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Internet Order for Broker-Dealers and Investment Advisors

SECURITIES COMMISSIONER
STATE OF NORTH DAKOTA

WHEREAS, the North Dakota Securities Commissioner (the “Commissioner”) is charged with the administration of the Securities Act (Chapter 10-04 of the North Dakota Century Code); and,

WHEREAS, in NDCC §10-04-03(2), it is provided, in part, that “[t]he Commissioner may from time to time make, amend, and rescind…orders as are necessary under this chapter…”; and,

WHEREAS, in NDCC §10-04-10, it is provided that a “dealer or salesman may not offer for sale or sell any securities within or from this state…unless registered as a dealer or salesman pursuant to the provisions of this section”; and,

WHEREAS, in NDCC §10-04-10(3), it is provided that “[I]t is unlawful for any person to transact business in this state as an investment advisor unless…the person is registered under this chapter…[or] the person’s only clients in this state are investment companies…”; and,

WHEREAS, the Commissioner acknowledges that the Internet, the World Wide Web, and similar proprietary or common carrier electronic systems (collectively, the “Internet”) have facilitated greatly the ability of broker-dealers (“BDs”), investment advisor (“IAs”), sales agents, and investment advisor representatives (“IA Reps”) to advertise and otherwise disseminate information on products and services to prospective customers and clients; and,

WHEREAS, the Commissioner also acknowledges that certain communications made on the Internet are directed generally to anyone having access to the Internet and may be transmitted through postings on Bulletin Boards, displays on “Home Pages” or similar methods (collectively, “Internet Communications”); and,

WHEREAS, the Commissioner further acknowledges that in certain instances, by distributing information on available products and services through Internet Communications available to persons in this state, BDs, IAs, sales agents and IA Reps could be construed as making an “offer for sale…of securities” for the purposes of NDCC §10-04-10 or “transacting business” for the purposes of NDCC §10-04-10(3) so as to require registration in this state, since the Internet Communications would be received in this state regardless of the intent of the person originating such communication; and,

WHEREAS, the Commissioner finds that the issuance of this Order is necessary and appropriate in the public interest and for the protection of investors and consistent with the purposes fairly intended by the Securities Act.

NOW THEREFORE, it is hereby ORDERED, as follows:

  1. BDs, IAs, sales agents and IA Reps who use the Internet to distribute information on available products and services through certain communications made on the Internet directed generally to anyone having access to the Internet, and transmitted though Internet Communications shall not be deemed to be “transacting business” or making an “offer for sale” in this state for purposes of Section NDCC §10-04-10 based solely on that fact if each of the following conditions are observed:
    1. The Internet Communications include a legend in which it is clearly stated that:
      1. The BD, IA, sales agent, or IA Rep in question may only transact business in this state if first registered, excluded or exempted from state BD, IA, sales agent or IA Rep registration requirements; and,
      2. follow-up, individualized responses to persons in this state by such BD, IA, sales agent or IA Rep that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advise for compensation, will not be made absent compliance with state BD, IA, sales agent or IA Rep registration requirements, or an applicable exemption or exclusion.
    2. The Internet Communication contains a mechanism, including and without limitation, technical “firewalls” or other implemented policies and procedures, reasonably designed to ensure that prior to any subsequent, direct communication with prospective customers or clients in this state, said BD, IA, sales agent or IA Rep is first registered in this state or qualifies for an exemption or exclusion from such requirement. Nothing in this paragraph shall be construed to relieve a state-registered BD, IA, sales agent or IA Rep from any applicable securities registration requirement in this state.
    3. The Internet Communication does not involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advise for compensation, in this state over the Internet, but is limited to the dissemination of general information on products and services.
    4. In the case of a sales agent or IA Rep:
      1. the affiliation with the BD or IA of the sales agent or IA Rep is prominently disclosed within the Internet Communication;
      2. the BD or IA with whom the sales agent or IA Rep is associated retains responsibility for reviewing and approving the content of any Internet Communication by the sales agent or IA Rep;
      3. the BD or IA with whom the sales agent or IA Rep is associated first authorizes the distribution of information on the particular product and services through the Internet Communication; and,
      4. in disseminating information through the Internet Communication, the sales agent or IA Rep acts within the scope of the authority granted by the BD or IA.
  2. The position expressed in this Order extends to state BD, IA, sales agent and IA Rep registration requirements only and does not excuse compliance with applicable securities registration, antifraud or related provisions.
  3. Nothing in this Order shall be construed to affect the activities of any BD, IA, sales agent and IA Rep engaged in business in this state that is not subject to the jurisdiction of the Commissioner as a result of the National Securities Markets Improvement Act of 1996, as amended.
  4. This order shall remain in effect unless and until amended or rescinded.

Signed and Sealed this 5th day of November, 1997

CAL HOOVESTOL
North Dakota Securities Commissioner
State Capitol – Fifth Floor
600 East Boulevard Ave.
Bismarck, ND 58505-0510
(701) 328-2910