Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) Every licensed
investment adviser shall make and keep true, accurate and current the following
books and records relating to such person's investment advisory business:
(1) A journal or journals, including cash
receipts and disbursements records, and any other records of original entry
forming the basis of entries in any ledger.
(2) General and auxiliary ledgers (or other
comparable records) reflecting asset, liability, reserve, capital, income and
expense accounts.
(3) A memorandum
of each order given by the investment adviser for the purchase or sale of any
security, of any instruction received by the investment adviser from a client
concerning the purchase, sale, receipt or delivery of a particular security,
and of any modification or cancellation of any such order or instruction. Such
memoranda shall show the terms and conditions of the order, instruction,
modification or cancellation; shall identify the person connected with the
investment adviser who recommended the transaction to the client and the person
who placed such order; and shall show the account for which entered, the date
of entry, and the bank or broker-dealer by or through whom executed where
appropriate. Orders entered pursuant to the exercise of a power of attorney
shall be so designated.
(4) All
check books, bank statements, cancelled checks and cash reconciliations of the
investment adviser.
(5) All bills
or statements (or copies thereof), paid or unpaid, relating to the business of
the investment adviser as such.
(6)
All trial balances, financial statements, worksheets that contain computations
of minimum financial requirements required under Section
260.237.2, of these rules, and
internal audit working papers relating to the business of such investment
adviser.
(7) Originals of all
written communications received and copies of all written communications sent
by such investment adviser relating to (i) any recommendation made or proposed
to be made and any advice given or proposed to be given, (ii) any receipt,
disbursement or delivery of funds or securities, or (iii) the placing or
execution of any order to purchase or sell any security; provided, however,
that the investment adviser shall not be required to keep any unsolicited
market letters and other similar communications of general public distribution
not prepared by or for the investment adviser; and provided that if the
investment adviser sends any notice, circular or other advertisement offering
any report, analysis, publication or other investment advisory service to more
than 10 persons, the investment adviser shall not be required to keep a record
of the names and addresses of the persons to whom it was sent, except that if
such notice, circular or advertisement is distributed to persons named on any
list, the investment adviser shall retain with the copy of such notice,
circular or advertisement a memorandum describing the list and the source
thereof.
(8) A list or other record
of all accounts in which the investment adviser is vested with any power of
attorney with respect to the funds, securities or transactions of any
client.
(9) All powers of attorney
and other evidences of the granting of any discretionary authority by any
client to the investment adviser, or copies thereof.
(10) All written agreements (or copies
thereof) entered into by the investment adviser with any client or otherwise
relating to the business of such investment adviser as such.
(11) A copy of each notice, circular,
advertisement, newspaper article, investment letter, bulletin or other
communication recommending the purchase or sale of a specific security, which
the investment adviser circulates or distributes, directly or indirectly, to 10
or more persons (other than investment supervisory clients or persons connected
with such investment adviser), and if such notice, circular, advertisement,
newspaper article, investment letter, bulletin or other communication does not
state the reasons for such recommendation, a memorandum of the investment
adviser indicating the reasons therefor.
(12) A record of every transaction in a
security in which the investment adviser or any advisory representative (as
hereinafter defined) of such investment adviser has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership, except (i)
transactions effected in any account over which neither the investment adviser
nor any advisory representative of the investment adviser has any direct or
indirect influence or control; and (ii) transactions in securities which are
direct obligations of the United States. Such record shall state the title and
amount of the security involved; the date and nature of the transaction (i.e.,
purchase, sale or other acquisition or disposition); the price at which it was
effected; and the name of the broker-dealer or bank with or through whom the
transaction was effected. Such record may also contain a statement declaring
that the reporting or recording of any such transaction shall not be construed
as an admission that the investment adviser or advisory representative has any
direct or indirect beneficial ownership in the security. A transaction shall be
recorded not later than 10 days after the end of the calendar quarter in which
the transaction was effected.
For purposes of this subsection (12):
(A) The term "advisory representative" shall
mean any partner, officer or director of the investment adviser; any employee
who makes any recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made; any employee who, in
connection with such person's duties, obtains any information concerning which
securities are being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations; and any
of the following persons who obtain information concerning securities
recommendations being made by such investment adviser prior to the effective
dissemination of such recommendations or of the information concerning such
recommendations:
(i) any person in a control
relationship to the investment adviser,
(ii) any affiliated person of such
controlling person and
(iii) any
affiliated person of such affiliated person.
(B) The term "control" shall mean the power
to exercise a controlling influence over the management and policies of a
person, unless such power is solely the result of an official position with
such person.
An investment adviser shall not be deemed to have violated
the provisions of this subsection (12) because of its failure to record
securities transactions of any advisory representative if it establishes that
it instituted adequate procedures and used reasonable diligence to obtain
promptly reports of all transactions required to be
recorded.
(13)
Notwithstanding the provisions of subsection (12) above, where the investment
adviser is primarily engaged in a business or businesses other than advising
registered investment companies or other advisory clients, a record must be
maintained of every transaction in a security in which the investment adviser
or any advisory representative (as hereinafter defined) of such investment
adviser has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership, except (i) transactions effected in any account over
which neither the investment adviser nor any advisory representative of the
investment adviser has any direct or indirect influence or control; and (ii)
transactions in securities which are direct obligations of the United States.
Such record shall state the title and amount of the security involved; the date
and nature of the transaction (i.e., purchase, sale or other acquisition or
disposition); the price at which it was effected; and the name of the
broker-dealer or bank with or through whom the transaction was effected. Such
record may also contain a statement declaring that the reporting or recording
of any such transaction shall not be construed as an admission that the
investment adviser or advisory representative has any direct or indirect
beneficial ownership in the security. A transaction shall be recorded not later
than 10 days after the end of the calendar quarter in which the transaction was
effected.
For the purposes of this subsection (13):
(A) The term "advisory representative," when
used in connection with a company primarily engaged in a business or businesses
other than advising registered investment companies or other advisory clients,
shall mean any partner, officer, director or employee of the investment adviser
who makes any recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made, or who, in connection with
its duties, obtains any information concerning which securities are being
recommended prior to the effective dissemination of such recommendations or of
the information concerning such recommendations; and any of the following
persons who obtain information concerning securities recommendations being made
by such investment adviser prior to the effective dissemination of such
recommendations of the information concerning such recommendations:
(i) any person in a control relationship to
the investment adviser,
(ii) any
affiliated person of such controlling person and
(iii) any affiliated person of such
affiliated person.
(B)
The term "control" shall mean the power to exercise a controlling influence
over the management and policies of a person, unless such power is solely the
result of an official position with such person.
(C) An investment adviser is "primarily
engage in a business or businesses other than advising registered investment
companies or other advisory clients" when, for each of its most recent three
fiscal years or for the period of time since organization, whichever is lesser,
the investment adviser derived, on an unconsolidated basis, more than 50% of
(i) its total sales and revenues, and (ii) its income (or loss) before income
taxes and extraordinary items, from other business or businesses.
An investment adviser shall not be deemed to have violated
the provisions of this subsection (13) because of such person's failure to
record securities transactions of any advisory representative if it establishes
that it instituted adequate procedures and used reasonable diligence to obtain
promptly reports of all transactions required to be
recorded.
(14) A
properly completed and executed Customer Authorization of Disclosure of
Financial Records (Section
260.231(i)).
(15) If the investment adviser is an
individual owner (e.g., sole proprietorship), a properly completed and executed
Statement of Citizenship, Alienage, and Immigration Status form (Section
250.61) and any documents
establishing proof thereof.
(16)
Evidence of compliance with Section
260.236 and the investigation of
each investment adviser representative.
(17) For investment advisers filing through
IARD, copies, with original signatures of the investment adviser's appropriate
signatory and the investment adviser representative, of each initial Form
U4.
(b) If a licensed
investment adviser has custody or possession of securities or funds of any
client, the records required to be made and kept under Subsection (a) above
shall include:
(1) A journal or other record
showing all purchases, sales, receipts and deliveries of securities (including
certificate numbers) for such accounts and all other debits and credits to such
accounts.
(2) A separate ledger
account for each such client showing all purchases, sales, receipts and
deliveries of securities, the date and price of each such purchase or sale, and
all debits and credits.
(3) Copies
of confirmations of all transactions effected by or for the account of any such
client.
(4) A record for each
security in which any such client has a position, which record shall show the
name of each such client having any interest in such security, the amount of
interest of each such client, and the location of each such
security.
(c) Every
licensed investment adviser who renders any investment supervisory or
management service to any client shall, with respect to the portfolio being
supervised or managed and to the extent that the information is reasonably
available to or obtainable by the investment adviser, make and keep true,
accurate and current:
(1) Records showing
separately for each such client the securities purchased and sold, and the
date, amount and price of each such purchase or sale.
(2) For each security in which any such
client has a current position, information from which the investment adviser
can promptly furnish the name of each such client, and the current amount of
the interest of such client.
(d) Any books or records required by this
section may be maintained by the investment adviser in such manner that the
identity of any client to whom such investment adviser renders investment
supervisory services is indicated by numerical or alphabetical code or some
similar designation.
(e)
(1) All books and records required to be made
under the provisions of subsections (a) to (c)(1), inclusive, of this section
shall be maintained and preserved in an easily accessible place for a period of
not less than five years from the end of the fiscal year during which the last
entry was made on such record, the first two years in an appropriate office of
the investment adviser.
(2) Charter
documents, minute books and stock certificate books of the investment adviser
and of any predecessor, shall be maintained in the principal office of the
investment adviser and preserved until at least three years after termination
of the enterprise.
(f) A
licensed investment adviser, before ceasing to conduct or discontinuing
business as an investment adviser, shall arrange for and be responsible for the
preservation of the books and records required to be maintained and preserved
under this section for the remainder of the period specified in this section,
and shall notify the Commissioner in writing of the exact address where such
books and records will be maintained during such period.
(g)
(1) The
records required to be maintained and preserved pursuant to this rule may be
produced or reproduced by photograph on film or, as provided in paragraph (g)
(2) below, on magnetic disk, tape or other computer storage medium, and be
maintained and preserved for the required time in that form. If records are
produced or reproduced by photographic film or computer storage medium, the
investment adviser shall:
(A) arrange the
records and index the films or computer storage medium so as to permit the
immediate location of any particular record;
(B) be ready at all times to promptly provide
any facsimile enlargement of film or computer printout or copy of the computer
storage medium which the Commissioner, the Commissioner's examiners or other
representatives of the Commissioner may request;
(C) store separately from the original one
other copy of the file or computer storage medium for the time
required;
(D) with respect to
records stored on computer storage medium, maintain procedures for maintenance
and preservation of and access to, records so as to reasonably safeguard
records from loss, alteration, or destruction, and
(E) with respect to records stored on
photographic film, at all times have available for examination by the
Commissioner, the Commissioner's examiners or other representatives of the
Commissioners its records pursuant to Section
25241 of the Code facilities for
immediate, easily readable projection of the film and for producing easily
readable facsimile enlargements.
(2) Pursuant to subsection (g) (1) an adviser
may maintain and preserve on computer tape or disk or other computer storage
medium records which, in the ordinary course of the adviser's business, are
created by the adviser on electronic media or are received by the adviser
solely on electronic media or by electronic data
transmission.
(h)
(1) Any book or other record made, kept,
maintained and preserved in compliance with sections
260.241 and
260.241.1 of these rules, which is
substantially the same as the book or other record required to be made, kept,
maintained and preserved under this section, shall satisfy the requirements of
this section.
(2) A record made and
kept pursuant to any provision of subsection (a) of this section, which
contains all the information required under any other provision of subsection
(a), need not be maintained in duplicate in order to meet the requirements of
the other provision of subsection (a) of the section.
(i) As used in this section, the terms "power
of attorney" and "discretionary authority" do not include discretion as to the
price at which or the time when a transaction is or is to be effected, if,
before the order is given by the investment adviser, the client has directed or
approved the purchase or sale of a definite amount of the particular
security.
(j) Any investment
adviser who is subject to the minimum financial requirements of Section
260.237.2 shall, in addition to
the records otherwise required under this section, maintain a record of the
proof of money balances of all ledger accounts in the form of trial balances
and a record of the computations of minimum net worth pursuant to Section
230.237.2 of these rules (as of
the trial balance date). The trial balances and computations shall be prepared
currently at least once a month.
1. Amendment
of subsection (a)(12)(A) filed 2-8-78; effective thirtieth day thereafter
(Register 78, No. 6). For prior history, see Register 77, No. 36.
2.
Editorial correction of subsection (a) filed 11-9-82 (Register 82, No.
46).
3. Amendment of subsection (j) filed 4-27-84; effective
thirtieth day thereafter (Register 84, No. 18).
4. Amendment of
subsection (g) filed 1-7-88; operative 2-6-88 (Register 88, No.
4).
5. Amendment of subsection (a)(6), new subsections (a)(14)-(17),
amendment of subsection (j) and amendment of NOTE filed 3-4-2003; operative
4-3-2003 (Register 2003, No. 10).
6. Amendment of subsections
(a)(6), (a)(17) and (j) filed 9-24-2009; operative 10-24-2009 (Register 2009,
No. 39).
Note: Authority cited: Sections
25241
and
25610,
Corporations Code. Reference: Sections
25230,
25236,
25237,
25241
and
25613,
Corporations Code.
