LRB-4968/1
KSH:kmg&kaf:ch
1997 - 1998 LEGISLATURE
February 25, 1998 - Introduced by
Committee on Financial Institutions, by
request of Department of Financial Institutions. Referred to Committee on
Financial Institutions.
AB831,2,4
1An Act to renumber and amend 551.21 (1), 551.31 (1m), 551.31 (2) (a), 551.32
2(1) (d), 551.34 (6) and 551.52 (1) (b);
to amend 551.02 (2) (intro.), (a) and (b),
3551.02 (7) (intro.), 551.02 (7) (a), 551.02 (7) (b), 551.02 (7) (c), 551.02 (7) (d),
4551.02 (7) (e), 551.02 (12), subchapter II (title) of chapter 551 [precedes 551.21],
5551.22 (7), 551.23 (3) (intro.), 551.23 (3) (a), 551.23 (3) (b), 551.23 (3) (c), 551.23
6(8) (b) and (c), 551.23 (16), 551.23 (19) (a), 551.23 (19) (b), 551.23 (19) (d), 551.25
7(1), 551.25 (2) (intro.), 551.25 (2) (a), 551.25 (2) (b), 551.25 (2) (c), subchapter III
8(title) of chapter 551 [precedes 551.31], 551.31 (title), 551.31 (2) (d), 551.32
9(title), 551.32 (1) (a), 551.32 (1) (b), 551.32 (3), 551.32 (4), 551.33 (1), 551.33 (2),
10551.33 (3), 551.33 (4), 551.34 (1) (b), 551.34 (1) (f), 551.34 (5), 551.44, 551.52 (1)
11(a), 551.52 (2), 551.53 (1) (b), 551.55, 551.63 (1), (2) and (3), 551.64 (2) and (3)
12and 551.65 (1);
to repeal and recreate 551.31 (1), 551.31 (3), 551.31 (4) and
13551.32 (5) and (6); and
to create 551.02 (4g), 551.02 (4r), 551.02 (7) (ed) and
14(eh), 551.02 (7) (em), 551.02 (7m), 551.21 (1) (c), 551.29, 551.31 (4m), 551.32
1(1m), 551.32 (8), 551.32 (9) (b), 551.33 (8) and 551.52 (1) (b) 2. of the statutes;
2relating to: the regulation of investment advisers and investment adviser
3representatives, the registration of securities and granting rule-making
4authority.
Analysis by the Legislative Reference Bureau
This bill makes a number of changes to the Wisconsin Uniform Securities Law,
principally to conform to changes required under the federal National Securities
Markets Improvement Act of 1996 (NSMIA). The changes made by the bill include
the following:
Federal covered securities
The NSMIA amended the federal Securities Act of 1933 to provide that, subject
to certain exceptions, state laws and regulations requiring registration or
qualification of a security or of a securities transaction do not apply to covered
securities. The NSMIA defined the term "covered security" to include: 1) securities
that are listed or authorized to be listed on the New York Stock Exchange, the
American Stock Exchange, the National Market System of the Nasdaq Stock
Market, or a national securities exchange that has substantially similar listing
requirements (exchange-listed securities); 2) securities of investment companies
under the Investment Company Act of 1940; 3) securities offered or sold only to
qualified purchasers, defined by the federal securities and exchange commission (the
SEC) by rule; and 4) securities in certain other specified transactions.
Under current state law, it is unlawful to offer any security in the state unless
the security is registered or unless the security or the transaction is exempt from
registration. Exchange-listed securities, which are included in the definition of
"covered securities" under the NSMIA, are already exempt from state securities
registration requirements. This bill extends the exemption to cover all "covered
securities" under the NSMIA. However, the bill grants the division of securities (the
division) in the department of financial institutions the authority to impose certain
filing requirements, by rule or order, on certain types of "covered securities".
Although the authority granted to the division varies somewhat based on the type
of covered security, the filing requirements that the bill allows the division to impose
are generally limited to requiring submission of copies of filings made with SEC with
respect to that security and the payment of a filing fee. The filing may be
accompanied by a form specified by the division by rule. The bill provides that, if the
issuer of a federal covered security does not pay a required fee within 10 days of
notification of nonpayment by the division, the division may issue an order
prohibiting the federal covered security from being offered unless it becomes
registered or qualifies for an exemption. Finally, the bill grants the division the
authority to issue an order suspending offers and sales of a federal covered security,
other than an exchange-listed security, in this state, if the order is in the public
interest and the division has reason to believe that there has been a failure to comply
with a rule or order of the division. Under current law, a person may not use
advertising unless filed with the division in advance or exempt under rules of the
division. This bill exempts advertising relating to federal covered securities from
this prefiling requirement.
Investment advisers and investment adviser representatives
Under current law, it is unlawful for a person to transact business in this state
as an investment adviser unless the person is licensed as an investment adviser or
as a broker-dealer or unless the person only provides investment advice to certain
types of institutional investors. The bill excludes from the definition of "investment
adviser" a "federal covered adviser", which is defined to mean a person who is
registered as an investment adviser under the federal Investment Advisers Act of
1940. Although federal covered advisers are excluded from the definition of
"investment adviser" and are not generally subject to investment adviser licensing
requirements, certain federal covered advisers are required to file a notice. A notice
filing is required unless: 1) the federal covered adviser advises only specified
institutional investors; or 2) the federal covered adviser does not have a place of
business in this state and, during the preceding 12-month period, has advised no
more than 5 in-state clients who are not specified institutional investors. This bill
exempts from the investment adviser licensing requirements an investment adviser
who has no place of business in the state and has no more than 5 clients who are
residents of this state other than specified institutional investors.
Under current law, the division may, by rule, provide for an examination of
persons who represent or who will represent an investment adviser. This bill creates
statutory requirements for the licensing of "investment adviser representatives".
The bill defines an "investment adviser representative" to mean a 3rd-party
solicitor, as defined by the division by rule, or a person supervised by an investment
adviser or federal covered adviser, unless the person supervised by the investment
adviser is exempt. The bill exempts a supervised person if: 1) not more than a
specified percentage of the person's clients are natural persons (other than excepted
persons, as defined by the division by rule); 2) the person does not, on a regular basis,
solicit, meet with or otherwise communicate with clients of the investment adviser;
or 3) the person provides only impersonal investment advice, as defined by the
division by rule.
The bill makes it unlawful for any investment adviser who is required to be
licensed in this state to employ an investment adviser representative who is not
licensed in this state, unless the investment adviser representative is exempt from
registration. Similarly, the bill makes it unlawful for a person to have an office in
this state and act as an investment adviser representative for a federal covered
adviser, unless that person is exempt from registration. The bill exempts investment
adviser representatives from registration if the investment adviser representative:
1) is licensed as a broker-dealer in the state; 2) has only accredited investors as
clients in the state; or 3) has no office in the state and no more than 5 nonaccredited
investor clients who are residents of this state over the preceding 12-month period.
Broker-dealers and agents
Under current state law, it is unlawful for a person to transact business in this
state as a broker-dealer or agent unless licensed as such, unless an exemption
applies. The federal NSMIA provides that a state may not prohibit a person from
effecting transactions for a broker-dealer in a state if certain criteria are met: 1) the
person is not ineligible from registering as an agent in the state; 2) the person is
registered with a registered securities association and at least one other state; 3) the
person is an agent for a broker-dealer who is registered in that other state; and 4)
the person's transactions are limited to certain "described transactions". These
"described transactions" are generally limited to transactions between the agent and
preexisting clients of the agent, if the preexisting client was a resident in the state
where the agent is registered for at least 30 days in the previous one-year period.
This bill exempts, from the Wisconsin agent registration requirements, agents who
meet these criteria and whose transactions in Wisconsin are limited to "described
transactions" under the NSMIA.
Current law excludes, from the definition of agent, an individual who
represents the issuer in effecting certain securities transactions that are exempt
from registration. This will provide that the definition of agent includes a person
who represents the issuer in effecting a securities transaction that is exempt from
registration because it is being sold to individual accredited investors.
Other
The bill provides that licenses and notice filings for broker-dealers, agents,
investment advisers and investment adviser representatives expire on December 31
of each year unless renewed or unless provided otherwise by rule or order. A failure
to apply for a renewal of a license or a notice filing constitutes an application for
withdrawal.
The NSMIA restricts the ability of a state to establish capital, custody, margin,
financial responsibility, record keeping, bonding or financial or operational
requirements for broker-dealers. This bill makes the division's authority to
promulgate rules regarding minimum capital requirements and posting surety
bonds subject to the limitations under the NSMIA. The bill also repeals certain
record keeping requirements and makes the ability of the division to promulgate
rules regarding reporting and record keeping subject to the limitations under the
NSMIA.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB831, s. 1
1Section
1. 551.02 (2) (intro.), (a) and (b) of the statutes are amended to read:
AB831,5,6
1551.02
(2) (intro.) "Agent" means any individual other than a broker-dealer
2who represents a broker-dealer or issuer in effecting or attempting to effect
3transactions in securities. A partner, officer or director of a broker-dealer or issuer,
4or a person occupying a similar status or performing similar functions, is an agent
5if he or she is within this definition. "Agent" does not include an individual who
6represents an issuer in
doing any of the following:
AB831,5,77
(a) Effecting transactions in a security exempted by s. 551.22
;.
AB831,5,118
(b) Effecting transactions exempted by s. 551.23, other than transactions
9exempted under s. 551.23
(8) (g), (10) or (19) in which the individual receives a
10commission or other remuneration directly or indirectly for soliciting or selling to any
11person in this state
; or.
AB831, s. 2
12Section
2. 551.02 (4g) of the statutes is created to read:
AB831,5,1413
551.02
(4g) "Federal covered adviser" means a person who is registered under
14section 203 of the Investment Advisers Act of 1940.
AB831, s. 3
15Section
3. 551.02 (4r) of the statutes is created to read:
AB831,5,1816
551.02
(4r) "Federal covered security" means any security that is a covered
17security under section 18 (b) of the Securities Act of 1933 or regulations promulgated
18under that act.
AB831, s. 4
19Section
4. 551.02 (7) (intro.) of the statutes is amended to read:
AB831,6,220
551.02
(7) (intro.) "Investment adviser" means any person who, for
21compensation, engages in the business of advising others, either directly or through
22publications, writings or electronic means, as to the value of securities or as to the
23advisability of investing in, purchasing or selling securities, or who, for
24compensation and as a part of a regular business, issues or promulgates analyses or
1reports concerning securities. "Investment adviser" does not include
any of the
2following:
AB831, s. 5
3Section
5. 551.02 (7) (a) of the statutes is amended to read:
AB831,6,44
551.02
(7) (a) A bank, savings institution or trust company
;.
AB831, s. 6
5Section
6. 551.02 (7) (b) of the statutes is amended to read:
AB831,6,76
551.02
(7) (b) A lawyer, accountant, engineer or teacher whose performance of
7these services is solely incidental to the practice of his or her profession
;.
AB831, s. 7
8Section
7. 551.02 (7) (c) of the statutes is amended to read:
AB831,6,119
551.02
(7) (c) A broker-dealer or agent whose performance of these services is
10solely incidental to the conduct of his or her business as a broker-dealer or agent and
11who receives no special compensation for them
;.
AB831, s. 8
12Section
8. 551.02 (7) (d) of the statutes is amended to read:
AB831,6,1613
551.02
(7) (d) A publisher of any bona fide newspaper, news magazine or
14business or financial publication with a regular and paid circulation or a publisher
15of any securities advisory newsletter with a regular and paid circulation which does
16not provide advice to subscribers on their specific investment situation
;.
AB831, s. 9
17Section
9. 551.02 (7) (e) of the statutes is amended to read:
AB831,6,1818
551.02
(7) (e) The investment board
; or.
AB831, s. 10
19Section
10. 551.02 (7) (ed) and (eh) of the statutes are created to read:
AB831,6,2220
551.02
(7) (ed) A federal covered adviser, unless the federal covered adviser is
21required to become licensed or qualify for an exclusion or exemption from licensure
22under s. 551.32 (1m) (c).
AB831,6,2423
(eh) A person who is excluded from the definition of "investment adviser" under
24section 202 (a) (11) of the Investment Advisers Act of 1940.
AB831, s. 11
25Section
11. 551.02 (7) (em) of the statutes is created to read:
AB831,7,1
1551.02
(7) (em) An investment adviser representative.
AB831, s. 12
2Section
12. 551.02 (7m) of the statutes is created to read:
AB831,7,43
551.02
(7m) (a) "Investment adviser representative" means any of the
4following, unless excluded under par. (b):
AB831,7,65
1. A supervised person, as defined by the division by rule, of an investment
6adviser or a federal covered adviser, unless one of the following applies:
AB831,7,97
a. Not more than a percentage, specified by the division by rule, of the clients
8of the supervised person are natural persons who are not excepted persons, as
9defined by the division by rule.
AB831,7,1210
b. The supervised person does not, on a regular basis, solicit, meet with or
11otherwise communicate with clients of the investment adviser or federal covered
12adviser.
AB831,7,1413
c. The supervised person provides only impersonal investment advice, as
14defined by the division by rule.