Tag Archives: NASAA

NASAA’s Proposed Model Rule to Exempt Private Fund Advisors from State Registration

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One of the consequences of the Dodd-Frank Act is that federal and state jurisdiction over investment advisor firms will change.  In general, fund managers with less than $150 million in AUM will not be subject to registration with the SEC.*  While such managers will not be subject to SEC registration, they may be subject to investment adviser registration in the manager’s state of operation.  Laws from state to state on this issue differ widely but the North American Securities Administrator Association (NASAA) is trying to bring some continuity and certainty with respect to state registration requirements.  NASAA is proposing that states adopt regulations which requires private fund managers to register as investment advisers with the state unless that manager only provides advice to funds which are exempt under Section 3(c)(7).

*note: if a fund manager also has separately managed accounts, the manager will need to be SEC registered unless the manager has less than $100 million in AUM.

Of course it will be up to the states to decide whether or not to adopt the proposed rule, but if the proposal is adopted by any state, it would mean that many more managers would need to register at the state level if such managers were not registered with the SEC (in many, but perhaps not all cases).  I have written a number of times that most state securities divisions do not have the resources to handle an increase in IA registrations so I believe it unlikely that states securities divisions will lobby the legislatures for an increase in registrations under the NASAA proposal (for many states).  This proposal is essentially the first step toward states discussing the larger issue of how the securities laws will change in response to the changes from Dodd-Frank – we are likely to hear more about this story in the coming months as the SEC and states begin to more fully understand how legislative changes will affect their normal operating routines with respect to investment advisers.

Below we have provided some background on the proposed rule and the text of the proposed rule.

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Background & NASAA’s Proposed Model Rule

Prior to Dodd-Frank, the “private adviser exemption” from SEC registration applied to any investment advisor who during the course of the preceding 12 months had fewer than 15 clients (a fund is counted as one client) and who did not generally hold itself out to the public as an investment advisor.   Most hedge fund managers generally would utilize this exemption from IA registration with the SEC.  Title IV of the Dodd-Frank Act eliminated this exemption and in its place, created new registration and reporting rules for private fund advisers.

As we noted above, certain managers (including managers to venture capital funds and private equity funds) with less than $150 million in AUM will be exempt from SEC registration.  These managers exempt from SEC registration are called “exempt reporting advisers” (ERAs) and, although exempt from “registration” with the SEC, must still submit reports to the SEC (see Exempt Reporting Adviser Requirements).  In addition, these managers may still be required to register at the state level.

NASAA is proposing that managers of Section 3(c)(7) funds be exempt from state registration and that all other fund managers be subject to registration with the state securities division.  The stated rationale for this proposal is that investors in Section 3(c)(7) funds must be qualified purchasers and therefore do not need managers to be registered with the state securities commission.  To qualify for the NASAA exemption at the state level, the adviser must:

  1. not be subject to a disqualification (which includes various criminal, civil, and regulatory disciplinary events),
  2. solely advise 3(c)(7) fund(s),
  3. file with the state the report that is required by the SEC (the condensed Form ADV, discussed in the Exempt Reporting Advisers article), and
  4. pay applicable fees.

IA representatives associated with the ERA firm would also be exempt from state registration and licensing requirements.

NASAA’s proposed model rule would not apply to advisers of private funds with $150 million or more in AUM which are required to register with the SEC and satisfy any state notice filing requirements.

Request for Comments

NASAA is seeking comments on this proposed model rule.  Comments should be submitted electronically to [email protected] or by mail to NASAA, Attn: Joseph Brady, 750 First Street, NE, Suite 1140, Washington, DC, 20002 by January 24, 2011.

NASAA’a proposed model rules are reprinted below and can be found here.

Our Thoughts

We have not heard states discussing the NASAA proposal.  We also do not think that anything will be happening with this model rule immediately as states will be focusing on trying to figure out how to deal with the expected increase in state applications because of Dodd-Frank.

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Proposed NASAA Model Rule on Private Fund Adviser Registration and Exemption Rule XXX. Registration exemption for exempt reporting advisers

a. Subject to the provisions of paragraph (b) herein, an investment adviser solely to one or more private funds, shall be exempt from the registration requirements of Section XXX [identify authority] and shall be considered an exempt reporting adviser in this state if the adviser satisfies the following conditions:

(1) neither the adviser nor any of its advisory affiliates are subject to a disqualification as described in Section 230.262 of title 17, Code of Federal Regulations, or any successor thereto;

(2) the adviser acts as an adviser solely to private funds that qualify for the exclusion from the definition of “investment company” under Section 3(c)(7) of the Investment Company Act of 1940;

(3) the adviser files with the state a copy of each report and amendment thereto that an exempt reporting adviser under the Investment Advisers Act of 1940 would be required to file with the Securities and Exchange Commission pursuant to SEC Rule 275.204-4, along with a consent to service of process complying with Section XXX [identify authority]; and

(4) the adviser pays the fees specified in Section XXX [identify authority].

b. A federal covered investment adviser shall not be eligible for this exemption and shall comply with the state notice filing requirements applicable to such advisers.

c. An investment adviser representative is exempt from the registration requirements of Section XXX [identify authority] if he or she is employed by or associated with an adviser that is exempt from registration in this state pursuant to paragraph (a.) above.

d. As used in this rule a private fund means an issuer that would be an investment company as defined in section 3 of the Investment Company Act of 1940 but for sections 3(c)(1) or 3(c)(7) of the Act.

e. The report filings described in paragraph (a.)(3) above shall be made electronically through the IARD. A report shall be deemed filed when the report and the fee required by Section XXX [identify authority] are filed and accepted by the IARD on the state’s behalf.

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Bart Mallon is an attorney who works with both state and SEC registered fund managers.  His firm, Cole-Frieman & Mallon LLP, routinely provides regulatory and compliance services to registered investment advisers.  He can be reached directly at 415-868-5345.

Series 65 and Series 66 Passing Grade Increased

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IA Exams Pass Rates Expected to Plummet

The North American Securities Administrators Association (“NASAA”) recently announced that the two central investment advisor exams (the Series 65 and the Series 66) will become even more difficult.  Starting January 1, 2010 candidates will need to attain a score of 72% in order to pass the Series 65 exam and a 75% in order to pass the Series 66 exam.  NASAA did not make any statements on its website or at its Annual Conference earlier this year about the change or the reason for the change.

I had a chance to talk with Chuck Lowenstein of Kaplan Financial Education about the announcement.  “The exams have been oddities,” said Lowenstein, “everything else in the business requires a 70% to pass and the 65 had been kind of weird at 68.5% and the 66 as well at 71%. With these new numbers, NASAA has entered new territory. I suspect pass rates will plummet, unless they feel that the new exams will be so much easier (never happened in the past) that they need to bump up the minimum.”

Chuck went on to discuss the likely future performance for people taking the exams.  “Based on our students’ performance, this will have a devastating effect on the overall pass rate. A significant percentage of exam takers pass with little room to spare and bumping the requirements by 4 or 5 questions on these exams (the 68.5% on the 65 was 89 correct – 72% is 93.6 questions so they’ll either round up to 94 or down to 93, that has not yet been disclosed) is going to catch many exam takers.”

We do not recommend that exam takers study any differently for the exam, but we urge all potential exam takers make sure they are adequately prepared.  If an applicant does not pass the 65 or 66 on the first try, they will need to wait 30 days to take the exam again which will obviously have an effect on the timing of a hedge fund launch.

For more information please see NASAA’s post on the Series 65 and Series 66 exams.

Thank you to Chuck Lowenstein for bringing this issue to my attention.

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Other related hedge fund law articles:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog.  He can be reached directly at 415-868-5345.

IARD Fee Waiver for 2010

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The press release below from NASAA, the representative body of the state securities administrators, announces an IARD (Investment Adviser Registration Depository) fee waiver for next year.  The fee waiver will cover both the IARD fees for registering investment advisory firms as well as the fees for individuals.  Previously firms had to pay an IARD fee to use the IARD system.  Now, firms which are registering as investment advisors for the first time (as well as firms filing investment adviser renewals) will not need to pay any IARD fees.  However, firms will still need to pay any applicable state fees.

Chief compliance officers of investment advisory firms should begin getting ready for the IA renewal process which begins in earnest in the beginning to middle of next month.  Keep checking in for more information on investment adviser registration and compliance.

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October 13, 2009

NASAA Announces IARD System Fee Waiver

WASHINGTON (October 13, 2009) – The North American Securities Administrators Association (NASAA) today announced it will waive the initial set-up and annual system fees paid by investment adviser firms (IAs) and investment representatives (IARs) to maintain the Investment Adviser Registration Depository (IARD) system.

Denise Voigt Crawford, NASAA President and Texas Securities Commissioner, said, “The IARD system promotes effective and efficient investor protection through readily accessible disclosure of important information to the public while at the same time offering a consistent and streamlined registration process for investment advisers and their representatives. Given the current economic climate, we are pleased that the IARD system’s continued success will allow us to maintain the system fee waivers put in place in 2005 for investment adviser firms and also to fully waive for a second year the system fees paid by investment adviser representatives.”

NASAA’s Board of Directors approved the system fee waiver and will continue to monitor the system’s revenues to determine whether future fee adjustments are warranted.

The IARD system is an Internet-based national database sponsored by NASAA and the SEC and operated by FINRA in its role as a vendor.  IARD provides a single nationwide database for the collection and dissemination of information about individuals and firms in the investment advisory field and offers investment advisers and representatives a single source for filing state and federal registration and notice filings. The system contains the employment and disciplinary histories of more than 25,000 investment adviser firms and nearly 250,000 individual investment adviser representatives. IARD system fees are used for user and system support and for enhancements to the system.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

For more information:
Bob Webster, Director of Communications
202-737-0900

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Other related articles on investment advisers:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog.  Mr. Mallon’s law firm provides registration and compliance services to start up investment advisory firms.  If you are interested in starting your investment adviser, please contact us or call Mr. Mallon directly at 415-868-5345.

NASAA Applauds Obama’s Recent Directive on State Agency Preemption

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President of the NASAA Sends Letter to President Obama in Support of Limiting Preemption of State Regulation

In a letter dated June 9th, 2009, Fred Joseph, President of the North American Securities Administration (NASAA), applauded President Obama  for his efforts to control preemption of state law in the area of securities regulation.

On May 20th, President Obama issued a directive setting limits on regulatory preemption of state regulation, largely in an effort to expand the authority of state regulatory officials to regulate many aspects of the securities markets and detect potential misconduct.

In his letter, Joseph writes that despite the proven century-long track record of investor protection by state securities regulators,  Congress has still passed legislation over the years that has preempted state regulation and curtailed the authority of state officials in protecting both investors and consumers.

Joseph writes,

” Federal agencies have compounded the problem by extending the scope of preemption beyond Congressionally intended boundaries and in ways that pose serious threats to investor and consumer protections under state law.”

To further address what many regard as the most urgently needed reform, the NASAA endorses the creation of a Systemic Risk Council, comprised of representatives from all federal and state regulators in securities, banking, and insurance, and tasked with the responsibility for monitoring and limited the accumulation of risk in the financial markets.

The entire text of letter by the NASAA to President Obama is included below, and can also be found here.

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NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC.
750 First Street, NE, Suite 1140
Washington, D.C. 20002
202/737-0900
Fax: 202/783-3571
www.nasaa.org

June 9, 2009

President Barack Obama
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President:

On behalf of our nation’s state securities regulators, the North American Securities Administrators Association1 applauds your effort to reverse the anti-investor preemption policies of previous administrations.

Your May 20 directive setting limits on regulatory preemption impressively affirms the vital role that state regulators play in protecting the health, safety, and financial security of citizens throughout the United States. You have sent a strong signal that our nation’s citizens are served best when the state-federal partnership works harmoniously and with mutual respect to “provide independent safeguards for the public.” Furthermore, we sincerely appreciate your recognition that states have frequently been more aggressive than the national government in protecting the public’s interest.

In the area of securities regulation, the states have a century-long track record of investor protection. One of the hallmarks of state securities regulation is its proven ability to detect misconduct, both large and small, in the early stages. Our members enjoy a unique proximity to investors and to the industry participants within their state borders. As a result, state securities regulators are often the first to investigate and uncover our nation’s latest and most damaging frauds. Examples include investigating the role of investment banks in the Enron fraud, exposing profound conflicts of interest among Wall Street stock analysts, addressing late trading and market timing in mutual funds, and recently helping to ensure that investors receive over $50 billion in redemptions for frozen auction rate securities that had been marketed as safe and liquid investments.

And yet, over a number of years, there has been a concerted effort to preempt state regulation. In the securities field, much of that effort has originated in Congress. For example, in 1996, Congress passed the National Securities Markets Improvement Act (NSMIA), which dramatically curtailed the authority of our members to regulate many aspects of the securities markets, ranging from private offerings under Regulation D to investment advisers with over $25 million in assets under management.

As your recent order recognizes, federal agencies have compounded the problem by extending the scope of preemption beyond Congressionally intended boundaries and in ways that pose serious threats to investor and consumer protections under state law. Two striking examples are found in the banking area.

The Office of the Comptroller of the Currency (OCC) has repeatedly adopted regulations that aggressively preempt the states’ authority to protect consumers through licensing requirements or enforcement actions. The impact has been felt largely in the mortgage lending field—where illegal underwriting practices helped trigger the current financial crisis. In a case now pending before the U.S.

1 NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.

Supreme Court, the Second Circuit aptly characterized the OCC as an agency that “accretes a great deal of regulatory authority to itself at the expense of the states through rulemaking lacking any real intellectual rigor or depth.” Clearing House Ass’n, L.L.C. v. Cuomo, 510 F.3d 105,119 (2d Cir. 2007) (although upholding the OCC’s limits on state visitorial powers under binding precedent). In the Cuomo case, the OCC actually sought an injunction to prevent the New York Attorney General’s Office from investigating discriminatory lending practices by various national banks and their operating subsidiaries.

The Office of Thrift Supervision (OTS) has also issued broadly preemptive regulations. Relying on those rules, the OTS has taken the position that even independent agents used by thrift institutions to market mortgages or certificates of deposit are immune from all substantive state regulations aimed a protecting consumers. The OTS’s opinion was articulated in an October 25, 2004 opinion letter. The OTS position has a direct impact on our members, to the extent it authorizes thrifts to market securities products, such as jumbo CDs, without complying with the licensing requirements applicable under state securities laws.

These examples and others affirm the need not only to rein in, but also to reverse, instances of state law preemption. An important corollary is making sure that the states are adequately represented in any regulatory reforms that your administration and Congress may fashion to address our current economic crisis. Plainly, our system of financial services regulation must be more effective. The enormous challenge of regulating our financial markets can only be met through the combined efforts of state and federal regulators, working together to protect both investors and the integrity of the marketplace. Any regulatory reforms should incorporate this guiding principle.

For that reason, to address what many regard as the most urgently needed reform, we endorse the creation of a Systemic Risk Council, comprised of representatives from all federal and state regulators in securities, banking, and insurance, and tasked with the responsibility for monitoring and limiting the accumulation of risk in our financial markets. With our unique position on the frontlines of investor protection, state regulators are essential to the success of any remedy aimed at controlling systemic risk. We provide ground-level detection by gathering a huge volume of information through examinations of industry participants and complaints from investors. When that information reveals risks and abuses, we take appropriate action. The Council approach, with full state representation, takes advantage of these strengths. We would ask that you carefully evaluate the benefits of this model as you weigh alternative solutions to the difficult problem of systemic risk.

NASAA is committed to working with your Administration and the 111th Congress to ensure that the nation’s financial services regulatory structure undergoes the important changes that are necessary to enhance protections for Main Street investors. Your recent directive on agency preemption is a very important step, and as you move forward with other regulatory reforms, we hope you will continue to recognize the enormous value of state regulation in our system of federalism.

Sincerely,

Fred Joseph
President North American Securities Administrators Association
Colorado Securities Commissioner

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Please contact us if you have any questions or would like to start a hedge fund.  Other related hedge fund law articles include:

Hedge Fund Law – State Law Issues

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Dealing with Ambiguous State Securities Laws

An issue which often arises during the planning phase of the hedge fund formation process is whether certain state securities or investment advisory laws or regulations apply to a certain fact situation.  Many times these issues arise in the context of investment advisor registration (especially with regard to “custody” and net worth requirements), but they can also apply to less common issues (such as spot forex registration and matters involving commodities and futures licensing).  The problem is not only that the laws and regulations may not apply to a specific situation (many state laws are based on a model code which was written over 50 years ago), but also that there are no judicial or administrative actions which can provide valuable insight into how the state or the enforcement division would view a similar situation.

Unfortunately it can be very hard to receive clarification on these laws and regulations  and sometimes reaching out to state regulators can be an exercise in futility.  In a recent call with the California Department of Corporations (which is in charge of, among other things, administering the state securities laws) I was practically scolded by the staff attorney for first reaching out to the state to determine if they had any informal thoughts on my question.  In situations where we cannot receive informal guidance from a state, the client may choose to request a no-action letter from the state with regard to their situation.

Requesting a No-Action Letter or Interpretive Opinion

NASAA, the North American Securities Administrators Association, has provided this description of no-action letters and interpretive opinions:

Many state securities regulators have the authority issue “no-action letters” in which staff confirms that a transaction carried out under a set of assumed facts will not result in a recommendation for enforcement action.  Some states also issue “interpretive opinions” in which staff provides guidance by indicating how a provision of law applies to a situation presented.

Generally states will allow groups to submit either request.  The request letter will include a restatement of the applicable facts and laws and an argument as to why the requested relief or opinion should be granted.  The attorney will draft this letter on behalf of the manager.  The manager will also need to pay a fee to the state, usually $100-$300 to receive an answer to the request letter.  There is no guarantee that the state will agree with manager and grant any relief.  It will usually take a minimum of 30 days to receive an answer from the state.

Unfortunately the process is both expensive and time consuming.

Fixing the Problem

There are many problems with the federalism system with regard to securities regulation.  One of the biggest issues is the lack of uniformity between the state laws and the disparity between states with regard to enforcement.  I posted an article yesterday about what NASAA is doing this area.  I commend NASAA for taking this step forward – it will be a big improvement over the current system and hopefully will lead to more uniform laws (and application of those laws) throughout the states.  However, this is not a panacea and we are unlikely to see truly fair and efficient enforcement of laws unless there is a wholesale scrapping of the current system and unfortunately even then we are still left with federalism which provides state securities commissions with powers that most do not understand how to deal with.

Ultimately this increases costs to the managers and ultimately investors.

NASAA Proposes Multi-State No-Action Request Process

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Currently each state has their own securities laws and their own interpretation of those laws.  While many of the laws and regulations are based on the same set of model rules, no two states seem to take the same interpretation with regard to the rules.  Enforcement is completely different as well.  This presents many problems for those involved in the securities and investment management industries because of the disparate treatment under similar circumstances in different states.

NASAA is taking a step forward to try to unify the laws of the states through a multi-state no-action request process.  Basically questions on the application or interpretation of state securities laws would be decided on a multi-state level instead of at just a single state(each state would have the ability to issue a distinct opinion or opt out of the discussion, see below for more details).  This is good because it (1) allows all states to address an issue which may be applicable (currently or in the future) to a resident of their state and (2) it will promote discussion between the states as to how to handle certain situations.  Hopefully this create a more uniform set of laws between the states which will decrease lawyer fees in the future and will increase certainty in the application of current laws and regulation.

With regard to the specific proposal we will likely respond to the NASAA with the following comments:

Section 5, number 7 – this section should be deleted unless it goes directly to an issue with the request at hand.  Disclosing this information otherwise would serve no purpose with regard to the request.

Suggestion – NASAA should also create a database on their website to track all of requests as well as the rulings on the requests.

We will be covering this in greater detail over the next few weeks.  Please contact us if you have questions or ideas with regard to the proposal.

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Notice of Request for Public Comment on NASAA’s Proposed Adoption of a Statement of Policy Regarding Multi-State Review of Requests for Interpretive Opinions and No-Action Letters

The NASAA Coordinated Interpretations Project Group requests comment from the public on the adoption of a new Statement of Policy Regarding Multi-State Review of Requests for Interpretative Opinions and No-Action Letters.

The comment period begins February 20, 2009 and will remain open for 30 days.  Accordingly, all comments should be submitted on or before March 22, 2009.  Comments should be directed by email or in writing to:

Rick A. Fleming
General Counsel
Office of the Securities Commissioner
618 S. Kansas Avenue
Topeka, Kansas  66603
[email protected]

Rex Staples
General Counsel
NASAA
750 First Street, NE, Suite 1140
Washington, DC  20002-4251
[email protected]

Background and Purpose of the Proposed Statement of Policy

Many state securities regulators have the authority issue “no-action letters” in which staff confirms that a transaction carried out under a set of assumed facts will not result in a recommendation for enforcement action.  Some states also issue “interpretive opinions” in which staff provides guidance by indicating how a provision of law applies to a situation presented.  These types of no-action letters and interpretive opinions are authorized by subsection 413(e) of the Uniform Securities Act of 1956, as amended, and subsection 605(d) of the Uniform Securities Act (2002).

Subsection 420(b)(7) of the 1956 USA and subsection 608(c)(9) of the 2002 USA authorize the states to cooperate with each other in the development of no-action letters and interpretive opinions in order to encourage uniform interpretation of laws and maximize the effectiveness of regulation.  Toward those ends, NASAA proposes this Statement of Policy.

Summary of the Proposed Statement of Policy

The proposed Statement of Policy describes the application and review process for multi-state consideration of requests for interpretive opinions and no-action letters.  The proposed Statement of Policy contains the following major elements:

  • Section II contains definitions, including the terms “interpretive opinion” and “no-action letter.”
  • Section III places restrictions on the types of matters that qualify for multi-state review.  For example, it prohibits requests concerning purely hypothetical situations and transactions that have already occurred.
  • Sections IV and V contain rules governing the content of the request letter, citation to state laws, payment of fees, etc.
  • Section VI describes the review process.  Conference calls and a list-serve will be used to facilitate communication between states, and responses to requests for interpretive opinions and no-action letters should be generated within 60 days.
  • Section VII contains optional disclaimers for the states to consider using.

The full policy statement, reprinted below, can also be found here.

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STATEMENT OF POLICY REGARDING
MULTI-STATE REVIEW OF REQUESTS FOR
INTERPRETIVE OPINIONS AND NO-ACTION LETTERS

(Adopted ____)

I. OVERVIEW

1. This Statement of Policy of the North American Securities Administrators Association (NASAA) describes the application and review process for multi-state consideration of requests for Interpretive Opinions and No-Action Letters.

2. The policy is intended to promote efficiency in the review of applications and produce responses to requests within 60 days.

3. This policy is intended to promote consistency in the interpretation of blue sky laws, particularly when the laws are based upon uniform or model provisions. However, the issuance of Interpretive Opinions and No-Action Letters is done solely at the discretion of each state, and each state is ultimately responsible for interpreting and enforcing its own law.

II. DEFINITIONS

1. “Interpretive Opinion” means a letter that states a conclusion regarding the applicability of a relevant provision of law to a situation presented. An Interpretive Opinion represents a judgment based solely on the fact situation as described by the applicant and an analysis of existing law and judicial, legislative, and administrative history.

2. “No-Action Letter” means a letter by which a person is advised that a transaction carried out under a set of assumed facts will not result in a recommendation by staff that an enforcement action be taken. An Interpretive Opinion often includes an assurance of “no action;” however, a No-Action Letter does not necessarily include any interpretation of law.

3. “Participating Jurisdictions” means those states that have agreed to accept applications for multi-state review of requests for Interpretive Opinions or No-Action Letters in accordance with this Statement of Policy. Authority for a multi-state review is provided in section 608(c)(9) of the Uniform Securities Act of 2002 and section 420(b)(7) of the Uniform Securities Act of 1956, as amended by NASAA. All Participating Jurisdictions are listed on Form MS-ONA.

4. “Selected Jurisdictions” means the states from whom an applicant seeks an Interpretive Opinion or No-Action Letter, as indicated by the applicant on Form MS-ONA.

III. CRITERIA FOR ELIGIBILITY

1. An application for multi-state review of a request for an Interpretive Opinion or No-Action Letter shall not involve a hypothetical situation, a past transaction, or an issue that is currently subject to or in preparation for litigation.

2. An application shall not involve a matter that the applicant knows or should know is currently under investigation or subject to regulatory action.

3. An application shall not relate to an interpretation of antifraud provisions.

IV. APPLICATION PROCESS

1. To apply for multi-state review of a request for an Interpretive Opinion or No-Action Letter, the applicant shall file the following documents with each Selected Jurisdiction and the Program Administrator:

a.  A copy of “Form MS-ONA – Application for Multi-State Review of Request for Interpretive Opinion or No-Action Letter.” The form is available on the NASAA web site at [insert current web address] and contact information for each state is available at [insert current web address].

b.  A request letter that complies with the requirements set forth below; and

c.  Any supporting materials.

2. The applicant shall submit an application fee directly to each Selected Jurisdiction in the amount indicated on Form MS-ONA.

V. CONTENT OF REQUEST LETTER

1. A request for an Interpretive Opinion or No-Action Letter shall succinctly present the issue to be considered and provide a thorough recitation of all material facts. The request shall contain the applicant’s reasoning and legal analysis, including references to applicable law and previous Interpretive Opinions or No-Action Letters that support the interpretation or relief requested. Additionally, the request should include a discussion of previous Interpretive Opinions or No-Action Letters that militate against granting the interpretation sought or relief requested and set forth the applicant’s reasoning and legal analysis distinguishing them from the facts and issues presented in the request.

2. The request should be limited to one legal issue and should be narrowly tailored to resolve the specific issue. The request should not attempt to discuss every possible situation.

3. The request must identify the persons or entities that are the subject of the request or will rely upon the response and identify the states in which such persons reside or maintain their principal places of business. The request may state that the person or entity seeks confidential treatment to the extent permitted by the open records or public records laws of the Selected Jurisdictions (e.g., state laws modeled after section 607 of the Uniform Securities Act of 2002). However, the applicant should take note that the laws of some states do not permit confidential treatment, and this Statement of Policy does not assure that any state will maintain the confidentiality of the person or entity or any other information contained in the application.

4. If a request for an Interpretive Opinion or No-Action Letter relates to a definition, exemption, or other provision that is derived from the Uniform Securities Act of 1956, the Uniform Securities Act of 2002, a NASAA model rule, or a NASAA Statement of Policy (SOP), the request letter shall include in the heading a citation to the relevant provision(s) of each applicable uniform act, model rule, or SOP.

5. The request shall set forth in tabular form, as an appendix, a specific citation to the relevant laws of each Selected Jurisdiction.

6. The request shall include a representation that any proposed transaction has not yet been consummated, that the matter is not currently subject to or in preparation for litigation, and that the applicant is not aware of any regulatory investigation involving the matter.

7. The request shall disclose whether any of the persons who are the subject of the request or will rely upon the response, or any of the persons’ predecessors, affiliates, directors, officers, general partners, beneficial owners of 10 percent or more of any class of its equity securities, any promoter presently connected with the persons in any capacity, any underwriter to be involved in a transaction described in the request, or any partner, director or officer of the underwriter:

a.  Within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the United States Securities and Exchange Commission;

b.  within the last five years, has been convicted of any criminal offense in connection with the offer, purchase or sale of any security, or involving fraud or deceit;

c.  is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or

d.  is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminary or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.

8. If the applicant has communicated with any state securities administrator concerning the transaction or subject matter that is the subject of the request, the applicant shall disclose the nature of the communication and any response received from the state. If a separate request for an Interpretive Opinion or No-Action Letter has already been filed with one or more states in connection with the same transaction or subject matter, the applicant shall (1) provide a copy of any requests that have been filed and disclose the status of each state’s response; (2) provide a copy of any response that has been issued by a state; and (3) explain the reason that it did not initially seek multi-state review.

VI. REVIEW PROCESS

1. Within 5 business days after receipt of an application, the Program Administrator will determine whether the application is eligible for multi-state review and in proper form. If the application is ineligible or deficient, the Program Administrator will notify the applicant and the Selected Jurisdictions. If the application is eligible for multi-state review, the Program Administrator will notify the applicant and Selected Jurisdictions of the deadline to review the application and issue responses in accordance with paragraph VI.3. The Program Administrator will also send a copy of the application to any other state that provides contact information in accordance with Paragraph VI.6.

2. Within 45 days after receipt of a proper application by the Program Administrator, the Program Administrator shall arrange for a conference call to discuss the application and shall provide notice of the call to all states who submit contact information in accordance with paragraph VI.6. The Program Administrator may appoint a facilitator for the conference call, and the Program Administrator or facilitator may schedule additional conference calls as needed.

3. Within 60 days after receipt of a proper application by the Program Administrator, each Selected Jurisdiction shall use its best efforts to issue its response to the applicant. The response may include an Interpretive Opinion, No-Action Letter, or letter declining to give any such assurance. Failure of a Selected Jurisdiction to issue a response does not indicate assent to the granting of the interpretation or relief requested. A copy of the response should be sent to the Program Administrator and added to an electronic library containing the Interpretive Opinions and No-Action Letters issued under this Statement of Policy.

4. The Program Administrator may seek additional information from the applicant on behalf of any Selected Jurisdiction, and the applicant shall file copies of all supplemental material with each Selected Jurisdiction and the Program Administrator. If supplemental material is requested, the review period may be extended up to 30 additional days after receipt of the supplemental material at the discretion of the Program Administrator. The Program Administrator will notify the applicant and Selected Jurisdictions of the extension and send copies of the supplemental material to states that are not Selected Jurisdictions.

5. The timelines contained herein may be postponed at the discretion of the Program Administrator in extenuating circumstances. The Program Administrator will notify the applicant and the Selected Jurisdictions of the new deadlines and the reasons for any postponement.

6. Each Participating Jurisdiction and any other state that wants to receive notices from the Program Administrator must provide and update the Program Administrator with the name, title, address, phone number, fax number, and e-mail address of one or more contact persons. The Program Administrator will maintain a list-serve or other electronic system to facilitate communication between such persons.

VII. DISCLAIMERS

1. Each Participating Jurisdiction is encouraged to use the following disclaimers in any letter issued under this policy:

a.  The letter applies only to the party requesting it, and persons having similar fact situations should submit a separate request.

b.  The letter is conditioned upon the specific facts set forth in the request and the accuracy of any representations that are required to be made under this Statement of Policy.

c.  The conclusions are based upon current law, should not be regarded as precedent, and are not binding on any court, agency, or tribunal.

d.  The letter does not preclude investors, other regulatory agencies, or other persons from asserting their rights under the law.