TITLE 7. BANKING AND SECURITIES

PART 7. STATE SECURITIES BOARD

CHAPTER 109. TRANSACTIONS EXEMPT FROM REGISTRATION

7 TAC §109.13

The Texas State Securities Board proposes an amendment to §109.13(k), concerning limited offering exemptions. The proposal would amend subsection (k) so that the exemption only applies to offers and sales of federal covered securities pursuant to Securities and Exchange Commission (SEC) Regulation D, Rule 506. Currently the exemption also applies to Rule 505 offerings. However, Rule 505 was repealed effective May 22, 2017. The rule proposal removes those provisions within the subsection that are applicable to only Rule 505 offerings or are duplicated elsewhere in Regulation D or in §114.4 (relating to federal covered securities). It also updates the rule to reflect the current practice followed by the Agency now that almost of the Form D filings are made through the EFD system.

Clint Edgar, Deputy Commissioner, and Emily Diaz and Shaun Yarroll, Assistant Directors, Registration Division, have determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rule.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be to coordinate provisions of the rule with federal standards and requirements. There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rule will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; and it does not positively or negatively affect the state's economy. The rule as proposed would not create a new regulation or expand, limit or repeal an existing regulation.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167 or faxed to (512) 305‑8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendment is proposed under Texas Civil Statutes, Articles 581-5.T and 581-28-1. Section 5.T provides that the Board may prescribe new 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 proposal affects Texas Civil Statutes, Articles 581‑5 and 581-7.

§109.13.Limited Offering Exemptions.

(a) - (j) (No change.)

(k) Limited [Uniform limited] offering exemption coordinating with SEC Regulation D, Rule 506. In addition to sales made under the Texas Securities Act, §5.I, the State Securities Board, pursuant to the Act, §5.T, exempts from the registration requirements of the Act, §7, any offer or sale of securities offered or sold in compliance with the Securities Act of 1933, Regulation D (17 C.F.R. §§230.500-230.508, as amended), Rule 506 [, Rules 230.505 and/or 230.506], including any offer or sale made exempt by application of Rule 508(a), [as made effective in United States Securities and Exchange Commission Release Number 33-6389 and as amended in Release Numbers 33-6437, 33-6663, 33-6758, 33-6825, 33-6863, 33-6902, 33-6949, 33-6996, 33-7470, 33-8876, 33-8891, 33-9414, and 33-9415, and as adjusted by The Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203,] and which satisfies the following further conditions and limitations.

[(1) No commission, fee, or other remuneration shall be paid or given, directly or indirectly, to any person for soliciting any prospective purchaser in this state unless such person is appropriately registered in this state. It is a defense to a violation of this subsection if the issuer sustains the burden of proof to establish that he or she did not know and in the exercise of reasonable care could not have known that the person who received a commission, fee, or other remuneration was not appropriately registered in this state.]

[(2) No exemption under this subsection shall be available for the securities of any issuer if any of the parties described in the Securities Act of 1933, Regulation A, Rule 230.262, as made effective in United States Securities and Exchange Commission Release Number 33-6949:]

[(A) has filed a registration statement which is subject of a currently effective registration stop order entered pursuant to any state's securities law within five years prior to the filing of the notice required under this exemption;]

[(B) has been convicted within five years prior to the filing of the notice required under this exemption of any felony or misdemeanor in connection with the offer, purchase, or sale of any security or any felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;]

[(C) is currently subject to any state administrative enforcement order or judgment entered by that state's securities administrator within five years prior to the filing of the notice required under this exemption or is subject to any state's administrative enforcement order or judgment in which fraud or deceit, including, but not limited to, making untrue statements of material facts and omitting to state material facts, was found and the order or judgment was entered within five years prior to the filing of the notice required under this exemption;]

[(D) is subject to any state's administrative enforcement order or judgment which prohibits, denies, or revokes the use of any exemption from registration in connection with the offer, purchase, or sale of securities;]

[(E) is currently subject to any order, judgment, or decree of any court of competent jurisdiction temporarily or preliminary restraining or enjoining, or is subject to any order, judgment, or decree of any court of competent jurisdiction, permanently restraining or enjoining, such party from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with the state entered within five years prior to the filing of the notice required under this exemption.]

[(3) The prohibitions of paragraph (2)(A)-(C) and (E) of this subsection shall not apply if the person subject to the disqualification is duly licensed or registered to conduct securities-related business in the state in which the administrative order or judgment was entered against such person or if the broker/dealer employing such party is licensed or registered in this state and the Form BD filed with this state discloses the order, conviction, judgment, or decree relating to such person. No person disqualified under this subsection may act in a capacity other than that for which the person is licensed or registered.]

[(4) Any disqualification caused by this subsection is automatically waived if the state securities administrator or Agency of the state which created the basis for disqualification determines upon a showing of good cause that it is not necessary under the circumstances that the exemption be denied. It is a defense to a violation of this subsection if the issuer sustains the burden of proof to establish that he or she did not know and in the exercise of reasonable care could not have known that a disqualification under this subsection existed.]

(1) [(5)] In addition to the other requirements of this subsection, to claim this exemption, the [The] issuer must comply with notice filing provisions set out in §114.4(b)(1) of this title (relating to Filings and Fees) [shall file with the Securities Commissioner a notice on Form D].

[(A) The notice shall be filed no later than 15 days after the receipt of consideration or the delivery of a subscription agreement by an investor in this state which results from an offer being made in reliance upon this exemption and at such other times and in the form required under Regulation D, Rule 230.503 to be filed with the Securities and Exchange Commission.]

[(B) The notice shall contain an undertaking by the issuer to furnish to the Securities Commissioner, upon written request, the information furnished by the issuer to offerees.]

[(C) Every person filing the initial notice on Form D shall pay a filing fee of 1/10 of 1.0% of the aggregate amount of securities described as being offered for sale, but in no case more than $500.]

[(D) The filing of Form D and the payment of the filing fee must be made electronically through the EFD System, when such system becomes available.]

[(6) In all sales to nonaccredited investors in this state, one of the following conditions must be satisfied or the issuer and any person acting on its behalf shall have reasonable grounds to believe and after making reasonable inquiry shall believe that one of the following conditions is satisfied.]

[(A) The investment is suitable for the purchaser upon the basis of the facts, if any, disclosed by the purchaser as to the purchaser's other security holdings, financial situation, and needs. For the purpose of this condition only, it may be presumed that if the investment does not exceed 10% of the investor's net worth, it is suitable.]

[(B) The purchaser either alone or with his/her purchaser representative(s) has such knowledge and experience in financial and business matters that he/she is or they are capable of evaluating the merits and risks of the prospective investment.]

[(7) A failure to comply with a term, condition, or requirement of paragraphs (1) and (6) of this subsection will not result in loss of the exemption from the requirements of the Act, Section 7, for any offer or sale to a particular individual or entity if the person relying on the exemption shows:]

[(A) the failure to comply did not pertain to a term, condition, or requirement directly intended to protect that particular individual or entity; and]

[(B) the failure to comply was insignificant with respect to the offering as a whole; and]

[(C) a good faith and reasonable attempt was made to comply with all applicable terms, conditions, and requirements of paragraphs (1) and (6) of this subsection.]

[(8) Sales made pursuant to this subsection to nonaccredited investors must comply with the disclosure requirements of subsection (a)(1) of this section.]

(2) [(9)] Transactions which are exempt under this subsection may not be combined with offers and sales exempt under any other rule or section of the Act; however, nothing in this limitation shall act as an election. Should for any reason, the offer and sale fail to comply with all of the conditions for this exemption, the issuer may claim the availability of any other applicable exemption.

[(10) The Securities Commissioner may, by rule or order, increase the number of purchasers or waive other conditions of this exemption.]

[(11) This limited offering transactional exemption is designed to further the objectives of compatibility with federal exemptions and uniformity among the states.]

[(12) Nothing in this exemption is intended to or should be construed as in any way relieving issuers or persons acting on behalf of issuers from providing disclosure to prospective investors adequate to satisfy the anti-fraud provisions of the Texas Securities Act.]

(3) [(13)] In view of the objective of this subsection and the purposes and policies underlying the Texas Securities Act, the exemption is not available to any issuer with respect to any transaction which, although in technical compliance with this subsection, is part of a plan or scheme to evade registration or the conditions or limitations explicitly stated in this subsection.

(4) [(14)] Nothing in this subsection is intended to relieve registered dealers, [salesmen,] or agents from the due diligence, suitability, or know your customer standards or any other requirements of law otherwise applicable to such registered persons.

(5) [(15)] [Review of Form D.]

[(A)] The staff of the State Securities Board will review all notice filings made under this subsection to determine if the correct filing fee was submitted [for completeness of the information required to be filed under this section]. If the staff determines that the fee paid was deficient, [ a filing is incomplete in any material respect,] the staff will notify [within five days of receipt of the form issue a letter notifying] the filer through the EFD system or by email if the filing was not made through EFD [user of the form of the deficiency].

[(B)] A filer [user of this section] who receives such a notice [from the staff of a deficiency in a form filed under this section] may correct the deficiency within 30 days of the date that the notice [deficiency letter] is sent [issued] by the staff. If a timely correction is made, the filing shall be deemed to be complete and in compliance with the filing requirements as of the date the original filing was received.

[(C) In order to assist voluntary compliance within this subsection and to aid users in filing notices required under paragraph (5) of this subsection, the staff of the State Securities Board is available to answer questions about this regulation. Inquiries should be addressed to the Director of the Registration Division.]

[(16) If the securities comply with this subsection (except for paragraphs (1)-(6), (8), and (10) of this subsection) and are federal covered securities, as that term is defined in §107.2 of this title (relating to Definitions), the issuer should refer to Chapter 114 of this title (relating to Federal Covered Securities) for the applicable filing and fee requirements. (Issuers are advised of their obligation to comply with the dealer and agent registration requirements of the Texas Securities Act and Board rules. See §114.4(g) of this title (relating to Filings and Fees).)]

(6) [(17)] [Issuers in Regulation D offerings.] When an offering is made in compliance with Regulation D of the SEC and the offering will be made by or through a registered securities dealer, the issuer and its directors, officers, agents, and employees may make themselves available to answer questions from offerees, as required by Rule 502(b)(2)(v) of Regulation D, without being required to register as securities dealers or agents under the Act, §12.

(l) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

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

TRD-201802274

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: July 8, 2018

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

CHAPTER 113. REGISTRATION OF SECURITIES

7 TAC §113.5

The Texas State Securities Board proposes an amendment to §113.5, concerning financial statements, to add a new exemption to the list of types of prior securities offerings that would not disqualify a small business issuer from being eligible to file reviewed financial statements in a later registered offering.

Section 113.5 permits certain issuers whose previous sales of securities did not exceed $1 million to file reviewed financial statements for a registered offering that does not exceed $5 million. Section 7.A(1)(f)(2) of the Texas Securities Act permits the Board to define the term "small business issuer" and prescribe the circumstances under which such an issuer can submit reviewed (rather than audited) financial statements for a registration of securities by qualification.

Since the recently adopted crowdfunding exemption in §139.26, Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings, will allow public solicitation or advertising by permitting potential investors to view the offerings on the Internet website of the dealer or Texas crowdfunding portal, the proposal would add the exemption set forth in §139.26 to the list of types of prior securities offerings that would not disqualify an issuer from being eligible to file reviewed financial statements in a subsequent registered offering.

Clint Edgar, Deputy Commissioner, and Emily Diaz and Shaun Yarroll, Assistant Directors, Registration Division, have determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rule.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be that capital raising efforts of more small business issuers will be facilitated by allowing the use of reviewed financial statements in conjunction with a registered offering. There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rule will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; and it does not positively or negatively affect the state's economy. Additionally, the proposed amendment does not create a new regulation, or limit or repeal an existing regulation. It expands an existing regulation to add a new exemption to the list of types of prior securities offerings that would not disqualify a small business issuer from being eligible to file reviewed financial statements in a later registered offering.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167 or faxed to (512) 305‑8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendments are proposed under Texas Civil Statutes, Articles 581-7.A and 581-28-1. Section 7.A(1)(f)(2) provides the Board with the authority to define and provide requirements for small business issuers permitted to submit reviewed financial statements. 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 proposal affects Texas Civil Statutes, Articles 581-7 and 581-10.

§113.5.Financial Statements.

(a) - (b) (No change.)

(c) Small business issuer. For purposes of subsection (b) of this section, the term "small business issuer" shall mean any corporation:

(1) that has not previously sold securities by means of an offering involving public solicitation or advertising unless such offering was made in compliance with:

(A) §139.25 of this title (relating to Intrastate Crowdfunding Exemption);

(B) §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings);

(C) [(B)] §139.16 of this title (relating to Sales to Individual Accredited Investors);

(D) [(C)] §139.19 of this title (relating to Accredited Investor Exemption);

(E) [(D)] §109.4 of this title (relating to Securities Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors); or

(F) [(E)] the Texas Securities Act, Section 5.H;

(2) - (7) (No change.)

(d) - (e) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

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

TRD-201802275

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: July 8, 2018

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

CHAPTER 114. FEDERAL COVERED SECURITIES

7 TAC §114.4

The Texas State Securities Board proposes an amendment to §114.4, concerning filings and fees. The proposal would amend subsection (b)(1) to update a cross-reference to conform to the changes to §109.13(k), which are being concurrently proposed, and amend the rule to reflect that the EFD System is now operational.

Clint Edgar, Deputy Commissioner, and Emily Diaz and Shaun Yarroll, Assistant Directors, Registration Division, have determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rule.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be that cross-references to other rules in the rule will be accurate. There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rule will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; and it does not positively or negatively affect the state's economy. Additionally, the proposed amendment does not create a new regulation, or expand, limit, or repeal an existing regulation.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167 or faxed to (512) 305‑8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendment is proposed 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 proposal affects Texas Civil Statutes, Article 581‑5.

§114.4.Filings and Fees.

(a) (No change.)

(b) Special circumstances.

(1) SEC Regulation D, Rule 506 offerings. In connection with an offering described in both §109.13(k)[(16)] of this title (relating to Limited Offering Exemptions) and SEC Regulation D, Rule 506, at the time the Form D is filed with the SEC, but no later than 15 days after the first sale of the federal covered securities in this state, the issuer shall provide to the Securities Commissioner:

(A) a notice on Form D; and

(B) a fee of one-tenth of 1.0% of the aggregate amount of federal covered securities described as being offered for sale, but in no case more than $500, as provided in the Texas Securities Act, Section 35.B(7).

(C) The filing of Form D and the payment of the filing fee shall be made electronically through the EFD System [, when such system becomes available].

(2) - (4) (No change.)

(c) (No change.)

(d) Excess sales.

(1) (No change.)

(2) An offeror in an SEC Regulation D, Rule 506 offering, who paid less than the maximum fee prescribed in subsection (b)(1) of this section and offered a greater amount of federal covered securities than authorized may do the following:

(A) - (B) (No change.)

(C) The filing of Form D and the payment of the filing fee shall be made electronically through the EFD System[, when such system becomes available].

(3) (No change.)

(e) - (i) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

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

TRD-201802277

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: July 8, 2018

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

CHAPTER 115. SECURITIES DEALERS AND AGENTS

7 TAC §115.1, §115.3

The Texas State Securities Board proposes amendments to §115.1, concerning general provisions, and §115.3, concerning examinations. Subsection (a)(10) of §115.1 would be amended to add the Texas crowdfunding portals registered pursuant to §115.20 to the definition of "Texas crowdfunding portal" as that term is used in Chapter 115, Securities Dealers and Agents. Portals registered pursuant to §115.20 are those created by Section 44 of the Texas Securities Act as "authorized small business development entities." The portion of this definition that specifies the types of securities that may be offered on the portal’s website would be removed from the definition since that limitation is already specified in §115.19 and §115.20. Subsection (b)(2)(A) of §115.1 would be amended to update a cross-reference to the federal Securities Exchange Act of 1934 to reflect the current location of the de minimus transactions provision that originated in the National Securities Markets Improvement Act of 1996 (NSMIA).

Subsection (c) of §115.1 would be amended to coordinate with the proposed amendments to §115.3, to automatically recognize uniform specialized knowledge examinations administered by the Financial Industry Regulatory Authority ("FINRA") as restricted registration categories.

Section 115.3 would be amended to simplify the examination structure and bring it in line with the examinations administered by FINRA, which has announced it will be restructuring the representative-level qualification examinations it administers effective October 1, 2018. FINRA created a general knowledge examination called the Securities Industry Essentials (SIE) examination which, when combined with certain other general or specialized knowledge examinations, fulfills the examination requirements for registration. The restructured program eliminates duplicative testing of general securities knowledge on certain representative-level qualification examinations by moving such content into the SIE and removing it from the associated co-examination.

As part of the examination restructuring, FINRA will be eliminating some of their specialized knowledge examinations. However, FINRA will be grandfathering and continuing the registration of those individuals who are currently registered in those restricted categories that correspond with the specialized knowledge examinations that will be eliminated. Likewise, persons maintaining a restricted registration in those categories in Texas will continue to be eligible for registration in Texas in that restricted capacity after the corresponding FINRA specialized knowledge examination is eliminated.

Clint Edgar, Deputy Commissioner, and Emily Diaz and Shaun Yarroll, Assistant Directors, Registration Division, have determined that for the first five-year period the rules are in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rules.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for each year of the first five years that §115.1 is in effect the public benefit anticipated as a result of enforcing it will be that it will properly reflect that authorized small business development entities created by Section 44 of the Texas Securities Act are included in the definition of "Texas crowdfunding portals" in the rules and that cross-references to other rules will be accurate. Mr. Edgar, Ms. Diaz and Mr. Yarroll also have determined that for each year of the first five years that §115.3 is in effect the public benefit anticipated as a result of enforcing it will be that the restructured examination program will more closely correspond to the uniform examinations administered by FINRA, maing it easier for applicants entering the securities industry in Texas to understand which examinations are required in the registration category they are pursuing. There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rules will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rules as proposed. There is no anticipated impact on local employment.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for the first five-year period the rules are in effect: they do not create or eliminate a government program; they do not require the creation or elimination of existing employee positions; they do not require an increase or decrease in future legislative appropriations to this agency; they do not require an increase or decrease in fees paid to this agency; they do not increase or decrease the number of individuals subject to the rule’s applicability; and they do not positively or negatively affect the state’s economy. Additionally, the proposed amendments do not create a new regulation, or expand, limit, or repeal an existing regulation.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed sections in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167 or faxed to (512) 305‑8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendments are proposed 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 §115.1 is also proposed under Texas Civil Statutes, Articles 581-12.C and 581-44. 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 44 provides the Board with the authority to adopt rules to regulate and facilitate online intrastate crowdfunding applicable to authorized small business development entities.

The proposed amendment to §115.1 affects Texas Civil Statutes, Articles 581-12, 581-13, 581-14, 591-15, 581-18, and 581-44.

The proposed amendment to §115.3 affects Texas Civil Statutes, Article 581-13.

§115.1.General Provisions.

(a) Definitions. Words and terms used in this chapter are also defined in §107.2 of this title (relating to Definitions). The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) - (9) (No change.)

(10) Texas crowdfunding portal--Any person registered as a Texas dealer pursuant to §115.19 of this title (relating to Texas Crowdfunding Portal Registration and Activities) or §115.20 of this title (relating to Texas Crowdfunding Portal Registration and Activities of Small Business Development Entities) [that utilizes an Internet website to offer or sell securities that are exempt from securities registration solely pursuant to §139.25 of this title (relating to Intrastate Crowdfunding Exemption)].

(b) Registration requirements of dealers, issuers, agents, and branch offices.

(1) (No change.)

(2) Persons not required to register as an agent.

(A) Registration as an agent is not required for a person, associated with a dealer registered in Texas, who effects a transaction pursuant to the Securities Exchange Act of 1934, Section 15(i)(3), (15 U.S.C. Sec. 78o(i)(3)) [15(h)(3)], provided such person is:

(i) not ineligible to register with this state for any reason other than such a transaction; and

(ii) registered with a registered securities association and at least one other state.

(B) - (D) (No change.)

(c) Types of registrations.

(1) General registration. A general registration is a registration to deal in all categories of securities, without limitation.

(2) Restricted registration. The restricted registrations are as follows:

(A) The Securities Commissioner recognizes the specialized knowledge examinations administered by FINRA as restricted registration categories. The registration of an applicant passing a specialized knowledge examination in lieu of the general securities examination pursuant to §115.3(b) of this title (relating to Examinations) is restricted to and effective only for conducting the business and securities activities and effecting transactions associated with the specialized examination.

(B) Additional restricted registration categories include:

(i) [(A)] registration to deal exclusively in the sale of interests (other than interests in limited partnerships) in oil, gas, and mining leases, fees, or titles or contracts relating thereto;

[(B) registration to deal exclusively in municipal securities;]

(ii) [(C)]registration to deal exclusively in real estate syndication interests and/or condominium securities, including interests in real estate limited partnerships;

(iii) [(D)]registration to deal exclusively in sales of securities to the dealer’s own employees;

[(E) registration to deal exclusively in securities issued by open-end investment companies registered under the Texas Securities Act and the Investment Company Act of 1940;]

(iv) [(F)]registration for an issuer to deal exclusively in its own securities;

[(G) registration to deal exclusively in options on foreign currencies;]

[(H) registration to deal exclusively in sales of securities in direct participation programs;]

[(I) registration to deal exclusively in government securities;]

[(J) registration to accept orders unsolicited by such person from existing customers of the dealer;]

[(K) registration to deal exclusively in corporate securities;]

[(L) registration to deal in all general securities except municipal securities;]

(v) [(M)] registration to act exclusively as a finder;

[(N) registration to deal exclusively in investment banking;]

(vi) [(O)] registration to act exclusively as a Texas crowdfunding portal; and

(vii) [(P)] registration with other restrictions which the Securities Commissioner may impose based upon the facts.

(3) (No change.)

(d) (No change.)

§115.3.Examination.

(a) Requirement.

(1) To determine the applicant's qualifications and competency to engage in the business of dealing in and selling securities, the State Securities Board requires a written examination on general securities principles and on state securities law. Applicants must make a passing score, as determined by the North American Securities Administrators Association, FINRA, or the Securities Commissioner, as appropriate, on any required examination.

(2) If, at the time the applicant completes the examinations required in subsection (b) of this section, the Securities Industry Essentials (SIE) examination is coupled with the FINRA general or specialized knowledge examination for the registration category sought, the applicant must obtain a passing score on the SIE examination.

(b) Examinations accepted.

(1) Each applicant must pass an examination on general securities principles. This requirement is [may be] satisfied by passing the [an] examination on general securities principles administered by FINRA. As set forth in paragraph (3) of this subsection, applicants for restricted registrations may substitute a specialized knowledge [an] examination dealing with a particular type of security for an examination on general securities principles.

(2) The [For purposes of this subsection, the] Securities Commissioner recognizes the [following] general examinations administered by FINRA as an examination on general securities principles sufficient to meet that requirement in paragraph (1) of this subsection. [:]

[(A) Series 1--General Securities Examination;]

[(B) Series 2--FINRA Non-Member General Securities Examination; and]

[(C) Series 7--General Securities Representative Examination.]

(3) In lieu of an examination on general securities principles, an applicant may substitute one or more specialized knowledge examination(s) administered by FINRA. The [the] Securities Commissioner also recognizes the specialized knowledge examinations administered by FINRA as restricted registration categories. The registration of an applicant passing a specialized knowledge examination is restricted and effective only for conducting the business and securities activities and effecting transactions associated with the specialized examination.[following limited examinations, administered by FINRA, for the corresponding restricted registrations:]

[(A) for persons seeking a restricted registration to deal exclusively in securities issued by open-end investment companies registered under the Texas Securities Act or the Investment Company Act of 1940, the Series 6--Investment Company Products/Variable Contracts Representative Examination;]

[(B) for persons seeking a restricted registration to accept orders unsolicited by such person from existing customers of the dealer, the Series 11--Assistant Representative/Order Processing Examination;]

[(C) for persons seeking a restricted registration to deal exclusively in direct participation program securities, the Series 22--Direct Participation Programs Representative Examination;]

[(D) for persons seeking a restricted registration to deal exclusively in municipal securities, the Series 52--Municipal Securities Representative Examination;]

[(E) for persons seeking a restricted registration to deal exclusively in corporate securities, the Series 62--Corporate Securities Representative Examination;]

[(F) for persons seeking a restricted registration to deal in all general securities except municipal securities, either the Series 17--General Securities Representative Examination, the Series 37--General Securities Representative Examination, the Series 38--General Securities Representative Examination, or the Series 47--General Securities Representative Examination;]

[(G) for persons seeking a restricted registration to deal exclusively in investment banking; and]

[(H) for persons seeking a restricted registration to deal exclusively in government securities, the Series 72--Government Securities Representative Examination. A person registered on or before September 1, 1998, for the purpose of dealing exclusively in government securities, is not required to pass the Series 72 examination.]

(4) (No change.)

(c) - (d) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

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

TRD-201802279

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: July 8, 2018

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

CHAPTER 133. FORMS

7 TAC §133.33

The Texas State Securities Board proposes an amendment to §133.33, concerning uniform forms accepted, required or recommended. The proposal would amend subsection (c) to conform the cross-reference to be consistent with the proposed amendment to §109.13(k), which is being concurrently proposed. It would also update the reference to Form D to reflect the current title of this form.

Clint Edgar, Deputy Commissioner, and Emily Diaz and Shaun Yarroll, Assistant Directors, Registration Division, have determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rule.

Mr. Edgar, Mr. Diaz, and Mr. Yarroll have determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be that cross-references contained in the rule will be accurate. There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rule will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; and it does not positively or negatively affect the state's economy. Additionally, the proposed amendment does not create a new regulation, or expand, limit, or repeal an existing regulation.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167 or faxed to (512) 305‑8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendment is proposed 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 proposal affects Texas Civil Statutes, Article 581‑5.

§133.33.Uniform Forms Accepted, Required, or Recommended.

(a) - (b) (No change.)

(c) Section 109.13(k)[109.13(k)(5)] of this title (relating to Limited Offering Exemptions) and §114.4(b)(1) of this title (relating to Filings and Fees) require the filing of a Form D, "Notice of Exempt Offering of Securities." ["Notice of Sale of Securities Pursuant to Regulation D, §4(6), and/or Uniform Limited Offering Exemption."]

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

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

TRD-201802278

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: July 8, 2018

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