Preproposal statement of inquiry was filed as WSR 98-09-004.

Title of Rule: Adoption of uniform manual exemption.

Purpose: Adopt NASAA's uniform manual exemption.

Other Identifying Information: New sections WAC 460-44A-100 and 460-44A-110.

Statutory Authority for Adoption: RCW 21.20.450, 21.20.320(2).

Statute Being Implemented: Chapter 21.20 RCW.

Summary: RCW 21.20.320(2) was amended during the 1997 legislative session to grant the director rule-making authority concerning nonissuer transactions by registered salespersons of registered broker-dealers. The intent behind this amendment was to authorize the director to adopt the NASAA uniform manual exemption.

Reasons Supporting Proposal: Proposed amendment will foster uniformity with other jurisdictions and decrease the compliance burden on persons conducting secondary trading.

Name of Agency Personnel Responsible for Drafting: William M. Beatty, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; Implementation: John L. Bley, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; and Enforcement: Deborah R. Bortner, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760.

Name of Proponent: Department of Financial Institutions, Securities Division, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: RCW 21.20.320(2) was amended during the 1997 legislative session to grant the director rule-making authority concerning nonissuer transactions by registered salespersons of registered broker-dealers. The intent behind this amendment was to authorize the director to adopt the NASAA uniform manual exemption. Proposed WAC 460-44A-100 and 460-44A-110 duplicate NASAA's uniform manual exemption found at §402 (b)(2) of the Uniform Securities Act as amended by NASAA (¶4918 CCH NASAA Reports). Proposed amendment will foster uniformity with other jurisdictions and decrease the compliance burden on persons conducting secondary trading.

Proposal Changes the Following Existing Rules: The current manual exemption is found at WAC 460-10A-160, which is proposed for amendment in a separate rules package. The proposed new sections, coupled with the revisions to WAC 460-10A-160, are generally less onerous than the current exemption. More manuals will be "recognized securities manuals" and the requirements for certain entries to have appeared in the manual for up to twelve years has been eliminated. The time period the issuer must have been in continuous operation has been reduced from five years to three years.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposal does not impose additional costs on business.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. The Department of Financial Institutions is not one of the agencies listed in section 201.

Hearing Location: Department of Financial Institutions, Securities Division, Executive Conference Room, 210 11th Avenue S.W., Suite 300, Olympia, WA 98504, on August 4, 1998, at 2:00 p.m.

Assistance for Persons with Disabilities: Contact Darlene Christianson by July 31, 1998, TDD (360) 664-8126, or (360) 902-8760.

Submit Written Comments to: William M. Beatty, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, fax (360) 704-6923, e-mail bbeatty@dfi.wa.gov, by August 3, 1998.

Date of Intended Adoption: August 5, 1998.

June 25, 1998

John L. Bley

Director

NEW SECTION

WAC 460-44A-100  Nonissuer transactions pursuant to RCW 21.20.320(2)--Manual exemption. Any nonissuer transaction by a registered salesperson of a registered broker-dealer, and any resale transaction by a sponsor of a unit investment trust registered under the Investment Company Act of 1940, in a security of a class that has been outstanding in the hands of the public for at least ninety days shall be exempt pursuant to RCW 21.20.320(2) provided that, at the time of the transaction:

(1) The issuer of the security is actually engaged in business and not in the organizational stage, bankruptcy, or receivership;

(2) The issuer is not a blank check, blind pool or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person or persons;

(3) The security is sold at a price reasonably related to the current market price of the security;

(4) The security does not constitute all or part of an unsold allotment to, or a subscription or participation by, the broker-dealer as an underwriter of the security;

(5) A nationally recognized securities manual designated by the director pursuant to WAC 460-10A-160 or a document filed with and publicly available through the U.S. Securities & Exchange Commission's Electronic Data Gathering and Retrieval System (EDGAR) contains:

(a) A description of the business and operations of the issuer;

(b) The names of the issuer's officers and the names of the issuer's directors, if any, or, in the case of a non-U.S. issuer, the corporate equivalents of such persons in the issuer's country of domicile;

(c) An audited balance sheet of the issuer as of a date within eighteen months or, in the case of a reorganization or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet; and

(d) An audited income statement for each of the issuer's immediately preceding two fiscal years, or for the period of existence of the issuer, if in existence for less than two years or, in the case of a reorganization or merger where the parties to the reorganization or merger had such audited income statement, a pro forma income statement; and

(6) The issuer of the security has a class of equity securities listed on a national securities exchange registered under the Securities Exchange Act of 1934, or designated for trading on the National Association of Securities Dealers Automated Quotation System (NASDAQ), unless:

(a) The issuer of the security is a unit investment trust registered under the Investment Company Act of 1940;

(b) The issuer of the security has been engaged in continuous business (including predecessors) for at least three years; or

(c) The issuer of the security has total assets of at least $2,000,000 based on an audited balance sheet as of a date within eighteen months or, in the case of a reorganization or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet.

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NEW SECTION

WAC 460-44A-110  Nonissuer transactions pursuant to RCW 21.20.320(2)--Senior securities. Any nonissuer transaction in a security by a registered salesperson of a registered broker-dealer shall be exempt pursuant to RCW 21.20.320(2) if:

(1) The issuer of the security is actually engaged in business and not in the organizational stage, bankruptcy or receivership;

(2) The issuer is not a blank check, blind pool or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person or persons;

(3) The security is senior in rank to the common stock of the issuer both as to payment of dividends or interest and upon dissolution or liquidation of the issuer;

(4) Such security has been outstanding in the hands of the public for at least three years; and

(5) Neither the issuer nor any predecessors has defaulted, within the current fiscal year or the three immediately preceding fiscal years, in the payment of any dividend, interest, principal, or sinking fund instalment on the security when due and payable.

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