DOB: Amended IA Client Counting Order

 
AMENDMENT AND RESTATEMENT OF MARCH 4, 1999 ORDER
DEFINING THE TERM “CLIENT” FOR PURPOSES OF THE
CONNECTICUT DE MINIMIS EXEMPTION FOR INVESTMENT ADVISERS
 
 
Summary

On March 4, 1999, the Banking Commissioner issued an Order Defining the Term “Client” for Purposes of the Connecticut De Minimis Exemption for Investment Advisers.  The 1999 Order provided that:  1) for purposes of Section 36b-6(e)(3) of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the “Act”), the term “client” would be determined in accordance with Securities and Exchange Commission (“SEC”) Rule 203(b)(3)-1 under the Investment Advisers Act of 1940 (the “Advisers Act”); and 2) for purposes of Section 36b-6(e)(3) of the Act, the term “client” would be construed to incorporate any amendments or modifications to such term as contained in SEC Rule 203(b)(3)-1.  On June 22, 2011, the SEC announced in Release No. IA-3221 (Rules Implementing Amendments to the Investment Advisers Act of 1940) that 1) it was rescinding Rule 203(b)(3)-1 under the Advisers Act effective 60 days following publication of the Release in the Federal Register; and 2) it was adopting amendments to Rule 222-2 under the Advisers Act to define “client” for purposes of the national de minimis standard by cross-referencing, for purposes of Section 222(d)(2) of the Advisers Act, the definition of “client” in Rule 202(a)(30)-1 rather than the definition in Rule 203(b)(3)-1.  The following amended and restated version of the 1999 Order reflects the rescission of Rule 203(b)(3)-1 and conforms Connecticut law to federal law.

Text of Amended and Restated Order

WHEREAS, the Banking Commissioner (the “Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the “Act”) and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies promulgated under the Act;
 
WHEREAS, Section 36b-31(a) of the Act provides, in part, that:  “The commissioner may from time to time make, amend and rescind such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-34, inclusive, including . . . orders . . . defining any terms, whether or not used in said sections, insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of . . . orders, the commissioner may classify securities, persons and matters within his or her jurisdiction, and prescribe different requirements for different classes”;

WHEREAS, on July 8, 1998, Congressional amendments to Section 222 of the federal Investment Advisers Act of 1940 (codified as 15 U.S.C. Sec. 80b-18a) took effect, providing, in pertinent part, as follows:

(d) National de minimis standard

No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser shall require an investment adviser to register with the securities commissioner of the State (or any agency or officer performing like functions) or to comply with such law (other than any provision thereof prohibiting fraudulent conduct) if the investment adviser - (1) does not have a place of business located within the State; and (2) during the preceding 12-month period, has had fewer than 6 clients who are residents of that State.

WHEREAS, in response to such amendments, the Connecticut General Assembly amended Section 36b-6 of the Act to provide a state de minimis exemption from registration in Section 36b-6(e)(3) of the Act for an investment adviser who “has no place of business in this state and, during the preceding twelve months, has had no more than five clients who are residents of this state”;

WHEREAS, 17 C.F.R. Sec. 275.222-2 states that:  “For purposes of [the de minimis exemption in] section 222(d)(2) of the [federal Investment Advisers] Act (15 U.S.C. 80b-18a(d)(2)), an investment adviser may rely upon the definition of “client” provided by Sec. 275.203(b)(3)-1”;

WHEREAS, on March 4, 1999, the Commissioner issued an Order Defining the Term “Client” for Purposes of the Connecticut De Minimis Exemption for Investment Advisers (the “1999 Client Counting Order”).  The 1999 Client Counting Order provided that:  1) for purposes of Section 36b-6(e)(3) of the Act, the term “client” would be determined in accordance with Securities and Exchange Commission (“SEC”) Rule 203(b)(3)-1 under the Investment Advisers Act of 1940 (the “Advisers Act”); and 2) for purposes of Section 36b-6(e)(3) of the Act, the term “client” would be construed to incorporate any amendments or modifications to such term as contained in SEC Rule 203(b)(3)-1;

WHEREAS, on June 22, 2011, the SEC announced in Release No. IA-3221 (Rules Implementing Amendments to the Investment Advisers Act of 1940) that 1) it was rescinding Rule 203(b)(3)-1 under the Advisers Act effective 60 days following publication of the Release in the Federal Register; and 2) it was adopting amendments to Rule 222-2 under the Advisers Act to define “client” for purposes of the national de minimis standard by cross-referencing, for purposes of Section 222(d)(2) of the Advisers Act, the definition of “client” in Rule 202(a)(30)-1 under the Advisers Act rather than the definition in Rule 203(b)(3)-1. The amendments to Rule 222-2 would take effect 60 days following their publication in the Federal Register;

WHEREAS, Section 36b-31(b) of the Act provides, in part, that:  “No . . . order may be made, amended or rescinded 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 sections 36b-2 to 36b-34, inclusive”;

WHEREAS, the Commissioner finds that, in promoting regulatory uniformity, the issuance of this Order 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;

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:

1. Investment advisers relying on the terms of the 1999 Client Counting Order may continue to do so up to the date Rule 203(b)(3)-1 under the Advisers Act is effectively rescinded and the amendments to SEC Rule 222-2 take effect;
 
2. Effective with the rescission of Rule 203(b)(3)-1 under the Advisers Act and the effectiveness of the corresponding amendments to Rule 222-2 under the Advisers Act, for purposes of Section 36b-6(e)(3) of the Act, the term “client” shall be determined in accordance with SEC Rule 202(a)(30)-1 without giving regard to paragraph (b)(4) of that section;
 
3. For purposes of Section 36b-6(e)(3) of the Act, the term “client” shall be construed to incorporate any amendments or modifications to such term as contained in SEC Rule 222-2 and SEC Rule 202(a)(30)-1; and
 
4. This order shall become final when issued, and shall remain in effect until modified, superseded, withdrawn, rescinded or vacated by the Commissioner or other lawful authority.


Originally issued March 4, 1999 

Amended and Restated this      _______/s/_________
11th day of July 2011.      Howard F. Pitkin 
    Banking Commissioner