CHAPTER 303. REGISTRATION PROCEDURE

§ 303.011. Broker-dealer registration procedures.

 (a)  An application for initial registration as a broker-dealer shall contain the information requested in and shall be made on Uniform Application for Broker-Dealer Registration (Form BD), or a successor form, and shall be made in the following manner:

   (1)  An applicant which is not a member of the National Association of Securities Dealers, Inc. (NASD) or a member of a National securities exchange registered with the United States Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (15 U.S.C.A. § §  78a—78kk) shall complete and file one copy of Form BD with the Commission accompanied by the requisite filing fee required by section 602(d.1) of the act (70 P. S. §  1-602(d.1)), the compliance assessment required by section 602.1(a)(3) of the act (70 P. S. §  1-602.1(a)(3)), and financial statements in the form required by subsections (b) and (c).

   (2)  An applicant which is not a member of the NASD but is a member of a National securities exchange registered with the SEC under the Securities Exchange Act of 1934 shall complete and file one copy of Form BD with the Commission accompanied by the requisite filing fee required by section 602(d.1) of the act and the compliance assessment required by section 602.1(a)(3) of the act.

   (3)  An applicant which is a member of NASD shall file Form BD in the manner set forth in §  603.011(f) (relating to filing requirements) accompanied by the filing fee required by section 602(d.1) of the act and the compliance assessment required by section 602.1(a)(3) of the act.

 (b)  Except for applicants described in subsections (a)(2) and (3), every application shall be accompanied by a statement of the financial condition of the applicant prepared in accordance with generally accepted accounting principles and accompanied by an auditor’s report containing an unqualified opinion of an independent certified public accountant. The audited statement of financial condition shall be as of the end of the applicant’s most recent fiscal year, or the preceding fiscal year if the statement of financial condition for the most recently ended fiscal year is unavailable and if the application is filed within 14 months of the end of the preceding fiscal year. If the date of the most recent audited statement of financial condition is more than 45 days prior to the date of filing, the applicant also shall file an unaudited statement of financial condition as of a date within 45 days of the date of filing. As a part of the statement, the Commission may require the filing of separate schedules:

   (1)  Listing the securities owned by the applicant valued at the market.

   (2)  Stating material contractual commitments of the applicant not otherwise reflected in the statements.

 (c)  Except for applicants described in subsections (a)(2) and (3), an applicant that has commenced to act as a broker-dealer, the audited statement of financial condition shall be accompanied by an audited statement of income as of the end of the applicant’s most recent fiscal year, or the preceding fiscal year if the statement of income for the most recently ended fiscal year is unavailable and if the application is filed within 14 months of the end of the preceding fiscal year.

 (d)  An applicant described in subsection (a)(2) or (3) shall provide the Commission, within 5 days of receipt of a written or electronic request, a copy of any financial statement or financial information required by SEC rules or the rules of a National securities association or National securities exchange registered with the SEC of which the applicant is a member.

 (e)  A broker-dealer registered under the act shall take steps necessary to ensure that material information contained in its Form BD remains current and accurate. If a material statement made in Form BD becomes incorrect or inaccurate, the broker-dealer shall file with the Commission an amendment on Form BD within 30 days of the occurrence of the event which required the filing of the amendment.

   The provisions of this §  303.011 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a), (c) and (d) and 1-609(a)).

   The provisions of this §  303.011 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended June 8, 1984, effective June 9, 1984, 14 Pa.B. 1941; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 278; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032. Immediately preceding text appears at serial pages (268809) to (268810).

 (a)  An application for initial registration as an investment adviser shall contain the information requested in and shall be made on the Uniform Application for Investment Adviser Registration (Form ADV), or a successor form. The applicant shall complete and file with the Commission or with an investment adviser registration depository designated by order of the Commission one copy of the form accompanied by the filing fee in section 602(d.1) of the act (70 P. S. §  1-602(d.1)), the compliance assessment in section 602.1(a)(4) of the act and any exhibits required by this section.

 (b)  Except as set forth in subsection (f), the following statements of financial condition shall accompany an application for initial registration as an investment adviser:

   (1)  An applicant that has custody of client funds or securities or an applicant that requires payment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file an audited balance sheet of the applicant prepared in accordance with generally accepted accounting principles and accompanied by a standard audit report containing an unqualified opinion of an independent certified public accountant. The accountant shall submit, as a supplementary opinion, comments based upon the audit as to material inadequacies found to exist in the accounting system, the internal accounting controls and the procedures for safeguarding securities and funds and shall indicate corrective action taken or proposed. The balance sheet required by this paragraph shall be as of the end of the applicant’s most recent fiscal year. If that balance sheet is as of a date more than 45 days prior to the date of filing the application, the applicant also shall file a subsequent balance sheet prepared in accordance with generally accepted accounting principles as of a date within 45 days of the date of filing. This balance sheet may be unaudited and may be prepared by management of the applicant.

   (2)  An applicant that has discretionary authority over client funds or securities, but not custody, shall file a balance sheet which need not be audited but shall be prepared in accordance with generally accepted accounting principles. The balance sheet required by this paragraph shall be as of the end of the applicant’s most recent fiscal year. If that balance sheet is as of a date more than 45 days prior to the date of filing the application, the applicant also shall file a subsequent balance sheet, which must be prepared in accordance with generally accepted accounting principles as of a date within 45 days of filing the application. Each balance sheet required by this paragraph may be unaudited and prepared by management of the applicant. Each balance sheet required by this paragraph also shall contain a representation by the applicant that the balance sheet is true and accurate.

   (3)  An applicant whose proposed activities do not come within paragraph (1) or (2) need not file a statement of financial condition.

 (c)  As part of the requirements relating to the statements of financial condition set forth in subsection (b), the Commission may require the following:

   (1)  A list of the securities reflected in the statement of financial condition of the applicant valued at the market.

   (2)  A description of material contractual commitments of the applicant not otherwise reflected in the statement of financial condition.

   (3)  In the case of a sole proprietor, whose statement of financial condition includes only those assets and liabilities used in the applicant’s investment adviser business, an affirmative statement by the applicant that its liabilities which have not been incurred in the course of business as an investment adviser are not greater than the applicant’s assets not used in its investment adviser business.

 (d)  An investment adviser registered under the act shall take steps necessary to ensure that material information contained in its Form ADV and exhibits remains current and accurate. If a material statement made in Form ADV and exhibits becomes incorrect or inaccurate the investment adviser shall file with the Commission an amendment on Form ADV within 30 days of the occurrence of the event which requires the filing of the amendment.

 (e)  For purposes of this section, the following terms have the following meanings:

   Principal place of business—The meaning set forth in 17 CFR 275.203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A. § §  80b-1—80b-21).

 (f)  An applicant that maintains its principal place of business in a state other than this Commonwealth need not comply with subsection (b) if the applicant meets the following:

   (1)  Is registered as an investment adviser in the state in which it maintains its principal place of business.

   (2)  Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.

   (3)  Has not taken custody of the assets of any client residing in this Commonwealth at any time during the preceding 12-month period.

   The provisions of this §  303.012 amended under sections 303(a)—(e), 304(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a)—(e), 1-304(b) and 1-609(a)).

   The provisions of this §  303.012 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended December 27, 1985, effective December 28, 1985, 15 Pa.B. 4585; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 278; amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 653; amended September 8, 1995, effective September 9, 1995, 25 Pa. B. 3722; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307. Immediately preceding text appears at serial pages (286701) to (286703).

 (a)  An application for initial registration as an agent of a broker-dealer or issuer shall contain the information requested in and shall be made on Uniform Application for Securities Industry Registration or Transfer (Form U-4) or a successor form. Except as provided in subsection (b), the agent and the broker-dealer or issuer shall complete and file with the Commission one copy of Form U-4 and exhibits thereto accompanied by the filing fee required by section 602(d.1) of the act (70 P. S. §  1-602(d.1)), the compliance assessment required by section 602.1(a)(1) of the act (70 P. S. §  1-602.1(a)(1)) and evidence of passage of the examinations required by §  303.031 (relating to examination requirements for agents).

 (b)  An applicant for registration as an agent of a broker-dealer which is a member firm of the National Association of Securities Dealers (NASD) shall file the following items in the manner set forth in §  603.011(f) (relating to filing requirements):

   (1)  A completed and executed Form U-4 and exhibits thereto.

   (2)  The filing fee required by section 602(d.1) of the act.

   (3)  The compliance assessment required by section 602.1(a)(1) of the act.

   (4)  Evidence of passage of the examinations required by §  303.031.

 (c)  An agent and broker-dealer or issuer shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or inaccurate, the agent and broker-dealer or issuer shall file with the Commission an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment.

   The provisions of this §  303.013 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a), (c) and (d) and 1-609(a)).

 (a)  An application for initial registration as an investment adviser representative of an investment adviser or Federally-covered adviser shall contain the information requested in and shall be made on the Uniform Application for Securities Industry Registration or Transfer Form (Form U-4), or a successor form. The investment adviser representative and the investment adviser or Federally covered adviser shall complete and file with the Commission or with an investment adviser registration depository designated by order of the Commission one copy of Form U-4 and exhibits thereto accompanied by the filing fee required by section 602(d.1) of the act (70 P. S. §  1-602(d.1)), the compliance assessment required by section 602.1(a)(1) of the act (70 P. S. §  1-602.1(a)(1)) and the results evidencing passage of the examinations required by §  303.032 (relating to qualification of and examination requirement for investment advisers and investment adviser representatives).

 (b)  An investment adviser representative and an investment adviser or Federally-covered adviser shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or incomplete, the investment adviser representative and the investment adviser or Federally-covered adviser shall file with the Commission an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment.

   The provisions of this §  303.014 issued under section 303(a)(i) of the Pennsylvania Securities Act of 1972 (70 P. S. §  1-303(a)(i)); amended under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a)—(e) and 1-609(a)).

 (a)  Initial filing. The notice required to be filed by Federally-covered advisers under section 303(a)(iii) of the act (70 P. S. §  1-303(a)(iii)) shall be the uniform application for investment adviser registration (Form ADV) or successor form thereto as filed with the United States Securities and Exchange Commission. Prior to the Federally-covered adviser conducting advisory business in this Commonwealth, a completed Form ADV accompanied by the notice filing fee required by section 602(d.1) of the act (70 P. S. §  1-602(d.1)) shall be filed with the Commission or with an investment adviser registration depository designated by order of the Commission.

 (b)  Renewals. Every Federally-covered adviser conducting advisory business in this Commonwealth annually shall pay a notice filing fee set forth in section 602(d.1) of the act. Payment of the notice filing fee should be made directly with the Commission or with an investment adviser registration depository designated by order of the Commission.

   The provisions of this §  303.015 issued under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a)—(e) and 1-609(a)).

   The provisions of this §  303.015 adopted September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551.

 (a)  The following apply with respect to broker-dealers:

   (1)  When a broker-dealer is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, a broker-dealer registered under section 301 of the act (70 P. S. §  1-301) and as a broker or dealer under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C.A. §  77o(b)) (successor broker-dealer) based solely on a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of SEC Rule 15b1-3(a) promulgated under the Securities Exchange Act of 1934, except that the successor broker-dealer shall file the amendments to Form BD with the Commission.

   (2)  When a broker-dealer is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, a broker-dealer registered under section 301 of the act and as a broker or dealer under section 15(b) of the Securities Exchange Act of 1934 (successor broker-dealer) for reasons other than a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of SEC Rule 15b1-3(b) promulgated under the Securities Exchange Act of 1934, except that the successor shall file Form BD with the Commission.

 (b)  The following shall apply to investment advisers:

   (1)  When an investment adviser is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, an investment adviser registered under section 301 of the act (successor investment adviser) based solely on a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser may file an initial application for registration by amending Form ADV of the predecessor and, under section 303(b) of the act (70 P. S. §  1-303(b)), succeed to the unexpired portion of the predecessor’s term of registration.

   (2)  When an investment adviser is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, an investment adviser registered under section 301 of the act for reasons other than a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser shall file Form ADV with the Commission. Upon registration, the successor investment adviser, under section 303(b) of the act, shall succeed to the unexpired portion of the predecessor’s term of registration.

 (c)  When a Federally covered adviser is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, a registered investment adviser or of another Federally-covered adviser (successor Federally-covered adviser), the successor Federally-covered adviser shall file with the Commission either Form ADV or an amendment to Form ADV as required under SEC Release No. IA-1357 (December 28, 1992) and, under section 303(b) of the act, shall succeed to the unexpired portion of the predecessor’s notice period.

   The provisions of this §  303.021 issued under sections 303(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(b) and 1-609(a)); amended under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a)—(e) and 1-609(a)).

 (a)  An individual may not be registered as an agent under the act unless the individual has met the requirements of subsections (b) and (c).

 (b)  The applicant has received a passing grade on the securities examination for principals or registered representatives administered by the National Association of Securities Dealers, Inc., the New York Stock Exchange or the United States Securities and Exchange Commission within 2 years prior to the date of filing an application for registration. An applicant will be deemed to have met the requirements of this subsection if any of the following apply:

     (i)   The applicant previously has passed the examination and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.

     (ii)   The applicant has received a waiver of the examination requirement by the NASD.

     (iii)   The applicant has received a Commission order waiving the examination requirement.

 (c)  The applicant has received a passing grade on the Uniform Securities Agent State Law Examination (Series 63) or, alternatively, the Uniform Combined State Law Examination (Series 66) and the General Securities Representative Examination (Series 7) or successor examination administered by the NASD within 2 years prior to the date of filing an application for registration. An applicant will be deemed to have met the requirements of this subsection if any of the following apply:

     (i)   The applicant previously has passed the Series 63 or, alternatively, the Series 66 and Series 7, and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.

     (ii)   The applicant has received a Commission order waiving the requirement to take the Series 63 or, alternatively, the Series 66 and Series 7.

   The provisions of this §  303.031 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a), (c) and (d) and 1-609(a)).

   The provisions of this §  303.031 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 281; amended September 8, 1995, effective September 9, 1995, 25 Pa.B. 3722; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032. Immediately preceding text appears at serial pages (268816) to (268817).

 (a)  Examination requirements. An individual may not be registered as an investment adviser or investment adviser representative under the act unless the person has met one of the following qualifications:

   (1)  Received, on or after January 1, 2000, and within 2 years immediately prior to the date of filing an application with the Commission, a passing grade on The Uniform Investment Adviser Law Examination (Series 65), or successor examination.

   (2)  Received, on or after January 1, 2000, and within 2 years immediately prior to the date of filing an application with the Commission, a passing grade on the General Securities Representative Examination (Series 7) administered by the National Association of Securities Dealers, Inc. and the Uniform Combined State Law Examination (Series 66) or successor examinations.

   (3)  Received, on or after January 1, 2000, a passing grade on either the Series 65 examination or passing grades on both the Series 7 and Series 66 examinations and has not had a lapse in registration as an investment adviser or investment adviser representative in any state other than this Commonwealth for a period exceeding 2 years immediately prior to the date of filing an application with the Commission.

 (b)  Grandfathering.

   (1)  Compliance with subsection (a) is waived if the individual meets the following qualifications:

     (i)   Prior to January 1, 2000, the individual had received a passing grade on the Series 2, 7, 8 or 24 examination for registered representatives or supervisors administered by the National Association of Securities Dealers, Inc. and the Series 65 or Series 66 examinations.

     (ii)   The individual has not had a lapse in employment as an investment adviser, investment adviser representative or principal or agent of a broker-dealer for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Commission.

   (2)  An individual need not comply with subsection (a) if the individual meets the following qualifications:

     (i)   Prior to January 1, 2000, the individual was registered as an investment adviser or investment adviser representative in any state requiring the licensing, registration or qualification of investment advisers or investment adviser representatives.

     (ii)   The individual has not had a lapse in registration as an investment adviser or investment adviser representative in another state for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Commission.

 (c)  Waivers of exam requirements. Compliance with subsection (a) is waived if:

   (1)  The individual meets the following qualifications:

     (i)   Has no disciplinary history which requires an affirmative response to Items 23A-E or Item 23H of The Uniform Application for Securities Industry Registration or Transfer (Form U-4) or successor items thereto.

     (ii)   Has been awarded any of the following designations which, at the time of filing of the application with the Commission, is current and in good standing:

       (A)   Certified Financial Planner (CFP) awarded by the Certified Financial Planner Board of Standards, Inc.

       (B)   Chartered Financial Consultant (ChFC) or Master of Science and Financial Services (MSFS) awarded by the American College, Bryn Mawr, Pennsylvania.

       (C)   Chartered Financial Analyst (CFA) awarded by the Institute of Chartered Financial Analysts.

       (D)   Personal Financial Specialist (PFS) awarded by the American Institute of Certified Public Accountants.

       (E)   Chartered Investment Counselor (CIC) awarded by the Investment Counsel Association of America, Inc.

   (2)  The individual is licensed as a certified public accountant, is currently in good standing and has no disciplinary history that requires an affirmative response to Items 14A-E or Item 14H of Form U-4 or successor items thereto, and has notified the Commission that the individual is eligible for a waiver of the examination requirement imposed by subsection (a).

   (3)  The individual is licensed as an attorney, is currently in good standing and has no disciplinary history that requires an affirmative response to Items 14A-E or Item 14H of Form U-4 or successor items thereto, and has notified the Commission that the individual is eligible for a waiver of the examination requirement imposed by subsection (a).

   (4)  The individual has received an order from the Commission waiving compliance with subsection (a).

   The provisions of this §  303.032 amended under sections 303(a)—(e), 304(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a)—(e), 1-304(b) and 1-609(a)).

   The provisions of this §  303.032 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; corrected July 3, 1987, 17 Pa.B. 2822; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 285; amended September 8, 1995, effective September 9, 1995, 25 Pa. B. 3722; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307. Immediately preceding text appears at serial pages (286708) to (286710).

 (a)  Except as set forth in subsection (e), every broker-dealer registered under section 301 of the act (70 P. S. §  1-301) shall maintain net capital of $25,000. The aggregate indebtedness of a registered broker-dealer may not exceed 1500% of its net capital. For purposes of this section, the terms ‘‘net capital’’ and ‘‘aggregated indebtedness’’ have the meanings set forth in Rule 15c3-1 (17 CFR 240.15c3-1) (relating to net capital requirements for brokers and dealers) promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. § §  78a—78mm).

 (b)  As a condition of the right to continue to transact business, every broker-dealer registered under the act that is not registered as a broker-dealer with the United States Securities and Exchange Commission (SEC) under the Securities Exchange Act immediately shall notify the Commission if the broker-dealer’s aggregate indebtedness exceeds 1500% of its net capital or if its total net capital is less than the minimum required. Within 24 hours after transmitting the notice, the broker-dealer shall file a report of its financial condition with the Commission including the following:

   (1)  A proof of money balances of ledger accounts in the form of a trial balance.

   (2)  A computation of net capital and aggregate indebtedness as those terms are used in this section and a computation of the ratio of aggregate indebtedness to net capital.

   (3)  An analysis of the aggregate market value of fully paid securities in customers’ security accounts which are not segregated.

   (4)  A proof of ledger net credit balances of moneys borrowed from banks, trust companies and from other financial institutions, and from others, which are fully or partially secured by securities carried for the account of a customer.

   (5)  A computation of the aggregate amount of customers’ ledger debit balances.

   (6)  A computation of the aggregate amount of customers’ ledger credit balances.

   (7)  A statement as to the approximate number of customer accounts.

 (c)  The term ‘‘customer’’ of a broker-dealer as used in this subsection includes every person except the broker-dealer.

 (d)  The Commission may by order permit an applicant for registration as a broker-dealer under section 301 of the act which is not registered or has not applied for registration as a broker or dealer with the SEC to file, execute and maintain a surety bond in compliance with §  303.051 (relating to surety bonds).

 (e)  Every broker-dealer registered under section 301 of the act that is registered as a broker or dealer with the SEC shall maintain minimum net capital and comply with the aggregate indebtedness requirements as set forth in Rule 15c3-1 (17 CFR 240.15c3-1)(relating to net capital requirements for brokers and dealers) promulgated under the Securities Exchange Act of 1934.

   The provisions of this §  303.041 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a), (c) and (d) and 1-609(a)).

   The provisions of this §  303.041 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 287; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032. Immediately preceding text appears at serial pages (268819) to (268821).

 (a)  Every investment adviser registered under section 301 of the act (70 P. S. §  1-301) shall maintain at all times the following net worth requirements:

   (1)  The following applies when an investment adviser has its principal place of business in a state other than this Commonwealth.

     (i)   If the investment adviser currently is licensed as an investment adviser in the state in which it maintains its principal place of business and is in compliance with that state’s net worth requirements, the net worth required by this section shall be the same as the net worth requirement imposed by that state.

     (ii)   If the investment adviser currently is not licensed as an investment adviser in the state in which it maintains its principal place of business, the net worth required by this section shall be the same as if the investment adviser had its principal place of business in this Commonwealth.

   (2)  Except as provided in subsection (e), an investment adviser that has its principal place of business in this Commonwealth and also is registered as a broker-dealer under section 301 of the act shall maintain at all times a minimum net capital of $25,000.

   (3)  An investment adviser that has its principal place of business in this Commonwealth and has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000 unless the investment adviser meets any of the following:

     (i)   The investment adviser has custody solely as a result of receiving fees directly deducted from clients’ funds or securities if the investment adviser:

       (A)   Possesses written authorization from the client to deduct advisory fees from an account held by a qualified custodian.

       (B)   Sends the qualified custodian written notice of the amount of the fee to be deducted from the client’s account.

       (C)   Sends the client a written invoice itemizing the fee, including any formulae used to calculate the fee, the time period covered by the fee and the amount of assets under management on which the fee was based.

     (ii)   The investment adviser has custody solely as a result of serving as a general partner, manager of a limited liability company or a person occupying a similar status or performing a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities if:

       (A)   The pooled investment vehicle is subject to audit at least annually and distributes its audited financial statements which have been prepared by an independent certified public accountant in accordance with generally accepted accounting principles to all limited partners, members or beneficial owners within 120 days of the end of its fiscal year.

       (B)   The investment adviser:

         (I)   Hires an independent party to review all fees, expenses and capital withdrawals from the accounts included in the pooled investment vehicle prior to forwarding them to the qualified custodian with the independent party’s approval for payment.

         (II)   Sends written invoices or receipts to the independent party which describe the amount of the fees (including any formulae used to calculate the fees, the time period covered by the fees and the amount of assets under management on which the fees were based), expenses or capital withdrawals for the independent party to verify that payment of the fees, expenses or capital withdrawals is in accordance with the documents governing the operation of the pooled investment vehicle and any statutory requirements applicable thereto.

     (iii)   The investment adviser has custody solely as a result of acting as trustee for a beneficial trust in which the beneficial owners of the trust are a parent or step-parent; grandparent or step-grandparent; spouse, brother or step-brother, sister or step-sister; or grandchild or step-grandchild of the investment adviser.

   (4)  An investment adviser that has its principal place of business in this Commonwealth and has discretionary authority over client funds or securities but does not have custody of client funds or securities shall maintain at all times a minimum net worth of $10,000. An investment adviser will not be deemed to be exercising discretion and subject to the requirements of this paragraph when it places trade orders with a broker-dealer under a third-party trading agreement if:

     (i)   The investment adviser has executed a separate investment adviser contract exclusively with its clients that acknowledges that a third-party agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client’s broker-dealer account.

     (ii)   The investment adviser contract specifically states that the client does not grant discretionary authority to the investment adviser and the investment adviser, in fact, does not exercise discretion with respect to the account.

     (iii)   A third-party trading agreement is executed between the investment adviser, the client and the broker-dealer which specifically limits the investment adviser’s authority in the client’s broker-dealer account to the placement of trade orders and deduction of investment adviser fees.

   (5)  An investment adviser that has its principal place of business in this Commonwealth and accepts prepayment of advisory fees of more than 6 months in advance and more than $1,200 per client shall maintain at all times a positive net worth.

 (b)  As condition of the right to continue to transact business in this Commonwealth, an investment adviser registered under the act shall notify, by the close of business on the next business day, the Commission if the investment adviser’s total net worth is less than the minimum required net worth. Within 24 hours after transmitting the notice, the investment adviser shall file a report of its financial condition including the following:

   (1)  A proof of money balances of ledger accounts in the form of a trial balance.

   (2)  A computation of net worth.

   (3)  An analysis of clients’ securities and funds which are not segregated.

   (4)  A computation of the aggregate amount of clients’ ledger debit balances.

   (5)  A computation of the aggregate amount of clients’ ledger credit balances.

   (6)  A statement as to the number of client accounts.

 (c)  For the purpose of this section, the following terms have the following meanings:

   Custody—A person is deemed to have custody of client funds or securities if the person directly or indirectly holds clients funds or securities, has any authority to obtain possession of them or has the ability to appropriate them.

   Independent party—A person who meets all of the following requirements:

     (i)   Is engaged by an investment adviser with respect to payment of fees, expenses or capital withdrawals from a pooled investment vehicle in which the investment adviser has custody solely as a result of serving as a general partner, manager of a limited liability company or a person occupying a similar status or performing a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities.

     (ii)   Does not control, is not controlled by and is not under common control with the investment adviser.

     (iii)   Within the preceding consecutive 12 month period, did not derive 5% or more of its gross revenues from the investment adviser who hired the person to be an independent party, including the amount to be received from the investment adviser under the terms of the independent party engagement.

   Net capital—The meaning set forth in 17 CFR 240.15c3-1 (relating to net capital requirements for brokers or dealers), promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. § §  78a—78kk).

   Net worth—The excess of assets over liabilities as determined by generally accepted accounting principles reduced by the following:

     (i)   Prepaid expenses except items properly classified as current assets under generally accepted accounting principles.

     (ii)   Deferred charges.

     (iii)   Goodwill, franchises, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense and all other assets of an intangible nature.

     (iv)   Home furnishings, automobiles and any other personal items not readily marketable in the case of an individual.

     (v)   Advances or loans to stockholders and officers in the case of a corporation; members and managers in the case of a limited liability company; and advances or loans to partners in the case of a partnership.

   Pooled investment vehicle—

     (i)   A limited partnership, limited liability company or an entity with a similar legal status and performing similar functions.

     (ii)   The term does not include an investment company that has filed a registration statement under the Investment Company Act of 1940 (15 U.S.C.A. § §  80a-1—80a-64).

   Principal place of business—The meaning set forth in 17 CFR 275.203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A § §  80b-1—80b-21).

   Qualified custodian—The following shall be considered qualified custodians for purposes of this section:

     (i)   A bank as that term is defined in section 102(d) of the act (70 P. S. §  1-102(d)).

     (ii)   A Federally covered adviser as that term is defined in section 102(f.1) of the act.

     (iii)   A broker dealer registered with the Commission under section 301 of the act (70 P. S. §  1-301).

   Supervised person—A person who meets the definition in section 202(a)(25) of the Investment Advisers Act of 1940 (15 U.S.C.A. §  80b-2(a)(25)).

 (d)  For investment advisers registered or required to be registered under the act, the Commission may require that a current appraisal be submitted to establish the worth of an asset being calculated under the net worth formulation.

 (e)  The requirements of subsection (a)(2) do not apply to an investment adviser that has its principal place of business in this Commonwealth and also is registered as a broker-dealer under section 15 of the Securities Exchange Act of 1934 (15 U.S.C.A. §  77o) if the broker-dealer is one of the following:

   (1)  Subject to, and in compliance with, SEC Rule 15c3-1.

   (2)  A member of a National Securities Exchange whose members are exempt from SEC Rule 15c3-1 under subsection (b)(2) thereof and the broker-dealer is in compliance with all rules and practices of the exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers.

   The provisions of this §  303.042 issued under the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-101—1-704); amended under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-303(a)—(e) and 1-609(a)).

   The provisions of this §  303.042 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended June 18, 1982, effective June 19, 1982, 12 Pa.B. 1873; amended June 26, 1987, effective June 27, 1987, 17 Pa.B. 2604; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307. Immediately preceding text appears at serial pages (286711) to (286713).

 (a)  The following applies with respect to the filing of a surety bond with the Commission by an investment adviser:

   (1)  An investment adviser that has its principal place of business in this Commonwealth and does not meet the minimum net worth requirements of §  303.042 (relating to investment adviser capital requirements) may, by order of the Commission, have and maintain a surety bond in the amount of the net worth deficiency rounded up to the nearest $5,000. The surety bond shall be filed with the Commission on Uniform Surety Bond Form (Form U-SB) or successor form thereto; shall be subject to the claims of all clients of the investment adviser regardless of the client’s state of residence; and shall be issued by a person licensed to issue surety bonds in this Commonwealth.

   (2)  An investment adviser that has its principal place of business in a state other than this Commonwealth shall comply with paragraph (1) unless the investment adviser meets the following qualifications:

     (i)   Is registered as an investment adviser in that state.

     (ii)   Is in compliance with the applicable net worth and bonding requirements of the state in which it maintains its principal place of business.

   (3)  For purposes of this section, the term ‘‘principal place of business’’ has the same meaning as set forth in 17 CFR 275.203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A. § §  80b-1—80b-21).

 (b)  A broker-dealer registered under the act but not registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C.A. § §  78a—78kk) may, by order of the Commission, be permitted to have and maintain for the registration period a surety bond in the amount of the net capital deficiency rounded up to the nearest $5,000. The surety bond shall:

   (1)  Be filed with the Commission on Form U-SB or successor form thereto.

   (2)  Be subject to the claims of all clients of the broker-dealer regardless of the client’s state of residence.

   (3)  Be issued by a person licensed to issue surety bonds in this Commonwealth.

 (c)  Upon request of the Commission, a broker-dealer or investment adviser shall provide evidence of the existence of a surety bond.

   The provisions of this §  303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P. S. § §  1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); and the Takeover Disclosure Law (70 P. S §  74).

   The provisions of this §  303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456. Immediately preceding text appears at serial pages (310499), (268825) to (268828) and (286715).

   This section cited in 64 Pa. Code §  303.041 (relating to broker-dealer capital requirements); and 64 Pa. Code §  606.041 (relating to delegation and substitution).