(b) As used in this section of the rule:

1. (1) “Approved funding sources” means cash or United States Treasury securities that are used for the funding of a trust pursuant to this part or the reserve method of funding periodic payments pursuant to this part;

2. (2) “Brokerage firm” means an entity that:

   1. (A) Is both a broker-dealer and an investment adviser;
   2. (B) Has one (1) or more classes of its equity securities listed on the New York Stock Exchange or American Stock Exchange, or is a wholly owned subsidiary of such an entity; and
   3. (C) Has assets under management in an amount of ten billion dollars ($10,000,000,000) or more as reported in its most recent report on Form 10-K or Form 10-Q filed with the Securities and Exchange Commission, or is a wholly owned subsidiary of such an entity;

3. (3) “Broker-dealer” means any person engaged in the business of effecting transactions in securities for the account of others or for the person’s own account and:

   1. (A) Is licensed as a broker-dealer with the State Securities Department; or
   2. (B) Is exempt from licensing and is registered as a broker-dealer with the Securities and Exchange Commission and the National Association of Securities Dealers pursuant to 15 U.S.C. § 780, as amended;
4. (4) “Commission” means the Arkansas Racing Commission or the commission’s designee;
5. (5) “Date of calculation” means the last day for which a discount rate was obtained prior to the conclusion of the validation period;

6. (6)

   1. (A) “Discount rate” means the current prime rate as published in the Wall Street Journal.
   2. (B) For those licensees using the reserve method of funding pursuant to this part, “discount rate” means either:

(i) The aforementioned current prime rate; or

1. (ii) A blended rate computed from the various United States Treasury securities selected by the licensee for which quotes are obtained at least three (3) times a month;

2. (7) “Independent financial institution” means an institution that is not affiliated through common ownership with the licensee and is either:

   1. (A) A bank or national banking association that is authorized to do business in this state, a banking corporation formed or regulated under the laws of this state, or a wholly owned subsidiary of such a banking association or corporation that is formed or regulated under the laws of this state or a national bank with an office in Arkansas; or
   2. (B) An insurance company admitted to transact insurance in the State of Arkansas with an A.M. Best Insurance rating of at least “A+” or such other equivalent rating;

3. (8) “Investment adviser” means any person who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities and is registered as an investment adviser with the:

   1. (A) State Securities Department; or
   2. (B) Securities and Exchange Commission pursuant to 15 U.S.C. § 80b–3a, as amended;
4. (9) “Periodic payments”, for purposes of this subpart only, means a series of payments that are paid at least annually for prizes awarded through gaming or promotional activity;
5. (10) “Present value” means the current value of a future payment or series of payments, discounted using the discount rate;
6. (11) “Qualified prize” means the sum of periodic payments, awarded to a patron as a result of any gaming or promotional activity, payable over a period of at least ten (10) years;
7. (12) “Qualified prize option” means an option that entitles a patron to receive from a licensee a single cash payment in lieu of receiving a qualified prize, or any remaining portion thereof, which shall be exercised no later than sixty (60) days after validation of the qualified prize;

8. (13)

   1. (A) “Reserve” means a restricted account consisting of approved funding sources used exclusively to satisfy periodic payments of prizes arising from all gaming or promotional activity conducted in Arkansas, including such prizes arising from the operation of a multijurisdictional progressive prize system, and includes any existing funding methods previously approved by the Arkansas Racing Commission.

   2. (B) The reserve shall not be less than the sum of the following:

      1. (i)

(b) (b) For balances previously funded using United States Treasury securities, the discount rate on the date of funding shall be used for calculating the present value of the reserve;

1. (ii) An amount sufficient to pay the single cash payments offered in conjunction with qualified prize options for prizes previously awarded for which elections have not been made by the patrons;

   1. (iii) An amount sufficient to fully fund the present value of all prizes currently on public display for which periodic payments are offered;

      1. (iv) If cash is used as the approved funding source, an amount equal to satisfy the current liabilities to all patrons receiving periodic payments due and payable within twelve (12) months; and
      2. (v)

(b) (b) As used in subdivision (b)(13)(B)(v) of this section, the term “multijurisdictional progressive prize system” shall have the meaning ascribed by this part;

1. (14) “Restricted account” means an account with an independent financial institution described in this part, or a brokerage firm, which is to be exclusively used for the reserve method of funding of gaming or promotional activity as provided in this part;
2. (15) “Single cash payment” means a single discounted, lump-sum cash payment in the amount of the present value of the total periodic payments otherwise due and owing for a qualified prize, less the amount of any partial payment of such qualified prize previously made by the licensee to a patron;
3. (16) “Trust” means an irrevocable fiduciary relationship in which one (1) person is the holder of the title to the property subject to an equitable obligation to keep or use the property for the benefit of another;
4. (17) “United States Treasury securities” means a negotiable debt obligation issued and guaranteed by the United States government; and

5. (18)

   1. (A) “Validation period” means the period of time between when a patron has met the conditions required to receive a prize, and when the prize payout is validated.

   2. (B) The validation period shall not exceed seventy-two (72) hours, unless otherwise extended by the Arkansas Racing Commission.

      1. (c) Periodic payments of prizes awarded to a patron as a result of conducting any gaming or promotional activity may be made if the method of funding the periodic payments provides such payments to a patron through the establishment of any one (1) of the following funding methods:

6. (1)

   1. (A) An irrevocable surety bond or an irrevocable letter of credit with an independent financial institution which will provide for either the periodic payments or a single cash payment for the remaining periodic payments should the licensee default on paying the scheduled periodic payments for any reason.
   2. (B) The form of the written agreement establishing an irrevocable surety bond or the irrevocable letter of credit, and a written commitment to execute such bond or letter from the financial institution, shall be submitted to the commission for approval no fewer than forty-five (45) days prior to the commencement of the gaming or promotional activity;

7. (2)

   1. (A) An irrevocable trust with an independent financial institution in accordance with a written trust agreement, the form of which shall be submitted to the commission for approval at least forty-five (45) days prior to the commencement of any new gaming or promotional activity, and which provides periodic payments from an unallocated pool of assets to a group of patrons and which shall expressly prohibit the patron from encumbering, assigning, or otherwise transferring in any way the patron’s right to receive the deferred portion of the prizes except to the patron’s estate.
   2. (B) The assets of the trust shall consist of approved funding sources in an amount sufficient to meet the periodic payments as required;

8. (3)

   1. (A) A reserve maintained at all times by a licensee, together with the continuing satisfaction of and compliance with certain financial ratios and tests, and monitoring and reporting procedures related thereto.
   2. (B) The conditions under which a reserve method may be used shall be prescribed by the commission in a written notice distributed to licensees and all interested persons.
   3. (C) Licensees shall notify the commission in writing at least forty-five (45) days prior to the commencement of any new gaming or promotional activity for which periodic payments may be used.
   4. (D) Unless otherwise informed within such time period in writing by the commission and assuming a stop order has not been issued during such period, the use of a reserve method for funding periodic payments shall be deemed approved; or

9. (4)

   1. (A) Another method of providing the periodic payments to a patron consistent with the purpose of this subpart and which is approved by the commission prior to the commencement of the gaming or promotional activity.
   2. (B) Proposed modifications to a periodic payment plan previously approved by the commission shall be submitted to the commission for review at least forty-five (45) days prior to the effective date of the change.

   3. (C) The commission, after whatever investigation or review the commission deems necessary, may administratively approve the modification or require the licensee to submit the requested modification to the commission for review and approval.

      1. (d)
10. (1) The funding of periodic payment plans shall be completed within thirty (30) days of the conclusion of the validation period, or where a qualified prize option is offered for such prize payout, within thirty (30) days of the date the patron makes an election thereunder.
11. (2) Where a single cash payment is elected, the licensee shall pay to the patron in cash, certified check, or wire transfer the full amount less any prior payment or payments within fifteen (15) days after receiving the patron’s written notification of such election.

(e)

1. (1) Periodic payments shall not be used for prize payouts of one hundred thousand dollars ($100,000) or less.

2. (2) Periodic payments for total amounts won greater than one hundred thousand dollars ($100,000) shall be paid as follows:

   1. (A) For amounts won greater than one hundred thousand dollars ($100,000), but less than two hundred thousand dollars ($200,000), payments shall be at least ten thousand dollars ($10,000) annually;
   2. (B) For amounts won greater than two hundred thousand dollars ($200,000) or more, payments shall be no less than one-twentieth (1/20) of the total amount annually;
   3. (C) For amounts won equal to or in excess of five million dollars ($5,000,000), payments shall be made in the manner set forth in subdivision (e)(2)(B) of this section or in such manner as approved by the commission upon application by the licensee; and

   4. (D)

      1. (i) The first installment payment shall be made upon the conclusion of the validation period, notwithstanding that a qualified prize option may be offered to the patron.
      2. (ii) In the event that a qualified prize option is offered to a patron, it shall not be construed as a requirement that the patron shall receive a single cash payment instead of periodic payments.
      3. (iii) Waivers of subdivisions (e)(2)(A) – (C) of this section that have been previously granted by the commission shall remain in full force and effect pursuant to the current terms and provisions of such waivers.

(h)

1. (1) Notwithstanding any other rule to the contrary, if a licensee offers a qualified prize option to a patron who is awarded a qualified prize, the licensee shall provide the option to the patron in writing within five (5) days after the conclusion of the validation period.

2. (2) Such written option shall:

   1. (A) Explain the method used to compute the single cash payment, including the discount rate as of the date of calculation; and

   2. (B) State that the patron is under no obligation to accept the offer of a single cash payment and may nevertheless elect to receive periodic payments for the qualified prize.

      1. (i) The licensee shall maintain the following amounts, as applicable, related to each gaming or promotional activity that uses periodic payments in calculating its minimum bankroll requirement for the purpose of complying with this part:
3. (1) For periodic payment plans approved in accordance with this part, the installment payments due within the next twelve-month period for all amounts won or on public display for which the licensee will be making periodic payments;

4. (2) For periodic payment plans approved in accordance with this part, the first installment payment, if not yet paid, and the present value of all future payments:

   1. (A) For amounts won or awarded but for which the funding has not been completed; and
   2. (B) For all prizes which have not been won or awarded but are on public display, including a progressive meter; and
5. (3) An alternative amount and/or method required by the commission to satisfy the minimum bankroll requirement for other approved funding plans used for periodic payments.

(j)

1. (1) At all times the licensee is responsible for the payment of all prizes resulting from any gaming or promotional activity upon conclusion of the validation period, regardless of the method used to fund the periodic payments allowed under this subpart.
2. (2) In the event of a default by any financial institution with which the licensee has contracted to guarantee or make periodic payments, the licensee will be liable for the periodic payments owed to patrons.

(k)

1. (1) At least annually, the licensee shall verify that the independent financial institution and brokerage firm being used to guarantee or remit periodic payments to patrons or to hold approved funding sources related thereto continues to meet the applicable qualifications required by this part.

2. (2) In the event that such entities are found to no longer meet the defined requirements, the licensee shall immediately notify the commission of the change in status and within thirty (30) days provide a written plan to comply with these requirements.

   1. (l)
3. (1) At least sixty (60) days prior to the cessation of operations, a licensee responsible for remitting periodic payments to patrons shall submit a plan to satisfy the liability for approval.

4. (2) The commission, after whatever investigation or review the commission deems necessary, may approve the plan.

   1. (m)
5. (1) Copies of the related contracts and agreements executed pursuant to this part shall be submitted to the commission within thirty (30) days after execution.
6. (2) For all methods of funding periodic payments, the licensee must maintain documents, executed contracts, and agreements for a period no less than the duration of the periodic payments plus five (5) years thereafter.

(o)

1. (1) Any failure of the licensee to maintain full compliance with each and every provision set forth in this subpart, including the commission’s requirements established pursuant to this part, or any failure of the licensee to immediately notify the commission of any noncompliance thereof, shall constitute an unsuitable method of operation.
2. (2) Such noncompliance may subject the licensee to disciplinary action.