PURPOSE: This rule prescribes grounds for the denial, revocation or suspension of the registration of broker-dealers, agents and investment advisers.

1. (1) Grounds for the denial, revocation and suspension of registration shall include, in addition to other grounds specified in section 409.4-412(d) of the Act, the following “dishonest or unethical practices in the securities business”:

   1. (A) Unreasonable and unjustifiable delaying or failing to execute orders, liquidating customers’ accounts or in making delivery of securities purchased or in paying upon request of free credit balances reflecting completed transactions of any of its customers;
   2. (B) Entering into a transaction with or for a customer at a price not reasonably related to the current market price of the security or receiving an unreasonable commission or profit;

   3. (C) Effecting transactions in the account of a customer without authority to do so; or exercising any discretionary power in effecting a transaction for a customer’s account without first obtaining written discretionary authority from the customer, unless the discretionary power relates solely to the time or price, or both, for the execution of orders;

      1. (D) Willful switching, churning, over-

trading or reloading of securities in a customer’s account for the purpose of accumulating or compounding commission or inducing trading in a customer’s account which is excessive in size or frequency in view of the financial resources and character of the account;

1. (E) Recommending to a customer the purchase, sale or exchange of any security without reasonable grounds to believe that this transaction or recommendation is suitable for the customer based upon reasonable inquiry concerning the customer’s investment objectives, financial situation and needs, and any other relevant information known by the applicant or registrant;
2. (F) Engaging in or aiding in boiler-room operations or high pressure tactics in connection with the promotion of speculative offerings or hot issues by means of an intensive telephone campaign or unsolicited calls to persons not known by, nor having an account with, the agent or broker-dealer represented by the agent, where the prospective purchaser is encouraged to make a hasty decision to buy, irrespective of his/her investment needs and objectives;
3. (G) Failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include all information set forth in the final prospectus, or making oral or written statements contrary to or inconsistent with the disclosures contained in the prospectus;

4. (H) Making false, misleading, deceptive, exaggerated or flamboyant representations or predictions in the solicitation or sale of a security, as, for example:

   1. 1. That the security will be resold or

repurchased;

1. 2. That it will be listed or traded on an

exchange or established market;

1. 3. That it will result in an assured,

immediate or extensive increase in value, future market price or return on investment;

1. 4. With respect to the issuer’s financial

condition, anticipated earnings, potential growth or success;

1. 5. That there is a guarantee against risk

or loss; or

1. 6. Representation that a security is being

offered to a customer at the market or a price related to the market price unless the applicant or registrant knows or has reasonable grounds to believe that—

1. A. A market for the security exists

other than that made, created or controlled by the applicant or registrant, or by any person for whom s/he is acting or with whom s/he is associated in the distribution, or any person controlled by, controlling or under common control with the applicant or registrant; and

1. B. The security is traded in an estab-

lished securities market, and the fact that the applicant or registrant is in a control position with respect to the market for that security is fully disclosed to the investor;

1. (I) Failing to disclose a dual agency capacity or effecting transactions upon terms and conditions other than those stated per confirmations; or failing to disclose that the applicant or registrant is controlled by, controlling, affiliated with or under common control with the issuer of any security before entering into any contract with or for a customer for the purchase or sale of the security, or if this disclosure is not made in writing, failing to give or send a written disclosure at or before the completion of the transaction;
2. (J) Failing to make a bona fide public offering of all the securities allotted to a broker-dealer for distribution, whether acquired as an underwriter, a selling group member, or from a member participating in the distribution as an underwriter or selling group member; or entering into an underwriting or selling group agreement which establishes unfair or unreasonable terms and conditions or compensation;
3. (K) Establishing fictitious accounts in order to execute transactions which would otherwise be prohibited;
4. (L) Entering into agreements for selling concessions, discounts, commissions or allowances as consideration for services in connection with the distribution or sale of a security in Missouri to any unregistered broker-dealer or agent, or dividing or otherwise splitting the agent’s commissions, profits or other compensation from the purchase or sale of securities with any person not also registered an agent for the same broker-dealer, or for a broker-dealer under direct or common control unless that person is not required to be registered in order to engage in the securities business in Missouri;
5. (M) Operating a securities business while being unable to meet current liabilities, or violating any rule or order relating to minimum capital, bond, record keeping and reporting requirements, or provisions concerning use, commingling or hypothecation of securities;
6. (N) Failing or refusing to furnish a customer, upon reasonable request, information to which s/he is entitled, or to respond to a formal written demand or complaint;
7. (O) Extending, arranging for, or participating in arranging for credit to a customer in violation of the regulations of the Securities and Exchange Commission or the regulations of the Federal Reserve Board;
8. (P) Executing any transaction in a margin account without securing from the customer a properly executed written margin agreement, including, but not limited to, written authorization for the existence of the account, within ten (10) days after the initial transaction in the account;
9. (Q) Hypothecating a customer’s securities without having a lien on the security unless the broker-dealer secures from the customer a properly executed written consent except as permitted by rules of the Securities and Exchange Commission;
10. (R) Charging unreasonable and inequitable fees for services performed, including miscellaneous services such as collection of moneys due for principal, dividends or interest, exchange or transfer of securities, appraisals, safekeeping or custody of securities and other services related to its securities business;
11. (S) Offering to buy from or sell to any person any security at a stated price unless the applicant or registrant is prepared to purchase or sell, as the case may be, at a price and under the conditions as are stated at the time of the offer to buy or sell;

12. (T) Effecting any transaction in, or inducing the purchase or sale of, any security by means of any manipulative, deceptive or fraudulent device, practice, plan, program, design or contrivance, including, but not limited to:

    1. 1. Effecting any transaction in a securi-

ty which involves no change in the beneficial ownership of the security; and

1. 2. Effecting, alone or with one (1) or

more other persons, a transaction or series of transactions in any security creating actual or apparent active trading in the security or raising or depressing the price of the security, for the purpose of inducing the purchase or sale of the security by others;

1. (U) Publishing or circulating or causing to be published or circulated, any notice, circular, advertisement, newspaper article, investment service or communication of any kind which purports to report any transaction as a purchase or sale of any security unless the applicant or registrant believes that the transaction was a bona fide purchase or sale of this security; or which purports to quote the bid or asked price for any security, unless the applicant or registrant believes that the and Investment Adviser Representatives

quotation represents a bona fide bid for, or offer of, the security; or using any advertising or sales material in such a fashion as to be deceptive or misleading, such as the distribution of any nonfactual datum, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in any brochure, flyer, or display by words, pictures, graphs or otherwise, designed to supplement, detract from, supersede or defeat the purpose or effect of any prospectus or disclosure;

1. (V) Borrowing of money or securities from a customer by an agent, or for an agent to act as a custodian for money, securities or an executed stock power of a customer;
2. (W) Sharing, by an agent, directly or indirectly, in profits or losses in the account of any customer without the written authorization of the customer and the broker-dealer an agent represents;
3. (X) Effecting securities transactions not recorded on the regular books or records of the broker-dealer the agent represents, unless the transactions are authorized in writing by the broker-dealer prior to the execution of the transaction;
4. (Y) Stating, implying or otherwise indicating, in connection with the solicitation of the securities transaction, that the market price of a security is readily or generally available unless the market price of that security is reported at least daily in a bona fide newspaper that does not receive any special compensation for reporting the market price of securities or any particular issuer(s);
5. (Z) Failing to disclose any investor, in connection with the solicitation of a securities purchase when the market value of the security is not reported in a bona fide newspaper as described in subsection (1)(Y), the value the purchaser would receive if the purchaser would resell the securities at the same instant the purchase is effected, unless the purchaser would receive at least one hundred percent (100%) of the amount paid for the initial purchase;
6. (AA) In connection with the solicitation of a sale or purchase of an Over the Counter

1. (OTC) non-National Association of Securities Dealers Automated Quotation (NASDAQ) security, failing to promptly provide the most current prospectus or the most recently filed periodic report filed under Section 13 of the Securities Exchange Act when requested to do so by a customer;

   1. (BB) Marking any order tickets or confirmations as unsolicited when in fact the transaction was solicited;
   2. (CC) Failing to disclose, on each statement of account sent to account holders having a designated security shown as a long position in the person’s account as of the statement date, the price at which the broker-dealer is offering to buy the security or, if no price is available, the average of the bid prices by other dealers and the date of the most recent bid available from the broker-dealer and the amount of money represented by the long position, if it were to be sold at the bid price shown on the statement, provided, however, this requirement applies only to accounts holding a designated security acquired in nonexempt transactions effected on or after October 1, 1990 in designated securities as set forth in 15 CSR 30-51.169(1)(F), which were acquired through the broker-dealer presently holding the account or a predecessor broker-dealer;
   3. (DD) Failing to comply with any applicable provision of the Conduct Rules of the National Association of Securities Dealers, or any applicable fair practice or ethical standard promulgated by the Securities and Exchange Commission or by a self-regulatory organization approved by the Securities and Exchange Commission;
   4. (EE) Engaging in any acts or practices enumerated in 15 CSR 30-51.169; and
   5. (FF) For an investment adviser, paying solicitor fees if such fees are not paid in accordance with 15 CSR 30-51.145(1), charging performance-based fees that are not in accordance with 15 CSR 30-51.145(2), or having custody or possession of a client’s funds and/or securities if such custody or possession is not maintained in accordance with 15 CSR 30-51.100.

AUTHORITY: sections 409.4-412 and 409.6- 605, RSMo Supp. 2003.* Original rule filed June 25, 1968, effective Aug. 1, 1968. Amended: Filed May 21, 1969, effective Aug. 1, 1969. Amended: Filed July 21, 1972, effective Aug. 1, 1972. Amended: Filed Nov. 15, 1974, effective Nov. 25, 1974. Amended: Filed Oct. 13, 1983, effective Jan. 13, 1984. Amended: Filed Oct. 16, 1987, effective Feb. 12, 1987. Amended: Filed March 27, 1989, effective June 12, 1989. Amended: Filed July 3, 1989, effective Sept. 28, 1989. Amended: Filed Aug. 28, 1989, effective Feb. 11, 1990. Amended: Filed June 29, 1990, effective Dec. 31, 1990. Emergency amendment filed Aug. 27, 2003, effective Sept. 12, 2003, expired March 9, 2004. Amended: Filed Aug. 28, 2003, effective Feb. 29, 2004.

*Original authority: 409.4-412, RSMo 2003; 409.6-605, RSMo 2003. 15 CSR 30-51