DFI-Sec 4.04(1)(b) (b) The filing requirement in par. (a) is not applicable to any broker-dealer registered under the securities exchange act of 1934 if the broker-dealer is not delinquent in the filing of its annual financial statements with the U.S. securities and exchange commission under rule 17a-5 of the securities exchange act of 1934.
DFI-Sec 4.04(1)(c) (c) The deadline established under par. (a) for a broker-dealer to file its annual financial statement shall be extended for an additional 30 days upon the broker-dealer filing with the division before the deadline date, a written request for an additional 30 days to file its annual financial statement.
DFI-Sec 4.04(2) (2) Each broker-dealer shall file with the division a copy of every complaint or equivalent pleading related to its business, transactions, or operations in this state, naming the broker-dealer or any of its partners, officers or agents as defendants in any civil or criminal proceeding, or in any administrative or disciplinary proceeding by any public or private regulatory agency, within 20 days of the date the complaint or equivalent pleading is served on the broker-dealer, or the broker-dealer otherwise receives notice thereof; a copy of every answer or reply thereto within 10 days of the date it is filed; and a copy of the decision, order, or sanction made with respect to the proceeding within 20 days of the date the decision, order, or sanction is rendered.
DFI-Sec 4.04(3) (3) Except as provided in subs. (2) and (8), each broker-dealer shall file with the division any notice of change of control or change of name, as well as any material change in the information included in the broker-dealer's most recent application for registration, in an amendment to Form BD filed with the central registration depository within 30 days of the date of the change.
DFI-Sec 4.04(4) (4) Every broker-dealer shall file with the division the following reports concerning its net capital and aggregate indebtedness:
DFI-Sec 4.04(4)(a) (a) Immediate electronic or written notice whenever the net capital of the broker-dealer is less than is required under s. DFI-Sec 4.02 (1), specifying the respective amounts of its net capital and aggregate indebtedness on the date of the notice;
DFI-Sec 4.04(4)(b) (b) A copy of every report or notice required to be filed by the broker-dealer pursuant to rule 17a-11 under the securities exchange act of 1934, contemporaneous with the date of filing with the U.S. securities and exchange commission.
DFI-Sec 4.04(5) (5) Each broker-dealer shall give immediate electronic or written notice to the division of the theft or disappearance of any Wisconsin customers' securities or funds that are in the custody or control of any of its offices, whether within or outside this state, stating all material facts known to it concerning the theft or disappearance.
DFI-Sec 4.04(6) (6) Each broker-dealer shall file with the division a copy of any subordination agreement relating to the broker-dealer, within 10 days after the agreement has been entered, unless prior thereto the broker-dealer has filed a copy of the agreement with a national securities exchange or association of which it is a member.
DFI-Sec 4.04(7)(a)(a) Each broker-dealer shall notify the division in writing within 14 days of either the opening or the change of address in this state of any "branch office" as defined in s. DFI-Sec 1.02 (7).
DFI-Sec 4.04(7)(b) (b) Each broker-dealer shall notify the division in writing not later than 14 days after the closing in this state of any "branch office" as defined in s. DFI-Sec 1.02 (7), which notice shall specify the effective date of the closing.
DFI-Sec 4.04(7)(c) (c) The notification required to be provided to the division under par. (a) or (b) shall be made electronically on Form BR via the central registration depository by broker-dealers eligible to file electronically, and shall be made directly with the division by broker-dealers that are not eligible to file electronically with the central registration depository.
DFI-Sec 4.04(7)(d) (d) The notice filed for a branch opening pursuant to par. (a) is deemed filed in accordance with par. (c) upon receipt by the division of the appropriate filing fee and any late filing fee due pursuant to s. DFI-Sec 7.01 (6) (d).
DFI-Sec 4.04(8) (8) Each broker-dealer shall file a branch office renewal notice annually with the central registration depository by broker-dealers eligible to file electronically, and shall be made directly with the division by broker-dealers that are not eligible to file electronically with the central registration depository.
DFI-Sec 4.04 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; am. (1) and (3), Register, December, 1979, No. 288, eff. 1-1-80; am. (4), (5), (8) and (9), Register, December, 1980, No. 300, eff. 1-1-81; am. (1) and (7), cr. (1) (b), Register, December, 1982, No. 324, eff. 1-1-83; am. (1) (a), Register, December, 1983, No. 336, eff. 1-1-84; r. and recr. (1) (a), renum. (1) (b) to be (1) (c), cr. (1) (b) and am. (9), Register, December, 1984, No. 348, eff. 1-1-85; cr. (10), Register, December, 1985, No. 360, eff. 1-1-86; r. and recr. (3), Register, December, 1989, No. 408, eff. 1-1-90; r. and recr. (4), r. (5), renum. (6) to (10) to be (5) to (9), Register, December, 1990, No. 420, eff. 1-1-91; renum. (8) to be (8) (a) and am., cr. (8) (b) and (c), Register, December, 1991, No. 432, eff. 1-1-92; renum. (4) to be (4) (a), cr. (4) (b), Register, December, 1994, No. 468, eff. 1-1-95; am. (8) (b), Register, December, 1995, No. 480, eff. 1-1-96; am. (2), Register, December, 1996, No. 492, eff. 1-1-97; reprinted to correct printing error in (1) (a), Register, April, 1998, No. 508; am. (5) (a) and (6), Register, December, 1999, No. 528, eff. 1-1-00; CR 01-082: am. (8) (a), Register December 2001 No. 552, eff. 1-1-02; CR 02-102: r. (3), renum. (4) to (9) to be (3) to (8) and am. (3) (a), Register December 2002 No. 564, eff. 1-1-03; CR 08-077: renum. (3) (a) to be (3) and am., r. (3) (b), r. and recr. (7) (c) and (8) Register December 2008 No. 636, eff. 1-1-09; corrections in (7) (a) and (b) made under s. 13.92 (4) (b) 7., Stats., Register December 2008 No. 636; CR 10-062: cr. (7) (d) Register September 2010 No. 657, eff. 10-1-10.
DFI-Sec 4.05 DFI-Sec 4.05Practice rules.
DFI-Sec 4.05(1)(a) (a) Except as provided in pars. (b) and (c), each broker-dealer shall give or send to the customer a written confirmation, promptly after execution of, and before completion of, each transaction. The confirmation shall set forth the information prescribed in rule 10b-10 of the securities and exchange act of 1934 and whether the transaction was unsolicited.
DFI-Sec 4.05(1)(b) (b) A broker-dealer engaged solely in the offer and sale of securities issued by open-end investment companies, face amount certificate companies or unit investment trusts registered under the investment company act of 1940 is not required to give or send a written confirmation under par. (a), provided that the issuer gives or sends a written confirmation directly to the customer for the transaction.
DFI-Sec 4.05(1)(c) (c) A broker-dealer engaged solely in the offer and sale of interests in direct participation programs is not required to give or send a written confirmation under par. (a), provided that a customer subscribing to purchase an interest in a direct participation program is provided immediately upon subscription with a copy of the subscription agreement entered into and the issuer gives or sends a written confirmation directly to the customer for the transaction.
DFI-Sec 4.05(2) (2) Each broker-dealer shall establish and keep current a set of written supervisory procedures and a system for applying such procedures, which may be reasonably expected to prevent and detect any violations of ch. 551, Stats., and rules and orders thereunder. The procedures shall include the designation, by name or title, of a number of supervisory employees reasonable in relation to the number of its registered agents, offices and transactions in this state. A complete set of the procedures and system for applying them shall be kept and maintained at every branch office.
DFI-Sec 4.05(3) (3) A broker-dealer shall not enter any contract with a customer if the contract contains any condition, stipulation or provision binding the customer to waive any rights under ch. 551, Stats., or any rule or order thereunder. Any such condition, stipulation or provision is void.
DFI-Sec 4.05(4) (4) No broker-dealer shall permit or effect a withdrawal of any part of its net worth, including subordinated indebtedness, whether by redemption, retirement, repurchase, repayment or otherwise, that would cause its net capital or its aggregate indebtedness to violate s. DFI-Sec 4.02 (1) or (2), without prior written approval of the division.
DFI-Sec 4.05(5) (5) Each broker-dealer shall provide each customer with a conformed copy of all contracts and agreements between the broker-dealer and the customer not later than 30 days after the customer's account is first established on the books and records of the broker-dealer. Each broker-dealer shall provide each customer with a conformed copy of the customer information pursuant to the requirements of rule 17a-3(a)(17) under the securities exchange act of 1934. Each contract or agreement and new account form for a customer whose account involves both an introducing broker and a clearing broker who provides services to the customer, shall contain or be accompanied by a disclosure of the identity and address of each broker-dealer.
DFI-Sec 4.05(6) (6) Every broker-dealer whose principal office is located in this state, other than a broker-dealer engaged solely in the offer and sale of either interests in direct participation programs or securities issued by open-end investment companies, face amount certificate companies or unit investment trusts registered under the investment company act of 1940, shall have at least one registered person employed on a full-time basis at its principal office.
DFI-Sec 4.05(7) (7) No broker-dealer may associate with a bank, savings institution, trust company, savings and loan association or credit union by contract, agreement or other means for the purpose of that entity publishing or circulating advertising promoting the services offered by the broker-dealer or assisting or providing information to persons to establish an account with the broker-dealer unless:
DFI-Sec 4.05(7)(a) (a) The promotional or account-establishing functions are performed by persons registered as securities agents representing the broker-dealer; or
DFI-Sec 4.05(7)(b) (b) The promotional or account-establishing functions are performed by persons who are supervised by one of at least 2 persons at the bank, savings institution, trust company, savings and loan association or credit union who are officers, branch or assistant branch managers or other employees occupying a similar office or performing similar functions at each location where promotional or account-opening functions are performed, and are registered as securities agents representing the broker-dealer.
DFI-Sec 4.05(8) (8) No broker-dealer shall conduct broker-dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer complies initially and continuously with all of the following requirements:
DFI-Sec 4.05(8)(a) (a) The broker-dealer services shall be conducted, wherever practical, in a physical location distinct from the area in which the financial institution's retail deposits are taken. In all situations, the broker-dealer shall identify its services in a manner that clearly distinguishes those services from the financial institution's retail deposit-taking activities. The broker-dealer's name shall be clearly displayed in the area in which the broker-dealer conducts its broker-dealer services. Nothing in this paragraph prohibits the financial institution from carrying out other activities within the designated area, provided that no promotional signs or materials shall be displayed in the designated area other than those relating to the securities services.
DFI-Sec 4.05(8)(b) (b) Networking and brokerage affiliate arrangements shall be governed by a written agreement that sets forth the responsibilities of the parties and the compensation arrangements. Networking and brokerage affiliate arrangements shall provide that supervisory personnel of the broker-dealer and representatives of state securities authorities, where authorized by state law, will be permitted access to the financial institution's premises where the broker-dealer conducts securities services in order to inspect the books and records and other relevant information maintained by the broker-dealer with respect to its securities services. The broker-dealer shall ensure that the networking and brokerage affiliate arrangement clearly outlines the duties and responsibilities of all parties. For purposes of this paragraph, "networking arrangement" and "brokerage affiliate arrangement" mean a contractual or other arrangement between a broker-dealer and a financial institution pursuant to which the broker-dealer conducts securities services on the premises of a financial institution where retail deposits are taken.
DFI-Sec 4.05(8)(c) (c) At or prior to the time that a customer's securities brokerage account is opened by a broker-dealer on the premises of a financial institution where retail deposits are taken, the broker-dealer shall comply with all of the following.
DFI-Sec 4.05(8)(c)1. 1. Disclose to the customer, orally and in writing, all of the following information about the securities products purchased or sold in a transaction with the broker-dealer:
DFI-Sec 4.05(8)(c)1.a. a. The securities products are not insured by the Federal Deposit Insurance Corporation ("FDIC"), or by other deposit insurance required by the financial institution's governmental regulatory authority.
DFI-Sec 4.05(8)(c)1.b. b. The securities products are not deposits or other obligations of the financial institution, and are not guaranteed by the financial institution.
DFI-Sec 4.05(8)(c)1.c. c. The securities products are subject to investment risks, including possible loss of the principal invested.
DFI-Sec 4.05(8)(c)2. 2. Make reasonable efforts to obtain from each customer during the account-opening process, a written acknowledgment of the disclosures required by subd. 1.
DFI-Sec 4.05(8)(d) (d) If securities services include any written or oral representations concerning insurance coverage, other than FDIC or similar insurance coverage, then clear and accurate, written or oral explanations of the coverage shall also be provided to the customers when the representations are first made.
DFI-Sec 4.05(8)(e) (e) Recommendations by a broker-dealer concerning any non-deposit investment product with a name similar to that of the financial institution shall occur only pursuant to a sales program designed to minimize the risk of customer confusion.
DFI-Sec 4.05(8)(f) (f) All confirmations and account statements shall indicate clearly that the broker-dealer services are provided by the broker-dealer.
DFI-Sec 4.05(8)(g) (g) Advertisements and sales literature that announce the location of a financial institution where broker-dealer services are provided by the broker-dealer, or that are distributed by the broker-dealer on the premises of a financial institution, shall disclose using the following language or using the shorter, logo format language in par. (h), the information in each of the following subdivision paragraphs about the securities products purchased or sold in a transaction with the broker-dealer:
DFI-Sec 4.05(8)(g)1. 1. The securities products are not insured by the FDIC or by other deposit insurance required by the financial institution's governmental regulatory authority.
DFI-Sec 4.05(8)(g)2. 2. The securities products are not deposits or other obligations of the financial institution, and are not guaranteed by the financial institution.
DFI-Sec 4.05(8)(g)3. 3. The securities products are subject to investment risks, including possible loss of the principal invested.
DFI-Sec 4.05(8)(h) (h) The following shorter, logo format disclosures may be used by a broker-dealer in advertisements and sales literature, including material published, or designed for use, in radio or television broadcasts, automated teller machine screens, billboards, signs, posters and brochures, to comply with the requirements of par. (g), provided that the disclosures are displayed in a conspicuous manner:
DFI-Sec 4.05(8)(h)1. 1. Not FDIC Insured.
DFI-Sec 4.05(8)(h)2. 2. No Bank Guarantee.
DFI-Sec 4.05(8)(h)3. 3. May Lose Value.
DFI-Sec 4.05(8)(i) (i) Provided that the omission of the disclosures required by par. (g) would not cause the advertisement or sales literature to be misleading in light of the context in which the material is presented, the disclosures in par. (g) shall not be not required with respect to messages contained in any of the following:
DFI-Sec 4.05(8)(i)1. 1. Radio broadcasts of 30 seconds or less.
DFI-Sec 4.05(8)(i)2. 2. Electronic signs, including billboard-type signs that are electronic, time, and temperature signs and ticker-tape signs, but excluding messages contained in media such as television, on-line computer services, or automated teller machines.
DFI-Sec 4.05(8)(i)3. 3. Signs, such as banners and posters, when used only as location indicators.
DFI-Sec 4.05(8)(j) (j) The broker-dealer shall promptly notify the financial institution if any agent of the broker-dealer who is employed by the financial institution is terminated for cause by the broker-dealer.
DFI-Sec 4.05(8)(k) (k) The broker-dealer shall establish written supervisory procedures and a system for applying the procedures. The procedures shall comply with sub. (2) and shall be designed to accomplish certain supervisory functions, including but not limited to the following:
DFI-Sec 4.05(8)(k)1. 1. Prevention and detection of violations of ch. 551, Stats., and any applicable rules and orders thereunder;
DFI-Sec 4.05(8)(k)2. 2. Establishment of a system under which the broker-dealer approves prior to use copies of all advertising used by the financial institution relating to the securities services conducted on the premises of the financial institution for the purpose of ensuring compliance with ss. 551.501 and 551.504, Stats.; and
DFI-Sec 4.05(8)(k)3. 3. Establishment of a system for prompt and proper execution and settlement of securities transaction orders, the safekeeping of customer funds and securities, and the maintenance of books and records.
DFI-Sec 4.05(8)(L) (L) Notify the division at the time of filing the notice of opening or change of address of a branch office as required in s. DFI-Sec 4.04 (7), that the office is located on the premises of a financial institution in this state, which notification shall include the identity of the institution.
DFI-Sec 4.05(9)(a)(a) Except as provided in par. (b), each registered broker-dealer engaged in a general securities business that ceases to do business at a principal or branch office located in Wisconsin shall mail to each Wisconsin customer with an account at the office at least 14 days before the cessation of business at the office a written notification that shall contain the following information:
DFI-Sec 4.05(9)(a)1. 1. The date on which the office will cease to do business;
DFI-Sec 4.05(9)(a)2. 2. A description of the procedure a customer may follow to maintain the customer's account with the broker-dealer, transfer the account to another broker-dealer, or have securities and funds held by the broker-dealer delivered to the customer;
DFI-Sec 4.05(9)(a)3. 3. The name and telephone number of a person representing the broker-dealer who may be contacted without expense to the customer to answer questions regarding items in subd. 2.; and
DFI-Sec 4.05(9)(a)4. 4. Any additional information necessary under the circumstances to clarify the information prescribed in this paragraph.
DFI-Sec 4.05(9)(b) (b) The notification requirement under par. (a) is not applicable to the cessation of business at an office where the cessation is caused by illness or death of all registered agents at that office, if the cessation of business at the office does not occur for a period exceeding 14 days.
DFI-Sec 4.05(10) (10) Each broker-dealer shall disclose in writing to customers at the time of opening an account, any custody fees, service fees, or maintenance fees that may be charged to the customer and the basis upon which the charges are determined. Customers shall receive written notice at least 45 days prior to the imposition of any new custody, service, maintenance or similar fees, or any changes to existing fees of that nature.
DFI-Sec 4.05(11) (11) No broker-dealer or agent, in connection with a telephone or electronic solicitation, shall:
DFI-Sec 4.05(11)(a) (a) Fail to provide both the caller's identity and the identity of the broker-dealer with whom the caller is affiliated, at the beginning of any telephone or electronic solicitation.
DFI-Sec 4.05(11)(b) (b) Telephone any person in this state between the hours of 9:00 PM and 8:00 AM local time at the called person's location without that individual's prior consent.
DFI-Sec 4.05(11)(c) (c) Telephone or electronically solicit any person in this state after that individual has requested that he or she not be telephoned.
DFI-Sec 4.05(11)(d) (d) Make repeated telephone or electronic solicitations in an annoying, abusive or harassing manner, either individually or in concert with others.
DFI-Sec 4.05(11)(e) (e) Use threats, intimidation or obscene language in connection with securities recommendations, transactions or other brokerage account activities.
DFI-Sec 4.05 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; am. (8), (intro.), Register, September, 1978, No. 273, eff. 10-1-78; r. (5), renum. (6) to (8) to be (4) to (6) and am. (5), (6) (intro.), (a) and (b), cr. (7), Register, December, 1980, No. 300, eff. 1-1-81; am. (6) (intro.) and r. (9), Register, December, 1981, No. 312, eff. 1-1-82; renum. (6) to be SEC 4.035, renum. (7) and (8) to be (6) and (7) and am. (6), Register, December, 1982, No. 324, eff. 1-1-83; emerg. cr. (8), eff. 4-15-83; cr. (8), Register, August, 1983, No. 332, eff. 9-1-83; am. (1) (a), r. and recr. (1) (b), cr. (1) (c), (9) and (10), Register, December, 1984, No. 348, eff. 1-1-85; am. (7), Register, December, 1985, No. 360, eff. 1-1-86; am. (5), Register, December, 1987, No. 384, eff. 1-1-88; am. (6), Register, December, 1989, No. 408, eff. 1-1-90; am. (5), cr. (11), Register, December, 1991, No. 432, eff. 1-1-92; am. (6), Register, December, 1992, No. 444, eff. 1-1-93; am. (6), (9) (c), (d) (intro.), r. and recr. (9) (e), Register, December, 1994, No. 468, eff. 1-1-95; am. (5) and (6), Register, December, 1995, No. 480, eff. 1-1-96; am. (5), cr. (12), Register, December, 1996, No. 492, eff. 1-1-97; r. and recr. (9), Register, December, 1999, No. 528, eff. 1-1-00; CR 01-082: r. (6), Register December 2001 No. 552, eff. 1-1-02; CR 02-102: renum. (7) to (12) to be (6) to (11) and am. (8) (L), Register December 2002 No. 564, eff. 1-1-03; CR 03-068: am. (5) Register November 2003 No. 575, eff. 12-1-2003; CR 08-077: am. (title), (2), (6), (7) (a), (b), (8) (b), (d), (k) 2., (9) (a) (intro.) and (b) Register December 2008 No. 636, eff. 1-1-09.
DFI-Sec 4.06 DFI-Sec 4.06Prohibited conduct.
DFI-Sec 4.06(1) (1) The following are deemed "dishonest or unethical business practices" or "taking unfair advantage of a customer" by a broker-dealer under s. 551.412 (4) (m), Stats., without limiting those terms to the practices specified herein:
DFI-Sec 4.06(1)(a) (a) Causing any unreasonable delay in the transmitting of customer orders for execution, the delivery of securities purchased by any of its customers, the payment upon request of free credit balances reflecting completed transactions of any of its customers or the transfer of a customer's account securities positions and balances to another broker-dealer;
DFI-Sec 4.06(1)(b) (b) Inducing trading in a customer's account which is excessive in size or frequency in view of the financial resources and character of the account;
DFI-Sec 4.06(1)(c)1.1. Recommending to a customer the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the customer on the basis of information furnished by the customer after reasonable inquiry concerning the customer's investment objectives, financial situation and needs, and any other information known by the broker-dealer;
DFI-Sec 4.06(1)(c)2. 2. For purposes of making purchase recommendations to a customer with respect to direct participation program securities, the following investor financial income and net worth suitability standards do not preclude the use of any other information, including without limitation the criteria in subd. 1., to establish suitability or lack of suitability in specific instances:
DFI-Sec 4.06(1)(c)2.a. a. The customer has an annual gross income of at least $70,000 and a net worth of at least $70,000 exclusive of the customer's principal residence and its furnishing and personal use automobiles; or
DFI-Sec 4.06(1)(c)2.b. b. The customer has a net worth of at least $250,000, exclusive of the customer's principal residence and its furnishings and personal use automobiles.
DFI-Sec 4.06(1)(d) (d) Executing a transaction on behalf of a customer without authority to do so, except that use by a broker-dealer of a negative response letter in conformity with rule 2510(d)(2) of the financial industry regulatory authority is not a violation of this rule;
DFI-Sec 4.06(1)(e) (e) Executing a transaction for the account of a customer upon instructions from a 3rd party without first having obtained written 3rd party authorization from the customer;
DFI-Sec 4.06(1)(f) (f) Exercising any discretionary power in effecting a transaction for a customer's account without first obtaining written discretionary authority from the customer, unless the discretionary power relates solely to the time or price for the execution of orders pursuant to rule 2510(d)(1) of the financial industry regulatory authority;
DFI-Sec 4.06(1)(g) (g) Extending, arranging for, or participating in arranging for credit to a customer in violation of the securities exchange act of 1934 or the regulations of the federal reserve board;
DFI-Sec 4.06(1)(h) (h) Executing any transaction in a margin account without obtaining from its customer a written margin agreement not later than 15 calendar days after the initial transaction in the account;
DFI-Sec 4.06(1)(i) (i) Failing to segregate customers' free securities or securities in safe-keeping;
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