(6) Prohibited Business Practices.
(a) The following shall be deemed "dishonest
or unethical business practices" by a broker-dealer under T.C.A. §
48-1-112(a)(2)(G),
without limiting that term to the practices specified herein:
1. Causing any unreasonable delay in the
delivery of securities purchased by any of its customers;
2. 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;
3.
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;
4. Executing a
transaction on behalf of a customer without authority to do so;
5. 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 and/or price for the execution of
orders;
6. Extending, arranging
for, or participating in arranging for credit to a customer in violation of the
1934 Act or the regulations of the Federal Reserve Board;
7. Executing any transaction in a margin
account without obtaining from its customers a written margin agreement prior
to settlement date for the initial transaction in the account;
8. Failing to segregate customers' free
securities or securities in safekeeping;
9. Hypothecating a customer's securities
without having a lien thereon unless written consent of the customer is first
obtained, except as permitted by rules of the SEC;
10. Charging its customers an unreasonable
commission or service charge in any transaction executed as agent for the
customer;
11. Entering into a
transaction for its own account with a customer with an unreasonable mark up or
mark down. There shall be a rebuttable presumption that any mark up or mark
down in excess of the guidelines set by the FINRA is unreasonable;
12. Entering into a transaction for its own
account with a customer in which a commission is charged;
13. Entering into a transaction with or for a
customer at a price not reasonably related to the current market
price;
14. Executing orders for the
purchase or sale of securities which the broker-dealer knew or should have
known were not registered under the Act unless the securities or transactions
are exempt under the Act;
15.
Violating any rule of a national securities exchange or national securities
dealers association of which it is a member with respect to any customer,
transaction, or business in this state;
16. Requiring investment advisory clients of
a broker-dealer or an affiliated investment adviser to use the broker-dealer to
execute trades for such client, and failing to disclose to such clients their
rights to use any broker-dealer for trade execution;
17. For a registered broker-dealer which
shares office space with, or occupies the same business premises as, a person
not so registered, failing to disclose clearly, conspicuously, and continuously
the relationship, or lack thereof, between it and such other person;
18. Causing any unreasonable delay in the
execution of a transaction on behalf of a customer; and
19. Failing to provide information requested
by the Division pursuant to the Act or these Rules promulgated
thereunder.
(b) The
following are deemed "dishonest or unethical business practices" by an agent
under T.C.A. §
48-1-112(a)(2)(G),
without limiting those terms to the practices specified herein:
1. Borrowing money or securities from a
customer;
2. Acting as a custodian
for money, securities, or an executed stock power of a customer;
3. Effecting securities transactions with a
customer not recorded on the regular books or records of the broker-dealer
which the agent represents, unless the transactions are disclosed to, and
authorized in writing by, the broker-dealer prior to execution of the
transactions;
4. Operating an
account under a fictitious name, unless disclosed to the broker-dealer that the
agent represents;
5. Sharing
directly or indirectly in profits or losses in the account of any customer
without the written authorization of the customer and the broker-dealer which
the agent represents;
6. Dividing
or otherwise splitting commissions, profits, or other compensation receivable
in connection with the purchase or sale of securities in this state with any
person not registered as an agent for the same broker-dealer, or for an
affiliate of the same broker-dealer;
7. 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;
8.
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 or
agent;
9. Executing a transaction
on behalf of a customer without authority to do so;
10. 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 and/or price for the execution of
orders;
11. Extending, arranging
for, or participating in arranging for credit to a customer in violation of the
1934 Act or the regulations of the Federal Reserve Board;
12. Executing any transaction in a margin
account without obtaining from his or her customers a written margin agreement
prior to settlement date for the initial transaction in the account;
13. Charging a customer an unreasonable
commission or service charge in any transaction executed as agent for the
customer;
14. Entering into a
transaction for his or her broker-dealer's account with a customer with an
unreasonable mark up or mark down. There shall be a rebuttable presumption that
any mark up or mark down in excess of the guidelines set by the FINRA is
unreasonable;
15. Entering into a
transaction with or for a customer at a price not reasonably related to the
current market price;
16. Executing
orders for the purchase or sale of securities which the agent knew or should
have known were not registered under the Act unless the securities or
transactions are exempt under the Act;
17. Violating any rule of a national
securities exchange or national securities dealers association of which the
agent is an associated person with respect to any customer, transaction, or
business in this state;
18. Causing
any unreasonable delay in the execution of a transaction on behalf of a
customer; and
19. Failing to
provide information requested by the Division pursuant to the Act or these
Rules.
(c) The following
are deemed "dishonest or unethical business practices" by an investment adviser
or an investment adviser representative under T.C.A. §
48-1-112(a)(2)(G),
to the extent permitted under Section 203A of the Investment Advisers Act,
without limiting those terms to the practices specified herein:
1. Exercising any discretionary power in
placing an order for the purchase or sale of securities for the account of a
customer without first obtaining written discretionary authority from the
customer;
2. Placing an order for
the purchase or sale of a security pursuant to discretionary authority if the
purchase or sale is in violation of the Act or these Rules;
3. 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;
4.
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 investment
adviser;
5. Executing a transaction
on behalf of a customer without authority to do so;
6. Extending, arranging for, or participating
in arranging for credit to a customer in violation of the 1934 Act or the
regulations of the Federal Reserve Board;
7. Failing to segregate customers' free
securities or securities in safekeeping;
8. Hypothecating a customer's securities
without having a lien thereon unless written consent of the customer is first
obtained, except as permitted by rules of the SEC;
9. Entering into a transaction for the
investment adviser's own account with a customer with an unreasonable mark up
or mark down. There shall be a rebuttable presumption that any mark up or mark
down in excess of the guidelines set by the FINRA is unreasonable;
10. 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;
11. Misrepresenting to any
advisory client, or prospective advisory client, the qualifications of the
investment adviser or any employee of the investment adviser, or
misrepresenting the nature of the advisory services being offered or fees to be
charged for such service, or omitting 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;
12. Providing a report or recommendation to
any advisory client prepared by someone other than the 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.);
13. Charging a
client an unreasonable advisory fee;
14. Failing to disclose to clients, in
writing, before any advice is rendered, any material conflict of interest
relating to the adviser or any of its employees which could reasonably be
expected to impair the rendering of unbiased and objective advice including:
(i) Compensation agreements connected with
advisory services to clients, which are in addition to compensation from such
clients for such services; and
(ii)
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 adviser or its employees;
15. Guaranteeing a client that a specific
result will be achieved (gain or no loss) with advice which will be
rendered;
16. Publishing,
circulating, or distributing any advertisement which does not comply with Rule
0780-04-03-.09 under the
Act;
17. Disclosing the identity,
affairs, or investments of any client unless required by law to do so, or
unless consented to by the client;
18. 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 when the adviser's action is subject to and does
not comply with the requirements of Rule
0780-04-03-.07 under the
Act;
19. Entering into, extending,
or renewing any investment advisory contract, unless such contract is in
writing and, in substance, discloses:
(i) The
services to be provided;
(ii) The
term of the contract;
(iv) The formula for
computing the fee;
(v) The amount
of prepaid fee to be returned in the event of contract termination or
non-performance;
(vi) Whether the
contract grants discretionary power to the adviser; and
(vii) That no assignments of such contract
shall be made by the investment adviser without the consent of the other party
to the contract;
20.
Failing to establish, maintain, and enforce written policies and procedures
reasonably designed, taking into consideration the nature of such investment
adviser's business, to prevent the misuse in violation of the Investment
Advisers Act or the 1934 Act, or the rules or regulations promulgated
thereunder, of material, non-public information by such investment adviser or
any person associated with such investment adviser;
21. Entering into, extending, or renewing any
advisory contract which would violate Section 205 of the Investment Advisers
Act;
22. Indicating, in an advisory
contract, any condition, stipulation, or provisions binding any person to waive
compliance with any provision of the Act or of the Investment Advisers Act, or
any other practice that would violate Section 215 of the Investment Advisers
Act;
23. 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 Act or these
Rules;
24. Borrowing money or
securities from a client unless the client is a broker-dealer, an affiliate of
the investment adviser, or a financial institution engaged in the business of
loaning funds;
25. Loaning money to
a client unless the investment adviser is a financial institution engaged in
the business of loaning funds or the client is an affiliate of the investment
adviser; and
26. Failing to provide
information requested by the Division pursuant to the Act or these
Rules.
(d) Use of
Senior-Specific Certifications and Professional Designations.
1. The following shall be deemed "dishonest
or unethical business practices" by a broker-dealer, agent of a broker-dealer,
an investment adviser or an investment adviser representative under T.C.A.
§
48-1-112(a)(2)(G):
(i) The use of a senior-specific
certification or designation by any person in connection with the offer, sale,
or purchase of securities, or the provision of advice as to the value of or the
advisability of investing in, purchasing, or selling securities, either
directly or indirectly or through publications or writings, or by issuing or
promulgating analyses or reports relating to securities, that indicates or
implies that the user has special certification or training in advising or
servicing senior citizens or retirees, in such a way as to mislead any person
shall be a dishonest and unethical practice within the meaning of T.C.A. §
48-1-112(a)(2)(G).
The prohibited use of such certifications or professional designation includes,
but is not limited to, the following:
(I) Use
of a certification or professional designation by a person who has not actually
earned, or is otherwise ineligible to use, such certification or
designation;
(II) Use of a
nonexistent or self-conferred certification or professional
designation;
(III) Use of a
certification or professional designation that indicates or implies a level of
occupational qualifications, obtained through education, training, or
experience, that the person using the certification or professional designation
does not have; and
(IV) Use of a
certification or professional designation that was obtained from a designating
or certifying organization that:
I. Is
primarily engaged in the business of instruction in sales and/or
marketing;
II. Does not have
reasonable standards or procedures for assuring the competency of its designees
or certificants;
III. Does not have
reasonable standards or procedures for monitoring and disciplining its
designees or certificants for improper or unethical conduct; or
IV. Does not have reasonable continuing
education requirements for its designees or certificants in order to maintain
the designation or certificate.
2. There is a rebuttable presumption that a
designating or certifying organization is not disqualified solely for purposes
of subitem 1.i(IV) of this subparagraph (d) above when the organization has
been accredited by:
(i) The American National
Standards Institute; or
(ii) The
National Commission for Certifying Agencies; or
(iii) An organization that is on the United
States Department of Education's list entitled "Accrediting Agencies Recognized
for Title IV Purposes" and the designation or credential issued therefrom does
not primarily apply to sales and/or marketing.
3. In determining whether a combination of
words (or an acronym standing for a combination of words) constitutes a
certification or professional designation indicating or implying that a person
has special certification or training in advising or servicing senior citizens
or retirees, factors to be considered shall include:
(i) Use of one or more words such as
"senior," "retirement," "elder," or like words, combined with one or more words
such as "certified," "registered," "chartered," "adviser," "specialist,"
"consultant," "planner," or like words, in the name of the certification or
professional designation; and
(ii)
The manner in which those words are combined.
4. For purposes of this rule, a certification
or professional designation does not include a job title within an organization
that is licensed or registered by a state or federal financial services
regulatory agency, when that job title:
(i)
Indicates seniority or standing within the organization; or
(ii) Specifies an individual's area of
specialization within the organization; unless
(iii) Such job title is used in a way that
indicates or implies that the user has special certification or training in
advising or servicing senior citizens or retirees.
For purposes of this subsection, financial services
regulatory agency includes, but is not limited to, an agency that regulates
broker-dealers, investment advisers, or investment companies as defined under
the Investment Company Act of 1940.
5. Nothing in this rule shall limit the
Commissioner's authority to enforce existing provisions of law.