TITLE 7. BANKING AND SECURITIES

PART 7. STATE SECURITIES BOARD

CHAPTER 113. REGISTRATION OF SECURITIES

7 TAC §113.14

The Texas State Securities Board adopts an amendment to §113.14, concerning Statements of Policy, without changes to the proposed text as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7010).

The amendment adopts by reference certain updated North American Securities Administrators Association ("NASAA") statements of policy ("SOPs") that were amended by NASAA on September 11, 2016, and a new SOP that was adopted by NASAA on May 8, 2017. The amendment also updates the reference to the Agency's website in subsection (c).

The amendment to §113.14 increases uniformity with other states when reviewing applications to register securities.

No comments were received regarding adoption of the amendment.

The amendment is adopted under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes.

The adopted amendment affects Texas Civil Statutes, Article 581-7.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802273

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303

CHAPTER 115. SECURITIES DEALERS AND AGENTS

7 TAC §115.19, §115.20

The Texas State Securities Board adopts amendments to §115.19, concerning Texas crowdfunding portal registration and activities, and §115.20, concerning Texas crowdfunding portal registration and activities of small business development entities, without changes to the proposed text as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7011). A new related rule, §139.26, creating a new intrastate crowdfunding offering exemption, is being concurrently adopted, as are new related forms for portal registration.

The amendment to §115.19 allows Texas crowdfunding portals to offer and sell securities by issuers using either of the Texas intrastate crowdfunding offering exemptions; limits the website requirements of subsection (b)(1)of the rule to §139.25 offerings; and adds cross references to the new §139.26 exemption.

The amendment to §115.20 allows Texas crowdfunding portals that are small business development entities to offer and sell securities by issuers claiming either of the Texas intrastate crowdfunding offering exemptions.

Texas crowdfunding portals are allowed to sell securities offerings by issuers claiming either of the Texas intrastate crowdfunding offering exemptions.

No comments were received regarding adoption of the amendments.

The amendments are adopted under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. The amendment to §115.20 is also adopted under Texas Civil Statutes, Article 581-44. Section 44 provides the Board with the authority to adopt rules to regulate and facilitate online intrastate crowdfunding by authorized small business development entities.

The adopted amendments affect Texas Civil Statutes, Article 581‑12, 581-13, 581-14, 581-15, 581-18, and 581-44.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802269

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303

7 TAC §115.21

The Texas State Securities Board adopts new §115.21, concerning system addressing suspected financial exploitation of vulnerable customers pursuant to the Texas Securities Act, Section 45, without changes to the proposed text as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7013).

New §115.21 implements Section 45 of the Texas Securities Act, which was added by House Bill 3921, passed during the last legislative session. The bill requires securities dealers and investment advisers to adopt internal policies and procedures on the reporting and assessment requirements and on holding transactions involving the account of a vulnerable adult who was believed to be subject to financial exploitation. The policies and procedures require the entity to report suspected financial exploitation to the Securities Commissioner, and other appropriate agencies.

The new rule alerts dealers of the new requirement to adopt policies, programs, plans, or procedures pursuant to Section 45; requires that such policies be reduced to writing; and sets out the content of the report and the procedure a dealer would follow to make the report to the Securities Commissioner. A template for making the report is available on the Agency's website.

The rule informs registered dealers that the procedures required by Section 45 of the Texas Securities Act must be reduced to writing and informs registered dealers of the content of the reports required to be made under Section 45.

One comment letter was received from the Financial Services Institute. The commenter expressed strong support for the new rule that incorporates necessary measures to implement HB 3921. The commenter noted that this change will provide dealers with clarity and a safe harbor to report suspected financial exploitation. The Board agreed and adopted the new rule as published.

The new rule is adopted under Texas Civil Statutes, Article 581-28-1 and Article 582-45.N. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. Section 45.N provides the Board with the authority to prescribe the form and content of a report of suspected financial exploitation of a vulnerable adult by a dealer or investment adviser.

The new rule affects Texas Civil Statutes, Articles 581-14 and 581‑45.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802272

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303

CHAPTER 116. INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES

7 TAC §116.21

The Texas State Securities Board adopts new §116.21, concerning system addressing suspected financial exploitation of vulnerable customers pursuant to the Texas Securities Act, Section 45, without changes to the proposed text as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7014).

New §116.21 implements Section 45 of the Texas Securities Act, which was added by House Bill 3921, passed during the last legislative session. The bill requires securities dealers and investment advisers to adopt internal policies and procedures on the reporting and assessment requirements and on holding transactions involving the account of a vulnerable adult who was believed to be subject to financial exploitation. The policies and procedures require the entity to report suspected financial exploitation to the Securities Commissioner, and other appropriate agencies.

The new rule alerts investment advisers of the new requirement to adopt policies, programs, plans, or procedures pursuant to Section 45; requires that such policies be reduced to writing; and sets out the content of the report and the procedure an investment adviser would follow to make the report to the Securities Commissioner. A template for making the report is available on the Agency's website.

The rule informs registered investment advisers that the procedures required by Section 45 of the Texas Securities Act must be reduced to writing and of the content of the reports required to be made under Section 45.

One comment letter was received from the Financial Services Institute. The commenter expressed strong support for the new rule that incorporates necessary measures to implement HB 3921. The commenter noted that this change will provide investment advisers with clarity and a safe harbor to report suspected financial exploitation. The Board agreed and adopted the new rule as published.

The new rule is adopted under Texas Civil Statutes, Article 581-28-1 and Article 582-45.N. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. Section 45.N provides the Board with the authority to prescribe the form and content of a report of suspected financial exploitation of a vulnerable adult by a dealer or investment adviser.

The new rule affects Texas Civil Statutes, Articles 581-14 and 581‑45.

The new rule affects Texas Civil Statutes, Articles 581-14 and 581‑45.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802271

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303

CHAPTER 133. FORMS

7 TAC §133.15, §133.20

The Texas State Securities Board adopts the repeal of §133.15 and §133.20, without changes to the proposal as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7015). The repealed rules adopted by reference the Texas Crowdfunding Portal Registration form and the Texas Crowdfunding Portal registration by an authorized small business development entity form. Repeal of the existing forms allows for the simultaneous adoption of new updated forms which are being concurrently adopted.

Outdated forms have been eliminated.

No comments were received regarding adoption of the repeals.

The repeals are adopted under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. The repeal of §133.20 is also adopted under Texas Civil Statutes, Article 581-44. Section 44 provides the Board with the authority to adopt rules to regulate and facilitate online intrastate crowdfunding by authorized small business development entities.

The adopted repeals affect Texas Civil Statutes, Article 581‑12, 581-13, 581-14, 581-15, 581-18, and 581-44.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802267

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303

7 TAC §133.15, §133.20

The Texas State Securities Board adopts two new rules, concerning forms adopted by reference, without changes to the proposed text as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7016). Specifically, the State Securities Board adopts §133.15, which adopts by reference the Texas Crowdfunding Portal Registration form; and §133.20, which adopts by reference the Texas Crowdfunding Portal Registration by an Authorized Small Business Development Entity form.

Texas crowdfunding entities will be able to use the forms to register as portals to sell securities offered by crowdfunding issuers claiming either the existing intrastate exemption in §139.25 or the new adopted intrastate exemption in §139.26.

The new forms will allow Texas entities to register as Texas crowdfunding portals that can sell securities offerings by crowdfunding issuers under both exemptions without the entities having to submit a separate portal registration for the two different exemptions.

No comments were received regarding adoption of the new rules.

The new rules are adopted under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. New rule §133.20 is also adopted under Texas Civil Statutes, Article 581-44. Section 44 provides the Board with the authority to adopt rules to regulate and facilitate online intrastate crowdfunding by authorized small business development entities.

The new rules affect Texas Civil Statutes, Article 581‑12, 581-13, 581-14, 581-15, 581-18, and 581-44.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802266

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303

7 TAC §133.21

The Texas State Securities Board adopts a new rule §133.21, which adopts by reference the Crowdfunding Exemption Notice (SEC Rule 147A Offerings using §139.26) form, without changes to the proposed text as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7017).

Form 133.21 will be used by an issuer to file a crowdfunding exemption notice pursuant to §139.26.

Form 133.21 will allow issuers to take advantage of the relaxed requirements of the more flexible intrastate crowdfunding offering exemption in §139.26.

No comments were received regarding adoption of the new rule.

The new rule is adopted under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes.

The new rule affects Texas Civil Statutes, Article 581-7.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802268

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303

CHAPTER 139. EXEMPTIONS BY RULE OR ORDER

7 TAC §139.26

The Texas State Securities Board adopts new §139.26, concerning intrastate crowdfunding exemption for SEC Rule 147A Offerings, without changes to the proposed text as published in the December 15, 2017, issue of the Texas Register (42 TexReg 7017).

The new rule provides an additional registration exemption for securities offered in an intrastate crowdfunding offering. The filing used to claim the exemption is new Form 133.21, which is being concurrently adopted. Amendments to §115.19 and §115.20, concerning Texas crowdfunding portal registration and activities, are also being concurrently adopted to allow Texas crowdfunding portals to offer and sell exempt securities offered pursuant to the new exemption.

The new rule for offerings under SEC Rule 147A allows issuers to take advantage of the relaxed intrastate offering and sales requirements of the Rule 147A exemption by providing a corresponding Texas exemption. Under the new rule, the offering must comply with Rule 147A at the federal level. Accordingly, the issuer must have a principal place of business in Texas and the sales must be limited to Texas residents.

The new rule incorporates much of the flexibility offered under Rule 147A while retaining the safeguards and investor protections built into the existing Texas intrastate crowdfunding structure, including requiring communications between the issuer, prospective purchasers, or investors to take place through the communications channel provided on the Internet website of the registered general dealer or registered Texas crowdfunding portal, and to be visible to others on the site; and granting the Securities Commissioner access to the Internet website prior to and during an offering.

Another of the expansions permitted under Rule 147A is that it permits general solicitation and advertising regardless of whether the information can be seen by persons not located in the offering state. Accordingly, even though the new rule limits communications to the website channel, as in §139.25, the new rule permits an issuer to disseminate limited information to persons outside of Texas without jeopardizing the availability of the exemption.

As with offerings under §139.25, the new rule requires a disclosure statement and financial statements be provided to prospective purchasers and incorporates provisions containing disqualifications and prohibiting certain relationships. Material information and risk factors must be disclosed, and topics to be addressed in the disclosure document are noted. Additional guidance for content of the disclosure statement is posted on the Agency's website with other small business and crowdfunding information.

The new rule requires a notice filing on Form 133.21 (Crowdfunding Exemption Notice for SEC Rule 147A Offerings), which is concurrently adopted, along with a copy of the issuer's disclosure statement and the summary of the offering that appear on the Internet website.

Payments to unregistered persons are prohibited as are certain compensation arrangements and affiliations between an issuer and the general dealer or Texas crowdfunding portal operating the website on which its offering appears.

The rule contains bad actor disqualifications and limits availability of the exemption based on activities involving related issuers or affiliates. Issuers should be aware that, although a prior incident may not be a disqualification under this rule, it may still need to be disclosed to potential purchasers and investors if it is material information.

The new rule is expected to spur small business development in the state by making it easier for entrepreneurs and start-ups to raise capital through Internet crowdfunding by taking advantage of the relaxed requirements of the more flexible intrastate crowdfunding offering exemption in the new rule.

No comments were received regarding adoption of the new rule.

The new rule is adopted under Texas Civil Statutes, Articles 581-5.T, 581-12.C, and 581-28-1. Section 5.T provides that the Board may prescribe new exemptions by rule. Section 12.C provides the Board with the authority to prescribe new dealer, agent, investment adviser, or investment adviser representative registration exemptions by rule. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes.

The new rule affects Texas Civil Statutes, Articles 581-7, 581-12, 581-13, 581-14, 581-15, and 581-18.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 23, 2018.

TRD-201802270

Travis J. Iles

Securities Commissioner

State Securities Board

Effective date: June 12, 2018

Proposal publication date: December 15, 2017

For further information, please call: (512) 305-8303