HAR §16-39-404. Financial requirements

(a) Every registered broker-dealer shall file an annual report of condition within ninety calendar days following the end of the calendar or fiscal year adopted as follows: (1) Broker-dealers registered under the Securities Exchange Act shall file a copy of the annual financial report filed with the SEC; and (2) All other broker-dealers shall file audited financial statements that evidences the broker-dealer's compliance with the requirements of subsection (b). (b) A broker-dealer that is subject to subsection (a)(2) shall have at all times a minimum net capital of not less than $5,000. As used in this section, "net capital" shall mean net worth, or the difference between total assets and total liabilities or indebtedness, after adjustment to eliminate or revise assets of doubtful or uncertain value and to reflect true liabilities, in accordance with the following schedule: (1) Asset items not allowable: (A) Furniture, fixtures, and equipment; and (B) Intangible items, such as goodwill, prepaid preincorporation, or organizational expenses, etc.; and (2) Asset items to be adjusted or substantiated: (A) Securities owned shall be adjusted to market value; (B) Value of real estate shall be attested to by qualified and disinterested persons; (C) Property in joint ownership shall be limited to applicant's interest therein; and §16-39-404 39-48 (D) Value of unsecured notes, accounts receivable, or advanced commissions due from an agent, officer, director, partner, or affiliate may be required by the commissioner to be substantiated by an opinion of a bank, finance company, or other lending institution satisfactory to the commissioner. (c) Broker-dealers registered in this State, who are registered with the SEC and are members of FINRA, may satisfy the annual report requirements of this section by complying with the following: (1) The broker-dealer files its annual audited financial report with FINRA; (2) The broker-dealer's annual audited financial reports filed with FINRA are current; (3) The broker-dealer notifies the commissioner in writing within twenty-four hours if the broker-dealer's net capital fails to meet the minimum amount required under this section; (4) The broker-dealer shall provide the commissioner with financial information within one business day following a request for such information from the commissioner; and (5) The broker-dealer shall complete the "Waiver Eligibility Certification" form. [Eff 6/30/08; am and comp 11/18/23] (Auth: HRS §§485A-406 485A-411, 485A-606) (Imp: HRS §§485A-406 485A-411, 485A-606) §16-39-405 Sales of securities at financial institutions. No broker-dealer shall conduct broker- dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer complies initially and continuously with the following requirements: §16-39-405 39-49 (1) Setting. Wherever practical, broker-dealer services shall be conducted in a physical location distinct from the area in which the financial institution's retail deposits are taken. In those situations where there is insufficient space to allow separate areas, the broker-dealer has a heightened responsibility to distinguish its services from those of the financial institution. In all situations, the broker-dealer shall identify its services in a manner that clearly distinguishes those services from the financial institution's retail deposit- taking activities. The broker-dealer's name shall be clearly displayed in the area in which the broker-dealer conducts its services. (2) Networking arrangements and program management. Networking arrangements shall be governed by a written agreement that sets forth the responsibilities of the parties and the compensation arrangements. Networking arrangements shall provide that supervisory personnel of the broker-dealer and representatives of state securities authorities, shall be permitted access to the financial institution's premises where the broker-dealer conducts broker-dealer services in order to inspect the books and records and other relevant information maintained by the broker-dealer with respect to its broker-dealer services. Management of the broker-dealer shall be responsible for ensuring that the networking arrangement clearly outlines the duties and responsibilities of all parties, including those of the financial institution's personnel. (3) Customer disclosure and written acknowledgment. §16-39-405 39-50 (A) At or prior to the time that a customer's securities brokerage account is opened by a broker-dealer on the premises of a financial institution where retail deposits are taken, the broker-dealer shall: (i) Disclose, orally and in writing, that the securities purchased or sold in a transaction with the broker-dealer are: not insured by the FDIC; not deposits or other obligations of the financial institution and are not guaranteed by the financial institution; and subject to investment risks, including possible loss of the principal invested; and (ii) Make reasonable efforts to obtain from each customer during the account opening process a written acknowledgment of the disclosures required by clause (i). (B) If broker-dealer services include any written or oral representations concerning insurance coverage, other than FDIC insurance coverage, then clear and accurate written or oral explanations of the coverage must also be provided to the customers when the presentations are first made. (4) Communications with the public. (A) All of the broker-dealer's confirmations and account statements shall indicate clearly that the broker- dealer services are provided by the broker-dealer. (B) Advertisements and sales literature that announce the location of a financial institution where broker- §16-39-405 39-51 dealer services are provided by the broker-dealer, or that are distributed by the broker-dealer on the premises of a financial institution, shall disclose that the securities: are not insured by the FDIC; are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution; and are subject to investment risks, including possible loss of the principal invested. The shorter, logo format described in subparagraph (D) may be used to provide these disclosures. (C) Recommendations by a broker-dealer concerning non deposit investment products with a name similar to that of a financial institution shall only occur pursuant to policies and procedures reasonably designed to minimize risk of customer confusion. (D) The following shorter, logo format disclosures may be used by a broker- dealer in advertisements and sales literature, including material published, or designed for use, in radio or television broadcasts, automated teller machine ("ATM") screens, billboards, signs, posters and brochures, to comply with the requirements of subparagraph (B); provided that such disclosures are displayed in a conspicuous manner: (i) Not FDIC insured; (ii) No bank guarantee; and (iii) May lose value. (E) As long as the omission of the disclosures required by subparagraph (B) would not cause the advertisement or sales literature to be misleading in light of the context in which the material is presented, such disclosures §16-39-405 39-52 are not required with respect to messages contained in: (i) Radio broadcasts of thirty seconds or less; (ii) Electronic signs, including billboard-type signs that are electronic, time, and temperature signs and ticker tape signs, but excluding messages contained in such media as television, on-line computer services, or ATMs; and (iii) Signs, such as banners and posters, when used only as location indicators. (5) Notification of termination. The broker- dealer shall promptly notify the financial institution if any agent of the broker- dealer who is employed by the financial institution is terminated for cause by the broker-dealer. [Eff 6/30/08; am and comp 11/18/23] (Auth: HRS §§485A-406, 485A-606) (Imp: HRS §485A-406)