PROPOSED RULES
FINANCIAL INSTITUTIONS
(Securities Division)
Original Notice.
Preproposal statement of inquiry was filed as WSR 12-03-115.
Title of Rule and Other Identifying Information: The securities division is proposing to amend certain WAC sections in order to correct references made to definitions found in the Securities Act of Washington, RCW 21.20.005. The division is not seeking to revise the definitions themselves. Recently, the office of the code reviser revised the definitions section of the Securities Act of Washington, RCW 21.20.005, by alphabetizing the defined terms. This reordering resulted in a renumbering of the defined terms in this section. As a result, the WAC now contains several inaccurate references. The division is proposing rule making to correct these inaccuracies.
Hearing Location(s): State of Washington, Department of Financial Institutions (DFI), 150 Israel Road S.W., Room 319, Tumwater, WA 98501, on April 10, 2012, at 2:00 p.m.
Date of Intended Adoption: April 11, 2012.
Submit Written Comments to: Dan Matthews, Department of Financial Institutions, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, e-mail don.matthews@dfi.wa.gov, fax (360) 704-6496, by April 10, 2012.
Assistance for Persons with Disabilities: Contact Carolyn Hawkey, P.O. Box 9033, Olympia, WA 98507-9033, by March 17, 2010 [2012], TTY (360) 664-8126 or (360) 902-8824.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: RCW 21.20.005 was revised by the office of the code reviser pursuant to RCW 1.08.015 (2)(k). This revision resulted in a renumbering of the definitions found in RCW 21.20.005. As a result, the WAC now contains several inaccurate references. The proposed rule making would correct these inaccuracies by removing the paragraph number from each reference in the WAC to the definitions in RCW 21.20.005. The division is proposing amending WAC 460-10A-215, 460-20B-035, 460-24A-020, 460-24A-045, 460-33A-010, 460-33A-015, and 460-44A-501.
Reasons Supporting Proposal: The proposed rule making is beneficial to regulated entities, local governments, and small businesses that rely on the WAC. In its current form, the code could confuse and mislead regulated entities, leading to added time and costs to both the government and the public. Further, the inaccuracies may create miscommunications between our agency and those we regulate, which could lead to added costs and less effective regulation. By engaging in this rule making, the government and the public will be benefited through more efficient and accurate regulation and communication.
Statutory Authority for Adoption: RCW 21.20.450.
Statute Being Implemented: Chapter 21.20 RCW.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: DFI, governmental.
Name of Agency Personnel Responsible for Drafting: Dan Matthews, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760; Implementation: Scott Jarvis, Director, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760; and Enforcement: William M. Beatty, Director of Securities, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760.
No small business economic impact statement has been prepared under chapter 19.85 RCW. If any costs are borne by businesses in connection with the proposed rules, these costs will be no more than minor. As such, the agency is not required to prepare a small business economic impact statement under RCW 19.85.030.
A cost-benefit analysis is not required under RCW 34.05.328. DFI is not one of the agencies listed in RCW 34.05.328.
March 5, 2012
Scott Jarvis
Director
OTS-4595.1
AMENDATORY SECTION(Amending WSR 02-18-044, filed 8/28/02,
effective 9/28/02)
WAC 460-10A-215
Security -- Viatical and life settlement
agreements.
(1) A viatical or life settlement agreement
constitutes a security if the agreement falls within the
definition of "security" under RCW 21.20.005(((12))) as an
investment contract; an investment of money or other
consideration in the risk capital of a venture with the
expectation of some valuable benefit to the investor where the
investor does not receive the right to exercise practical and
actual control over the managerial decisions of the venture;
or otherwise.
(2) For purpose of this section, a "viatical or life settlement agreement" means an agreement for consideration for the purchase, assignment, transfer, sale, devise or bequest of any portion of the death benefit under, or ownership of, either an insurance policy or certificate of insurance. A viatical or life settlement agreement does not include:
(a) Any agreement for the original issuance of an insurance policy or certificate of insurance;
(b) An assignment, transfer, sale, devise or bequest of a death benefit under, or ownership of, either an insurance policy or certificate of insurance by the original owner, or a person who has an insurable interest in the insured, to any of the following:
(i) The insured;
(ii) A person who has an insurable interest in the insured;
(iii) A dealer; or
(iv) A person who is engaged in the business of purchasing the death benefit under, or ownership of, either insurance policies or certificates of insurance;
(c) An assignment of an insurance policy or certificate of insurance to any bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan; or
(d) The exercise of accelerated benefits pursuant to the life insurance policy.
[Statutory Authority: RCW 21.20.450. 02-18-044, § 460-10A-215, filed 8/28/02, effective 9/28/02.]
OTS-4596.1
AMENDATORY SECTION(Amending WSR 96-15-062, filed 7/17/96,
effective 8/17/96)
WAC 460-20B-035
Canadian broker-dealers and
salespersons.
(1) A Canadian broker-dealer that is resident
in Canada and has no office or other physical presence in the
United States and is not an office of, branch of, or a natural
person associated with, a broker-dealer otherwise registered
in the United States may transact business in this state
without registering as a broker-dealer pursuant to RCW 21.20.040 under the following conditions:
(a) The business transacted by the Canadian broker-dealer must be limited to:
(i) Transactions subject to the exemption provided by RCW 21.20.320(8);
(ii) Transactions with or for a Canadian person who is temporarily present in this state and with whom the Canadian broker-dealer had a bona fide customer relationship before the person entered this state; or
(iii) Transactions with or for a Canadian person in a self-directed tax advantaged retirement plan in Canada of which that person is the holder or contributor; and
(b) The Canadian broker-dealer must:
(i) File the following with the securities administrator:
(A) A notice in the form of that person's current application for registration required by the jurisdiction in which that person's head office is located; and
(B) A consent to service process pursuant to RCW 21.20.330; and
(ii) Be a member of a self-regulatory organization or stock exchange in Canada; and
(iii) Maintain provincial or territorial registration and membership in a Canadian self-regulatory organization or stock exchange in good standing; and
(c) Disclosure must be made to the customers in this state that the Canadian broker-dealer is not subject to the full regulatory requirements of the Securities Act of Washington.
(2) A Canadian securities salesperson representing a Canadian broker-dealer transacting business in this state pursuant to subsection (1) of this section need not register pursuant to RCW 21.20.040 provided that he or she is registered in good standing in the appropriate Canadian jurisdiction.
(3) Transactions by Canadian broker-dealers and their
salespersons pursuant to subsections (1) and (2) of this
section will be deemed not to involve the "offer" or "sale" of
a security, as those terms are defined in RCW 21.20.005(((10))), for purposes of compliance with RCW 21.20.140. Nothing in this section shall affect the duty of
the Canadian broker-dealer and its agents to comply with RCW 21.20.010 and the rules promulgated thereunder.
[Statutory Authority: RCW 21.20.450. 96-15-062, § 460-20B-035, filed 7/17/96, effective 8/17/96.]
OTS-4597.1
AMENDATORY SECTION(Amending WSR 01-16-125, filed 7/31/01,
effective 10/24/01)
WAC 460-24A-020
Investment adviser representatives
employed by federal covered advisers.
An individual employed
by or associated with a federal covered adviser is an
"investment adviser representative," pursuant to RCW 21.20.005(((14))), if the representative has a "place of
business" in this state, as that term is defined under section
203A of the Investment Advisers Act of 1940, and:
(1) Is an "investment adviser representative" pursuant to the Investment Advisers Act of 1940; or
(2) Solicits, offers, or negotiates for the sale of or sells investment advisory services on behalf of a federal covered adviser, but is not a "supervised person" as that term is defined under the Investment Advisers Act of 1940.
[Statutory Authority: RCW 21.20.450, 21.20.050, 21.20.100. 01-16-125, § 460-24A-020, filed 7/31/01, effective 10/24/01.]
(1) The person is not in the business of providing advice relating to the purchase or sale of securities, and would not, but for his use of such a term, be an investment adviser required to register pursuant to RCW 21.20.040; and
(2) The person does not directly or indirectly receive a fee for providing investment advice. Receipt of any portion of a "wrap fee," that is, a fee for some combination of brokerage and investment advisory services, constitutes receipt of a fee for providing investment advice for the purpose of this section; and
(3) The person delivers to every customer, at least forty-eight hours before accepting any compensation, including commissions from the sale of any investment product, a written disclosure including the following information:
(a) The person is not registered as an investment adviser or investment adviser salesperson in the state of Washington;
(b) The person is not authorized to provide financial planning or investment advisory services and does not provide such services; and
(c) A brief description the person's business which description should include a statement of the kind of products offered or services provided (e.g., the person is in the business of selling securities and insurance products) and of the basis on which the person is compensated for the products sold or services provided; and
(4) The person has each customer to whom a disclosure described in subsection (3) of this section is given sign a written dated acknowledgment of receipt of the disclosure; and
(5) The person shall retain the executed acknowledgments of receipt required by subsection (4) of this section and of the disclosure given for so long as the person continues to receive compensation from such customers, but in no case for less than three years from date of execution of the acknowledgment;
(6) If the person received compensation from the customer on more than one occasion, the person need give the customer the disclosure described in subsection (3) of this section only on the first occasion unless the information in the disclosure becomes inaccurate, in which case the person must give the customer updated disclosure before receiving further compensation from the customer.
[Statutory Authority: RCW 21.20.450. 97-16-050, § 460-24A-045, filed 7/31/97, effective 8/31/97. Statutory Authority: RCW 21.20.040(2) and 21.20.450. 93-01-113, § 460-24A-045, filed 12/21/92, effective 1/21/93.]
OTS-4598.1
AMENDATORY SECTION(Amending WSR 01-23-002, filed 11/7/01,
effective 12/8/01)
WAC 460-33A-010
Application.
(1) The rules contained in
these regulations are intended to offer an optional method for
the registration of "mortgage paper securities" as defined in
WAC 460-33A-015(4). While applications for registration not
conforming to the standards contained herein shall be looked
upon with disfavor, where good cause is shown, certain rules
of this chapter may be modified or waived by the director, if
consistent with the spirit of these rules.
(2) The application of these rules does not affect those issuers to which or to whom the debenture company sections of the Securities Act apply.
(3) These rules do not affect the statutory exemptions
provided for by, nor will they be applied to, those securities
or transactions exempt under RCW 21.20.310 or 21.20.320. These rules are not intended to expand or restrict the
definition of "security" as defined in RCW 21.20.005(((12))).
(4) The rules contained in this chapter are only applicable to mortgage paper securities, mortgage broker-dealers and mortgage salespersons registering under this chapter.
[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-010, filed 11/7/01, effective 12/8/01; 89-17-078 (Order SDO-124-89), § 460-33A-010, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-010, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-010, filed 1/13/83.]
(1) "Mortgage broker-dealer" means a person who is
defined as a "broker-dealer" in RCW 21.20.005(((3))) and who
effects transactions in mortgage paper securities registered
under the provisions of this chapter.
(2) "General offering circular" means a disclosure document that gives a general description of what is involved in the purchase of mortgage paper securities and the business of offering the mortgage paper securities including a description of the mortgage broker-dealer.
(3) "Mortgage salesperson" means a person other than a
mortgage broker-dealer who is defined as a "salesperson" in
RCW 21.20.005(((2))) and who represents a mortgage
broker-dealer in effecting offers or sales of mortgage paper
securities registered under the provisions of this chapter.
(4) "Mortgage paper securities" means notes and bonds, or other debt securities secured by mortgages or trust deeds on real or personal property or by a vendor's interest in a property sales contract or options granting the right to purchase any of the foregoing, including any guarantee of or interest in the foregoing.
(5) "Specific offering circular" means a disclosure document describing the specific mortgage paper securities offering, which is meant to accompany the general offering circular.
(6) "Financial institution" means any bank, trust company, savings bank, national banking association, savings and loan association, building and loan association, mortgage banker, credit union, insurance company, or other similarly regulated financial institution, or holding company for any of the foregoing.
(7) "Construction loan" means a loan in which twenty-five percent or more of the loan proceeds will be used to fund future improvements to real estate securing the loan.
(8) "Income-producing properties" means real property that produces income on a regular basis.
[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-015, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-015, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-015, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-015, filed 10/20/86; 83-15-043 (Order SDO-90-83), § 460-33A-015, filed 7/19/83; 83-03-025 (Order SDO-7-83), § 460-33A-015, filed 1/13/83.]
OTS-4599.1
AMENDATORY SECTION(Amending WSR 11-01-139, filed 12/21/10,
effective 1/21/11)
WAC 460-44A-501
Definitions and terms.
As used in rules
WAC 460-44A-501 through 460-44A-508, the following terms shall
have the meaning indicated:
(1) "Accredited investor" shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:
(a) Any bank as defined in section 3 (a)(2) of the Securities Act of 1933, or any savings and loan association or other institution as defined in section 3 (a)(5)(A) of the Securities Act of 1933 whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Securities Act of 1933; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2 (a)(48) of that act; any small business investment company licensed by the U.S. Small Business Administration under section 301 (c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
(b) Any private business development company as defined in section 202 (a)(22) of the Investment Advisers Act of 1940;
(c) Any organization described in section 501 (c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
(d) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
(e) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000 excluding the value of the primary residence of such natural person;
(f) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
(g) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in 17 CFR Sec. 230.506 (b)(2)(ii); and
(h) Any entity in which all of the equity owners are accredited investors.
(2) "Affiliate" an "affiliate" of, or person "affiliated" with, a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified;
(3) "Aggregate offering price" shall mean the sum of all cash, services, property, notes, cancellation of debt, or other consideration to be received by an issuer for issuance of its securities. Where securities are being offered for both cash and noncash consideration, the aggregate offering price shall be based on the price at which the securities are offered for cash. Any portion of the aggregate offering price attributable to cash received in a foreign currency shall be translated into United States currency at the currency exchange rate in effect at a reasonable time prior to or on the date of the sale of the securities. If securities are not offered for cash, the aggregate offering price shall be based on the value of the consideration as established by bona fide sales of that consideration made within a reasonable time, or, in the absence of sales, on the fair value as determined by an accepted standard. Such valuations of noncash consideration must be reasonable at the time made;
(4) "Business combination" shall mean any transaction of the type specified in paragraph (a) of Rule 145 under the Securities Act of 1933 and any transaction involving the acquisition by one issuer, in exchange for all or a part of its own or its parent's stock, of stock of another issuer if, immediately after the acquisition, the acquiring issuer has control of the other issuer (whether or not it had control before the acquisition);
(5) "Calculation of number of purchasers." For purposes of calculating the number of purchasers under WAC 460-44A-504 and 460-44A-505 the following shall apply:
(a) The following purchasers shall be excluded:
(i) Any relative, spouse or relative of the spouse of a purchaser who has the same principal residence as the purchaser;
(ii) Any trust or estate in which a purchaser and any of the persons related to him as specified in WAC 460-44A-501 (5)(a)(i) or (iii) collectively have more than fifty percent of the beneficial interest (excluding contingent interests);
(iii) Any corporation or other organization of which a purchaser and any of the persons related to him as specified in WAC 460-44A-501 (5)(a)(i) or (ii) collectively are beneficial owners of more than fifty percent of the equity securities (excluding directors' qualifying shares) or equity interests; and
(iv) Any accredited investor.
(b) A corporation, partnership or other entity shall be counted as one purchaser. If, however, that entity is organized for the specific purpose of acquiring the securities offered and is not an accredited investor under WAC 460-44A-501 (1)(h), then each beneficial owner of equity securities or equity interests in the entity shall count as a separate purchaser for all provisions of WAC 460-44A-501 through 460-44A-508, except to the extent provided in (a) of this subsection.
(c) A noncontributory employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 shall be counted as one purchaser where the trustee makes all investment decisions for the plan.
| Note: | The issuer must satisfy all the other provisions of WAC 460-44A-501 through 460-44A-505 for all purchasers whether or not they are included in calculating the number of purchasers. Clients of an investment adviser or customers of a broker-dealer shall be considered the "purchasers" under WAC 460-44A-501 through 460-44A-505 regardless of the amount of discretion given to the investment adviser or broker-dealer to act on behalf of the client or customer. |
(7) "Issuer" as defined in Section 2(4) of the Securities
Act of 1933 or RCW 21.20.005(((7))) shall apply, except that
in the case of a proceeding under the Federal Bankruptcy Code
(11 U.S.C. 101 et seq.), the trustee or debtor in possession
shall be considered the issuer in an offering under a plan or
reorganization, if the securities are to be issued under the
plan.
(8) "Purchaser representative" shall mean any person who satisfies all of the following conditions or who the issuer reasonably believes satisfies all of the following conditions:
(a) Is not an affiliate, director, officer or other employee of the issuer, or beneficial owner of ten percent or more of any class of the equity securities or ten percent or more of the equity interest in the issuer, except where the purchaser is:
(i) A relative of the purchaser representative by blood, marriage or adoption and not more remote than a first cousin;
(ii) A trust or estate in which the purchaser representative and any person related to him as specified in WAC 460-44A-501 (8)(a)(i) or (iii) collectively have more than fifty percent of the beneficial interest (excluding contingent interest) or of which the purchaser representative serves as trustee, executor, or in any similar capacity; or
(iii) A corporation or other organization of which the purchaser representative and any persons related to him as specified in WAC 460-44A-501 (8)(a)(i) or (ii) collectively are the beneficial owners of more than 50 percent of the equity securities (excluding directors' qualifying shares) or equity interests;
(b) Has such knowledge and experience in financial and business matters that he is capable of evaluating, alone, or together with other purchaser representatives of the purchaser, or together with the purchaser, the merits and risks of the prospective investment;
(c) Is acknowledged by the purchaser in writing, during the course of the transaction, to be his purchaser representative in connection with evaluating the merits and risks of the prospective investment; and
(d) Discloses to the purchaser in writing a reasonable time prior to the sale of securities to that purchaser any material relationship between himself or his affiliates and the issuer or its affiliates that then exists, that is mutually understood to be contemplated, or that has existed at any time during the previous two years, and any compensation received or to be received as a result of such relationship.
Note 1:
A person acting as a purchaser representative should consider the applicability of the registration and
anti-fraud provisions relating to broker-dealers under chapter 21.20 RCW and the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq., as amended) and relating to investment advisers under chapter 21.20 RCW and the Investment Advisers Act of 1940.
Note 2:
The acknowledgment required by paragraph (8)(c) and the disclosure required by paragraph (8)(d) of
this WAC 460-44A-501 must be made with specific reference to each prospective investment.
Advance blanket acknowledgment, such as for "all securities transactions" or "all private placements,"
is not sufficient.
Note 3:
Disclosure of any material relationships between the purchaser representative or his affiliates and the
issuer or its affiliates does not relieve the purchaser representative of his obligation to act in the best
interest of the purchaser.
[Statutory Authority: RCW 21.20.450, 21.20.320 (1), (9), and (17), and 21.20.210. 11-01-139, § 460-44A-501, filed 12/21/10, effective 1/21/11. Statutory Authority: RCW 21.20.450, 21.20.320(9), 21.20.320(1) and 21.20.320(17). 98-11-014, § 460-44A-501, filed 5/12/98, effective 6/12/98. Statutory Authority: RCW 21.20.450. 94-03-061, § 460-44A-501, filed 1/14/94, effective 2/14/94. Statutory Authority: RCW 21.20.450, 21.20.320 (1), (9) and (17) and 21.20.340(11). 90-09-059, § 460-44A-501, filed 4/17/90, effective 5/18/90. Statutory Authority: RCW 21.20.320 (1) and (16) and 21.20.450. 89-17-076 (Order SDO-122-89), § 460-44A-501, filed 8/17/89, effective 9/17/89; 88-15-024 (Order SDO-71-88), § 460-44A-501, filed 7/12/88. Statutory Authority: RCW 21.20.320 (1) and (17). 86-15-003 (Order SDO-80-86), § 460-44A-501, filed 7/3/86. Statutory Authority: RCW 21.20.320(1) and 21.20.450. 82-21-031 (Order SDO-98-82), § 460-44A-501, filed 10/15/82.]