02-032 C.M.R. ch. 504, § 5 - Broker-dealers not members of NASD and their agents; agents of issuers

1. Limited application of section. This section applies only to:

A. broker-dealers that are licensed or required to be licensed under the Act and are not members of a self-regulatory organization registered under the United States Securities Exchange Act of 1934;

B. agents of such broker-dealers; and

C. agents of issuers.

2. Licensing requirements

A. Broker-dealer applications for initial licensure and renewals pursuant to Section 16406(1) of the Act shall be made in the same manner as prescribed by Section 3 of this chapter except that all required forms and fees that are not permitted to be filed with or cannot be accepted by CRD shall be filed directly with the Administrator. Applications for initial licensure shall also include the following:

(1) A financial statement demonstrating compliance with the minimum financial requirements of Subsection 3 below, if necessary; and

(2) For sole proprietors, proof of compliance by the applicant with the examination requirements of Section 6 of this chapter, unless such proof is available to the Administrator through CRD.

B. Agent applications for initial licensure and renewals pursuant to Section 16406(1) of the Act shall be made in the same manner as prescribed by Section 3 of this chapter except that all required forms and fees that are not permitted to be filed with or cannot be accepted by CRD shall be filed directly with the Administrator. Applications for initial licensure shall also include the following:

(1) Proof of compliance by the agent applicant with the examination requirements of Section 6 of this chapter unless such proof is available to the Administrator through CRD; and

(2) A complete set of fingerprints taken by an authorized law enforcement officer. In Maine, authorized law enforcement officers are set forth in Title 25, Section 1549. Applicants who are residents of other jurisdictions shall use law enforcement officers in their home jurisdiction who are authorized by law to take fingerprints. This requirement shall be waived if the applicant is currently registered or licensed by a state securities regulator at the time application for licensure in this state is made and the applicant has previously submitted fingerprint impressions to NASD, CRD, or another securities regulator in connection with registration or licensure.

C. Sole proprietor broker-dealers are required to apply for licensure as an agent pursuant to this section. Initial and annual renewal agent fees are waived for sole proprietors.

3. Minimum financial requirements for broker-dealers with custody of client funds or securities

A. Broker-dealers shall maintain at all times a minimum net worth of $35,000.

B. Unless otherwise exempted, as a condition of the right to transact business in this state, broker-dealers shall by the close of business on the next business day notify the Administrator if their net worth is less than the minimum required. After transmitting such notice, each such broker-dealer shall file by the close of business on the next business day a report with the Administrator of its financial condition, including the following:

(1) A trial balance of all ledger accounts;

(2) A statement of all client funds or securities which are notsegregated;

(3) A computation of the aggregate amount of client ledger debitbalances; and

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

C. For purposes of this section, the term "net worth" shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles.

(1) Net worth shall not include the following assets:

(a) prepaid expenses, except as to items properly classified assets under generally accepted accounting principles;

(b) deferred charges;

(c) goodwill;

(d) franchise rights;

(e) organizational expenses;

(f) patents;

(g) copyrights;

(h) marketing rights;

(i) unamortized debt discount and expense; and

(j) all other assets of intangible nature.

(2) In addition, for individuals, net worth shall not include homes, home furnishings, automobiles and any other personal items not readily marketable.

(3) In addition, for corporations and limited liability companies, net worth shall not include advances or loans to stockholders, officers or members.

(4) In addition, for partnerships, net worth shall not include advances or loans to partners.

D. For purposes of this section, a person will be deemed to have custody if he or she directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.

E. The Administrator may require that a current appraisal be submitted in order to establish the worth of any asset.

Notes

02-032 C.M.R. ch. 504, § 5