Denial, Revocation and Suspension of Registration

PURPOSE: This rule prescribes grounds for the denial, revocation or suspension of the registration of broker-dealers and sales representatives. (1) Grounds for the denial, revocation and suspension of registration shall include, in addition to other grounds specified in section 409.863(1), RSMo, the following “unethical or dishonest conduct or practice in the investment commodities or securities business”: (A) Delaying unreasonably and unjustifiably or failing to execute orders, liquidate customers’ accounts or in making delivery of securities or commodities purchased or in the payment upon request of free credit balances reflecting completed transactions of any of its customers; (B) Entering into a transaction with or for a customer at a price not reasonably related to the current market price of the commodity or security or receiving an unreasonable commission or profit; (C) Effecting transactions in the account of a customer without authority to do so; or 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, price, or both, for the execution of orders; (D) Willful switching, churning, overtrading or reloading of commodities or securities in a customer’s account for the purpose of accumulating or compounding commission or 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; (E) Recommending to a customer the purchase, sale or exchange of any commodity or security without reasonable grounds to believe that the transaction or recommendation is suitable for the customer based upon reasonable inquiry concerning the customer’s investment objectives, financial situation and needs and any other relevant information known by the applicant or registrant; (F) Engaging in or aiding in boiler room operations or high pressure tactics in connection with the promotion of speculative offerings or hot issues by means of an intensive telephone campaign or unsolicited calls to persons not known by, nor having an account with, the sales representative or broker-dealer represented by the sales representative, where the prospective purchaser is encouraged to make a hasty decision to buy, irrespective of his/her investment needs and objectives; (G) Failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include all information set forth in the final prospectus, or making oral or written statements contrary to or inconsistent with the disclosures contained in the prospectus; (H) Failing to furnish to a customer purchasing commodities, no later than the date of confirmation of the transaction, a disclosure statement as required in 15 CSR 3059.190, or making oral or written statements contrary to or inconsistent with the disclosures contained in the statement; (I) Making false, misleading, deceptive, exaggerated or flamboyant representations or predictions in the solicitation or sale of commodity or security, as, for example 1. That the commodity or security will be resold or repurchased; 2. That it will be listed or traded on an exchange or established market; 3. That it will result in an assured, immediate or extensive increase in value, future market price or return on investment; 4. With respect to the issuer’s financial condition, anticipated earnings, potential growth or success; 5. That there is a guarantee against risk or loss; or 6. Representing that a commodity or security is being offered to a customer at the market or a price related to the market price unless the applicant or registrant knows or has reasonable grounds to believe that A. A market for that commodity or security exists other than that made, created or controlled by the applicant or registrant, or by any person for whom s/he is acting or with whom s/he is associated in such distribution, or any person controlled by, controlling or under common control with the applicant or registrant; and B. The commodity or security is traded in an established commodities or securities market, and the fact that the applicant or registrant is in a control position with respect to the market for that commodity or security is fully disclosed to the investor; (J) Failing to disclose a dual agency capacity or effecting transactions upon terms and conditions other than those stated per confirmations, or failing to disclose that the applicant or registrant is controlled by, controlling, affiliated with or under common control with the issuer of any security before entering into any contract with or for a customer for the purchase or sale of security, or if the disclosure is not made in writing, failing to give or send a written disclosure at or before the completion of the transaction; (K) Failing to make a bona fide public offering of all of the securities allotted to a broker-dealer for distribution, whether acquired as an underwriter, a selling group member or from a member participating in the distribution as an underwriter or selling group member; or entering into an underwriting or selling group agreement which establishes unfair or unreasonable terms and conditions or compensation; (L) Establishing fictitious accounts in order to execute transactions which would otherwise be prohibited; (M) Entering into agreements for selling concessions, discounts, commissions or allowances as consideration for services in connection with the distribution or sale of a commodity or security in Missouri to any unregistered broker-dealer or sales representative, or dividing or otherwise splitting the sales representative’s commissions, profits or other compensation from the purchase or sale of commodities or securities with any person not also registered as a sales representative for the same broker-dealer, or for a brokerdealer under direct or common control unless such person is not required to be registered in order to engage in the commodities or securities business in Missouri; (N) Operating a commodities or securities business while being unable to meet current liabilities, or violating any rule or order relating to minimum capital, bond, record-keeping and reporting requirements, or provisions concerning use, commingling or hypothecation of commodities or securities; (O) Failing or refusing to furnish a customer, upon reasonable request, information to which s/he is entitled, or to respond to a formal written demand or complaint; (P) Extending, arranging for or participating in arranging for credit to a customer in violation of the regulations of the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC) or the regulations of the Federal Reserve Board; (Q) Executing any transaction in a margin account without securing from the customer a properly executed written margin agreement, including, but not limited to, written authorization for the existence of such an account, within ten (10) days after the initial transaction in the account; (R) Hypothecating a customer’s commodities or securities without having a lien on the commodities or securities unless the brokerdealer secures from the customer a properly executed written consent except as permitted by rules of the CFTC or SEC; (S) Charging unreasonable and inequitable fees for services performed, including miscellaneous services such as collection of moneys due for principal, dividends or interest, exchange or transfer of commodities or securities, appraisals, safekeeping or custody of commodities or securities and other services related to its commodities or securities business; (T) Offering to buy from or sell to any person any commodity or security at a stated price unless the applicant or registrant is prepared to purchase or sell, as the case may be, at a price and under conditions as are stated at the time of the offer to buy or sell; (U) Effecting any transaction in or inducing the purchase or sale of any commodity or security by means of a manipulative, deceptive or fraudulent device, practice, plan, program, design or contrivance including, but not limited to: 1. Effecting any transaction in a commodity or security which involves no change in the beneficial ownership; and 2. Effecting, alone or with one (1) or more other persons, a transaction or series of transactions in any commodity or security creating actual or apparent active trading in the commodity or security or raising or depressing the price of the commodity or security for the purpose of inducing the purchase or sale of the commodity or security by others; (V) Publishing or circulating or causing to be published or circulated, any notice, circular, advertisement, newspaper article, investment service or communication of any kind which purports to report any transaction as a purchase or sale of any commodity or security unless the applicant or registrant believes that the transaction was a bona fide purchase or sale of the commodity or security; or which purports to quote the bid or asked price for any commodity or security, unless the applicant or registrant believes that the and Sales Representatives quotation represents a bona fide bid for, or offer of, the commodity or security; or using any advertising or sales material in such a fashion as to be deceptive or misleading, such as the distribution of any nonfactual datum, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in any brochure, flyer, or display by words, pictures, graphs or otherwise, designed to supplement, detract from, supersede or defeat the purpose or effect of any prospectus or disclosure; (W) Borrowing of money, commodities or securities from a customer by a sales representative, or for a sales representative to act as a custodian for money, commodities or securities or an executed stock power of a customer; (X) Sharing, by a sales representative, directly or indirectly in profits or losses in the account of any customer without the written authorization of the customer and the brokerdealer a sales representative represents; and (Y) Effecting commodities or securities transactions not recorded on the regular books or records of the broker-dealer the sales representative represents, unless the transactions are authorized in writing by the broker-dealer prior to the execution of the transaction. AUTHORITY: sections 409.836 and 409.863, RSMo 1986.* This rule was previously filed as 15 CSR 30-60.130. Emergency rule filed Oct. 2, 1985, effective Oct. 12, 1985, expired Feb. 9, 1986. Original rule filed Aug. 22, 1986, effective Jan. 30, 1987. *Original authority: 409.836, RSMo 1985 and 409.863, RSMo 1985.