AB831: Bill Text

LRB-4968/1

KSH:kmg&kaf:ch

1997 - 1998 LEGISLATURE

1997 Assembly BILL 831

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 An Act to renumber and amend 551.21 (1), 551.31 (1m), 551.31 (2) (a), 551.32 (1) (d), 551.34 (6) and 551.52 (1) (b); to amend 551.02 (2) (intro.), (a) and (b), 551.02 (7) (intro.), 551.02 (7) (a), 551.02 (7) (b), 551.02 (7) (c), 551.02 (7) (d), 551.02 (7) (e), 551.02 (12), subchapter II (title) of chapter 551 [precedes 551.21], 551.22 (7), 551.23 (3) (intro.), 551.23 (3) (a), 551.23 (3) (b), 551.23 (3) (c), 551.23 (8) (b) and (c), 551.23 (16), 551.23 (19) (a), 551.23 (19) (b), 551.23 (19) (d), 551.25 (1), 551.25 (2) (intro.), 551.25 (2) (a), 551.25 (2) (b), 551.25 (2) (c), subchapter III (title) of chapter 551 [precedes 551.31], 551.31 (title), 551.31 (2) (d), 551.32 (title), 551.32 (1) (a), 551.32 (1) (b), 551.32 (3), 551.32 (4), 551.33 (1), 551.33 (2), 551.33 (3), 551.33 (4), 551.34 (1) (b), 551.34 (1) (f), 551.34 (5), 551.44, 551.52 (1) (a), 551.52 (2), 551.53 (1) (b), 551.55, 551.63 (1), (2) and (3), 551.64 (2) and (3) and 551.65 (1); to repeal and recreate 551.31 (1), 551.31 (3), 551.31 (4) and 551.32 (5) and (6); and to create 551.02 (4g), 551.02 (4r), 551.02 (7) (ed) and (eh), 551.02 (7) (em), 551.02 (7m), 551.21 (1) (c), 551.29, 551.31 (4m), 551.32 (1m), 551.32 (8), 551.32 (9) (b), 551.33 (8) and 551.52 (1) (b) 2. of the statutes; relating to: the regulation of investment advisers and investment adviser representatives, the registration of securities and granting rule-making authority.

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 Section 1. 551.02 (2) (intro.), (a) and (b) of the statutes are amended to read:

AB831,5,6 551.02 (2) (intro.)  "Agent" means any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect transactions in securities. A partner, officer or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions, is an agent if he or she is within this definition. "Agent" does not include an individual who represents an issuer in doing any of the following:

AB831,5,7 (a) Effecting transactions in a security exempted by s. 551.22;.

AB831,5,11 (b) Effecting transactions exempted by s. 551.23, other than transactions exempted under s. 551.23 (8) (g), (10) or (19) in which the individual receives a commission or other remuneration directly or indirectly for soliciting or selling to any person in this state; or.

AB831, s. 2 Section 2. 551.02 (4g) of the statutes is created to read:

AB831,5,14 551.02 (4g) "Federal covered adviser" means a person who is registered under section 203 of the Investment Advisers Act of 1940.

AB831, s. 3 Section 3. 551.02 (4r) of the statutes is created to read:

AB831,5,18 551.02 (4r) "Federal covered security" means any security that is a covered security under section 18 (b) of the Securities Act of 1933 or regulations promulgated under that act.

AB831, s. 4 Section 4. 551.02 (7) (intro.) of the statutes is amended to read:

AB831,6,2 551.02 (7) (intro.)  "Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications, writings or electronic means, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. "Investment adviser" does not include any of the following:

AB831, s. 5 Section 5. 551.02 (7) (a) of the statutes is amended to read:

AB831,6,4 551.02 (7) (a) A bank, savings institution or trust company;.

AB831, s. 6 Section 6. 551.02 (7) (b) of the statutes is amended to read:

AB831,6,7 551.02 (7) (b) A lawyer, accountant, engineer or teacher whose performance of these services is solely incidental to the practice of his or her profession;.

AB831, s. 7 Section 7. 551.02 (7) (c) of the statutes is amended to read:

AB831,6,11 551.02 (7) (c) A broker-dealer or agent whose performance of these services is solely incidental to the conduct of his or her business as a broker-dealer or agent and who receives no special compensation for them;.

AB831, s. 8 Section 8. 551.02 (7) (d) of the statutes is amended to read:

AB831,6,16 551.02 (7) (d) A publisher of any bona fide newspaper, news magazine or business or financial publication with a regular and paid circulation or a publisher of any securities advisory newsletter with a regular and paid circulation which does not provide advice to subscribers on their specific investment situation ;.

AB831, s. 9 Section 9. 551.02 (7) (e) of the statutes is amended to read:

AB831,6,18 551.02 (7) (e) The investment board; or.

AB831, s. 10 Section 10. 551.02 (7) (ed) and (eh) of the statutes are created to read:

AB831,6,22 551.02 (7) (ed) A federal covered adviser, unless the federal covered adviser is required to become licensed or qualify for an exclusion or exemption from licensure under s. 551.32 (1m) (c).

AB831,6,24 (eh) A person who is excluded from the definition of "investment adviser" under section 202 (a) (11) of the Investment Advisers Act of 1940.

AB831, s. 11 Section 11. 551.02 (7) (em) of the statutes is created to read:

AB831,7,1 551.02 (7) (em) An investment adviser representative.

AB831, s. 12 Section 12. 551.02 (7m) of the statutes is created to read: