TITLE 12 TRADE, COMMERCE AND BANKING
CHAPTER
11 SECURITIES
PART 7 INVESTMENT
ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES
RULES
OF CONDUCT AND PROHIBITED BUSINESS PRACTICES
12.11.7.1 ISSUING
AGENCY: Regulation and Licensing Department - New
Mexico Securities Division.
[12.11.7.1
NMAC - Rp, 12.11.7.1 NMAC, 1-1-2010]
12.11.7.2 SCOPE:
All persons, whether natural or legal entities, that transact business
in New Mexico as an investment adviser and their representatives. To the
extent that the conduct alleged constitutes fraud or deceit, the provisions of
this section also apply to all other persons, in addition to investment
advisers and investment adviser representatives, who advise others for
compensation, either directly or indirectly or through publications or
writings, as to the value of securities or the advisability of investing in,
purchasing or selling securities or who, for compensation and as part of a
regular business, issue or promulgate analyses or reports relating to
securities.
[12.11.7.2
NMAC - Rp, 12.11.7.2 NMAC, 1-1-2010]
12.11.7.3 STATUTORY
AUTHORITY: Section 58-13C-605A NMSA 1978 authorizes the
director to adopt, amend and repeal rules necessary or appropriate to carry out
the provisions of the New Mexico Uniform Securities Act, Sections 58-13C-101 to
701 NMSA 1978, hereinafter referred to in this Chapter 11 as the “New Mexico
Uniform Securities Act”.
[12.11.7.3
NMAC - Rp, 12.11.7.3 NMAC, 1-1-2010]
12.11.7.4 DURATION:
Permanent.
[12.11.7.4
NMAC - Rp, 12.11.7.4 NMAC, 1-1-2010]
12.11.7.5 EFFECTIVE
DATE: January 1, 2010, unless a later date is cited
at the end of a section.
[12.11.7.5
NMAC - Rp, 12.11.7.5 NMAC, 1-1-2010]
12.11.7.6 OBJECTIVE:
To implement new rules and revise existing rules to better reflect the
realities of current financial, commercial and regulatory principles and
practices affecting the securities markets.
[12.11.7.6
NMAC - Rp, 12.11.7.6 NMAC, 1-1-2010]
12.11.7.7 DEFINITIONS:
[RESERVED]
12.11.7.8 [RESERVED]
12.11.7.9 CONTRACT
WAIVING RIGHTS PROHIBITED: An investment adviser shall not
enter into any contract with a customer if the contract contains any condition,
stipulation or provision binding the customer to waive any rights under the New
Mexico Uniform Securities Act, or any rule or order thereunder, or of the
Investment Advisers Act of 1940. Any
such condition, stipulation or provision is void.
[12.11.7.9
NMAC - Rp, 12 NMAC 11.3.9.2, 1-1-2010]
12.11.7.10 WRITTEN
CONTRACT REQUIRED:
A. No registered
investment adviser may enter into, extend or renew any investment advisory
contract with a customer in this state unless the contract is in writing and a
copy of the contract is given to the customer within 15 days after the
execution of the contract. Such contract shall disclose, in substance, the
services to be provided, the term of the contract, the advisory fee, the
formula for computing the fee, the amount of prepaid fee to be returned in the
event of contract termination or non-performance, whether the contract grants
discretionary power to the adviser and that no assignment of such contract
shall be made by the investment adviser without the consent of the other party
to the contract.
B. It
is unlawful to enter into, extend or renew any investment advisory contract if
the investment advisory contract:
(1) provides for compensation to the
investment adviser on the basis of a share of capital gains upon or capital
appreciation of the funds or any portion of the funds of the client unless such
contract complies with rule 205-3 under the Investment Advisors Act of 1940;
(2) fails to provide in substance, that no
assignment of such contract shall be made by the investment adviser without the
consent of the other party to the contract; or
(3) fails to provide, in substance, that the
investment adviser, if a partnership, will notify the other party to the
contract of any change in the membership of such partnership within a reasonable
time after such change.
C. Paragraph (1) of Subsection B of
this section shall not:
(1) be construed to prohibit an investment advisory contract which provides
for compensation based upon the total value of a fund averaged over a definite
period, or as of definite dates, or taken as of a definite date; and
(2) apply to an investment advisory contract with a person who is not a
resident of the United States.
D. The
director, by rule, upon the director’s own motion, or by order upon
application, may conditionally or unconditionally exempt any person or
transaction, or any class or classes of persons or transactions, from Paragraph (1) of Subsection B of
this section, if and to the extent that the exemption relates to
an investment advisory contract with any person that the director determines
does not need the protections of Paragraph (1) of Subsection B, on the basis of such factors as financial
sophistication, net worth, knowledge of and experience in financial matters,
amount of assets under management, relationship with a registered investment
adviser or investment adviser representative, and such other factors as the
director determines are consistent with this section.
[12.11.7.10
NMAC - Rp, 12.11.7.10 NMAC, 1-1-2010]
12.11.7.11 [RESERVED]
12.11.7.12 PROHIBITED
BUSINESS PRACTICES BY FEDERAL COVERED ADVISERS: The
provisions of 12.11.7.13 and 12.11.7.14 NMAC apply to federal covered advisers
to the extent that the conduct alleged is fraudulent, deceptive, or as
otherwise permitted by the National Securities Markets Improvement Act of 1996
(Pub. L. No. 104-290). An investment
adviser or a federal covered adviser is a fiduciary and has a duty to act
primarily for the benefit of its clients.
While the extent and nature of this duty varies according to the nature
of the relationship between an investment adviser and its clients and the
circumstances of each case, an investment adviser or a federal covered adviser
shall not engage in any unlawful, unethical or dishonest conduct or practices.
[12.11.7.12
NMAC - Rp, 12.11.7.12 NMAC, 1-1-2010]
12.11.7.13 PROHIBITED BUSINESS PRACTICES BY INVESTMENT
ADVISERS: The following are deemed to be unlawful,
unethical, or dishonest conduct or practice by an investment adviser or
investment adviser representative without limiting those terms to the practices
specified herein:
A. recommending
to a client to whom investment supervisory, management or consulting services
are provided the purchase, sale or exchange of any security without reasonable
grounds to believe that the recommendation is suitable for the client on the
basis of information furnished by the client after reasonable inquiry
concerning the client's investment objectives, financial situation and needs, and
any other information known by the investment adviser;
B. exercising
any discretionary power in placing an order for the purchase or sale of
securities for a client without obtaining written discretionary authority from
the client within ten business days after the date of the first transaction
placed pursuant to oral discretionary authority, unless the discretionary power
relates solely to the price at which, or the time when, an order involving a
definite amount of a specific security shall be executed, or both;
C. inducing
trading in a client's account that is excessive in size or frequency in view of
the financial resources, investment objectives and character of the account;
D. placing
an order to purchase or sell a security for the account of a client without
authority to do so;
E. placing
an order to purchase or sell a security for the account of a client upon
instruction of a third party without first having obtained a written
third-party trading authorization from the client;
F. borrowing
money or securities from a client unless the client is a broker-dealer, an
affiliate of the investment adviser, or a depository institution engaged in the
business of loaning funds;
G. loaning
money to a client unless the investment adviser is a depository institution
engaged in the business of loaning funds or the client is an affiliate of the
investment adviser;
H. misrepresenting
to any advisory client, or prospective advisory client, the qualifications of
the investment adviser or any employee of the investment adviser, or to
misrepresent the nature of the advisory services being offered or fees to be
charged for such service, or to omit to state a material fact necessary to make
the statements made regarding qualifications, services or fees, in light of the
circumstances under which they are made, not misleading;
I. providing
a report or recommendation to any advisory client prepared by someone other
than the investment adviser without disclosing that fact; this prohibition does
not apply to a situation where the adviser uses published research reports or
statistical analyses to render advice or where an adviser orders such a report
in the normal course of providing service;
J. charging
a client an unreasonable advisory fee;
K. failing
to disclose to clients in writing before any advice is rendered any material
conflict of interest relating to the investment adviser or any of its employees
which could reasonably be expected to impair the rendering of unbiased and
objective advice including:
(1) compensation arrangements connected with
advisory services to clients which are in addition to compensation from such
clients for such services; and
(2) charging a client an advisory fee for rendering
advice when a commission for executing securities transactions pursuant to such
advice will be received by the investment adviser or its employees;
L. guaranteeing
a client that a specific result will be achieved (e.g. gain or no loss), with
advice which will be rendered;
M. publishing,
circulating or distributing any advertisement which does not comply with Rule
206(4)-1 under the Investment Advisers Act of 1940;
N. disclosing
the identity, affairs, or investments of any client unless required by law to
do so, or unless consented to by the client;
O. taking
any action, directly or indirectly, with respect to those securities or funds
in which any client has any beneficial interest, where the investment adviser
has custody or possession of such securities or funds and the adviser's action
does not comply with the requirements of Rule 206(4)-2 under the Investment
Advisers Act of 1940;
P. failing
to establish, maintain and enforce written policies and procedures reasonably
designed to prevent the misuse of material nonpublic information contrary to
the provisions of Section 204A of the Investment Advisers Act of 1940 or any
other practice contrary to the provisions of Section 215 of the Investment
Advisers Act of 1940;
Q. engaging
in any act, practice or course of business which is fraudulent, deceptive or
manipulative, contrary to the provisions of or in violation of the
New Mexico Uniform Securities Act or any other rule of the director;
R. engaging
in conduct or any act, indirectly or through or by any other person, which
would be unlawful for such person to do directly under the provisions of the
New Mexico Uniform Securities Act or any rule or regulation thereunder;
S. using in a
misleading manner any term or abbreviation that states or implies that a person
has special expertise, certification, or training in financial planning,
including, but not limited to, the misleading use of a senior-specific
certification or designation as set forth in 12.11.17 NMAC;
T. having
custody of client funds or securities unless the investment adviser or
investment adviser representative complies with the provisions of 12.11.5.22
NMAC;
U. failing
to establish, maintain, and enforce written policies and procedures reasonably
designed to prevent the misuse of material nonpublic information by the
investment adviser, or any investment adviser representative or employee,
taking into consideration the nature of the investment adviser’s business;
V. entering
into, extending, or renewing any investment advisory contract that violates the
provisions of this subsection;
(1) it is unlawful to enter into, extend or
renew any investment advisory contract if the investment advisory contract:
(a)
provides for compensation to the investment adviser on the basis of a
share of capital gains upon or capital appreciation of the funds or any portion
of the funds of the client unless such contract complies with rule 205-3 under
the Investment Advisors Act of 1940;
(b) fails to provide in
substance, that no assignment of such contract shall be made by the investment
adviser without the consent of the other party to the contract; or
(c)
fails to provide, in substance, that the investment adviser, if a
partnership, will notify the other party to the contract of any change in the
membership of such partnership within a reasonable time after such change;
(2) Subparagraph (a) of Paragraph (1) of this
subsection shall not:
(a)
be construed to prohibit an investment advisory contract which provides
for compensation based upon the total value of a fund averaged over a definite
period, or as of definite dates, or taken as of a definite date; and
(b)
apply to an investment advisory contract with a person who is not a
resident of the United States;
(3) the director, by rule, upon the director’s
own motion, or by order upon application, may conditionally or unconditionally
exempt any person or transaction, or any class or classes of persons or
transactions, from Subparagraph (a) of Paragraph (1) of this subsection, if and
to the extent that the exemption relates to an investment advisory contract
with any person that the director determines does not need the protections of
Subparagraph (a) of Paragraph (1) of this subsection, on the basis of such
factors as financial sophistication, net worth, knowledge of and experience in
financial matters, amount of assets under management, relationship with a
registered investment adviser or investment adviser representative, and such
other factors as the director determines are consistent with this section;
W. failing or
refusing to furnish a client, upon reasonable request, information to which the
client is entitled, or to respond to a formal written demand or complaint;
X. in
connection with the offer, purchase or sale of a security, leading a client to
believe that the investment adviser or investment adviser representative is in
possession of material, non-public information that would affect the value of
the security;
Y. failing
to comply with any securities-related arbitration award, unless a proceeding to
vacate or modify such award is pending or unless the time limit to commence
such a proceeding has not yet expired; and
Z. engaging in conduct or any act,
indirectly or through or by any other person, which would be unlawful for an
investment adviser or investment adviser representative to do directly under
the provisions of the New Mexico Uniform Securities Act, this chapter or any
other rule of the director.
[12.11.7.13
NMAC - Rp, 12.11.7.13 NMAC, 1-1-2010]
12.11.7.14 PROHIBITED
BUSINESS PRACTICES LISTED ARE NOT EXCLUSIVE: The conduct set forth in 12.11.7.13 NMAC is not exclusive. Engaging in other conduct such as
nondisclosure, incomplete disclosure or deceptive practices shall be deemed an
unethical business practice. The federal
statutory and regulatory provisions referenced herein shall apply to investment
advisers and federal covered advisers, to the extent permitted by the National
Securities Markets Improvement Act of 1996 (Pub. L. No. 104-290).
[12.11.7.14
NMAC - Rp, 12.11.7.14 NMAC, 1-1-2010]
HISTORY OF 12.11.7
NMAC:
Pre-NMAC
History: Material in this part was derived
from that previously filed with the commission of public records - state
records center and archives:
FID 67-1, Regulation
67-62, General Requirements, 5-18-67
FID 76-1, Order 76-64, Regulation 76-1, Relating to Options Clearing
Corporations, 3-26-76
SB Rule 84-1, New Mexico Blue Sky Regulations, 9-5-84
SD Rule 86-4.06, Rules of Conduct, 7-1-86
SD Rule 95-4.06, Rules of Conduct, 10-14-95
SD Rule 86-4.07, Prohibited Business Practices, 7-1-86.
History of Repealed
Material:
12.11.7 NMAC, Investment Advisers And Investment Adviser Representatives Rules of
Conduct And Prohibited Business Practices (filed 12/9/2008) repealed 1-1-2010.
Other History:
SD Rule
86-4.07, Prohibited Business Practices (filed 7-1-86) and SD Rule 95-4.06,
Rules of Conduct (filed 10-14-95) was renumbered
into first version of the New Mexico Administrative Code as 12 NMAC 11.3,
Investment Advisors, Investment Advisor Representatives and Federal Covered
Advisors, effective 5/01/1999.
Those
relevant portions of 12 NMAC 11.3, Subparts 9, Rules of Conduct and Subpart 10,
Prohibited Business Practices (filed 4-19-99), were renumbered, reformatted, amended and replaced by 12.11.7 NMAC, Investment Advisers And Investment Adviser
Representatives Rules of Conduct And Prohibited Business Practices,
effective 12-31-2008.
12.11.7
NMAC, Investment Advisers And
Investment Adviser Representatives Rules of Conduct And Prohibited Business
Practices (filed 12/9/2008) was replaced by 12.11.7 NMAC, Investment Advisers And Investment Adviser
Representatives Rules of Conduct And Prohibited Business Practices, effective
1-1-2010.