(1) This chapter applies to the securities and transactions involving securities, subject to the Securities Act of Montana, Title 30, chapter 10, parts 1 through 3, MCA; and to restitution assistance provided subject to the Securities Restitution Assistance Fund Act of Montana, Title 30, chapter 10, part 10, MCA.

As used in this subchapter, unless the context indicates otherwise:

(1) The definitions contained in 30-10-103, MCA, apply.

(2) "Affiliate" means a person who, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the person specified.

(3) "American depository receipt" is a negotiable certificate issued by a U.S. depository pursuant to an effective registration statement filed on form F-6 with the Securities and Exchange Commission, representing the securities of a non-U.S. company, which securities are held in a similar type of receipt or instrument issued with respect to a security, which receipt of instrument has been approved for sale by order of the commissioner.

(4) "Branch office" means an office, other than a main office but including a corporate subsidiary and any place of business of one or more registered salespersons of a registered broker-dealer, which is located in this state, owned or controlled by the broker-dealer, and engaged in the securities business in this state.

(5) "Issuer of an American depository receipt" is the non-U.S. company that issued the securities represented by the American depository receipt.

(6) "Promoter" means a person who, acting alone or in conjunction with one or more persons, directly or indirectly, takes the initiative in founding and organizing the business or enterprise of an issuer or an officer, directory or party owning, directly or indirectly, 5% or more of the outstanding shares of the corporation before or immediately following the public offering, or any affiliate of the aforesaid persons; and

(a) does not include an unaffiliated institutional purchaser who purchased its shares more than one year prior to the public offering.

(7) "Promotional or developmental stage" means a corporation which has no public market for its shares and has no significant earnings within the past five years (or shorter period of its existence).

(8) "Promotional security" means a security issued within three years before the date of registration in return for:

(a) a price less than 85% of the consideration for which such securities are proposed to be sold to the public; or

(i) services rendered, patents, copyrights, other intangibles, or real or personal property, the actual value of which has not been established to the satisfaction of the commissioner; or

(b) a security issued or to be issued to a promoter while a corporation is in a promotional or developmental stage.

(9) "Resident" is defined as a person who has physically resided in Montana at the person's primary home for 180 consecutive days and who meets the following criteria immediately before making application for any license:

(a) the person's principal or primary home is in Montana;

(b) the person files Montana state income tax returns as a resident (if required to file);

(c) the person licenses and titles in Montana any vehicles that the person owns and operates in Montana; and

(d) if the person registers to vote, the person registers only in Montana.

(10) "Sales material" means an advertisement, display, pamphlet, brochure, form letter, article, or communication published in a newspaper, magazine, periodical, internet or electronic communication network, or a script, recording, radio or television announcement, broadcast, or commercial to be used or circulated in connection with the offer or sale of a security to a person in this state.

(11) "Significant earnings" exist if the corporation's earnings record over the last five years (or shorter period of its existence) demonstrates that for such period the corporation's net earnings per share is 30% of the public offering price per share (as adjusted for stock splits and stock dividends) or the corporation has earnings per share of 5% or more of the public offering price per share for each of any two consecutive years.

(12) "U.S. or foreign GAAP" are the generally accepted accounting principles of the United States or of the foreign country in which the issuer is domiciled.  

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(a) The offer indicates, directly or indirectly, that the securities are not being offered to residents of Montana;

(b) The offer is not specifically directed to any person in Montana by, or on behalf of, the issuer of the securities; and

(c) No sales of the issuers securities are made in Montana as a result of the offering until the securities being offered have been registered in accordance with 30-10-201 through 30-10-207, MCA, and a final prospectus or Form U-7 is delivered to Montana investors prior to such sales.

(2) Nothing in this rule precludes an issuer, or a person acting on behalf of an issuer, that offers securities on the internet or similar proprietary or common carrier electronic system, or effects sales to persons in Montana following such an offering, from relying on any other available exemption.

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(1) Except as provided in (3), (4), (5), and (6) of this rule, sales material to be used in connection with the offer or sale of securities to persons in this state must be filed with the commissioner at least ten days prior to being used in this state.

(2) The commissioner may by order disallow the use of sales material filed pursuant to this rule if the commissioner finds that such an order is necessary to protect the investor or a person engaged in securities transactions and is in the public interest. Unless the commissioner disallows the use of sales material filed pursuant to this rule within ten days from the date filed, the sales material may be disseminated.

(3) This rule does not apply to sales material that is used exclusively in connection with the offer or sale of securities that are registered in this state by notification or coordination pursuant to 30-10-203 or 30-10-204, MCA.

(4) This rule does not apply to sales material that is used exclusively by a broker-dealer registered pursuant to 30-10-201, MCA, if the sales material conforms to the provisions of section 2210 of the conduct rules of Financial Industry Regulatory Authority, Inc. (FINRA).

(5) This rule does not apply to sales material that is used exclusively in connection with the offer or sale of securities that are exempt from registration pursuant to 30-10-104 or 30-10-105, MCA, or the rules thereunder, unless the exemption statute or rule specifically provides that sales material must be filed.

(6) This rule does not apply to sales material that is used exclusively in connection with the offer or sale of a security that is a federal covered security.

(7) The commissioner may, upon written request and for good cause shown by a person wishing to use sales material, waive any of the requirements of this rule.

(1) The commissioner may require that promotional securities be placed in escrow with a financial institution approved by the commissioner for a period of 2 years from the date that the registration becomes effective, or for such other period, or upon such terms and conditions as the commissioner may, in his discretion, require.

(2) An issuer may not sell or transfer an escrowed promotional security or an interest in one, except by will, intestate succession, or other similar methods, without first obtaining written consent from the commissioner. The owner of an escrowed promotional security may exercise voting rights that attach to that security.

(1) Each promotional security must contain a provision waiving dividend rights and rights of participation, in the distribution of assets in the event of liquidation or dissolution, in favor of shareholders who paid cash or its equivalent for their securities that are not promotional securities.

(2) A waiver remains in effect only while the security is in escrow.

(1) An issuer that has completed, discontinued, or terminated the sale of securities registered with the commissioner shall annually while registered and upon completion, discontinuance, or termination of the sale of registered securities notify the commissioner in writing and shall also submit a complete sales report that includes, for this state, the number of units and the aggregate dollar amount of sales.

(2) Until written notice has been provided as required by (1) of this rule, the commissioner shall be notified of each change in the officers, directors, trustees, partners, or other principal members of a registrant within 15 days of the change.

(1) A stock purchase agreement or stock subscription agreement may not contain a default or penalty provision.

(1) The commissioner will consider the granting of warrants or options, to persons other than purchasers of securities, as grounds for denial of an application for registration, with the exception of:

(a) options to management in the nature of restricted options for incentive purposes, if reasonable in number and method of exercise;

(b) options to employees or their nominees pursuant to stock purchase plans or profit sharing plans, if reasonable in number and method of exercise; and

(c) options or warrants issued to underwriters or other persons as compensation, in whole or in part, for the sale of securities if:

(i) the issuer does not have:

(A) a public market for its securities; or

(B) previously issued options or warrants to an underwriter in connection with more than one public offering of its securities;

(ii) the options or warrants are issued only to a managing underwriter and no options or warrants are issued in connection with a best efforts underwriting unless the entire issue is sold, except that options or warrants may be issued in connection with a minimum-maximum offering if the amount to be issued is prorated depending on the amount of the underwriting which is sold;

(iii) the options or warrants may not be exercised for a period of one year from the completion of the public offering;

(iv) the options or warrants are nontransferable except by will, by intestate succession, or by operation of law, except that the options or warrants may be transferred without payment thereto to:

(A) partners of the underwriter if the underwriter is a partnership;

(B) persons who are both officers and shareholders of the underwriter if the underwriter is a corporation; or

(C) employees of the underwriter;

(v) the initial exercise price of the options or warrants is at least equal to the public offering price plus either:

(A) 7% each year they are outstanding, commencing one year after issuance, so that the exercise price throughout the second year is 107%, throughout the third year is 114%, throughout the fourth year is 121%, and throughout the fifth year is 128%; or

(B) 20% at any time after one year from the date of issuance;

(vi) the term of an option or warrant is not longer than five years; and

(vii) units of securities underlying the options or warrants acquired by an underwriter and related persons, whether acquired prior to, at the time of, or after the offering (but which is determined to be in connection with, or related to, the offering) are not, in the aggregate, more than 10% of the total number of shares that are outstanding at the conclusion of the offering. For purposes of this limitation, over-allotment units and units underlying options, warrants, or convertible securities that are a part of the proposed public offering are not to be counted as part of the aggregate number of shares being offered against which the 10% limitation is to be applied.

(2) The commissioner may, upon a showing of good cause, approve an application even though warrants or options have been granted that do not meet the conditions specified in (1). However, the burden of justifying issuance rests upon the applicant.

(1) A notice filing for a security that is a federal covered security under 18(b)(2) of the Securities Act of 1933 shall consist of the fees required under 30-10-209, MCA, a Form U-2, uniform consent to service of process, unless incorporated by reference by ARM 6.10.150, and either a copy of the issuer's federal registration statement as filed with the securities and exchange commissioner or an originally executed Form NF, uniform notice filing form.

(2) A notice filing under (1) is effective for one year following the date of the commissioner's receipt of the filing. A notice filing may be renewed by the filing with the commissioner, prior to the expiration date of the notice filing, payment of fees required under 30-10-209, MCA, together with either a current copy of the issuer's federal registration statement or an originally executed Form NF. A renewed notice filing shall be effective for one year commencing upon the expiration of the notice filing being renewed.

(3) A report detailing the amount of shares sold in this state shall be filed with the commissioner on Form NF within 60 days after the annual expiration of a notice filing.

(4) A notice filing may be amended to increase the amount of shares offered in this state by filing with the commissioner an amended Form NF together with any additional fees required by 30-10-209, MCA.

(5) Except as provided in (6), an investment company that has elected to file a Form NF in lieu of its federal registration statement is not required to file with the commissioner a copy of any document that is part of a federal registration statement filed with the securities and exchange commissioner or is part of an amendment to a federal registration statement.

(6) An investment company that has filed a Form NF shall file, upon written request of the commissioner and within the time period set forth in the request, a copy of any document identified in the request that is part of the federal registration statement filed with the securities and exchange commission or part of an amendment to a federal registration statement.

(7) Any filing or renewal required under ARM Title 6, chapter 10, subchapter 2 must be submitted to the commissioner through the Electronic Filing Depository (EFD), or other CSI-approved filing system, and must comply with the following:

(a) all filing or renewal fees shall likewise be submitted through the EFD or CSI-approved filing system;

(b) a person duly authorized by the issuer shall affix his or her electronic signature to the filing by typing his or her name in the appropriate fields and submitting the filing through the EFD, or other CSI-approved filing system, which shall constitute irrefutable evidence of legal signature by the individual whose name is typed on the filing; and

(c) any documents or fees required under (1) to be filed with the commissioner that are not permitted to be filed with, or cannot be accepted by, the EFD, or other CSI-approved filing system must be filed directly with the commissioner, and must be accompanied by a statement from the issuer providing the date the filing was attempted through the EFD, or other CSI-approved filing system.

(1) Except as provided in (3), a notice filing for a security that is a federal covered security under 18(b)(3) or (4) of the Securities Act of 1933 shall consist of:

(a) a letter explaining that the security is a federal covered security pursuant to 18(b)(3) or (4) of the Securities Act of 1933;

(b) a U-2 consent to service of process form; and

(c) a fee of $200.

(2) A notice filing under (1) is effective for one year following the date of the commissioner's receipt of the filing. Prior to the expiration date of the notice filing, a notice filing may be renewed by filing a $200 fee with the commissioner. A renewed notice filing shall be effective for one year commencing upon the expiration of the notice filing being renewed.

(3) The notice filing requirements for an issuer offering a security that is a covered security under 18(b)(4)(D) of the Securities Act of 1933 are contained in ARM 6.10.210.

(4) Any filing or renewal required under ARM Title 6, chapter 10, subchapter 2 must be submitted to the commissioner through the Electronic Filing Depository (EFD), or other CSI-approved filing system, and must comply with the following:

(a) All filing or renewal fees shall likewise be submitted through the EFD or CSI-approved filing system;

(b) A person duly authorized by the issuer shall affix his or her electronic signature to the filing by typing his or her name in the appropriate fields and submitting the filing through the EFD, or other CSI-approved filing system, which shall constitute irrefutable evidence of legal signature by the individual whose name is typed on the filing; and

(c) Any documents or fees required under (1) to be filed with the commissioner that are not permitted to be filed with, or cannot be accepted by, the EFD, or other CSI-approved filing system must be filed directly with the commissioner, and must be accompanied by a statement from the issuer providing the date the filing was attempted through the EFD, or other CSI-approved filing system. 

(1) An issuer offering a security that is a covered security under 18(b)(4)(D) of the Securities Act of 1933 shall file a notice on Form D (17 CFR 239.500), and pay the fee required by 30-10-209(1)(a) and (1)(c), MCA, no later than 15 days after the first sale of the security in this state. An issuer shall file a renewal for each succeeding year that a security is offered in this state, and pay the fee required by 30-10-209(1)(b), MCA.

(2) For purposes of this rule, the SEC "Form D" is defined as the document, as adopted by the Securities and Exchange Commission and in effect on September 1, 1996, as may be amended by the SEC from time to time, entitled "Form D; notice of sale of securities pursuant to regulation D, section 4(6), and/or uniform limited offering exemption," including part E and the Appendix.

(3) Any Form D filing or renewal required under (1) must be submitted to the commissioner through the Electronic Filing Depository (EFD), or other CSI-approved filing system, and must comply with the following:

(a) All filing or renewal fees shall likewise be submitted through the EFD or other CSI-approved filing system;

(b) A person duly authorized by the issuer shall affix his or her electronic signature to the Form D filing by typing his or her name in the appropriate fields and submitting the filing through the EFD, or other CSI-approved filing system, which shall constitute irrefutable evidence of legal signature by the individual whose name is typed on the filing; and

(c) Any documents or fees required under (1) to be filed with the commissioner that are not permitted to be filed with, or cannot be accepted by, the EFD, or other CSI-approved filing system, must be filed directly with the commissioner, and must be accompanied by a statement from the issuer providing the date the filing was attempted through the EFD, or other CSI-approved filing system. 

(1) An issuer planning to offer and sell securities in this state in an offering exempt under Tier 2 of federal Regulation A shall submit the following at least 21 days prior to the initial sale in this state:

(a) a completed Regulation A-Tier 2 notice filing form or copies of all documents filed with the Securities and Exchange Commission;

(b) a consent to service of process on Form U-2 if not filing on the Regulation A-Tier 2 notice filing form; and

(c) the filing fee prescribed in 30-10-209(1)(a), MCA.

(2) The initial filing shall remain effective for twelve months from the date of filing.

(3) For each additional twelve-month period in which the same offering is continued, an issuer conducting a Tier 2 offering under federal Regulation A may renew its notice filing by filing the following on or before the expiration of the notice filing:

(a) the Regulation A-Tier 2 notice filing form marked "renewal" and/or cover letter or other document requesting renewal; and

(b) the renewal fee prescribed by 30-10-209(1)(b), MCA.

(4) An issuer may increase the amount of securities offered in this state by submitting a Regulation A-Tier 2 notice filing form marked "amendment" or other document describing the transaction and a fee calculated pursuant to 30-10-209(1)(a), MCA, to cover the increase in the amount of securities being offered prior to selling additional securities in this state. 

(1) By the authority delegated to the commissioner in 30-10-105, MCA, an offer or sale of securities offered or sold in compliance with Securities Act of 1933, Regulation D, Rules 230.501 through 230.503 and 230.505 (17 CFR 230.501, 230.502, 230.503 and 230.505 (1998)), is exempt from the registration requirements of 30-10-202, MCA. 

(2) Each person who offers or sells securities in this state to nonaccredited and/or accredited investors, as defined in Securities Act of 1933, Regulation D, Rule 230.501(a)(5) through 230.501(a)(7), shall be registered in accordance with 30-10-201, MCA.

(3) An exemption under this rule is not available for the securities of an issuer if any of the parties described in Securities Act of 1933, Regulation A, Rule 230.262:

(a) has filed a registration statement that is the subject of a currently effective registration stop order entered pursuant to a state's securities law within five years prior to the filing of the notice required under this exemption;

(b) has been convicted within five years prior to the filing if the notice required under this exemption of a felony or misdemeanor in connection with the offer, purchase, or sale of a security or a felony involving fraud or deceit, including but not limited to forgery, embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;

(c) is currently subject to a state administrative enforcement order or judgment entered by that state's securities administrator within five years prior to the filing of the notice required under this exemption or is subject to a state's administrative enforcement order or judgment in which fraud or deceit, including but not limited to making untrue statements of material facts and omitting to state material facts, was found and the order or judgment was entered within five years prior to the filing of the notice required under this exemption;

(d) is subject to a state's administrative enforcement order or judgment that prohibits, denies, or revokes the use of an exemption from registration in connection with the offer, purchase, or sale of securities; or

(e) is currently subject to an order, judgment, or decree of a court of competent jurisdiction temporarily or preliminarily restraining or enjoining, or is subject to an order, judgment, or decree of a court of competent jurisdiction, permanently restraining or enjoining the party from engaging in or continuing any conduct or practice in connection with the purchase or sale of a security or involving the making of a false filing with the state entered within five years prior to the filing of the notice required under this exemption.

(4) The prohibitions of (3)(a) through (3)(c) and (3)(e) do not apply if the person subject to the disqualification is licensed or registered to conduct securities-related business in the state in which the administrative order or judgment was entered against the person, or if the person subject to the disqualification is registered to conduct securities-related business by the Securities and Exchange Commission and the order or judgment was entered against the person by the Securities and Exchange Commission, or if the broker-dealer employing the person is registered in this state and the form BD as adopted by the North American Securities Administrators Association, Inc., and filed with this state discloses the order, conviction, judgment, or decree relating to the person. A person disqualified under this rule may not act in a capacity other than that for which the person is registered.

(5) A disqualification caused by this rule is automatically waived if the Securities and Exchange Commission, state securities administrator, or agency of the state which created the basis for disqualification determines, upon a showing of good cause, that it is not necessary to deny the exemption under the circumstances.

(6) The issuer shall file with the commissioner

(a) a notice on an original, manually signed form D (17 CFR 239.500) at least ten days prior to an offer or sale being made to a person in this state, annually until completion and upon completion of the offer or sale, and at all such other times and in the form required under Securities Act of 1933, Regulation D, Rule 230.503, to be filed with the Securities and Exchange Commission. The notice must contain an undertaking by the issuer to furnish to the commissioner, upon written request, the information furnished by the issuer to offerees, unless the commissioner, by order, requires that the information be filed at the time with the filing of the notice.

(b) a consent to service of process included with or in the initial notice;

(c) the filing fee prescribed, for the initial registration of securities, in 30-10-209, MCA; and

(d) the name and address of each person who will offer or sell, in this state, a security under this rule.

(7) In all sales to nonaccredited investors in this state, the issuer and each person acting on its behalf shall have reasonable grounds to believe, and after making reasonable inquiry shall believe, that one of the following conditions is satisfied:

(a) the investment is suitable for the purchaser upon the basis of the facts, if any, disclosed by the purchaser as to the purchaser's other securities holdings, financial situation, and needs. For the purpose of this condition only, it may be presumed that, if the investment does not exceed 10% of the investor's net worth, it is suitable.

(b) the purchaser either alone or with the purchaser's representative has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.

(8) A transaction that is exempt under this rule may not be combined with an offer and sale exempt under any other rule implementing or a section of the Securities Act of Montana. However, nothing in this limitation acts as an election. If the offer and sale fail to comply with all of the conditions for this exemption, the issuer may claim the availability of any other applicable exemption.

(9) The commissioner may, by order, increase the number of purchasers or waive any other conditions of this exemption.

(10) In the case of offerings of direct participation programs as defined in section 2810 of Financial Industry Regulatory Authority, Inc., (FINRA) conduct rules, each person who offers or sells securities in this state under this rule shall deliver a disclosure document containing the information required by Securities Act of 1933, Regulation D, Rule 230.502(b), to individuals covered by Securities Act of 1933, Regulation D, Rules 230.502(a)(5), 230.502(a)(6), and 230.502(a)(7).

(11) The commissioner may by order revoke, deny, or further condition the use of this exemption with respect to a particular offering when the commissioner finds that such an order is necessary to protect the investor or a person engaged in securities transactions and is in the public interest.

(12) An issuer using the Montana limited offering exemption shall file such other information as the commissioner may require.

(1) By authority delegated to the commissioner in 30-10-105, MCA, a transaction in a security issued by and representing an interest in or a debt of or guaranteed by a savings and loan association or a building and loan or similar association, other than those described in 30-10-104(4) , MCA, is exempt from the registration requirements of 30-10-202, MCA, if:

(a) it is sold through a registered broker-dealer and registered salesperson;

(b) the issuer is a member of the federal deposit insurance corporation; or

(c) in the case of a certificate of deposit, the sums representing the certificate of deposit are fully insured by the federal deposit insurance corporation.

(1) Pursuant to 30-10-105(8)(b), MCA, securities offered or sold in accordance with all the conditions set forth in this rule are exempt from the requirements of 30-10-201 through 30-10-207, MCA. This exemption may be cited as the "second tier limited offering exemption."

(2) An issuer using the second tier limited offering exemption shall file with the Commissioner of Securities:

(a) an original, manually signed copy of the second tier limited offering exemption form; 

(b) a consent to service of process which is attached to and made part of the second tier limited offering exemption form; and

(c) such other information as the Commissioner of Securities may require.

(3) Upon the entry of an order denying or revoking the approval of this exemption, the Commissioner of Securities shall promptly notify the issuer of the securities that an order has been entered and of the reasons therefore and that, if requested by the issuer within 15 days after the receipt of the Commissioner of Securities order, the matter will be promptly set down for hearing. If no hearing is requested within 15 days, and none is ordered by the Commissioner of Securities, the order will remain in effect until it is modified or vacated by the Commissioner of Securities. If a hearing is requested or ordered, the Commissioner of Securities, after notice of and opportunity for hearing, may affirm, modify, or vacate the order.

(1) Securities offered or sold in compliance with the following conditions are exempt from the registration requirements of 30-10-202 through 30-10-207, MCA:

(a) A nonissuer transaction, by or through a registered broker-dealer, in an outstanding security (including an American depository receipt representing such a security) of an issuer domiciled in a foreign country with which the United States is at the time of the transaction maintaining diplomatic relations, if the class of security has been outstanding in the hands of the public for not less than 90 days preceding the date of the transaction.

(i) This exemption is not available for sales of securities constituting an unsold allotment to, or subscription by, the broker-dealer as a participant in the distribution of the securities by the issuer or by or through an underwriter.

(ii) This exemption is not available unless one of the following requirements is met:

(A) the most recent edition of Mergent's Manual or Standard & Poor's Corporation Records, or the periodic supplements to such publications, as well as all commonly recognized formats of the manuals including electronic dissemination over the internet, contains a description of the issuer's business or operations, the names of the issuer's officers and directors (or their corporate equivalents in the issuer's country of domicile), an externally audited balance sheet of the issuer as of a date within 18 months of the date of the transaction and audited profit and loss statements for each of the issuer's two fiscal years immediately preceding the date of such balance sheet (such statements to be prepared in accordance with U.S. or foreign GAAP); or

(B) the issuer of the security has a class of securities subject to the reporting requirements of section 13 of the Securities Exchange Act of 1934, 15 U.S.C. 78m or section 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m or section 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78o(d) and is not delinquent in such reporting; or

(C) the security is exempted from the provisions of section 12(g) of the Securities Exchange Act of 1934, 15 U.S.C. 78l(g) by section 12(g)(3) of that Act, 15 U.S.C. 78l(g)(3), and the issuer is in compliance with all of the conditions of 17 CFR 240.12g3-2(b)(1).

(iii) This exemption is not available unless all of the following requirements are met:

(A) the issuer, including any predecessors, has been in continuous operation for at least the preceding two years, is a going concern actually engaged in business and is not in an organizational or developmental stage, and is not in bankruptcy or receivership;

(B) the issuer has net tangible assets of at least U.S. $25,000,000 as of the date of its most recent externally audited financial statement prepared in accordance with U.S. or foreign GAAP. Such statement shall be dated as of a date within 18 months of the date of the transaction;

(C) the issuer had an average gross income of at least U.S. $5,000,000 over its most recent two consecutive years of operation according to audited profit and loss statements of the issuer prepared in accordance with U.S. or foreign GAAP for the issuer's two fiscal years immediately preceding the date of the financial statement referred to in (1)(a)(iii)(B);

(D) the issuer has a class of securities listed or traded on a stock exchange or automated quotation system organized under the laws of its country of domicile; and

(E) for the issuer's securities in the United States, there are at least two market makers who are registered broker-dealers under the Securities Exchange Act of 1934 and who have an excess net capital of a least U.S. $10,000,000.

(b) A nonissuer transaction by or through a registered broker-dealer in an outstanding security, other than a revenue obligation, which is issued or guaranteed by any foreign government with which the United States is, at the time of sale, maintaining diplomatic relations, or by a political subdivision of Canada or Mexico which has the power of taxation, if the securities, when offered for sale in this state, are acknowledged by the foreign government or political subdivision as valid obligations, and none of the securities of the foreign government or political subdivision are in default either as to principal or interest.

(1) A cooperative association organized under another state's laws that are substantially the same as the provisions of Title 35, chapter 15, MCA, is entitled to a transactional exemption from the registration requirements of the Securities Act of Montana, provided that the association has furnished the commissioner with a general written description of the security to be offered or sold in Montana. For the purposes of 33-10-105, MCA, the commissioner has determined that the following states' laws authorizing the organization of the corresponding types of cooperative organizations are substantially the same as the provisions of Title 35, chapter 15, MCA:

(a)	Alabama	Incorporated Marketing Associations
(b)	Alaska	Cooperative Corporations
(c)	Arkansas	Agricultural Cooperative Associations Marketing Associations
(d)	California	Non-profit Cooperative Associations
(e)	Colorado	Cooperative Associations Cooperative Marketing Associations
(f)	Connecticut	Cooperative Marketing Associations
(g)	Florida	Agricultural Cooperative Marketing Associations
(h)	Georgia	Cooperative Marketing Associations
(i)	Hawaii	Agricultural Cooperative Associations
(j)	Idaho	Cooperative Marketing Associations
(k)	Illinois	Co-operative Corporations
(l)	Indiana	Agricultural Cooperatives
(m)	Iowa	Co-operative Associations
(n)	Kansas	Cooperative Associations
(o)	Kentucky	Cooperative Corporations
(p)	Louisiana	Agricultural Co-operative Associations
(q)	Maine	Cooperative Associations
(r)	Massachusetts	Cooperative Agricultural, Dairy or Mercantile Associations
(s)	Michigan	Cooperative Associations
(t)	Minnesota	Cooperatives
(u)	Mississippi	Cooperative Marketing Associations Aquatic Products Marketing Associations
(v)	Missouri	Cooperative Marketing Associations Commodity Associations
(w)	Nebraska	Cooperative Companies
(x)	Nevada	Cooperative Associations
(y)	New Jersey	Agricultural Cooperatives
(z)	New Mexico	Cooperative Associations
(aa)	New York	Cooperative Corporations
(ab)	North Carolina	Cooperative Associations
(ac)	North Dakota	Cooperative Associations
(ad)	Oklahoma	Cooperative Corporations Agricultural Marketing Associations
(ae)	Oregon	Cooperative Corporations
(af)	Ohio	Cooperative Corporations
(ag)	Pennsylvania	Cooperative Corporations
(ah)	Rhode Island	Producers' Cooperatives
(ai)	South Carolina	Cooperative Associations
(aj)	South Dakota	Cooperatives
(ak)	Tennessee	Cooperative Marketing Associations
(al)	Texas	Cooperative Corporations
(am)	Utah	Co-operative Associations
(an)	Vermont	Cooperative Associations
(ao)	Virginia	Cooperative Associations Agricultural Cooperatives Associations
(ap)	Washington	Cooperative Associations
(aq)	West Virginia	Cooperative Associations
(ar)	Wisconsin	Cooperative Associations Agricultural Associations
(as)	Wyoming	Cooperative Marketing Associations

(2) For the purposes of 30-10-105, MCA, a "general written description" must include:

(a) citation of the state law under which the cooperative is organized;

(b) the type of industry of business in which the cooperative is engaged;

(c) a general description of the offering, including type of security, price, restrictions, if any, on security ownership, and the number of shares to be issued;

(d) the purpose of the security offering; and

(e) a list of states in which the offering will be conducted.

(1) A request for a transactional exemption pursuant to 30-10-105(15), MCA, shall include:

(a) a letter of request explaining why an exemption would serve the purposes of 30-10-102, MCA;

(b) a U-2 consent to service of process form; and

(c) a fee of $50.

(2) A transactional exemption granted pursuant to a request under (1) is effective for one year following the date of the commissioner's granting of the exemption request. Prior to the expiration date of the exemption, an exemption may be renewed by filing a $50 fee with the commissioner. A renewed exemption shall be effective for one year commencing upon the expiration of the exemption filing being renewed.

(1) In this rule:

(a) "Control" means the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. There is a presumption of control for any person who:

(i) is a director, general partner, member, or manager of a limited liability company, or officer exercising executive responsibility (or has similar status or functions);

(ii) has the right to vote 20 percent or more of a class of voting securities or the power to sell or direct the sale of 20 percent or more of a class of voting securities; or

(iii) in the case of a partnership or limited liability company, has the right to receive upon dissolution, or has contributed, 20 percent or more of the capital.

(b) "Eligible privately held company" means a company meeting both of the following conditions:

(i) the company does not have any class of securities registered, or required to be registered, with the United States Securities and Exchange Commission under Section 12 of the Securities Exchange Act of 1934, 15 U.S.C. 781, or with respect to which the company files, or is required to file, periodic information, documents, and reports under subsection (d), 15 U.S.C. 78o(d); and

(ii) in the fiscal year ending immediately before the fiscal year in which the services of the merger and acquisition broker are initially engaged with respect to the securities transaction, the company meets either or both of the following conditions (determined in accordance with the historical financial accounting needs of the company):

(A) the earnings of the company before interest, taxes, depreciation, and amortization are less than $25,000,000; and

(B) the gross revenues of the company are less than $250,000,000.

(c) "Merger and Acquisition Broker" means any broker and any person associated with a broker engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company, regardless of whether that broker acts on behalf of a seller or buyer, through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the eligible privately held company:

(i) if the broker reasonably believes that upon consummation of the transaction, any person acquiring securities or assets of the eligible privately held company, acting alone or in concert, will control and, directly or indirectly, will be active in the management of the eligible privately held company or the business conducted with the assets of the eligible privately held company; and

(ii) if any person is offered securities in exchange for securities or assets of the eligible privately held company, such person will, prior to becoming legally bound to consummate the transaction, receive or have reasonable access to the most recent fiscal year-end financial statements of the issuer of the securities as customarily prepared by its management in the normal course of operations and, if the financial statements of the issuer are audited, reviewed, or compiled, any related statement by the independent accountant; a balance sheet dated not more than 120 days before the date of the exchange offer; and information pertaining to the management, business, results of operations for the period covered by the foregoing financial statements, and any material loss contingencies of the issuer.

(d) "Public shell company" means a company that at the time of a transaction with an eligible privately held company:

(i) has any class of securities registered, or required to be registered, with the United States Securities and Exchange Commission under Section 12, 15 U.S.C. 78o(d); and

(ii) has no or nominal operations; and

(iii) has no or nominal assets; assets consisting solely of cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets.

(2) Except as provided in (3) and (4), a merger and acquisition broker shall be exempt from registration pursuant to 30-10-202, MCA, under this section.

(3) A merger and acquisition broker is not exempt from registration under this rule if such broker does any of the following:

(a) directly or indirectly, in connection with the transfer of ownership of an eligible privately held company, receives, holds, transmits, or has custody of the funds or securities to be exchanged by the parties to the transaction;

(b) engages on behalf of an issuer in a public offering of any class of securities that is registered, or is required to be registered, with the United States Securities and Exchange Commission under Section 12 of the Securities Exchange Act of 1934, 15 U.S.C. 78l or with respect to which the issuer files, or is required to file, periodic information, documents, and reports under the Securities Exchange Act of 1934 Section 15 subsection (d), 15 U.S.C. 78o(d); or

(c) engages on behalf of any party in a transaction involving a public shell company.

(4) A merger and acquisition broker is not exempt from registration under this rule if such broker is subject to:

(a) suspension or revocation of registration under Section 15(b)(4) of the Securities Exchange Act of 1934, 15 U.S.C. 78o(b)(4);

(b) a statutory disqualification described in section 3(a)(39) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(39);

(c) a disqualification under the rules adopted by the United States Securities and Exchange Commission under Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C. 77d note); or

(d) a final order described in paragraph (4)(H) of Section 15(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78o(b)(4)(H).

(5) Nothing in this rule shall be construed to limit any other authority of the commissioner to exempt any person, or any class of persons, from any provision of ARM Title 6, chapter 10, or from any provision of any rule or regulation therein.

(6) On the date that is five years after the date of adoption of this rule, and every five years thereafter, each dollar amount in section (1)(b)(2) shall be adjusted by:

(a) dividing the annual value of the Employment Cost Index for Wages and Salaries, Private Industry Workers (or any successor index), as published by the Bureau of Labor Statistics, for the calendar year preceding the calendar year in which the adjustment is being made by the annual value of such index (or successor) for the calendar year ending December 31, 2012; and

(b) multiplying the dollar amount by the quotient obtained under (6)(a).

(7) Each dollar amount determined under (6) shall be rounded to the nearest multiple of $100,000.

(1) For purposes of 30-10-201 and 30-10-301, MCA, fraudulent and unethical practices means, but is not limited to:

(a) engaging in a pattern of unreasonable and unjustifiable delays in either or both the:

(i) delivery of securities purchased by a customer;

(ii) payment upon request of free credit balances reflecting completed transactions of a customer;

(b) 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;

(c) recommending to a customer the purchase, sale, or exchange of a security without grounds to believe that the 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 broker-dealer;

(d) executing a transaction on behalf of a customer without authorization to do so;

(e) 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 for the execution of orders or to both time and price for the execution of orders;

(f) executing a transaction in a margin account without securing from the customer a properly executed written margin agreement promptly after the initial transaction in the account;

(g) failing to segregate a customer's fully paid securities or securities held in safekeeping;�

(h) hypothecating a customer's securities without having a lien thereon unless the broker-dealer secures from the customer a properly executed written consent promptly after the initial transaction, except as permitted by rules of the Securities and Exchange Commission;

(i) 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;

(j) 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 any additional documents, which together include all information set forth in the final prospectus;

(k) charging unreasonable and inequitable fees for services performed, including miscellaneous services such as collection of monies 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;

(l) offering to buy from or sell to a person a security at a stated price unless the broker-dealer is prepared to purchase or sell, as the case may be, at the price and under the conditions stated at the time of the offer to buy or sell;

(m) representing that a security is being offered to a customer "at the market" or a price relevant to the market price unless the broker-dealer knows or has reasonable grounds to believe that a market for the security exists other than that made, created, or controlled by the broker-dealer, or by a person for whom he is acting or with whom he is associated in the distribution, or by a person controlled by, controlling, or under common control with the broker-dealer;

(n) effecting a transaction in, or inducing the purchase or sale of, a security by means of a manipulative, deceptive, or fraudulent device, practice, plan, program, design, or contrivance which may include but is not limited to:

(i) effecting a transaction in a security which involves no change in the beneficial ownership thereof;

(ii) entering an order for the purchase or sale of a security with the knowledge that an order of substantially the same size, at substantially the same time and substantially the same price, for the sale of the security, has been or will be entered by or for the same or different parties for the purpose of creating a false or misleading appearance of active trading in the security or a false or misleading appearance with respect to the market for the security. A broker-dealer may, however, enter a bono fide agency cross transaction for its customers.

(iii) effecting, alone or with one or more other person, a series of transactions in a security creating actual or apparent active trading in the security or raising or depressing the price of the security by others.

(o) guaranteeing a customer against loss in a securities account of the customer carried by the broker-dealer, or in a securities transaction effected by the broker-dealer with or for the customer;

(p) publishing or circulating, or causing to be published or circulated, a notice, circular, sales material, newspaper article, investment service, or communication of any kind which purports to:

(i) report a transaction as a purchase or sale of a security unless the broker-dealer believes that the transaction was a bona fide purchase or sale of the security; or

(ii) quote the bid price or asked price for a security, unless the broker-dealer believes that the quotation represents a bona fide bid for, or offer of, the security;

(q) using sales material or sales presentations in a deceptive or misleading fashion;

(r) failing to disclose that the broker-dealer is controlled by, controlling, affiliated with, or under common control with, the issuer of a security before entering into a contract with, or for, a customer. If the disclosure is not made in writing, it must be supplemented by giving, or sending a written disclosure at, or before, the completion of the transaction;

(s) failing to make a bona fide public offering of each security allotted to a broker-dealer for distribution, whether acquired as an underwriter, as a selling group member, or from a member participating in the distribution as an underwriter or selling group member;

(t) failing or refusing to furnish a customer, upon reasonable request, information to which he is entitled, or to respond to a formal written request or complaint; or

(u) engaging in other conduct such as forgery, embezzlement, nondisclosure, incomplete disclosure or misstatement of material facts, or manipulative or deceptive practices.

(2) For purposes of 30-10-201(13)(g), MCA, "unethical practices" by a salesman means, but is not limited to:

(a) engaging in the practice of lending or borrowing money or securities from a customer; or acting as a custodian for money, securities, or an executed stock power of a customer;

(b) effecting securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer prior to execution of the transaction;

(c) establishing or maintaining an account containing fictitious information in order to execute transactions which would otherwise be prohibited;

(d) sharing directly or indirectly in profits or losses in the account of a customer without the written authorization of the customer and the broker-dealer which the agent represents;

(e) dividing or otherwise splitting the agent's commissions, profits, or other compensation from the purchase or sale of a security with a person not also registered as an agent for the same broker-dealer, or for a broker-dealer under direct or indirect common control;

(f) engaging in conduct specified in (1)(b), (1)(c), (1)(d), (1)(e), (1)(f), (1)(i), (1)(j), (1)(n), (1)(o), (1)(p), or (1)(q); or

(g) engaging in other conduct such as forgery, embezzlement, nondisclosure, incomplete disclosure or misstatement of material facts, or manipulative or deceptive practices.

�

(1) A person who is a federal covered adviser, investment adviser, or an investment adviser representative is a fiduciary and has a duty to act for the benefit of its clients. The provisions of this rule apply to federal covered advisers to the extent that the conduct alleged is fraudulent, deceptive, or as otherwise permitted by the National Securities Markets Improvement Act of 1996 (PL 104-290). While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser, investment adviser representative, or a federal covered adviser and its clients and the circumstances of each case, an investment adviser, investment adviser representative, or a federal covered adviser shall not engage in unethical business practices, or prohibited, fraudulent, deceptive, or manipulative conduct, including but not limited to the following:

(a) Recommending to a client, to whom investment supervisory, management or consulting services are provided, the purchase, sale, or exchange of a security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known by the investment adviser, investment adviser representative, or federal covered adviser;

(b) Exercising any discretionary power in placing an order for the purchase or sale of a security for a client without obtaining written discretionary authority from the client within ten business days after the date of the first transaction placed pursuant to oral discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both;

(c) inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives, and character of the account if the investment adviser, investment adviser representative or federal covered adviser can directly or indirectly benefit from the number of securities transactions effected in a client's account;

(d) placing an order to purchase or sell a security for the account of a client without authority to do so;

(e) placing an order to purchase or sell a security for the account of a client upon instructions of a third party without first having obtained written third party trading authorization from the client;

(f) borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser, investment adviser representative, or of a federal covered adviser, or a financial institution engaged in the business of loaning funds or securities;

(g) loaning money or securities to a client unless the investment adviser, investment adviser representative, or federal covered adviser is a financial institution engaged in the business of loaning funds, or the client is an affiliate of the investment adviser, investment adviser representative, or a federal covered adviser;

(h) misrepresenting to an advisory client, or prospective advisory client, the qualifications of the investment adviser, investment adviser representative, or federal covered adviser, or an employee or affiliate of the investment adviser, investment adviser representative, or federal covered adviser; misrepresenting the nature of the advisory services being offered or fees to be charged for the investment advisory service; or omitting to state a material fact necessary to make the statements made regarding qualifications, services, or fees, in light of the circumstances under which they are made, not misleading;

(i) providing a report or recommendation to a client prepared by someone other than the investment adviser, investment adviser representative, or federal covered adviser without disclosing that fact. This prohibition does not apply to a situation where the investment adviser, investment adviser representative, or federal covered adviser uses a published research report or statistical analysis to render advice or where an investment adviser, investment adviser representative, or federal covered adviser orders such a report in the normal course of providing service.

(j) charging a client an advisory fee that is unreasonable in light of the type of services to be provided, the experience and expertise of the investment adviser, investment adviser representative, or federal covered adviser, the sophistication and bargaining power of the client, and whether the investment adviser, investment adviser representative, or federal covered adviser has disclosed that a lower fee for comparable services may be available from other sources;

(k) failing to disclose to a client in writing before any advice is rendered a material conflict of interest relating to the investment adviser, investment adviser representative, or federal covered adviser or any of its employees or affiliated persons which could reasonably be expected to impair the rendering of unbiased and objective advice including but not limited to:

(i) compensation arrangements connected with advisory services to a client which are in addition to compensation from the client for the services; and

(ii) charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to the advice will be received by the investment adviser, investment adviser representative, or federal covered adviser or its employees or affiliates;

(iii) serving as an officer, or in a similar capacity, for any outside company or other entity;

(l) guaranteeing a client that a specific result will be achieved (gain or no loss) with advice which will be rendered;

(m) publishing, circulating, or distributing sales material which does not comply with 17 C.F.R. 275.206(4)-1;

(n) disclosing to a third party the identity, affairs, other financial information, or investment of a client or former client unless:

(i) required by law to do so; or

(ii) consented to by the client;

(o) taking action, directly or indirectly, with respect to those securities or funds in which a client has a beneficial interest, if the investment adviser, investment adviser representative, or federal covered adviser has custody or possession of the securities or funds when the investment adviser's, investment adviser representative's, or federal covered adviser's action is subject to, and does not comply with, the requirements of 17 C.F.R. 275.206(4)-2, or the investment adviser, investment adviser representative, or federal covered adviser is exempt from these requirements by virtue of 17 C.F.R. 275.206(4)-2(b);

(p) entering into, extending, or renewing an investment advisory contract, other than a contract for impersonal services, unless the contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of or the manner of calculation of the prepaid fee to be returned in the event of contract termination or nonperformance, and whether the contract grants discretionary power to the investment adviser, investment adviser representative, or federal covered adviser or its representative, and that no assignment of such contract shall be made by the investment adviser, investment adviser representative, or federal covered adviser without the consent of the other party;

(q) failing to disclose to a client or prospective client each material fact with respect to:

(i) the financial condition of the investment adviser, investment adviser representative, or federal covered adviser that is reasonably likely to impair the ability of the investment adviser, investment adviser representative, or federal covered adviser to meet contractual commitments to a client, if the investment adviser, investment adviser representative, or federal covered adviser has express or implied discretionary authority or custody over the client's funds or securities or requires prepayment of advisory fees of more than $500 from the client, six months or more in advance; or

(ii) a legal or disciplinary action that is material to an evaluation of the investment adviser's, investment adviser representative's, or federal covered adviser's integrity or ability to meet contractual commitments to a client;

(r) failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information contrary to the provisions of section 204A of the Investment Advisers Act of 1940;

(s) entering into, extending, or renewing any advisory contract contrary to the provisions of section 205 of the Investment Advisers Act of 1940. This provision is adopted and incorporated, and applies to all advisers registered or required to be registered under the Securities Act of Montana, notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940. Section 205 establishes standards for investment advisory contracts entered into by the adviser and may be obtained from the Commissioner of Securities, 840 Helena Avenue, Helena, MT 59601;

(t) to indicate, in an advisory contract, any condition, stipulation, or provisions binding any person to waive compliance with any provision of this act or of the Investment Advisers Act of 1940, or any other practice contrary to the provisions of section 215 of the Investment Advisers Act of 1940, which is adopted and incorporated notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940. Section 215 of the Investment Advisers Act of 1940 establishes standards for the validity of advisory contracts, and may be obtained from the Commissioner of Securities, 840 Helena Avenue, Helena, MT 59601;

(u) engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative, or contrary to the provisions of section 206(4) of the Investment Advisers Act of 1940, 15 U.S.C. 80b-6(4), which is adopted and incorporated by this reference, notwithstanding the fact that such investment adviser, investment adviser representative, or federal covered adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940, 15 U.S.C. 80b-3. Section 206(4) of the Investment Advisers Act of 1940, 15 U.S.C. 80b-6(4) establishes prohibited practices in the investment advisory business, and may be obtained from the CSI, 840 Helena Avenue, Helena, MT 59601;

(v) engaging in conduct or any act, indirectly through any other person, which would be unlawful for such person to do directly under the provisions of the Securities Act of Montana or any rule or regulation thereunder; and

(w) accessing a client's account by using the client's own unique identifying information, except where:

(i) the investment adviser, investment adviser representative, or federal covered adviser does not know, or have access to, the client's passwords;

(ii) there is an agreement between a data aggregation software company and the custodian(s)/online account platform which permits some form of "back-door" access; and

(iii) the data is in a read-only format;

(x) While acting as principal for its own advisory account, to knowingly sell any security to or purchase any security from a client, or while acting as broker-dealer for a person other than the client, to knowingly effect any sale or purchase of any security for the account of the client, without disclosing to the client in writing before the completion of the transaction the capacity in which the investment adviser, investment adviser representative, or federal covered adviser is acting and obtaining the consent of the client to the transaction.

(i) the prohibitions of this rule shall not apply to any transaction with a customer of a broker-dealer if the broker-dealer is not acting as an investment adviser, investment adviser representative, or federal covered adviser in relation to the transaction.

(ii) the prohibitions of this subsection shall not apply to any transaction with a customer of a broker-dealer if the broker-dealer acts as investment adviser, investment adviser representative, or federal covered adviser solely:

(A) by means of publicly distributed written materials or publicly made oral statements;

(B) by means of written materials or oral statements not purporting to meet the objectives or needs of specific individuals or accounts;

(C) through the issuance of statistical information containing no expressions of opinion as to the investment merits of a particular security; or

(D) by any combination of the foregoing services.

(iii) publicly distributed written materials or publicly made oral statements shall disclose that, if the purchaser of the advisory communications uses the investment adviser's, investment adviser representative's, or federal covered adviser's services in connection with the sale or purchase of a security which is a subject of the communication, the investment adviser, investment adviser representative, or federal covered adviser may act as principal for its own account or as agent for another person. Compliance by the investment adviser, investment adviser representative, or federal covered adviser with the foregoing disclosure requirement shall not relieve it of any other disclosure obligations under 15 U.S. C. § 206(3);

(iv) definitions for purposes of (x):

(A) "publicly distributed written materials" means written materials which are distributed to 35 or more persons who pay for those materials.

(B) "publicly made oral statements" means oral statements made simultaneously to 35 or more persons who pay for access to those statements.

(y) the prohibitions of this rule shall not apply to an investment adviser, investment adviser representative, or federal covered adviser effecting an agency cross transaction for an advisory client provided the following conditions are met:

(i) the advisory client executes a written consent prospectively authorizing the investment adviser, investment adviser representative, or federal covered adviser to effect agency cross transactions for such client;

(ii) before obtaining such written consent from the client, the investment adviser, investment adviser representative, or federal covered adviser makes full written disclosure to the client that, with respect to agency cross transactions, the investment adviser, investment adviser representative, or federal covered adviser will act as broker-dealer for, receive commissions from, and have a potentially conflicting division of loyalties and responsibilities regarding both parties to the transactions;

(iii) at or before the completion of each agency cross transaction, the investment adviser, investment adviser representative, or federal covered adviser or any other person relying on this rule sends the client a written confirmation. The written confirmation shall include:

(A) a statement of the nature of the transaction;

(B) the date the transaction took place;

(C) an offer to furnish, upon request, the time when the transaction took place; and

(D) the source and amount of any other remuneration the investment adviser, investment adviser representative, or federal covered adviser received or will receive in connection with the transaction. In the case of a purchase, if the investment adviser, investment adviser representative, or federal covered adviser was not participating in a distribution, or, in the case of a sale, if the investment adviser, investment adviser representative, or federal covered adviser was not participating in a tender offer, the written confirmation may state whether the investment adviser, investment adviser representative, or federal covered adviser has been receiving or will receive any other remuneration and that the investment adviser, investment adviser representative, or federal covered adviser will furnish the source and amount of such remuneration to the client upon the client's written request;

(iv) at least annually, and with or as part of any written statement or summary of the account from the investment adviser, investment adviser representative, or federal covered adviser, the investment adviser, investment adviser representative, or federal covered adviser or any other person relying on this rule sends each client a written disclosure statement identifying:

(A) the total number of agency cross transactions during the period for the client since the date of the last such statement or summary; and

(B) the total amount of all commissions or other remuneration the investment adviser, investment adviser representative, or federal covered adviser received or will receive in connection with agency cross transactions for the client during the period.

(v) each written disclosure and confirmation required by this rule must include a conspicuous statement that the client may revoke the written consent required under (x)(i) of this rule at any time by providing written notice to the investment adviser, investment adviser representative, or federal covered adviser.

(vi) no agency cross transaction may be effected in which the same investment adviser, investment adviser representative, or federal covered adviser recommended the transaction to both any seller and any purchaser.

(vii) for purposes of this rule, "agency cross transaction for an advisory client" means a transaction in which a person acts as an investment adviser, investment adviser representative, or federal covered adviser in relation to a transaction in which the investment adviser, investment adviser representative, or federal covered adviser, or any person controlling, controlled by, or under common control with such investment adviser, investment adviser representative, or federal covered adviser, acts as a broker-dealer for both the advisory client and another person on the other side of the transaction. When acting in this capacity the person is required to be registered as a broker-dealer in this state unless excluded from the definition.

(viii) nothing in this rule shall be construed to relieve an investment adviser, investment adviser representative, or federal covered adviser from acting in the best interests of the client, including fulfilling their duty with respect to the best price and execution for the particular transaction for the client nor shall it relieve any investment adviser, investment adviser representative, or federal covered adviser of any other disclosure obligations imposed by the Act.

(z) making, in the solicitation of clients, any untrue statement of a material fact, or omitting to state a material fact necessary in order to make the statement made, in light of the circumstances under which they are made, not misleading.

(aa) failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information contrary to the provisions of Section 204A of the Investment Advisers Act of 1940.

(ab) taking any action, directly or indirectly, with respect to those securities or funds in which any client has a beneficial interest, where the investment adviser, investment adviser representative, or federal covered adviser has custody or possession of such securities or funds when the action of the investment adviser, investment adviser representative, or federal covered adviser, is subject to and does not comply with the requirements of ARM 6.10.508; and

(ac) engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices.

(1) The commissioner may by order revoke or suspend any foreign security exemption with respect to any such security or the use of such exemption by any dealer if he finds that the further sale in this state of such security, or sales by a broker-dealer, would work, or tend to work, a fraud or deceit on purchasers or prospective purchasers.

(1) To become registered in this state as a securities salesperson or an investment adviser representative, the individual applicant shall pass the Financial Industry Regulatory Authority, Inc. (FINRA) uniform securities agent state law exam or the uniform combined state law examination, or an examination designated by the commissioner. The applicant must also complete an application form described in (2). A salesperson applying to register with an issuer does not have to take an examination.

(2) Each application for registration in this state must be made on the most current revised uniform application form as adopted by the North American Securities Administrators Association (NASAA), unless the commissioner, by order, designates another form. Broker-dealers shall use FINRA form BD, investment adviser representatives shall use FINRA form ADV, and securities salespersons and investment adviser representatives shall use FINRA form U-4.

(3) Except as provided in (3)(a) and (b), all applications, amendments, reports, notices, related filings, and fees required to be filed with the commissioner shall be filed electronically with and transmitted to the FINRA's investment adviser registration depositor (IARD) for investment advisers and investment adviser representatives or to the FINRA's central registration depository (CRD) for broker-dealers and salespersons:

(a) except as provided in (3)(b), salespersons representing issuers, salespersons of non-FINRA firms and broker-dealers that are not members of the FINRA shall file all applications, amendments, reports, notices, related filings, and fees directly with the commissioner;

(b) in the commissioner's discretion, the commissioner may by order provide for a manner of filing an application to register or an application to terminate registration different from the procedures provided in this rule;

(c) notwithstanding (3) of this rule, the electronic filing of any particular document and the collection of related processing fees shall not be required until such time as IARD provides for receipt of such filings and fees. Any documents or fees required to be filed with the commissioner that are not permitted to be filed with or cannot be accepted by IARD shall be filed directly with the commissioner; and

(d) pursuant to 30-10-209, MCA, those in-state salespersons and investment adviser representatives that file applications on the Form U-4 must submit a Resident Affidavit form with a form W-9 within 30 days of acceptance of the Form U-4 to receive a refund of the difference between out-of-state registration and in-state registration fees.

(4) Each person registered pursuant to 30-10-201, MCA, wishing to terminate registration shall file an application to terminate registration. Each application to terminate registration must be made on the most current revised uniform termination form as adopted by NASAA, unless the commissioner, by order, designates another form. Broker-dealers shall use form BDW, investment advisers shall use form ADV-W, and securities salespersons and investment adviser representatives shall use form U-5.

(5) Each change in the information included in an application for registration or termination must be set forth in an amendment to the application and filed with the commissioner within 30 days after the change occurs.

(6) Upon the written request of an applicant and for good cause shown, the commissioner may waive any of the requirements of this rule.

(1) A Canadian broker-dealer that is resident in Canada, and has no office or other physical presence in the United States, and is not an office of, branch of, or a natural person associated with a broker-dealer otherwise registered in the United States may transact business in this state without registering as a broker-dealer pursuant to 30-10-201, MCA, under the following conditions:

(a) the business transacted by the Canadian broker-dealer must be limited to:

(i) transactions subject to the exemption provided by 30-10-105(7), MCA;

(ii) transactions with or for a Canadian person who is temporarily present in this state and with whom the Canadian broker-dealer had a bona fide customer relationship before the person entered this state; or

(iii) transactions with or for a Canadian person in a self-directed tax advantaged retirement plan in Canada of which that person is the holder or contributor; and

(b) the Canadian broker-dealer must:

(i) file the following with the securities administrator:

(A) a notice in the form of that person's current application for registration required by the jurisdiction in which that person's head office is located; and

(B) a consent to service of process pursuant to 30-10-208, MCA;

(ii) be a member of a self-regulatory organization or stock exchange in Canada; and

(iii) maintain provincial or territorial registration and membership in a Canadian self-regulatory organization or stock exchange in good standing;

(c) disclosure must be made to the customers in this state that the Canadian broker-dealer is not subject to the full regulatory requirements of the Securities Act of Montana; and

(d) the transaction must not be in violation of 30-10-301, MCA.

(2) A Canadian securities salesperson representing a Canadian broker-dealer transacting business in this state pursuant to (1) need not register pursuant to 30-10-201, MCA, provided that he or she is registered in good standing in the appropriate Canadian jurisdiction.

(3) Transactions by Canadian broker-dealers and their salespersons pursuant to (1) and (2) will be deemed not to involve the "offer" or "sale" of a security, as those terms are defined in 30-10-103, MCA, for purpose of compliance with 30-10-202, MCA, and the rules promulgated thereunder. Nothing in this rule shall affect the duty of the Canadian broker-dealer and its agents to comply with 30-10-301, MCA, and the rules promulgated thereunder.

(1) A Canadian broker-dealer that is resident in Canada, and has no office or other physical presence in the United States, and is not an office of, branch of, or a natural person associated with a broker-dealer otherwise registered in the United States may transact business in this state without registering as a broker-dealer pursuant to 30-10-201, MCA, under the following conditions:

(a) the business transacted by the Canadian broker-dealer must be limited to:

(i) transactions subject to the exemption provided by 30-10-105(7), MCA;

(ii) transactions with or for a Canadian person who is temporarily present in this state and with whom the Canadian broker-dealer had a bona fide customer relationship before the person entered this state; or

(iii) transactions with or for a Canadian person in a self-directed tax advantaged retirement plan in Canada of which that person is the holder or contributor; and

(b) the Canadian broker-dealer must:

(i) file the following with the securities administrator:

(A) a notice in the form of that person's current application for registration required by the jurisdiction in which that person's head office is located; and

(B) a consent to service of process pursuant to 30-10-208, MCA;

(ii) be a member of a self-regulatory organization or stock exchange in Canada; and

(iii) maintain provincial or territorial registration and membership in a Canadian self-regulatory organization or stock exchange in good standing;

(c) disclosure must be made to the customers in this state that the Canadian broker-dealer is not subject to the full regulatory requirements of the Securities Act of Montana; and

(d) the transaction must not be in violation of 30-10-301, MCA.

(2) A Canadian securities salesperson representing a Canadian broker-dealer transacting business in this state pursuant to (1) need not register pursuant to 30-10-201, MCA, provided that he or she is registered in good standing in the appropriate Canadian jurisdiction.

(3) Transactions by Canadian broker-dealers and their salespersons pursuant to (1) and (2) will be deemed not to involve the "offer" or "sale" of a security, as those terms are defined in 30-10-103, MCA, for purpose of compliance with 30-10-202, MCA, and the rules promulgated thereunder. Nothing in this rule shall affect the duty of the Canadian broker-dealer and its agents to comply with 30-10-301, MCA, and the rules promulgated thereunder.

(1) Each broker-dealer registered or required to be registered under this act shall comply with SEC rule 15c3-1 (17 CFR 240.15c3-1 (1998)), 15c3-2 (17 CFR 240.15c3-2 (1998)), and 15c3-3 (17 CFR 240.15c-3 (1998)).

(2) Each broker-dealer registered or required to be registered under this act shall comply with SEC rule 17a-11 (17 CFR 240.17a-11 (1998)) and shall file with the commissioner upon request copies of notices and reports required under SEC rules 17a-5 (17 CFR 240.17a-5 (1998)), 17a-10(17 CFR 240.17a-10 (1998)), and 17a-11 (17 CFR 240.17a-11 (1998)).

(3) The commissioner adopts and incorporates by reference the rules cited in (1) and (2), which establish net capitalization requirements, customer free credit balance requirements, customer protection reserves, net capital decline reporting requirements, and capitalization reporting requirements. A copy of these rules may be obtained from the Office of the Montana State Auditor, 840 Helena Avenue, Helena, MT 59601.

(1) Unless otherwise provided by order of the commissioner, each registered broker-dealer shall make, maintain, and preserve books and records in compliance with the United States Securities and Exchange Commission rules 17a-3 (17 CFR 240.17a-3 (1998)), 17a-4 (17 CFR 240.17a-4 (1998)), and 15c2-11 (17 CFR 240.15c2-11 (1998)) which are adopted and incorporated by this reference, and establish recordkeeping requirements related to the conduct of the business as a securities broker-dealer. Copies of these rules may be obtained from the Office of the Montana State Auditor, 840 Helena Avenue, Helena, MT 59601.

(2) To the extent that the Securities and Exchange Commission promulgates changes to the above-referenced rules, dealers in compliance with such rules as amended shall not be subject to enforcement action by the commissioner for violation of this rule to the extent that the violation results solely from the dealer's compliance with the amended rule.

(1) An investment adviser registered or required to be registered under the Act who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000, and every investment adviser registered or required to be registered under the Act who 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.

(2) An investment adviser registered or required to be registered under the Act who has custody or discretion of client funds or securities, but does not meet the minimum net worth requirements in (1) shall be bonded in the amount of the net worth deficiency rounded up to the nearest $5,000. Any bond required by this section shall be:

(a) in the form determined by the commissioner;

(b) issued by a company qualified to do business in this state; and

(c) subject to the claim of all clients of the investment adviser regardless of the client's state of residence.

(3) An investment adviser registered or required to be registered under the Act who accepts prepayment of more than $500 per client and six or more months in advance shall maintain at all times a positive net worth.

(4) Unless otherwise exempted, as a condition of the right to transact business in this state, every investment adviser registered or required to be registered under the Act shall by the close of business on the next business day notify the commissioner if such investment adviser's net worth is less than the minimum required. After transmitting such notice, each investment adviser shall file by the close of business on the next business day a report with the commissioner of its financial condition, including the following:

(a) a trial balance of all ledger accounts;

(b) a statement of all client funds or securities that are not segregated;

(c) a computation of the aggregate amount of client ledger debit balances; and

(d) a statement as to the number of client accounts.

(5) For purposes of this rule, the term "net worth" shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as 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;

(j) all other assets of intangible nature;

(k) home furnishings;

(l) automobile(s) , and any other personal items not readily marketable in the case of an individual;

(m) advances or loans to stockholders and officers in the case of a corporation; and

(n) advances or loans to partners in the case of a partnership.

(6) For purposes of this rule, a person will be deemed to have custody if said person directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.

(7) For purposes of this rule, an investment adviser shall not be deemed to be exercising discretion when it places trade orders with a broker-dealer pursuant to a third party trading agreement if:

(a) the investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that a third party trading agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client's broker-dealer account; and

(b) 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; and

(c) a third party trading agreement is executed between the client and a 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.

(8) The commissioner may require that a current appraisal be submitted in order to establish the worth of any asset.

(9) Every investment adviser that has its principal place of business in a state other than this state shall maintain only such minimum capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in such state and is in compliance with such state's minimum capital requirement.

(1) Any bond required by this rule shall be issued by a company qualified to do business in this state in the form determined by the commissioner and shall be subject to the claims of all clients of such investment adviser regardless of the client's state of residence.

(a) every investment adviser registered or required to be registered under the Act having custody of or discretionary authority over client funds or securities shall be bonded in an amount determined by the commissioner based upon the number of clients and the total assets under management of the investment adviser;

(b) every investment adviser registered or required to be registered under the Act who has custody or discretion of client funds or securities who does not meet the minimum net worth standard in ARM 6.10.506(1) shall be bonded in the amount of the net worth deficiency rounded up to the nearest $5,000.

(2) An investment adviser that has its principal place of business in a state other than this state shall be exempt from the requirements of (1) , provided that the investment adviser is registered as an investment adviser in the state where it has its principal place of business and is in compliance with such state's requirements relating to bonding.

(1) It shall be unlawful for any investment adviser to take, or have custody of, any securities or funds of any client unless:

(a) the investment adviser notifies the commissioner in writing that the investment adviser has, or may have, custody. Such notification may be given on Form ADV;

(b) the securities of each client are segregated, marked to identify the particular client having the beneficial interest therein, and held in safekeeping in some place reasonably free from risk of destruction or other loss:

(i) all client funds are deposited in one or more bank accounts containing only clients' funds;

(ii) such account or accounts are maintained in the name of the investment adviser as agent or trustee for such clients; and

(iii) the investment adviser maintains a separate record for each such account showing the name and address of the bank where the account is maintained, the dates and amounts of deposits in and withdrawals from the account, and the exact amount of each client's beneficial interest in the account;

(c) immediately after accepting custody or possession of funds or securities from any client, the investment adviser notifies the client in writing of the place where, and the manner in which, the funds and securities will be maintained and subsequently, if and when there is a change in the place where, or the manner in which, the funds or securities are maintained, the investment adviser gives written notice thereof to the client;

(d) at least once every three months, the investment adviser sends each client an itemized statement showing the funds and securities in the investment adviser's custody at the end of such period, and all debits, credits, and transactions in the client's account during such period; and

(e) at least once every calendar year, an independent certified public accountant or public accountant verifies all client funds and securities by actual examination at a time chosen by the accountant without prior notice to the investment adviser. A report stating that such accountant has made an examination of such funds and securities, and describing the nature and extent of the examination, shall be filed with the commissioner promptly after each such examination;

(f) for purposes of this rule, a person will be deemed to have custody if said person directly, or indirectly, holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.

(2) This rule shall not apply to an investment adviser also registered as a broker-dealer under section 15 of the Securities Exchange Act of 1934 if the broker-dealer is:

(a) subject to and in compliance with SEC rule 15c3-1 (Net Capital Requirements for Brokers or Dealers), 17 CFR 240.15c3-1 under the Securities Exchange Act of 1934; or

(b) a member of an exchange whose members are exempt from SEC Rule 15c3-1, 17 CFR 240.15c3-1 under the provisions of paragraph (2)(b), and the broker-dealer is in compliance with all rules and settled practices of the exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers.

(1) Except as otherwise provided in (5), an investment adviser registered or required to be registered under the Securities Act of Montana must make and keep true, accurate, and current the following books, ledgers, and records:

(a) those books and records required to be maintained and preserved in compliance with Rule 204-2(a)(1)-(5), (7), (9), (10), (12), (13), (15), and (16) of the Investment Advisers Act of 1940 (17 CFR 275.204-2 (1998)), adopted and incorporated by reference, notwithstanding the fact that the investment adviser is not registered or required to be registered under the Investment Advisers Act of 1940. Rule 204-2 establishes books and records maintenance requirements pertaining to the conduct of business as an investment adviser. Copies of these rules may be obtained from the Commissioner of Securities, 840 Helena Avenue, Helena, MT 59601;

(b) all trial balances, financial statements prepared in accordance with generally accepted accounting principles, and internal audit working papers relating to the investment adviser's business as an investment adviser. For purposes of this rule, "financial statements" means balance sheets, income statements, cash flow statements and net worth computations as required by ARM 6.10.506;

(c) a list or other record of all accounts with respect to the funds, securities, or transactions of any client;

(d) a file containing a copy of each record required by Rule 204-2(a)(11) of the Investment Advisers Act of 1940 (17 CFR 275.204-2(a)(11) (1998)), including any communication by electronic media that the investments adviser circulates or distributes directly or indirectly to two or more persons, other than persons connected with the investment adviser;

(e) a copy of each written statement and each amendment or revision given or sent to any client or prospective client of the investment adviser in accordance with the provisions of 30-10-201(12)(b), MCA, and a record of the dates that each written statement, and each amendment or revision was given or offered to be given to any client or prospective client who subsequently becomes a client;

(f) for each client that was obtained by the adviser by means of a solicitor to whom a cash fee was paid by the adviser, records required by Rule 206(4)-3 of the Investment Advisers Act of 1940 (17 CFR 275.206(4)-3 (1998)), which is adopted and incorporated by this reference, notwithstanding the fact that the investment adviser is not registered, or required to be registered, under the Investment Advisers Act of 1940;

(g) all records required by rule 204-2(a)(16) of the Investment Advisers Act of 1940 include, but are not limited to, electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons (other than persons connected with the investment adviser);

(h) a file containing a copy of all written communication received or sent regarding any litigation involving the investment adviser or any investment adviser representative or employee, and regarding any written customer or client complaint;

(i) written information about each investment advisory client that is the basis for making any recommendation or providing any investment advice to such client;

(j) written procedures to supervise the activities of employees and investment adviser representatives that are reasonably designed to achieve compliance with applicable securities laws and regulations; and

(k) a file containing a copy of each document (other than any notices of general dissemination) that was filed with, or received from, any state or federal agency or self regulatory organization, and that pertains to the registrant or its investment adviser representatives which file should contain, but is not limited to, all applications amendments, renewal filings, and correspondence.

(2) Every investment adviser subject to (1) shall preserve the following records in the manner prescribed:

(a) books and records required to be made under the provisions of (1)(a) shall be maintained and preserved in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in the principal office of the investment adviser; and

(b) books and records required to be made under (1)(b) through (1)(k) must be maintained and preserved in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in the principal office of the investment adviser or for the time period during which the investment adviser was registered, or required to be registered, in the state, if less.

(3) Not withstanding other record reservation requirements of this rule, the following records copies shall be required to be maintained at the business location of the investment adviser from which the customer or client is being provided or has been provided with investment advisory services:

(a) records required to be preserved under:

(i) sections (a)(3), (a)(7), (a)(9)-(10), (a)(15)-(16), (b) and (c) inclusive, of SEC Rule 204-2 of the Investment Advisers Act of 1940 (17 CFR 275.20402 (1998));

(ii) subsections (1)(c), (1)(e), (1)(i), and (1)(k).

(4) Every investment adviser registered or required to be registered shall establish, implement, update, and enforce written physical security and cybersecurity policies and procedures reasonably designed to ensure the confidentiality, integrity, and availability of physical and electronic records and information. The policies and procedures must be tailored to the investment adviser's business model, taking into account the size of the firm, type(s) of services provided, and the number of locations of the investment adviser.

(a) The physical security and cybersecurity policies and procedures must:

(i) protect against reasonably anticipated threats or hazards to the security or integrity of client records and information;

(ii) ensure that the investment adviser safeguards confidential client records and information; and

(iii) protect any records and information the release of which could result in harm or inconvenience to any client.

(b) The physical security and cybersecurity policies and procedures must cover at least five functions:

(i) the organizational understanding to manage information security risk to systems, assets, data, and capabilities;

(ii) implementation of the appropriate safeguards to ensure delivery of critical infrastructure services;

(iii) implementation of the appropriate activities to identify the occurrence of an information security event;

(iv) implementation of the appropriate activities to take action regarding a detected information security event; and

(v) implementation of the appropriate activities to maintain plans for resilience and to restore any capabilities or services that were impaired due to an information security event.

(c) The investment adviser must review, no less frequently than annually, and modify, as needed, these policies and procedures to ensure the adequacy of the security measures and the effectiveness of their implementation.

(5) The investment adviser must deliver upon the investment adviser's engagement by a client, and on an annual basis thereafter, a privacy policy to each client that is reasonably designed to aid in the client's understanding of how the investment adviser collects and shares, to the extent permitted by state and federal law, non-public personal information. The investment adviser must promptly update and deliver to each client an amended privacy policy if any of the information in the policy becomes inaccurate.

(6) Every investment adviser shall establish, implement, and maintain written procedures relating to a Business Continuity and Succession Plan. The plan shall be based upon the facts and circumstances of the investment adviser's business model including the size of the firm, type(s) of services provided, and the number of locations of the investment adviser. The plan shall provide for at least the following:

(a) The protection, backup, and recovery of books and records.

(b) Alternate means of communications with customers, key personnel, employees, vendors, service providers (including third-party custodians), and regulators, including, but not limited to, providing notice of a significant business interruption or the death or unavailability of key personnel or other disruptions or cessation of business activities.

(c) Office relocation in the event of temporary or permanent loss of a principal place of business.

(d) Assignment of duties to qualified responsible persons in the event of the death or unavailability of key personnel.

(e) Otherwise minimizing service disruptions and client harm that could result from a sudden significant business interruption.

(7) To the extent that the securities and exchange commission promulgates changes to the rules of the Investment Advisers Act of 1940 incorporated by reference into these rules, investment advisers in compliance with such rules as amended shall not be subject to enforcement action by the commissioner for violation of this rule to the extent that the violation results solely from the investment adviser's compliance with the amended rule.

(8) Every investment adviser that has its principal place of business in a state other than this state shall be exempt from the requirements of this rule, provided the investment adviser is licensed in such state and is in compliance with the state's record keeping requirements.

(1) The notice filing for a federal covered adviser pursuant to 30-10-201, MCA, shall be filed with the commissioner, or with a central registration depository designated by the commissioner on an executed Form ADV (uniform application for investment adviser registration (17 CFR 279.1 (1998)) and shall include:

(a) the consent to service of process required by 30-10-208, MCA, unless incorporated by reference by ARM 6.10.150; and

(b) the fee required under 30-10-209, MCA.

(2) A federal covered adviser shall file with the commissioner a copy of each amendment to its Form ADV when such amendment is filed with the Securities and Exchange Commission.

(3) The renewal of the notice filing for a federal covered adviser pursuant to 30-10-209(2)(c), MCA, shall be filed upon the first page of an executed Form ADV (uniform application for investment adviser registration (17 CFR 279.1 (1998)), and shall contain the fee required under 30-10-209, MCA. Such filing shall be accompanied by amendments or documents filed with the Securities and Exchange Commission that have not previously been provided to the commissioner.

(1) The use of a senior specific certification or designation by any person in connection with the offer, sale, or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing, or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to securities, that indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees, in such a way as to mislead any person shall be a dishonest, fraudulent, and unethical practice in the securities business within the meaning of 30-10-201(13)(g) and 30-10-301, MCA. The prohibited use of such certifications or professional designation includes, but is not limited to, the following:

(a) use of a certification or professional designation by a person who has not actually earned or is otherwise ineligible to use such certification or designation;

(b) use of a nonexistent or self-conferred certification or professional designation;

(c) use of a certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the person using the certification or professional designation does not have; and

(d) use of a certification or professional designation that was obtained from a designating or certifying organization that:

(i) is primarily engaged in the business of instruction in sales and/or marketing;

(ii) does not have reasonable standards or procedures for assuring the competency of its designees or certificants;

(iii) does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct; or

(iv) does not have reasonable continuing education requirements for its designees or certificants in order to maintain the designation or certificate.

(1) There is a rebuttable presumption that a designating or certifying organization is not disqualified solely for purposes of ARM 6.10.601I(1)(d), when the organization has been accredited by:

(a) The American National Standards Institute;

(b) The National Commission for Certifying Agencies; or

(c) an organization that is on the United States Department of Education's list entitled "Accrediting Agencies Recognized for Title IV Purposes" and the designation or credential issued therefrom does not primarily apply to sales and/or marketing.

(1) In determining whether a combination of words (or an acronym standing for a combination of words) constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing senior citizens or retirees, factors to be considered shall include:

(a) use of one or more words such as "senior," "retirement," "elder," or like words, combined with one or more words such as "certified," "registered," "chartered," "adviser," "specialist," "consultant," "planner," or like words, in the name of the certification or professional designation; and

(b) the manner in which those words are combined.

(1) For purposes of this rule, a senior certification or professional designation does not include a job title within an organization that is licensed or registered by a state or federal financial services regulatory agency, when that job title:

(a) indicates seniority or standing within the organization; or

(b) specifies an individual's area of specialization within the organization.

(2) For purposes of this rule, financial services regulatory agency includes, but is not limited to, an agency that regulates broker-dealers, investment advisers, or investment companies as defined under the Investment Company Act of 1940.

(1) Nothing in these rules shall limit the commissioner's authority to enforce existing provisions of law.

This rule has been transferred.

(1) The purpose of these rules is to set forth:

(a) the procedures for allocating money from the Securities Restitution Fund to the victims of securities fraud in Montana;

(b) the procedures that victims shall use to apply for compensation from the fund;

(c) the composition of a recommendation committee and its operating procedures; and

(d) the method for calculating what percentage of money a victim shall be eligible for when the fund approaches zero.

For purposes of this subchapter:

(1) "Approaching zero" means the fund balance is under $1,000,000.

(2) "Claimant" means a claimant as defined under 30-10-1003(1), MCA.

(3) "Commissioner" means the Commissioner of Securities and Insurance, Montana State Auditor.

(4) "Committee" means the committee defined in ARM 6.10.705.

(5) "Department" means the department as defined in 30-10-1003(2), MCA.

(6) "Eligible persons" means persons eligible for restitution assistance under 30-10-1005, MCA.

(7) "Fund" means the fund as defined in 30-10-1003(4), MCA.

(8) "Investment scheme" means the underlying plan constituting the basis of a final order in a legal action initiated by the commissioner.

(9) "Loss ratio" means the ratio consisting of the victim's total investment loss over the victim's total net worth.

(10) "Total net loss" means a person's total loss in an investment scheme.

(11) "Total net worth" means the difference between the total value of a person's assets and a person's liabilities.

(12) "Victim" means a victim as defined under 30-10-1003(6), MCA.

(1) When the fund is approaching zero, the committee shall utilize loss ratio to determine how much money a person is eligible to receive, except as specified in (4).

(2) The committee shall use the following percentages when making recommendations to the commissioner as the fund approaches zero:

(a) eligible persons whose loss ratio is less than 10% are eligible for up to $2,500. Eligible persons 60 years and older are eligible for up to $5,000;

(b) eligible persons whose loss ratio is between 10% and 25% are eligible for up to $7,500. Eligible persons 60 years and older are eligible for up to $15,000;

(c) eligible persons whose loss ratio is between 25% and 50% are eligible for up to $12,500. Eligible persons 60 years and older are eligible for up to $25,000;

(d) eligible persons whose loss ratio is between 50% and 75% are eligible for up to $17,500. Eligible persons 60 years and older are eligible for up to $35,000; and

(e) eligible persons whose loss ratio is greater than 75% are eligible for the full amount under 30-10-1006(3), MCA.

(3) A person's eligibility for restitution does not mean he or she shall receive the amount listed. The committee shall make recommendations which cannot exceed the amount listed. Payments shall be limited to funds available. Not all persons deemed eligible shall receive payment.

(4) The committee may waive the loss ratios in the interest of justice.

(1) The committee shall be composed of three employees of the CSI. Those three persons shall be appointed by the Commissioner, at the Commissioner’s discretion.

(1) The committee shall meet quarterly to determine award recommendations.

(2) The committee shall review all completed applications received in the preceding quarter prior to making any recommendations.

(3) Within two weeks following the committee meeting, the attorney shall prepare a recommendation for the commissioner.

(4) Applications shall only be considered in two consecutive quarters. After the second quarter review, the application shall be deemed closed and eligible for review solely at the discretion of the committee.

(5) The commissioner may:

(a) adopt the recommendations in full;

(b) reject the recommendations in full; or

(c) request another meeting of the committee to reexamine fund allocation.

(1) Claimants shall submit a written application on a form prescribed by the commissioner.

(2) Only persons whose applications are complete and show they meet all of the eligibility requirements specified in 30-10-1005, MCA, and other relevant statutes shall have their applications reviewed by the committee.

(3) Incomplete applications shall be returned to the claimant. Any request by the department for additional information must be answered within 30 days for an application to be considered by the committee in the following quarter. Claimants failing to respond within 30 days shall not be considered in the following quarter, except for good cause shown.

(4) The committee shall not review more than one application per victim per investment scheme.