Order Exempting Connecticut Registered Broker-dealers
That are NASD Member Firms from the
Filing of Annual Audited Financial Statements
WHEREAS, the Banking Commissioner ("Commissioner") is charged with administering Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act ("Act"), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies ("Regulations") promulgated under the Act;
WHEREAS, Section 36b-31(a) of the Act provides, in pertinent part, that: "[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of . . . [the Act] . . . . For the purpose of . . . orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";
WHEREAS, Section 36b-31(b) of the Act provides, in pertinent part, that: "[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of . . . [the Act] . . . In prescribing . . . orders the commissioner may cooperate with the securities administrators of the other states and the Securities and Exchange Commission with a view to effectuating the policy of said sections to achieve maximum uniformity in the form and content of registration statements, applications and reports wherever practicable";
WHEREAS, P.L. 104-290, the National Securities Markets Improvement Act of 1996 ("NSMIA"), added to Section 15 of the Securities Exchange Act of 1934 subsection (h) which provides as follows:
No law, rule, regulation, or order, or other administrative action of any State or political subdivision thereof shall establish capital, custody, margin, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements for brokers, dealers, municipal securities dealers, government securities brokers, or government securities dealers that differ from, or are in addition to, the requirements in those areas established under this title. The Commission shall consult periodically the securities commissions (or any agency or office performing like functions) of the States concerning the adequacy of such requirements as established under this title.
WHEREAS, in response to NSMIA, P.A. 98-162 amended Section 36b-14(b) of the Act to provide, in pertinent part, that: "(2) Every . . . registered broker-dealer, shall file such financial reports as the commissioner by regulation prescribes, except that the commissioner shall not require the filing of financial reports that are not required to be filed with the Securities and Exchange Commission";
WHEREAS, Securities and Exchange Commission Rule 17a-5(d), 17 C.F.R. § 240.17a-5(d), provides, in pertinent part, that: "(1)(i) Every broker or dealer registered pursuant to section 15 of the [Securities Exchange] Act shall file annually, on a calendar or fiscal year basis, a report which shall be audited by an independent public accountant . . . (5) The annual audit report shall be filed not more than sixty (60) days after the date of the financial statements. (6) The annual audit report shall be filed at the regional or district office of the Commission for the region or district in which the broker or dealer has its principal place of business, the Commission's principal office in Washington, DC, and the principal office of the designated examining authority for such broker or dealer. Copies thereof shall be provided to all self-regulatory organizations of which said broker or dealer is a member";
WHEREAS, Securities and Exchange Commission Rule 17a-5(e)(3), 17 C.F.R. § 240.17a-5(e)(3), provides, in pertinent part, that: "All of the statements filed pursuant to paragraph (d) of this section shall be public, except that, if the Statement of Financial Condition in a format which is consistent with Form X-17A-5, Part II or Part IIA, is bound separately from the balance of the annual audited financial statements filed pursuant to paragraph (d)(1) of this section, the balance of the annual audited financial statements shall be deemed confidential, except that they shall be available for official use by any official or employee of the United States or any State, by national securities exchanges and registered national securities associations of which the person filing such a report is a member, and by any other person to whom the Commission authorizes disclosure of such information as being in the public interest";
WHEREAS, Section 36b-31(c) of the Act provides, in part, that: "To encourage uniform interpretation and administration of sections 36b-2 to 36b-33, inclusive, and effective securities regulation and enforcement, the commissioner may cooperate with the securities agencies or administrators of other states, Canadian provinces or territories, or other countries, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Securities Investor Protection Corporation, any self-regulatory organization, any national or international organization of securities officials or agencies, and any governmental law enforcement or regulatory agency. The cooperation authorized by this subsection includes, but is not limited to, the following actions: . . . (3) sharing and exchanging information and documents subject to the restrictions of chapter 3";
WHEREAS, Section 36b-31-14c of the Regulations, last amended prior to the passage of NSMIA, provides, in part, that:
(a) Each registered broker-dealer shall annually file with the commissioner, or, subject to the conditions set forth in subsection (b) of this section, with the National Association of Securities Dealers, Inc., on a calendar or fiscal year basis, a financial report (1) audited by an independent public accountant or independent certified public accountant and (2) containing the information required by Securities and Exchange Commission Rule 17a-5(d), 17 C.F.R. § 240.17a-5(d). The report shall be filed not more than 60 days following the end of the calendar or fiscal year. If the date of the filing exceeds such 60-day requirement, an unaudited statement similar in all respects shall also be filed and shall not be dated more than 60 days prior to the filing.
WHEREAS, subsection (b) of Section 36b-31-14c of the Regulations, last amended prior to the passage of NSMIA, provides the following alternative to satisfying the filing requirement in Section 36b-31-14c(a) of the Regulations, subject to certain conditions:
(b) The annual filing described in subsection (a) of this section may be made with the National Association of Securities Dealers, Inc. subject to the following conditions: The broker-dealer (1) shall be, and continue to be, a member of a self-regulatory organization registered under federal laws administered by the United States Securities and Exchange Commission; (2) shall file annual audited financial reports with the self-regulatory organization of which it is a member; (3) shall be current in filing with such self-regulatory organization all required financial reports, including, without limitation, the annual audited financial report; (4) shall undertake in writing to provide immediate telegraphic notice to the commissioner within 24 hours if at any time its net capital becomes less than the minimum prescribed in section 36b-31-9b(a) of the regulations; and (5) shall undertake in writing to provide upon request by the commissioner, and within 24 hours, any financial reports, statements, supplements and amendments required by subsection (a) of this section and by subsection (a) of section 36b-31-14a of the regulations.
WHEREAS, 36b-31-31c of the Regulations provides that: "The commissioner may exempt a person, security or transaction from a specified provision of sections 36b-31-2 to 36b-31-33, inclusive, of the regulations upon a finding that such exemption is in the public interest";
WHEREAS, the Commissioner finds that requiring Connecticut-registered broker-dealers who are registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc. ("NASD") to file with the Commissioner a copy of the annual audited financial statements filed with the Securities and Exchange Commission and the NASD is duplicative and unnecessary provided that specific guidelines are observed;
AND WHEREAS, the Commissioner further finds that the exemption provided by this Order is necessary or appropriate in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act.
NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:
|1.||A Connecticut-registered broker-dealer that, because of its registered status with the Securities and Exchange Commission, its self-regulatory organization membership and its compliance with federal financial reporting requirements, would be exempt from the filing requirement in Section 36b-31-14c(a) of the Regulations by virtue of Section 36b-31-14c(b) of the Regulations shall not file with the Commissioner the financial statements required by Section 36b-31-14c(a) of the Regulations, and shall be exempt from filing the written undertakings referenced in Sections 36b-31-14c(b)(4) and 36b-31-14c(b)(5) of the Regulations;|
|2.||Nothing in this Order shall preclude or restrict the Commissioner from requiring the filing of annual audited financial statements in the following circumstances:
|3.||Subject to Section 15(h) of the Securities Exchange Act of 1934, nothing in this Order shall relieve a Connecticut-registered broker-dealer relying on the exemption herein from compliance with the net capital requirements in Section 36b-31-9b of the Regulations, including notice to the Commissioner of any net capital deficiency;|
|4.||The policy, first announced in 1999, that Connecticut-registered broker-dealers relying on the exemption in Section 36b-31-14c(b) of the Regulations file a Waiver Eligibility Certification as a condition precedent to claiming the exemption is hereby rescinded as of the date of this Order;|
|5.||Annual audited financial statements that are voluntarily submitted and that would otherwise be exempt from filing under this Order shall no longer be deemed required records for state record retention purposes; and|
|6.||This Order shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.|
|So ordered at Hartford, Connecticut
this 12th day of May, 2004.
|John P. Burke|