 of Regulation D (17 CFR 230.505 or 230.506) (relating to exemption for limited offers and sales of securities not exceeding $5,000,000; and exemption for limited offers and sales without regard to dollar amount of offering) promulgated under section 3(b) of the 1933 Act and section 4(a)(2) of the 1933 Act (15 U.S.C.A. § 77d(a)(2)).

 (ii) The offers made in this Commonwealth in reliance on this section are made only to accredited investors as that term is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission (17 CFR 230.501(a)) (relating to definitions and terms used in Regulation D).

 (iii) The sales made in this Commonwealth in reliance on this section are made only to accredited investors as that term is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission (17 CFR 230.501(a)).

 (c) Inclusion of prior offers and sales. Offers and sales which occurred within the preceding 12 months from the date of an offer or sale to be made under this section that were made in reliance on section 203(d), (f) or (s) of the act, § 203.187 (relating to small issuer exemption), § 204.010(a)(1) and (2), Rule 506 (17 CFR 230.506) or this section are counted against the numerical limitations in subsection (a)(1) and (2).

 (d) Integration.

 (1) Offers and sales made by the issuer under this section are counted as offers and sales under the applicable numerical limitations in § 204.010(a)(1) and (2) if offers and sales under § 204.010 occur within 12 consecutive months of an offer or sale made under this section.

 (2) Offers and sales made by the issuer under this section are counted as offers and sales under the applicable numerical limitations in section 203(s) of the act if offers and sales under section 203(s) of the act occur within 6 consecutive months of an offer or sale made under this section.

 (e) Counting of offerees and purchasers. Section 609.012 (relating to computing the number of offerees, purchasers and clients) applies to offers and sales of securities made under this section.

§ 203.190. Certain Internet offers exempt.

 (a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds it not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for offers of securities by an issuer which are communicated electronically by means of a proprietary or common carrier electronic delivery system, the Internet, the World Wide Web or similar media (Internet Offer) if the issuer does not intend to offer and sell the securities in this Commonwealth and meets the following conditions:

 (1) The Internet Offer indicates, directly or indirectly, that the securities are not to be offered to persons in this Commonwealth.

 (2) An offer is not otherwise specifically directed to any person in this Commonwealth, by or on behalf of the issuer.

 (3) The issuer's securities are not sold in this Commonwealth as a result of the Internet Offer.

 (b) This section does not prohibit, in connection with an Internet Offer, the availability of another exemption which otherwise does not prohibit general solicitation.

§ 203.191. Rule 505 offerings.

 (a) Filing requirement. The notice required under section 203(s)(i) of the act (70 P.S. § 1-203(s)(i)) shall be filed with the Department within the time period specified on Form E as set forth in § 203.041 (relating to limited offerings).

 (b) Integration. Offers and sales made under this section are counted as offers and sales under the applicable numerical limitations in section 203(d) and (f) of the act and § 204.010 (relating to increasing the number of purchasers and offerees).

 (c) Amendments. During the period of the offering, the issuer shall take steps necessary to ensure that all material information contained in the notice remains current and accurate in all material respects. If a material statement made in the notice, or an attachment thereto, becomes materially incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

§ 203.192. Rule 801 and 802 offerings exempt.

 Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds it not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer and sale of securities by an issuer which are exempt from registration under the Securities Act of 1933 (15 U.S.C.A. §§ 77a—77aa) under Rule 801 or 802 promulgated by the Securities and Exchange Commission (17 CFR 230.801 or 230.802) (relating to exemption in connection with a rights offering; and exemption for offerings in connection with an exchange offer or business combination for the securities of foreign private issuers).

§ 203.201. Accredited investor exemption.

 (a) Filing requirement. The notice required under section 203(t)(ii) of the act (70 P.S. § 1-203(t)(ii)) shall be filed with the Department within the time period specified on Form E as set forth in § 203.041 (relating to limited offerings).

 (b) General solicitation. Use of general solicitation in a manner permitted by section 203(t) of the act will not be considered to be an advertisement subject to section 606(c) of the act (70 P.S. § 1-606(c)) and § 606.031 (relating to advertising literature) but will be subject to the antifraud provisions in sections 401—409 of the act (70 P.S. §§ 1-401—1-409) and Subpart D (relating to fraudulent and prohibited practices).

 (c) Amendments. During the period of the offering, the issuer shall take steps necessary to ensure that all material information contained in the notice remains current and accurate in all material respects. If a material statement made in the notice, or an attachment thereto, becomes materially incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

§ 203.202. Certain transactions with persons from Canada exempt.

 Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds it not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer or sale of a security if the following requirements are met:

 (1) The security is offered or sold in this Commonwealth only to a person described in § 302.065(1) (relating to Canadian broker-dealer exempt).

 (2) The transaction is effected in this Commonwealth solely by a Canadian broker-dealer or agent of a Canadian broker-dealer described in § 302.065(2).

§ 203.203. Certain Rule 144A exchange transactions exempt.

 Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer or sale of a security in a transaction if all of the following requirements are met:

 (1) A person who owns outstanding debt securities, and related guarantees, exchanges those securities for debt securities, and related guarantees of the same issuer which are the subject of an effective registration statement filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) (exchange transaction).

 (2) The outstanding debt securities, and related guarantees, are restricted securities as that term is defined in 17 CFR 230.144(a)(3) (relating to persons deemed not to be engaged in a distribution and therefore not underwriters).

 (3) The owner of the outstanding debt securities, and related guarantees, does not pay consideration in connection with the exchange transaction.

 (4) There are no material differences in the terms of the outstanding debt securities, and related guarantees, which are the subject of the exchange transaction.

CHAPTER 204. EXEMPTION PROCEEDINGS

§ 204.010. Increasing the number of purchasers and offerees.

 (a) Increases in purchasers and offerees. Under section 204(a) of the act (70 P.S. § 1-204(a)), the number of purchasers and offerees permitted under section 203(d) and (e) of the act (70 P.S. § 1-203(d) and (e)), respectively, are increased as follows, if the issuer complies with all the conditions described in subsection (b):

 (1) The total number of persons to whom securities may be offered in this Commonwealth during 12 consecutive months under section 203(e) of the act is 90 persons, except that offers made to experienced private placement investors who actually purchase the securities being offered are not included in the limitation established by this paragraph.

 (2) The total number of persons to whom securities may be sold in this Commonwealth during 12 consecutive months under section 203(d) of the act is 35 persons, except that sales made to experienced private placement investors are not included in the numerical limitation established by this paragraph.

 (b) Conditions.

 (1) Disqualification. The issuer or a person who is an officer, director, principal, partner other than a limited partner, promoter, or controlling person of the issuer or a person occupying a similar status or performing a similar function on behalf of the issuer, has not been convicted of a crime, made the subject of a sanction or otherwise found to have met any of the criteria described in section 305(a)(ii)—(xiii) of the act (70 P.S. § 1-305(a)(ii)—(xiii)) unless the person subject to this disqualification is registered under section 301 of the act (70 P.S. § 1-301).

 (2) Exemption notice filing. With respect to reliance on subsection (a)(2), the issuer files with the Department the notice required under section 203(d) of the act and § 203.041 (relating to limited offerings) and pays the filing fee required under section 602(b.1)(viii) of the act (70 P.S. § 1-602(b.1)(viii)).

 (3) Broker-dealer requirement.

 (i) All offers and sales made to persons in reliance on section 203(d) and (e) of the act, including the increased number of offerees and purchasers permitted by subsection (a), are effected by a broker-dealer registered under section 301 of the act.

 (ii) Subparagraph (i) does not apply if the issuer either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.

 (4) Statutory requirement. With respect to all offers and sales made to persons permitted under this section, the issuer shall comply with all conditions imposed by section 203(d) and (e) of the act, respectively.

 (c) Exceptions.

 (1) Subsection (b)(1) does not apply if either of the following conditions exist:

 (i) The person subject to the disqualification enumerated therein is licensed or registered to conduct securities related business in the state in which the administrative order or judgment was entered against the person.

 (ii) The broker-dealer employing the person is licensed or registered in this Commonwealth and disclosed the order, conviction, judgment or decree relating to the person in the Form BD filed with the Department.

 (2) Paragraph (1) does not allow a person disqualified under subsection (b)(1) to act in a capacity other than that for which the person is registered.

 (3) A disqualification created under this section is automatically waived if the state securities administrator or agency of the state which created the basis for disqualification determines on a showing of good cause that it is not necessary under the circumstances that the exemption be denied.

 (d) Due diligence obligation.

 (1) A broker-dealer registered under section 301 of the act that sells a security to an experienced private placement investor in reliance on subsection (a) meets the due diligence obligation if the broker-dealer:

 (i) Obtains from the purchaser a written representation that the purchaser meets the definition of ''experienced private placement investor'' in § 102.021 (relating to definitions).

 (ii) Has reasonable grounds to believe, after reasonable inquiry, that the written representation is correct.

 (2) An issuer that either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth and sells its securities to experienced private placement investors in reliance on subsection (a) meets the due diligence obligation if the issuer:

 (i) Obtains from the purchaser a written representation that the purchaser meets the definition of ''experienced private placement investor'' in § 102.021.

 (ii) Has reasonable grounds to believe, after reasonable inquiry, that the written representation is correct.

 (e) Statutory basis for offers and sales under this section. All offers and sales made to persons permitted by this section are considered to be offers and sales made under section 203(d) and (e) of the act and all conditions imposed by those sections of the act apply to offers and sales to persons permitted by this section.

§ 204.011. Waivers of the 12-month holding period.

 (a) Automatic waiver. Under section 204(a) of the act (70 P.S. § 1-204(a)), the restriction under section 203(d)(i) of the act (70 P.S. § 1-203(d)(i)) not to sell securities purchased under that section for 12 months after the date of purchase automatically is waived if:

 (1) The 203(d) restricted securities are registered under the act, the Securities Act of 1933 (15 U.S.C.A. §§ 77a—77aa) or the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq) after a notice is filed with the Department under section 203(d) of the act and § 203.041 (relating to limited offerings).

 (2) The purchaser dies or becomes disabled or incompetent and a legal guardian for the purchaser is appointed.

 (3) The purchaser undergoes liquidation or dissolution if the action is not undertaken to avoid registration.

 (4) The purchaser becomes insolvent.

 (5) The issuer is merged into another entity and new securities are exchanged for the 203(d) restricted securities, if the merger is not undertaken to avoid registration of the 203(d) restricted security.

 (6) The 203(d) restricted securities are sold in a transaction in which an offer to purchase on the same terms is made to all securityholders of that class of the issuer's securities.

 (7) A rescission offer is made in connection with a potential violation of State or Federal securities laws.

 (8) The 203(d) restricted securities are subject to repurchase under a buy-sell agreement that is conditioned with terms of employment or other commercial, as opposed to, mere investment relationship.

 (9) The 203(d) restricted securities are to be exchanged for other securities of the issuer in a transaction exempt from registration under section 202 of the act (70 P.S. § 1-202) or section 203 of the act, if the exchange is not undertaken to avoid registration.

 (b) Resale agreement. For transactions undertaken in reliance on waivers provided in subsection (a)(3) and (4), the person acquiring the restricted securities and the issuer shall agree in writing at the time of sale not to resell the restricted securities before the expiration of the original 12-month holding period.

 (c) Discretionary waiver.

 (1) In addition to the automatic waivers set forth in subsection (a), persons may make application to the Department under section 204(a) of the act for a discretionary order to waive the 12-month holding period for a restricted security in a proposed specified transaction.

 (2) The applicant shall demonstrate in the application that the sale of the restricted security is not being undertaken to avoid registration or otherwise to distribute in violation of the act.

§ 204.012. Waivers for pre-effective offers under section 203(h).

 Under section 204(a) of the act (70 P.S. § 1-204(a)), the Department waives the requirement in section 203(h) of the act (70 P.S. § 1-203(h)) that a registration statement, including a prospectus, be filed with the Department to make offers, but not sales, of securities in this Commonwealth if the issuer of the securities to be offered under the exemption in section 203(h) of the act has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933 (15 U.S.C.A. §§ 77a—77aa) before the time offers are made in this Commonwealth in reliance on section 203(h) of the act.

CHAPTER 205. REGISTRATION BY COORDINATION

§ 205.021. Registration by coordination.

 (a) Except as specified in subsection (b), registration by coordination may be initiated by filing with the Department within the specified time period:

 (1) A registration statement and other materials required under section 205 of the act (70 P.S. § 1-205).

 (2) A properly executed Uniform Application to Register Securities (Form U-1) and relevant exhibits thereto.

 (3) Additional information the Department may by regulation or order require under section 205(b)(iii) of the act.

 (b) In addition to filing the information and form required under subsection (a), issuers in offerings being made in reliance on Regulation A promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)) shall execute and file with the Department within the specified time Form R in accordance with the General Instructions.

 (c) The 10-day registration statement filing requirement in section 205(c) of the act is reduced to 5 days for all of the following:

 (1) An offering for which a registration statement has been filed with the Department designated as Form S-2 or S-3 by the Securities and Exchange Commission.

 (2) An offering for which a registration statement has been filed with the Department designated as Form F-7, F-8, F-9 or F-10, or otherwise equivalent form, by the Securities and Exchange Commission.

 (3) An offering for pass-through certificates evidencing undivided interests in trusts consisting of, or debt securities secured by, specific categories of receivables which securities, as a condition of issuance, are to be rated in one of the top three rating categories by one or more Nationally recognized statistical rating organizations.

 (d) During the period of the offering, the issuer shall take steps necessary to ensure that all material information contained in its Form R remains current and accurate in all material respects. If a material statement made in the form, or any attachment thereto, becomes materially incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

§ 205.040. Series of unit investment trusts as separate issuers.

 To comply with the requirements of sections 201 and 211(a) of the act (70 P.S. §§ 1-201 and 1-211(a)), each series underlying a unit investment trust, as that person is classified in the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-64), constitutes a separate and distinct issuer under the act and shall make a separate filing with the Department under section 211(a) of the act.

CHAPTER 206. REGISTRATION BY QUALIFICATION

§ 206.010. Registration by qualification.

 (a) Except as specified in subsection (b), registration by qualification shall be initiated by filing all of the following with the Department:

 (1) A registration statement and other materials required under section 206(b)(1)—(16) of the act (70 P.S. § 1-206(b)(1)—(16)).

 (2) A properly executed Uniform Application to Register Securities (Form U-1) and relevant exhibits.

 (3) Additional information the Department may by regulation or order require under section 206(b)(17) of the act.

 (b) In addition to the information and form required under subsection (a), issuers in the following offerings shall execute and file with the Department Form R as set forth in § 205.021 (relating to registration by coordination):

 (1) Offerings made in reliance on section 3(a)(4) of the Securities Act of 1933 (15 U.S.C.A. § 77c(a)(4)).

 (2) Offerings made in reliance on section 3(a)(11) of the Securities Act of 1933.

 (3) Offerings made in reliance on Rule 504 of Regulation D promulgated under section 3(b) of the Securities Act of 1933.

 (4) Offerings made in reliance on Regulation A promulgated under section 3(b) of the Securities Act of 1933.

 (c) Financial statements used in connection with an offering under section 206 of the act must meet the requirements of section 609(c) of the act (70 P.S. § 1-609(c)) and Chapter 609 (relating to regulations, forms and orders) or as the Department requires.

 (d) During the period of the offering, the issuer required to file Form R shall take steps necessary to ensure that all material information contained in its Form R remains current and accurate. If a material statement made in the form or any attachment thereto becomes incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

§ 206.020. (Reserved).

CHAPTER 207. GENERAL REGISTRATION PROVISIONS

§ 207.050. Reports by engineers, appraisers and others.

 (a) The Department may, under section 207(e) of the act (70 P.S. § 1-207(e)), require as a condition of registration that the issuer or other person seeking to register securities for sale submit a technical report.

 (1) The report must be prepared and certified by an engineer, appraiser, accountant or other professional person with respect to the value of an asset held by the issuer or other material matter considered by the Department to be reasonably related to the conduct of the issuer's business.

 (2) The cost of preparation of the report will be borne by the applicant for registration.

 (b) The Department may require that an employee of the Commonwealth prepare the report referred to in subsection (a). If this report is required, the Department will:

 (1) Notify the applicant for registration of the approximate cost of preparing the report, including travel and living expenses.

 (2) Require the applicant to deposit with the Department funds sufficient to cover costs with instructions authorizing disbursement of the funds as expenses are incurred before the commencement of preparation of the report.

 (3) Notify the applicant if it appears additional costs will be incurred in the preparation of the report and require the applicant to deposit with the Department the additional moneys necessary to permit completion of the work.

 (c) A person who prepares for submission or submits a technical report to the Department in response to the Department request, and a person who prepares for submission or submits a technical report intended to be included or referred to in any part of the registration statement, shall attach to the report:

 (1) A statement as to the person's qualifications and experience.

 (2) A statement as to a material relationship or other factor which would bear on the person's independence with respect to the subject matter to which or the person to whom the report relates.

§ 207.071. Escrow of promotional securities.

 (a) The Department will, if it considers necessary for the protection of investors, or in the public interest, and subject to the limitation of section 207(g) of the act (70 P.S. § 1-207(g)), require as a condition to the registration of securities, whether to be sold by the issuer or another person, that promotional securities be placed in escrow.

 (b) The escrow depository shall be a bank or trust company approved by the Department.

 (c) If the escrow depository does not maintain an office in this Commonwealth, the depository shall file with the Department an irrevocable consent to service of process with respect to actions arising out of its duties as escrow depository.

 (d) The escrow of promotional securities must be covered by an agreement which is subject to the approval of the Department.

 (e) The issuer shall file one manually signed copy of the agreement with the Department before the effectiveness of a registration of the issuer's securities.

§ 207.072. Escrow of proceeds.

 (a) The Department, if it considers it necessary for the protection of investors, and subject to the limitation of section 207(g) of the act (70 P.S. § 1-207(g)), may require as a condition to the registration of securities, whether to be sold by the issuer or another person, that the proceeds:

 (1) From the sale of the registered security in this Commonwealth be escrowed until the issuer receives a specified amount from the sale of the security either in this Commonwealth or elsewhere.

 (2) From the sale of the registered security be escrowed for a specific use as set forth in the prospectus.

 (b) The escrow depository shall be a bank or trust company approved by the Department.

 (c) The escrow of proceeds must be covered by an agreement approved by the Department which, at a minimum, meets all of the following conditions:

 (1) The specified amount of proceeds shall be deposited in an interest bearing escrow or trust account, the terms of which are consistent with this subsection, particularly paragraph (6).

 (2) The escrow depository is not affiliated with the issuer or any officer, director, promoter or affiliate of the issuer or the underwriter of the securities which are the subject of the escrow or trust account.

 (3) The escrowed proceeds are not subject to claims by creditors of the issuer, affiliates of the issuer or underwriters until the proceeds have been released to the issuer under the terms of the agreement.

 (4) An authorized officer of the issuer, an authorized officer of the underwriter, if applicable, and an authorized officer of the escrow depository sign the agreement.

 (5) A summary of the principal terms of the agreement are included in the prospectus.

 (6) If the minimum amount of proceeds is not raised within the specified time period or for the specific purpose set forth in the prospectus, the escrowed proceeds shall be released and returned directly to investors by the escrow depository by first class mail together with interest earned and without deductions for expenses (including commissions, fees or salaries), except that payment of interest shall be waived on proceeds held in escrow for less than 90 days.

 (d) A manually signed copy of the agreement shall be filed with the Department and become part of the registration statement.

§ 207.091. Subscription contracts.

 With respect to securities proposed to be sold under one of the following registration statements, a copy of a subscription or sale contract proposed to be used shall be filed with the Department, as an exhibit, before its use in this Commonwealth:

 (1) A registration statement filed under section 205 of the act (70 P.S. § 1-205) if the securities to be sold are exempt from registration under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) under Regulation A promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)).

 (2) A registration statement filed under section 206 of the act (70 P.S. § 1-206) if the securities to be sold are exempt from registration under section 5 of the Securities Act of 1933, under section 3(a)(4) or (11) of the Securities Act of 1933, Regulation A promulgated under section 3(b) of the Securities Act of 1933 or Rule 504 of Regulation D promulgated under section 3(b) of the Securities Act of 1933.

 (3) A registration statement filed under section 205 or 206 of the act if the securities to be sold are interests in a direct public participation program.

§ 207.101. Effective period of registration statement.

 (a) A registration statement that is effective under section 205(c) of the act (70 P.S. § 1-205(c)) shall continue in effect until the earliest of the following events:

 (1) Twelve months after the effective date of the registration statement under the act, except as provided in subsection (d).

 (2) Securities included in the registration statement have been sold or the distribution ended in this Commonwealth, or both.

 (3) The Department issues an order under section 208 of the act (70 P.S. § 1-208) denying, suspending or revoking effectiveness of the registration statement.

 (b) A registration statement that is effective by order of the Department under section 206 of the act (70 P.S. § 1-206) shall continue in effect until the earliest of the following events:

 (1) Twelve months after the effective date of the registration statement under the act.

 (2) Securities included in the registration statement are sold or the distribution ended in this Commonwealth, or both.

 (3) The Department issues an order under section 208 of the act denying, suspending or revoking effectiveness of the registration statement.

 (c) If the Department has required more than one filing for a registration statement, a separate Form 207-J is required for each filing.

 (d) Except with respect to an open-end or closed-end investment company, face amount certificate company or unit investment trust, as those persons are classified in the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-64), the effective period of a section 205 registration statement may be extended beyond the initial 1-year effectiveness period specified in subsection (a)(1) in increments of 1-year periods up to a maximum of 3 years from the initial effectiveness date of the registration statement in this Commonwealth by filing the form designated as Form 207-J in accordance with the General Instructions thereto with the Department before the expiration of the currently effective period of registration.

 (e) The provisions of subsection (d) are not available if the issuer, during the 3-year period from the initial effectiveness date of the registration statement in this Commonwealth, is required to file a new registration statement with Securities and Exchange Commission.

§ 207.130. Notice to purchasers under section 207(m).

 (a) This section applies to offerings of securities which are registered under section 206 of the act (70 P.S. § 1-206) and to securities transactions which are exempt from registration under section 203(d) and (p) of the act (70 P.S. § 1-203(d) and (p)) and, if required under rule of the Department, section 203(r) of the act.

 (b) The notice to purchasers required under section 207(m)(1) of the act (70 P.S. § 1-207(m)(1)) is in compliance with the act if the notice meets all of the following requirements:

 (1) The notice is in writing.

 (2) The cover page of the prospectus used in connection with the offer and sale of the securities references the notice.

 (3) An explanation of the right of withdrawal contained in section 207(m)(1) of the act, including the procedure to be followed in exercising the right, is in the text of the prospectus.

 (4) A subscription agreement used references the right of withdrawal.

 (5) The reference to the right of withdrawal described in paragraph (3) is conspicuous, by setting it apart from other text and by underlining or capitalization.

 (c) The notice to purchasers required under section 207(m)(2) of the act is in compliance with the act if the notice meets all of the following requirements:

 (1) The notice is in writing.

 (2) An explanation of the right of withdrawal contained in section 207(m)(2) of the act, including the procedure to be followed in exercising the right, is given.

 (3) The explanation of the right of withdrawal is conspicuous, by setting it apart from other text and by underlining or capitalization.

 (d) A purchaser's notice of withdrawal from the purchase will be considered timely given within the 2-business day period set forth in section 207(m) of the act if, during the 2-business day period:

 (1) The purchaser drafts a written notice of withdrawal from the purchase.

 (2) One of the following applies to the written notice, the notice is:

 (i) Actually received by the issuer or its affiliate.

 (ii) Sent electronically, including by e-mail or facsimile.

 (iii) Deposited in the United States Postal Service, sent registered or certified mail, and all applicable fees are paid by the sender.

 (iv) Delivered to a messenger or courier service for delivery with applicable fees paid by the sender.

 (e) The following language illustrates a right of withdrawal notice which complies with section 207(m)(1) of the act.

''If you have accepted an offer to purchase these securities made pursuant to a prospectus which contains a written notice explaining your right to withdraw your acceptance under section 207(m) of the Pennsylvania Securities Act of 1972, you may elect, within two business days after the first time you have received this notice and a prospectus (which is not materially different from the final prospectus) to withdraw from your purchase agreement and receive a full refund of all moneys paid by you. Your withdrawal will be without any further liability to any person. To accomplish this withdrawal, you need only send a written notice (including a notice by facsimile or electronic mail) to the issuer (or underwriter if one is listed on the front page of the prospectus) indicating your intention to withdraw.''

 (f) The following language illustrates a right of withdrawal which complies with section 207(m)(2) of the act:

''If you have accepted an offer to purchase these securities and have received a written notice explaining your right to withdraw your acceptance under section 207(m)(2) of the Pennsylvania Securities Act of 1972, you may elect, within two business days from the date of receipt by the issuer of your binding contract of purchase or, in the case of a transaction in which there is no binding contract of purchase, within two business days after you make the initial payment for the securities being offered, to withdraw your acceptance and receive a full refund of all moneys paid by you. Your withdrawal of acceptance will be without any further liability to any person. To accomplish this withdrawal, you need only send a written notice (including a notice by facsimile or electronic mail) to the issuer (or placement agent if one is listed on the front page of the offering memorandum) indicating your intention to withdraw.''

§ 207.140. (Reserved).

CHAPTER 208. DENIAL FOR ABANDONMENT

§ 208.010. Denial for abandonment.

 (a) General rule. The Department may deny as abandoned an application for registration of securities which has been on file with the Department for a minimum of 12 consecutive months if the applicant failed to do any of the following:

 (1) Respond to the Department's notice of abandonment sent by first class mail to the applicant's last known address in the Department's files within 60 calendar days after the date the notification was mailed by the Department.

 (2) Respond to a request for additional information required under the act.

 (3) Otherwise complete the showing required for action on the application.

 (b) Voluntary withdrawal. An applicant may withdraw an application at any time with the consent of the Department.

 (c) No refund of fee. On denial for abandonment, the Department will not refund any filing fees paid before the date of abandonment or withdrawal.

CHAPTER 209. BOOKS, RECORDS AND ACCOUNTS

§ 209.010. Required records; report on sales of securities and use of proceeds.

 (a) An issuer who sells securities for his own account, directly or through an underwriter, in an offering registered or required to be registered under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206) or in an offering exempt from registration under section 202(e) or 203(d), (p) or (r) of the act (70 P.S. §§ 1-202(e) and 1-203(d), (p) and (r)) shall preserve all of the following records during the period of the offering and for a period of 3 years following the last sale of securities in this Commonwealth or 1 year after the disposition of all proceeds, whichever is longer:

 (1) Ledgers, journals or other records showing payments received from the sale of securities, including date of receipt, amount and from whom received; and disbursements of the payments, including date paid, purpose, amount and to whom made.

 (2) A record showing money borrowed and money loaned together with a record of the collateral for both.

 (3) Checkbooks, bank statements, copies of deposit slips, cancelled checks and bank record reconciliations.

 (4) Minute books and stock ledgers, including stock transfer records.

 (5) A copy of filings with the Department, and related correspondence and exhibits.

 (6) Copies of communications sent or originated by the issuer pertaining to the offer, sale or transfer of securities, including subscription agreements, purchase contracts and confirmations.

 (7) A list of the names and addresses of persons to whom the securities were offered or sold with all of the following information included:

 (i) The type and amount of securities sold to each.

 (ii) The consideration paid or promised by each.

 (iii) The method of payment, that is, cash, check, property, services, note or other.

 (iv) The name of the broker-dealer or other persons who represented the issuer in effecting each sale.

 (b) Except as set forth in paragraph (3), report on sales of securities filing requirements are as follows:

 (1) An issuer which has an effective registration for the offer and sale of securities in this Commonwealth under section 206 of the act, except for open-end or closed-end investment companies, face amount certificate companies or unit investment trusts, as those persons are classified in the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-64), shall file a report on sales of securities with the Department by completing Parts I and II of Form 209 within 55 days after 1 year from the effective date of the registration statement filed under section 206 of the act.

 (2) An issuer which is an open-end or closed-end investment company, face amount certificate company or unit investment trust, as those persons are classified in the Investment Company Act of 1940, shall file with the Department an annual report on sales of securities in this Commonwealth on Form NF adopted by NASAA, or successor form, within the following time periods:

 (i) 120 days after an open-end or closed-end investment company's or face amount certificate company's fiscal year end.

 (ii) 60 days after 1 year from the date the registration statement relating to the securities sold in this Commonwealth became effective with the Securities and Exchange Commission with respect to a unit investment trust.

 (3) The following issuers are not required to file Form 209 or Form NF, or successor form:

 (i) Issuers which are open-end or closed-end investment companies, face amount certificate companies or unit investment trusts, as those persons are classified in the Investment Company Act of 1940, that have paid the maximum fee specified in section 602(b.1)(iv) of the act (70 P.S. § 1-602(b.1)(iv)).

 (ii) Issuers with an effective registration statement for the offer and sale of securities in this Commonwealth under section 206 of the act which also have an effective registration statement under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) and have paid the maximum fee specified in section 602(b.1)(iii) of the act.

 (iii) Issuers with an effective registration statement for the offer and sale of securities in this Commonwealth under section 206 of the act which also have paid the maximum fee specified in section 602(b.1)(iii) of the act.

CHAPTER 210. RETROACTIVE REGISTRATION

§ 210.010. Retroactive registration.

 (a) Either of the following may apply to the Department on Form 210 in accordance with the General Instructions to register the securities retroactive to the date of the initial registration or to amend the notice filing retroactive to the date of the initial notice filing:

 (1) An issuer that has an effective registration statement under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206) and has an effective registration statement on file with the Securities and Exchange Commission for the same securities sold in this Commonwealth in excess of the aggregate amount registered for sale in this Commonwealth under section 205 or 206 of the act.

 (2) An open-end or closed-end investment company, face amount certificate company or unit investment trust, as those persons are classified in sections 1—21 of the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-21), which, during the effective period of registration under section 205 or 206 of the act or the effective period of a notice filing sold securities in this Commonwealth in excess of the aggregate amount registered for sale in this Commonwealth under section 205 or 206 of the act or covered by the notice filing.

 (b) The Department will not grant an application filed on Form 210 if, at the time the application is filed with the Department, either of the following conditions exist:

 (1) A civil, criminal or administrative proceeding is pending alleging violations of section 201 of the act (70 P.S. § 1-201) for the sale of securities in this Commonwealth.

 (2) The securities were sold more than 24 months before the date Form 210 was filed with the Department.

 (c) An application filed on Form 210 shall be accompanied by a check made payable to the ''Commonwealth of Pennsylvania'' in an amount which equals the applicable oversale assessment in section 602.1(d) of the act (70 P.S. § 1-602.1(d)).

CHAPTER 211. FEDERALLY COVERED SECURITIES

§ 211.010. Notice filings for Federally covered securities.

 (a) 211(a) notice. The notices required under section 211(a) of the act (70 P.S. § 211(a)) to be filed by an open-end or closed-end investment company, unit investment trust or face amount certificate company, as those persons are classified in the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-64) (investment companies) must be:

 (1) Completed by using the Uniform Investment Company Notice Filing Form (Form NF).

 (2) Accompanied by the applicable filing fees and administrative assessments in sections 602(b.1)(iv) and 602.1(a)(5) of the act (70 P.S. §§ 1-602(b.1)(iv) and 1-602.1(a)(5)).

 (b) Exceptions.

 (1) The documents filed by an investment company with the Securities and Exchange Commission do not need to be filed with the notice described in subsection (a) except for those documents filed with the Securities and Exchange Commission relating to mergers, acquisitions or reorganizations.

 (2) If paragraph (1) requires the filing of documents, then an investment company shall file copies of the registration statements, prospectuses or posteffective amendments filed with the Securities and Exchange Commission with the Department at the time the notice required under subsection (a) is filed.

 (c) 211(b) notice. The notice required under section 211(b) of the act must be:

 (1) Filed with the Department on Form D promulgated by the Securities and Exchange Commission.

 (2) Filed not later than 15 calendar days after the first sale of the Federally covered security in this Commonwealth.

 (3) Accompanied by the filing fee in section 602(b.1)(vii) of the act.

 (d) Department orders. With respect to a Federally covered security under section 18(b)(3) of the Securities Act of 1933 (15 U.S.C.A. § 77r(b)(3)), the Department may issue an order requiring the filing of documents filed with the Securities and Exchange Commission under the Securities Act of 1933 (15 U.S.C.A. §§ 77a—77aa) or any notice filing form that has been adopted by the Department that does not require any information or documents in addition to that required by the Securities and Exchange Commission.

Subpart C. REGISTRATION OF BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES AND NOTICE FILINGS BY FEDERALLY COVERED ADVISERS

CHAPTER 301. REGISTRATION REQUIREMENT

§ 301.020. Agent transfers.

 An agent who wishes to end employment with one registered broker-dealer and thereafter begin employment with another registered broker-dealer may do so without causing a suspension in the agent's registration with the Department if all of the following conditions are met:

 (1) Both the terminating and employing broker-dealers are members of FINRA.

 (2) The transfer is effected in accordance with the terms, conditions and execution of Item 15 of the Uniform Application for Securities Industry Registration or Transfer (Form U-4).

CHAPTER 302. EXEMPTIONS

§ 302.060. (Reserved).

§ 302.061. Auctioneers exemption from broker-dealer and agent registration.

 (a) Under the authority contained in section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt persons from the broker-dealer and agent registration provisions of section 301 of the act (70 P.S. § 1-301) if all of the following conditions are met:

 (1) The person meets one of the following conditions:

 (i) Is licensed as an auctioneer, apprentice auctioneer, auction company or auction house under the Auctioneer Licensing and Trading Assistant Registration Act (ALTARA) (63 P.S. §§ 734.1—734.34).

 (ii) Is exempt from registration under section 3(h) of the ALTARA (63 P.S. § 734.3(h)).

 (iii) Holds a special license to conduct an auction under section 3(i) of the ALTARA.

 (2) The person effects transactions in securities solely at an ''auction'' or at a ''sale at auction'' as these terms are defined in the ALTARA.

 (3) The person engages only in effecting transactions in securities at an auction or for sale at auction which constitute a ''nonissuer transaction'' as that term is defined in section 102(m) of the act (70 P.S. § 1-102(m)).

 (4) The person does not effect transactions in securities at an auction or for sale at auction more than three times in any consecutive period of 24 months.

 (5) The person and any affiliate of the person currently is not subject or, within the past 10 years, was not subject to any of the following:

 (i) An order described in section 305(a)(iv) of the act (70 P.S. § 1-305(a)(iv)).

 (ii) An injunction described in section 305(a)(iii) of the act.

 (iii) A criminal conviction described in section 305(a)(ii) of the act.

 (iv) An order of the Department issued under section 512 of the act (70 P.S. § 1-512).

 (v) A court order finding civil contempt under section 509(c) of the act (70 P.S. § 1-509(c)).

 (vi) An order of the Department imposing an administrative assessment under section 602.1 of the act (70 P.S. § 1-602.1) which has not been paid in full.

 (b) For the purposes of subsection (a)(3), a transaction is considered a nonissuer transaction if a bank does the following:

 (1) Acts as a fiduciary under a trust agreement, estate administration or other similar relationship.

 (2) Causes the bank's securities to be offered and sold at action from the accounts described in paragraph (1).

§ 302.063. Financial institutions exempt from broker-dealer and agent registration.

 Under section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt financial institutions and individuals representing financial institutions from the broker-dealer and agent registration provisions of section 301 of the act (70 P.S. § 1-301) if the activities of the financial institution and individuals representing the financial institutions are conducted under a networking arrangement or brokerage affiliate arrangement.

§ 302.064. Stock Exchange exemption from agent registration.

 Under the authority contained in section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt agents from the registration provisions of section 301 of the act (70 P.S. § 1-301), if all the following requirements are met:

 (1) The agent is representing a broker-dealer which is:

 (i) Registered under section 301 of the act.

 (ii) A member of a National securities exchange.

 (2) The agent's only customers are broker-dealers registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq) or section 301 of the act.

 (3) The agent is not subject to either of the following:

 (i) A currently effective order under section 305 of the act (70 P.S. § 1-305) denying, suspending, conditioning or revoking registration.

 (ii) A currently effective order of the Department issued under section 512 of the act (70 P.S. § 1-512).

§ 302.065. Canadian broker-dealer exempt.

 Under section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt Canadian broker-dealers and agents representing Canadian broker-dealers from the broker-dealer and agent registration provisions of section 301 of the act (70 P.S. § 1-301) when effecting transactions in securities in this Commonwealth with persons described in paragraph (1) if the broker-dealer meets the conditions of paragraph (2).

 (1) The customer is one of the following:

 (i) A person from Canada who temporarily is present in this Commonwealth with whom the Canadian broker-dealer had a bona fide business-customer relationship before the person entered this Commonwealth.

 (ii) A person from Canada who is present in this Commonwealth whose only transactions with a Canadian broker-dealer in this Commonwealth relate to a self-directed, tax advantaged retirement plan in Canada as to which the person is the holder or contributor.

 (2) The Canadian broker-dealer meets the following conditions:

 (i) Is a member in good standing of a self-regulatory organization or stock exchange in Canada at the time it is effecting transactions into this Commonwealth in reliance on this section.

 (ii) Is registered as a broker or dealer in good standing in the province or territory of Canada from which it is effecting transactions into this Commonwealth in reliance on this section.

 (iii) Discloses to its customers in this Commonwealth at the time of a transaction made in reliance on this section that it is not registered under the act.

§ 302.070. Registration exemption for investment advisers to private funds.

 (a) Exemption for private fund advisers. Subject to the additional requirements of subsection (b), a private fund adviser is exempt from the registration requirements of section 301(c) of the act (70 P.S. § 1-301(c)) if the private fund adviser satisfies the following conditions:

 (1) The private fund adviser and any of its advisory affiliates are not subject to a disqualification as described in Rule 262 of Securities and Exchange Commission Regulation A (17 CFR 230.262) (relating to disqualification provisions).

 (2) The private fund adviser files with the Department each report and amendment that an exempt reporting adviser is required to file with the Securities and Exchange Commission under Securities and Exchange Commission Rule 204-4 (17 CFR 275.204-4) (relating to reporting by exempt reporting advisers).

 (b) Additional requirements for private fund advisers to certain 3(c)(1) funds. To qualify for the exemption described in subsection (a), a private fund adviser who advises at least one 3(c)(1) fund that is not a venture capital fund shall also:

 (1) 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 would each meet the definition of ''qualified client'' in Securities and Exchange Commission Rule 205-3 (17 CFR 275.205-3) (relating to exemption from the compensation prohibition of section 205(a)(1) for investment advisers) at the time the securities are purchased from the issuer.

 (2) Disclose, at the time of purchase, the following in writing to each beneficial owner of a 3(c)(1) fund that is not a venture capital fund:

 (i) Services, if any, to be provided to individual beneficial owners.

 (ii) Duties, if any, the investment adviser owes to the beneficial owners.

 (iii) Any other material information affecting the rights or responsibilities of the beneficial owners.

 (3) Obtain on an annual basis audited financial statements of each 3(c)(1) fund that is not a venture capital fund and deliver a copy of the audited financial statements to each beneficial owner of the fund.

 (c) Federally covered investment advisers. If a private fund adviser is registered with the Securities and Exchange Commission, the adviser is not eligible for this exemption and shall comply with the State notice filing requirements applicable to Federally covered investment advisers in section 303(a)(iii) of the act (70 P.S. § 1-303(a)(iii)).

 (d) Investment adviser representatives. A person is exempt from the registration requirements of section 301(c) of the act if the person:

 (1) Is employed by or associated with an investment adviser that is exempt from registration in this Commonwealth under this section.

 (2) Does not otherwise act as an investment adviser representative.

 (e) Electronic filing.

 (1) A private fund adviser shall file the report filings described in subsection (a)(2) electronically through the IARD.

 (2) The Department will consider a report filed when the report is filed and accepted by the IARD on the Department's behalf.

 (f) Transition. If an investment adviser becomes ineligible for the exemption provided in this section, the investment adviser shall comply with all applicable laws and rules requiring registration or notice filing within 90 days from the date the investment adviser's eligibility for this exemption ceases.

 (g) Grandfathering for investment advisers to 3(c)(1) funds with nonqualified 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 subsection (b)(1) is eligible for the exemption contained in subsection (a) if all of the following conditions are satisfied:

 (1) The subject fund existed before January 13, 2018.

 (2) The subject fund ceases to accept beneficial owners who are not qualified clients, as described in subsection (b)(1), as of January 13, 2018.

 (3) The investment adviser discloses in writing the information described in subsection (b)(2) to all beneficial owners of the fund.

 (4) The investment adviser delivers audited financial statements as required under subsection (b)(3) as of January 13, 2018.

 (h) Scope. This section does not supersede an applicable exclusion from the definition of investment adviser or exemption from registration for an investment adviser in the act.

§ 302.071. Registration exemption for solicitors.

 A solicitor does not need to register as an investment adviser or investment adviser representative if the solicitor:

 (1) Is in compliance with all requirements of § 404.012 (relating to cash payment for client solicitation).

 (2) Provides impersonal investment advisory services.

 (3) Is not subject to any order, judgment or decree described in section 305(a)(ii)—(vi) of the act (70 P.S. § 1-305(a)(ii)—(vi)).

CHAPTER 303. REGISTRATION PROCEDURE

§ 303.011. Broker-dealer registration procedures.

 (a) An applicant for initial registration as a broker-dealer shall complete a Uniform Application for Broker-Dealer Registration (Form BD), or a successor form.

 (b) An applicant which is not a member of FINRA or a member of a National securities exchange shall complete and file with the Department:

 (1) A copy of Form BD.

 (2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

 (3) The compliance assessment required under section 602.1(a)(3) of the act (70 P.S. § 1-602.1(a)(3)).

 (4) Financial statements in the form required under subsections (e), (f) and (g).

 (c) An applicant which is not a member of FINRA but is a member of a National securities exchange shall complete and file with the Department:

 (1) A copy of Form BD.

 (2) The filing fee required under section 602(d.1) of the act.

 (3) The compliance assessment required under section 602.1(a)(3) of the act.

 (d) An applicant which is a member of FINRA shall file with the Department:

 (1) Form BD in the manner set forth in § 603.011(f) (relating to filing requirements).

 (2) The filing fee required under section 602(d.1) of the act.

 (3) The compliance assessment required under section 602.1(a)(3) of the act.

 (e) Except for applicants described in subsections (c) and (d), applicants shall file a statement of the financial condition of the applicant which meets all of the following conditions:

 (1) The statement is prepared in accordance with generally accepted accounting principles.

 (2) The statement is accompanied by an auditor's report containing an unqualified opinion of an independent certified public accountant, which is as of either of the following:

 (i) The end of the applicant's most recent fiscal year.

 (ii) The preceding fiscal year if:

 (A) The statement of financial condition for the most recently ended fiscal year is unavailable.

 (B) The application is filed within 14 months of the end of the preceding fiscal year.

 (f) Except for applicants described in subsections (c) and (d), if the date of the most recent audited statement of financial condition is more than 45 days before the date of filing, the applicant also shall file an unaudited statement of financial condition as of a date within 45 days of the date of filing which the Department may require include the filing of separate schedules:

 (1) Listing the securities owned by the applicant valued at the market.

 (2) Stating material contractual commitments of the applicant not otherwise reflected in the statements.

 (g) Except for applicants described in subsections (c) and (d), if an applicant has commenced to act as a broker-dealer, the audited statement of financial condition shall be accompanied by an audited statement of income which is as of either of the following:

 (1) The end of the applicant's most recent fiscal year.

 (2) The preceding fiscal year if:

 (i) The statement of income for the most recently ended fiscal year is unavailable.

 (ii) The application is filed within 14 months of the end of the preceding fiscal year.

 (h) An applicant described in subsections (c) and (d) shall provide to the Department, within 5 days of receipt of a written or electronic request, a copy of any financial statement or financial information required under the Securities and Exchange Commission rules or the rules of a National securities association or National securities exchange of which the applicant is a member.

 (i) A broker-dealer registered under the act shall take steps necessary to ensure that material information contained in its Form BD remains current and accurate. If a material statement made in Form BD becomes incorrect or inaccurate, the broker-dealer shall file with the Department an amendment on Form BD within 30 days of the occurrence of the event which required the filing of the amendment.

§ 303.012. Investment adviser registration procedure.

 (a) An applicant for initial registration as an investment adviser shall complete a Uniform Application for Investment Adviser Registration (Form ADV), or a successor form.

 (b) The applicant shall complete and file with the Department or with IARD:

 (1) Form ADV.

 (2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

 (3) The compliance assessment in section 602.1(a)(4) of the act (70 P.S. § 1-602.1(a)(4)).

 (4) Any exhibits required under this section.

 (c) Except as set forth in subsection (j), an applicant having custody of client funds or securities or requiring payment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file all of the following:

 (1) An audited balance sheet of the applicant prepared in accordance with generally accepted accounting principles which is as of the end of the applicant's most recent fiscal year.

 (2) An audit report containing an unqualified opinion of an independent certified public accountant within which the accountant shall submit, as a supplementary opinion, comments based on the audit as to the:

 (i) Material inadequacies found to exist in the accounting system.

 (ii) Internal accounting controls.

 (iii) Procedures for safeguarding securities and funds with an indication of corrective action taken or proposed.

 (3) A subsequent balance sheet, if the balance sheet required under paragraph (1) is of a date more than 45 days before the filing date of the application:

 (i) The subsequent balance sheet must be:

 (A) Prepared in accordance with generally accepted accounting principles.

 (B) Dated as of a date within 45 days of the filing date of the application.

 (ii) The subsequent balance sheet may be unaudited and prepared by management of the applicant.

 (d) The balance sheet required under subsection (c) does not need to be filed if the investment adviser has custody of client funds or securities solely as a result of either of the following:

 (1) The investment adviser receives fees directly deducted from clients' funds or securities in compliance with § 303.042(a)(3)(i) (relating to investment adviser capital requirements).

 (2) The investment adviser serves as a general partner, manager of a limited liability company or occupies a similar status or performs a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities, if the investment adviser is in compliance with § 303.042(a)(3)(ii).

 (e) Except as set forth in subsection (j), an applicant that has discretionary authority over client funds or securities, but not custody, shall file all of the following:

 (1) A balance sheet prepared in accordance with generally accepted accounting principles which is as of the end of the applicant's most recent fiscal year.

 (2) A subsequent balance sheet prepared in accordance with generally accepted accounting principles and dated within 45 days of the filing date if the balance sheet required under paragraph (1) is dated more than 45 days before the filing date of the application.

 (f) The balance sheets required under subsection (e)(1) and (2):

 (1) May be unaudited and prepared by management of the applicant.

 (2) Must contain a representation by the applicant that the balance sheet is true and accurate.

 (g) Except as set forth in subsection (j), an applicant whose proposed activities do not come within subsection (c) or (e) does not need to file a statement of financial condition.

 (h) As part of the requirements relating to the statements of financial condition set forth in subsections (c) and (e), the Department may require the following:

 (1) A list of the securities reflected in the statement of financial condition of the applicant valued at the market.

 (2) A description of material contractual commitments of the applicant not otherwise reflected in the statement of financial condition.

 (3) An affirmative statement by the applicant that its liabilities which have not been incurred in the course of business as an investment adviser are not greater than the applicant's assets not used in its investment adviser business if the applicant is a sole proprietor, whose statement of financial condition includes only those assets and liabilities used in the applicant's investment adviser business.

 (i) An investment adviser registered under the act shall take steps necessary to ensure that material information contained in its Form ADV and exhibits remains current and accurate. If a material statement made in Form ADV and exhibits becomes incorrect or inaccurate the investment adviser shall file with the Department an amendment on Form ADV within 30 days of the occurrence of the event which requires the filing of the amendment.

 (j) An applicant that maintains its principal place of business in a state other than this Commonwealth does not need to comply with subsections (c) and (e) if the applicant:

 (1) Is registered as an investment adviser in the state in which it maintains its principal place of business.

 (2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.

 (3) Has not taken custody of the assets of any client residing in this Commonwealth at any time during the preceding 12-month period.

§ 303.013. Agent registration procedures.

 (a) An applicant for initial registration as an agent of a broker-dealer or issuer shall complete a Uniform Application for Securities Industry Registration or Transfer (Form U-4) or a successor form.

 (b) Except as provided in subsection (c), the agent and the broker-dealer or issuer shall complete and file with the Department:

 (1) Form U-4 and exhibits.

 (2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

 (3) The compliance assessment required under section 602.1(a)(1) of the act (70 P.S. § 1-602.1(a)(1)).

 (4) Evidence of passage of the examinations required under § 303.031 (relating to examination requirement for agents).

 (c) An applicant for registration as an agent of a broker-dealer which is a member firm of FINRA shall file the following items in the manner set forth in § 603.011(f) (relating to filing requirements):

 (1) A completed and executed Form U-4 and exhibits.

 (2) The filing fee required under section 602(d.1) of the act.

 (3) The compliance assessment required under section 602.1(a)(1) of the act.

 (4) Evidence of passage of the examinations required under § 303.031.

 (d) An agent and broker-dealer or issuer shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or inaccurate, the agent and broker-dealer or issuer shall file with the Department an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment.

§ 303.014. Investment adviser representative registration procedures.

 (a) An applicant for initial registration as an investment adviser representative of an investment adviser or Federally covered adviser shall complete a Uniform Application for Securities Industry Registration or Transfer Form (Form U-4), or a successor form.

 (b) The investment adviser representative and the investment adviser or Federally covered adviser shall complete and file with the Department or with IARD:

 (1) Form U-4 and exhibits.

 (2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

 (3) The compliance assessment required under section 602.1(a)(1) of the act (70 P.S. § 1-602.1(a)(1)).

 (4) The results evidencing passage of the examinations required under § 303.032 (relating to examination requirements for investment advisers and investment adviser representatives).

 (c) An investment adviser representative and an investment adviser or Federally covered adviser shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or incomplete, the investment adviser representative and the investment adviser or Federally covered adviser shall file with the Department an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment.

§ 303.015. Notice filing for Federally covered advisers.

 (a) Format. Federally covered advisers required to file notice under section 303(a)(iii) of the act (70 P.S. § 1-303(a)(iii)) shall file the uniform application for investment adviser registration, Form ADV or successor form as filed with the Securities and Exchange Commission.

 (b) Initial filing. Before the Federally covered adviser conducts advisory business in this Commonwealth, the Federally covered adviser shall file a completed Form ADV accompanied by the notice filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)) with the Department or with IARD.

 (c) Renewals. Every Federally covered adviser conducting advisory business in this Commonwealth annually shall pay a notice filing fee set forth in section 602(d.1) of the act to the Department or to IARD.

§ 303.016. Considered as abandoned.

 (a) General rule. The Department may consider as abandoned an application for registration as a broker-dealer, agent, investment adviser or investment adviser representative which has been on file with the Department for a minimum of 6 consecutive months if the applicant failed to do any of the following:

 (1) Respond within 60 days after written notice sent by first class mail to the applicant's last known address in the Department's files warning the applicant that the application will be considered abandoned.

 (2) Respond to any request for additional information required under the act.

 (3) Complete the showing required for action on the application.

 (b) Voluntary withdrawal. An applicant may, with the consent of the Department, withdraw an application at any time.

 (c) No refund of fee. On abandonment or voluntary withdrawal, there will not be a refund for any filing fee paid before the date of the abandonment or withdrawal.

§ 303.021. Registration and notice filing procedures for successors to a broker-dealer, investment adviser or Federally covered adviser.

 (a) If a broker-dealer is formed or proposed to be formed to succeed to, and continue the business of, a broker-dealer registered under section 301 of the act (70 P.S. § 1-301) and as a broker or dealer under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C.A. § 77o(b)) (successor broker-dealer), and the decision is for either of the following reasons:

 (1) Based solely on a change in the predecessor's date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of Rule 15b1-3(a) promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq), except that the successor broker-dealer shall file the amendments to Form BD with the Department.

 (2) For reasons other than a change in the predecessor's date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of Rule 15b1-3(b) promulgated under the Securities Exchange Act of 1934, except that the successor shall file Form BD with the Department.

 (b) If an investment adviser is formed or proposed to be formed to succeed to, and continue the business of, an investment adviser registered under section 301 of the act (successor investment adviser), and the decision is for either of the following reasons:

 (1) Based solely on a change in the predecessor's date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser shall:

 (i) File an initial application for registration by amending Form ADV of the predecessor.

 (ii) Succeed to the unexpired part of the predecessor's term of registration under section 303(b) of the act (70 P.S. § 1-303(b)).

 (2) For reasons other than a change in the predecessor's date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser shall:

 (i) File Form ADV with the Department.

 (ii) Succeed to the unexpired part of the predecessor's term of registration, after registration under section 303(b) of the act.

 (c) If a Federally covered adviser is formed or proposed to be formed to succeed to, and continue the business of, a registered investment adviser or of another Federally covered adviser, the successor Federally covered adviser shall:

 (1) File with the Department either Form ADV or an amendment to Form ADV as required under Securities and Exchange Commission Release No. IA-1357 (December 28, 1992) and under section 303(b) of the act.

 (2) Succeed to the unexpired part of the predecessor's notice period.

§ 303.031. Examination requirement for agents.

 (a) An individual may not be registered as an agent under the act unless the individual meets the requirements of subsections (b) and (c).

 (b) The applicant receives a passing grade on the securities examination for principals or registered representatives administered by FINRA or the Securities and Exchange Commission within 2 years before the date of filing an application for registration. The Department considers the requirements of this subsection met if any of the following apply:

 (1) The applicant previously has passed the examination and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.

 (2) The applicant has received a waiver of the examination requirement by FINRA.

 (3) The applicant has received notice from the Department waiving the examination requirement.

 (c) The applicant receives a passing grade on the Uniform Securities Agent State Law Examination (Series 63) or the Uniform Combined State Law Examination (Series 66) and the General Securities Representative Examination (Series 7) or successor examination administered by FINRA within 2 years before the date of filing an application for registration. The Department considers the requirements of this subsection met if any of the following apply:

 (1) The applicant previously has passed the Series 63 or the Series 66 and Series 7, and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.

 (2) The applicant has received notice from the Department waiving the requirement to take the Series 63 or the Series 66 and Series 7.

§ 303.032. Examination requirements for investment advisers and investment adviser representatives.

 (a) Examination requirements. To be registered as an investment adviser or investment adviser representative under the act, an individual shall meet one of the following examination requirements:

 (1) The individual, on or after January 1, 2000, and within 2 years immediately before the date of filing an application with the Department, received a passing grade on The Uniform Investment Adviser Law Examination (Series 65), or successor examination.

 (2) The individual, on or after January 1, 2000, and within 2 years immediately before the date of filing an application with the Department, received a passing grade on the:

 (i) General Securities Representative Examination (Series 7) administered by FINRA.

 (ii) Uniform Combined State Law Examination (Series 66) or successor examinations.

 (3) The individual, on or after January 1, 2000:

 (i) Received a passing grade on either the Series 65 examination or passing grades on both the Series 7 and Series 66 examinations.

 (ii) Has not had a lapse in registration as an investment adviser or investment adviser representative in any state other than this Commonwealth for a period exceeding 2 years immediately before the date of filing an application with the Department.

 (b) Grandfathering.

 (1) Compliance with subsection (a) is waived if the individual meets the following conditions:

 (i) The individual, before January 1, 2000, received a passing grade on the Series 2, 7, 8 or 24 examination for registered representatives or supervisors administered by FINRA and the Series 65 or Series 66 examinations.

 (ii) The individual has not had a lapse in employment as an investment adviser, investment adviser representative, or principal or agent of a broker-dealer for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Department.

 (2) Compliance with subsection (a) is waived if the individual meets the following conditions:

 (i) The individual, before January 1, 2000, was registered as an investment adviser or investment adviser representative in any state requiring the licensing, registration or qualification of investment advisers or investment adviser representatives.

 (ii) The individual has not had a lapse in registration as an investment adviser or investment adviser representative in another state for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Department.

 (c) Waivers of exam requirements. Compliance with subsection (a) is waived if:

 (1) The individual meets the following conditions:

 (i) The individual does not have a disciplinary history which requires an affirmative response to Items 23A—E or Item 23H of The Uniform Application for Securities Industry Registration or Transfer (Form U-4) or successor items thereto.

 (ii) The individual has been awarded any of the following designations which, at the time of filing of the application with the Department, is current and in good standing:

 (A) Certified Financial Planner (CFP) awarded by the Certified Financial Planner Board of Standards, Inc.

 (B) Chartered Financial Consultant (ChFC) or Master of Science and Financial Services (MSFS) awarded by the American College, Bryn Mawr, Pennsylvania.

 (C) Chartered Financial Analyst (CFA) awarded by the Institute of Chartered Financial Analysts.

 (D) Personal Financial Specialist (PFS) awarded by the American Institute of Certified Public Accountants.

 (E) Chartered Investment Counselor (CIC) awarded by the Investment Counsel Association of America, Inc.

 (2) The individual is licensed as a certified public accountant, is currently in good standing and does not have a disciplinary history that requires an affirmative response to Items 14A—E or Item 14H of Form U-4 or successor items thereto, and has notified the Department that the individual is eligible for a waiver of the examination requirement imposed by subsection (a).

 (3) The individual is licensed as an attorney, is currently in good standing and does not have a disciplinary history that requires an affirmative response to Items 14A—E or Item 14H of Form U-4 or successor items thereto, and has notified the Department that the individual is eligible for a waiver of the examination requirement imposed by subsection (a).

 (4) The individual has received a waiver from the Department regarding compliance with subsection (a).

§ 303.041. Broker-dealer capital requirements.

 (a) Except as set forth in subsection (e), every broker-dealer registered under section 301 of the act (70 P.S. § 1-301) shall maintain net capital of $25,000 with an aggregate indebtedness not exceeding 1500% of its net capital.

 (b) As a condition of the right to continue to transact business, every broker-dealer registered under the act that is not registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq) immediately shall notify the Department if the broker-dealer's aggregate indebtedness exceeds 1500% of its net capital or if its total net capital is less than the minimum required.

 (c) Within 24 hours after transmitting the notice required under subsection (b), the broker-dealer shall file a report of its financial condition with the Department including the following:

 (1) A proof of money balances of ledger accounts in the form of a trial balance.

 (2) A computation of net capital and aggregate indebtedness as those terms are used in this section and a computation of the ratio of aggregate indebtedness to net capital.

 (3) An analysis of the aggregate market value of fully paid securities in customers' security accounts which are not segregated.

 (4) A proof of ledger net credit balances of moneys borrowed from banks, trust companies and from other financial institutions, and from others, which are fully or partially secured by securities carried for the account of a customer.

 (5) A computation of the aggregate amount of customers' ledger debit balances.

 (6) A computation of the aggregate amount of customers' ledger credit balances.

 (7) A statement as to the approximate number of customer accounts.

 (d) The Department may permit an applicant for registration as a broker-dealer under section 301 of the act which is not registered or has not applied for registration as a broker or dealer with the Securities and Exchange Commission to file, execute and maintain a surety bond in compliance with § 303.051 (relating to surety bonds).

 (e) A broker-dealer registered under section 301 of the act that is registered as a broker or dealer with the Securities and Exchange Commission shall maintain minimum net capital and comply with the aggregate indebtedness requirements as set forth in Rule 15c3-1 (17 CFR 240.15c3-1) (relating to net capital requirements for brokers or dealers) promulgated under the Securities Exchange Act of 1934.

§ 303.042. Investment adviser capital requirements.

 (a) Net worth requirements.

 (1) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) with its principal place of business in a state other than this Commonwealth shall meet all of the following net worth requirements:

 (i) The same as imposed by that state if the investment adviser is:

 (A) Currently licensed as an investment adviser in the state in which it maintains its principal place of business.

 (B) In compliance with that state's net worth requirements.

 (ii) If the investment adviser currently is not licensed as an investment adviser in the state in which it maintains its principal place of business, the net worth required under this section is the same as if the investment adviser had its principal place of business in this Commonwealth.

 (2) Except as provided in subsection (d), an investment adviser registered as a broker-dealer under section 301 of the act that has its principal place of business in this Commonwealth shall maintain a minimum net capital required under Rule 15c3-1 (17 CFR 240.15c3-1) (relating to net capital requirements for brokers or dealers).

 (3) An investment adviser registered under section 301 of the act that has its principal place of business in this Commonwealth and has custody of client funds or securities shall maintain a minimum net worth of $35,000 unless the investment adviser has custody solely as the result of one of the following:

 (i) Has the authority to make withdrawals from client accounts maintained by a qualified custodian to pay its advisory fee and the investment adviser:

 (A) Possesses written authorization from the client to deduct advisory fees from an account held by a qualified custodian.

 (B) Sends the qualified custodian written notice of the amount of the fee to be deducted from the client's account.

 (C) Sends the client a written invoice itemizing the fee, including any formulae used to calculate the fee, the time period covered by the fee and the amount of assets under management on which the fee was based.

 (D) Notifies the Department in writing on Form ADV that the investment adviser intends to use the safeguards provided in clauses (A)—(C).

 (ii) Serves as a general partner, manager of a limited liability company or a person occupying a similar status or performing a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities and the following conditions are met:

 (A) The pooled investment vehicle is subject to audit at least annually and distributes its audited financial statements which have been prepared by an independent certified public accountant in accordance with generally accepted accounting principles to all limited partners, members or beneficial owners within 120 days of the end of its fiscal year.

 (B) The investment adviser:

 (I) Hires an independent party to review all fees, expenses and capital withdrawals from the accounts included in the pooled investment vehicle before forwarding them to the qualified custodian with the independent party's approval for payment.

 (II) Sends written invoices or receipts to the independent party describing:

 (-a-) The amount of the fees, including any formulae used to calculate the fees, the time period covered by the fees and the amount of assets under management on which the fees were based.

 (-b-) The expenses or capital withdrawals for the independent party to verify that payment of the fees, expenses or capital withdrawals is in accordance with the documents governing the operation of the pooled investment vehicle and any statutory requirements applicable thereto.

 (III) Notifies the Department in writing on Form ADV that the investment adviser intends to employ the use of the audit safeguards in subclauses (I) and (II).

 (4) An investment adviser that has its principal place of business in this Commonwealth and has discretionary authority over client funds or securities but does not have custody of client funds or securities shall maintain a minimum net worth of $10,000, unless the investment adviser places trade orders with a broker-dealer under a third-party trading agreement and the following conditions are met:

 (i) The investment adviser executes a separate investment adviser contract exclusively with its clients that acknowledges that a third-party agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client's broker-dealer account.

 (ii) 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.

 (iii) The investment adviser, the client and the broker-dealer execute a third-party trading agreement 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.

 (5) An investment adviser that has its principal place of business in this Commonwealth and accepts prepayment of advisory fees of more than 6 months in advance and more than $1,200 per client shall maintain a positive net worth.

 (b) Notice to the Department.

 (1) As a condition of the right to continue to transact business in this Commonwealth, an investment adviser registered under the act shall notify the Department by the close of business on the next business day if the investment adviser's total net worth is less than the minimum required net worth.

 (2) Within 24 hours after transmitting the notice, the investment adviser shall file a report of its financial condition including all of the following:

 (i) A proof of money balances of ledger accounts in the form of a trial balance.

 (ii) A computation of net worth.

 (iii) An analysis of clients' securities and funds which are not segregated.

 (iv) A computation of the aggregate amount of clients' ledger debit balances.

 (v) A computation of the aggregate amount of clients' ledger credit balances.

 (vi) A statement as to the number of client accounts.

 (c) Appraisals. For investment advisers registered or required to be registered under the act, the Department may require that a current appraisal be submitted to establish the worth of an asset being calculated under the net worth formulation.

 (d) Exception. The requirements of subsection (a)(2) do not apply to an investment adviser that has its principal place of business in this Commonwealth and is registered as a broker-dealer under section 15 of the Securities Exchange Act of 1934 (15 U.S.C.A. § 77o) if the broker-dealer is one of the following:

 (1) Subject to, and in compliance with, Rule 15c3-1.

 (2) A member of a National securities exchange whose members are exempt from Rule 15c3-1 under subsection (b)(2) and the broker-dealer is in compliance with all rules and practices of the exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers.

§ 303.051. Surety bonds.

 (a) A surety bond shall be:

 (1) Filed with the Department on Uniform Surety Bond Form (Form U-SB) or successor form.

 (2) Subject to the claims of all clients regardless of the client's state of residence.

 (3) Issued by a person licensed to issue surety bonds in this Commonwealth.

 (b) An investment adviser that has its principal place of business in a state other than this Commonwealth shall comply with subsection (a) unless the investment adviser is:

 (1) Registered as an investment adviser in that state.

 (2) In compliance with the applicable net worth and bonding requirements of the state in which it maintains its principal place of business.

 (c) An investment adviser that has its principal place of business in this Commonwealth and does not meet the minimum net worth requirements of § 303.042 (relating to investment adviser capital requirements) shall, if required by the Department, have and maintain a surety bond in the amount of the net worth deficiency rounded up to the nearest $5,000.

 (d) A broker-dealer registered under the act but not registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq) shall, as required by the Department, be permitted to have and maintain for the registration period a surety bond in the amount of the net capital deficiency rounded up to the nearest $5,000.

 (e) On request of the Department, a broker-dealer or investment adviser shall provide evidence of the existence of a surety bond.

CHAPTER 304. POSTREGISTRATION PROVISIONS

§ 304.011. Broker-dealer required records.

 (a) Books and records.

 (1) Every broker-dealer registered under section 301 of the act (70 P.S. § 1-301) shall make and keep the records required to be maintained as described in Rule 17a-3 (17 CFR 240.17a-3) (relating to records to be made by certain exchange members, brokers and dealers) adopted under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq).

 (2) If a broker-dealer registered under the act and not registered as a broker or dealer with the Securities and Exchange Commission fails to make and keep current the books and records required under this section, the broker-dealer shall:

 (i) Notify the Department immediately.

 (ii) File a report with the Department, within 24 hours after filing the notice with the Department, stating what steps have been taken and are being taken to fully comply with this section.

 (b) Records of complaints.

 (1) Every broker-dealer registered under the act shall make, keep and preserve one of the following:

 (i) A separate file of written complaints of customers and actions taken by the broker-dealer in response.

 (ii) A separate record of the complaints and a clear reference to the files containing the correspondence connected with the complaint maintained by the broker-dealer.

 (2) For purposes of this section, a complaint includes a written statement of a customer or a person acting on behalf of a customer or a written notation of verbal communication alleging a grievance involving the purchase or sale of securities, the solicitation or execution of a transaction, or the disposition of securities or funds of the customer.

 (3) A registered broker-dealer that also is registered as a broker or dealer with the Securities and Exchange Commission is considered in compliance with the requirements of this subsection if it maintains records of customer complaints as required under applicable Securities and Exchange Commission rules.

 (c) Retention. The records required to be maintained under this section:

 (1) Shall be retained and preserved for the period of time designated in Rule 17a-4 (17 CFR 240.17a-4) (relating to records to be preserved by certain exchange members, brokers and dealers) promulgated under the Securities Exchange Act of 1934.

 (2) Shall be made easily accessible for inspection by the Department or its representatives.

 (3) May be retained and preserved as:

 (i) Microfilm, microfiche or any similar medium.

 (ii) Electronic or digital storage medium.

 (iii) Computer disks or tapes, or other similar recording process if adequate facilities are maintained for the examination of the facsimiles and if enlargements or paper copies of the facsimiles can be provided promptly on reasonable request of the Department or its representatives.

§ 304.012. Investment adviser required records.

 (a) Except as provided in subsection (j), every investment adviser registered under the act shall make and keep true, accurate and current all of the following books, ledgers and records:

 (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 or delivery of a particular security, and of any modification or cancellation of the order or instruction. The memorandum must:

 (i) Show the terms and conditions of the order, instruction, modification or cancellation.

 (ii) Identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order.

 (iii) Show the account for which entered, the date of entry and the bank, broker-dealer by or through whom executed, if appropriate.

 (iv) Designate orders entered under the exercise of discretionary power.

 (4) Check books, bank statements, canceled checks and cash reconciliations of the investment adviser.

 (5) Bills or statements (or copies of), paid or unpaid, relating to the investment adviser's business as an investment adviser.

 (6) Trial balances, financial statements, net worth computation and internal audit working papers relating to the investment adviser's business as an investment adviser.

 (7) Originals of written communications received and copies of written communications sent by the investment adviser relating to one or more of the following:

 (i) A recommendation made or proposed to be made and any advice given or proposed to be given.

 (ii) A receipt, disbursement or delivery of funds or securities.

 (iii) The placing or execution of an order to purchase or sell any security, except that an investment adviser:

 (A) Is not required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser.

 (B) With respect to a notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service sent by the investment adviser to more than ten persons (including transmission by electronic means), the following apply:

 (I) The investment adviser is not required to keep a record of the names and addresses of the persons to whom it was sent.

 (II) If the notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of the notice, circular or advertisement a memorandum describing the list and its source.

 (8) A list or other record of all accounts which list identifies the accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transactions of any client.

 (9) A copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser.

 (10) A copy in writing of each agreement entered into by the investment adviser with a client, and all other written agreements otherwise relating to the investment adviser's business as an investment adviser.

 (11) A file containing:

 (i) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons, other than persons connected with the investment adviser.

 (ii) A memorandum of the investment adviser indicating the reasons for the recommendation if the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media recommends the purchase or sale of a specific security and does not state the reasons for the recommendation.

 (12) Records of transactions as follows:

 (i) A record of every transaction in a security in which the investment adviser or investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership except:

 (A) Transactions effected in any account over which the investment adviser or an investment adviser representative of the investment adviser does not have direct or indirect influence or control.

 (B) Transactions in securities which are direct obligations of the United States. The record must state:

 (I) The title and amount of the security involved, and the date and nature of the transaction (that is, purchase, sale or other acquisition or disposition).

 (II) The price at which it was effected.

 (III) The name of the broker-dealer or bank with or through whom the transaction was effected.

 (ii) The record may also contain a statement declaring that the reporting or recording of any transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security.

 (iii) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

 (iv) An investment adviser shall implement adequate procedures and use reasonable diligence to obtain promptly reports of all transactions required to be recorded.

 (13) Records of transactions by investment advisers primarily engaged in a business other than advising clients as follows:

 (i) Notwithstanding paragraph (12), if the investment adviser is primarily engaged in a business or businesses other than advising investment advisory clients, a record shall be maintained of every transaction in a security in which the investment adviser or any investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership, except transactions:

 (A) Effected in an account over which the investment adviser or an investment adviser representative of the investment adviser does not have direct or indirect influence or control.

 (B) In securities which are direct obligations of the United States. The record must state:

 (I) The title and amount of the security involved.

 (II) The date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition).

 (III) The price at which it was effected, and the name of the broker-dealer or bank with or through whom the transaction was effected.

 (ii) The record may also contain a statement declaring that the reporting or recording of any transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security.

 (iii) An investment adviser shall implement adequate procedures and use reasonable diligence to promptly obtain reports of all transactions required to be recorded.

 (14) A copy of the written statement and the amendment or revision, given or sent to a client or prospective client of the investment adviser under § 404.011 (relating to investment adviser brochure disclosure), and a record of the dates that the written statement, and the amendment or revision, was given, or offered to be given, to a client or prospective client who subsequently becomes a client.

 (15) If the adviser obtained a client by means of a solicitor to whom the adviser paid a cash fee:

 (i) Evidence of a written agreement to which the adviser is a party related to the payment of the fee.

 (ii) A signed and dated acknowledgment of receipt from the client evidencing the client's receipt of the investment adviser's disclosure statement and a written disclosure statement of the solicitor.

 (iii) A copy of the solicitor's written disclosure statement if required under § 404.012 (relating to cash payment for client solicitation).

 (16) Accounts, books, internal working papers, and any other records or documents to form the basis for, or demonstrate the calculation of, the performance or rate of return of all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication:

 (i) Includes electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons, other than persons connected with the investment adviser.

 (ii) Except that, with respect to the performance of managed 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 will be considered to satisfy the requirements of this paragraph.

 (17) A file containing a copy of the written communications received or sent regarding any litigation involving the investment adviser or an investment adviser representative or employee, and regarding the written customer or client complaint.

 (18) Written information about an investment advisory client that is the basis for making a recommendation or providing investment advice to the client.

 (19) 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.

 (20) A file containing a copy of the documents, other than notices of general dissemination, that were filed with or received from a state or Federal agency or self-regulatory organization and that pertains to the registrant or its investment adviser representatives as that term is defined in § 102.021(a) (relating to definitions), which file may include all applications, amendments, renewal filings and correspondence.

 (21) A copy, with original signatures of the investment adviser's appropriate signatory and the investment adviser representative, of the initial Form U-4 and the amendment to Disclosure Reporting Pages (DRPs U-4) shall be retained by the investment adviser filing on behalf of the investment adviser representative and made available for inspection on regulatory request.

 (22) A ledger or other listing of all securities or funds held or obtained in this manner if the adviser has inadvertently held or obtained a client's securities or funds and returned them to the client within 3 business days or has forwarded third-party checks within 24 hours under the definition of ''custody'' in § 102.021(a), which ledger or other listing includes all of the following information:

 (i) The issuer.

 (ii) The type of security and series.

 (iii) The date of issue.

 (iv) The denomination, interest rate and maturity date for debt instruments.

 (v) The certificate number, including alphabetical prefix or suffix.

 (vi) The name in which the security is registered.

 (vii) The date given to the adviser.

 (viii) The date sent to client or sender.

 (ix) The form of delivery to client or sender, or copy of the form of delivery to client or sender.

 (x) The mail confirmation number, if applicable, or confirmation by client or sender of the fund's or security's return.

 (23) Written acknowledgements of receipts obtained from clients under § 404.012(b)(5) and copies of the disclosure documents provided to clients by solicitors under § 404.012(b)(4).

 (24) Written procedures relating to the business and continuity plan required under § 304.071 (relating to business continuity and succession planning).

 (b) For purposes of subsection (a)(12) and (13):

 (1) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

 (2) An investment adviser is ''primarily engaged in a business or businesses other than advising investment advisory clients'' when, for each of its most recent 3 fiscal years or for the time since organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50% of the following from other business or businesses:

 (i) Total sales and revenues.

 (ii) Income, or loss, before income taxes and extraordinary items.

 (3) An investment adviser shall implement adequate procedures and use reasonable diligence to promptly obtain reports of all transactions required to be recorded.

 (c) If an investment adviser subject to subsection (a) has custody, the records required to be made and kept under subsection (a) also include all of the following:

 (1) A journal or other record showing all purchases, sales, receipts and deliveries of securities (including certificate numbers) for all accounts and all other debits and credits to the accounts.

 (2) A separate ledger account for each client showing all purchases, sales, receipts and deliveries of securities, the date and price of each purchase and sale, and all debits and credits.

 (3) A copy of confirmations of all transactions effected by or for the account of any client.

 (4) 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 or interest of each client, and the location of each security.

 (5) A copy of 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 on the adviser's instruction to the qualified custodian.

 (6) 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.

 (7) If an investment adviser has custody because it advises a pooled investment vehicle and is relying on the exception from the minimum net worth requirement in § 303.042(a)(3)(ii) (relating to investment adviser capital requirements), the adviser shall also keep:

 (i) True, accurate and current account statements.

 (ii) Documentation of the date of the audit.

 (iii) A copy of the audited financial statements.

 (iv) Evidence of the mailing of the audited financial to all limited partners, members or other beneficial owners within 120 days of the end of its fiscal year.

 (8) Records relating to the adviser's appointment as trustee and the identities of the beneficial owners of the trust if an investment adviser acts as trustee for a beneficial trust under § 102.021(a).

 (d) An investment adviser subject to subsection (a) that gives investment supervisory or management service to a 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:

 (1) A separate record for each client showing 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.

 (e) Books or records required under this section may be maintained by the investment adviser so that the identity of a client to whom the investment adviser gives investment supervisory services is indicated by numerical or alphabetical code or some similar designation.

 (f) An investment adviser subject to subsection (a) shall maintain all of the following:

 (1) Books and records required to be made under subsections (a), (b) and (c)(1) (except for books and records required to be made under subsection (a)(11) and (16)) in an easily accessible place for at least 5 years from the end of the fiscal year during which the last entry was made on record, the first 2 years being in the principal office of the investment adviser.

 (2) Partnership articles and any amendments, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor, in the principal office of the investment adviser for at least 3 years after termination of the enterprise.

 (3) Books and records required to be made under subsection (a)(11) and (16) in an easily accessible place for at least 5 years, the first 2 years being in the principal office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media.

 (4) Notwithstanding other record preservation requirements of this section, the following records or copies at the business location of the investment adviser from which the customer or client is being provided or has been provided with investment advisory services:

 (i) Records required to be preserved under subsections (a)(3), (7)—(10), (14), (15), (17)—(19) and (22)—(24), (b) and (c).

 (ii) Records or copies required under subsection (a)(11) and (16) which records or related records identify the name of the investment adviser representative providing investment advice from that business location, or which identify the business location's physical address, mailing address, e-mail address or telephone number.

 (g) An investment adviser subject to subsection (a), before ceasing to do business as an investment adviser, shall:

 (1) Arrange and be responsible for the preservation of the books and records required to be maintained and preserved under this section for the remainder of the period specified in this section.

 (2) Notify the Department in writing of the exact address where the books and records will be maintained during the period.

 (h) Record storage requirements are as follows:

 (1) Records required to be maintained and preserved for the required time by this section shall:

 (i) Be able to be immediately produced or reproduced.

 (ii) Be maintained and preserved in at least one of the following manners:

 (A) Paper or hard copy form, as those records are kept in their original form.

 (B) Micrographic media, including microfilm, microfiche or any similar medium.

 (C) Electronic storage media, including any digital storage medium or system that meets the terms of this section.

 (2) The investment adviser shall:

 (i) Arrange and index the records in a way that permits easy location, access and retrieval of any particular record.

 (ii) Provide promptly any of the following which the Department by its examiners or other representatives may request:

 (A) A legible, true and complete copy of the record in the medium and format in which it is stored.

 (B) A legible, true and complete printout of the record.

 (C) A means to access, view and print the records.

 (iii) Store separately from the original a copy of the record for the time required for preservation of the original record.

 (3) For records created or maintained on electronic storage media, the investment advisor shall establish and maintain procedures to:

 (i) Maintain and preserve the records to reasonably safeguard them from loss, alteration or destruction.

 (ii) Limit access to the records to properly authorized personnel and the Department, including its examiners and other representatives.

 (iii) Reasonably ensure that any reproduction of a nonelectronic original record on electronic storage media is complete, true and legible when retrieved.

 (i) A book or other record made, kept, maintained and preserved in compliance with Rules 17a-3 (17 CFR 240.17a-3) (relating to records to be made by certain exchange members, brokers and dealers) and 17a-4 (17 CFR 240.17a-4) (relating to records to be preserved by certain exchange members, brokers and dealers) under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq), which is substantially the same as the book or other record required to be made, kept, maintained and preserved under this section, is considered to be made, kept, maintained and preserved in compliance with this section.

 (j) The requirements of this section do not apply to an investment adviser registered under section 301 of the act (70 P.S. § 1-301) that meets all of the following conditions:

 (1) Has its principal place of business in a state other than this Commonwealth.

 (2) Is licensed as an investment adviser in the state where it has its principal place of business.

 (3) Is in compliance with the recordkeeping requirements of the state in which it has its principal place of business.

§ 304.021. Broker-dealer required financial reports.

 (a) A broker-dealer registered under the act but not registered as a broker or dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq) shall file annually with the Department a report which includes a statement of financial condition as of the end of its fiscal year and an income statement for the year then ended.

 (b) The annual report of financial condition filed under this section shall be 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. The accountant shall submit as a supplementary opinion comments, based on the audit, as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures taken for safeguarding securities and shall indicate corrective action taken or proposed.

 (c) A broker-dealer registered under the act and registered as a broker or dealer with the Securities and Exchange Commission shall provide the Department, within 5 days of receipt of a written or electronic request, a copy of any financial statement, financial report or other financial information required under Securities and Exchange Commission rules or the rules of a National securities association or National securities exchange of which the applicant is a member.

 (d) The report required under subsection (a) shall be filed within 120 days following the end of the broker-dealer's fiscal year.

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