CHAPTER 162

FORMERLY

SENATE BILL NO. 181

AN ACT TO AMEND TITLE 6, OF THE DELAWARE CODE RELATING TO THE REGULATION OF SECURITIES, BROKER-DEALERS, INVESTMENT ADVISERS AND AGENTS.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE (Three-fifths of all members elected to each house thereof concurring therein):

Section 1. Amend Subsection (a), Section 7302, Chapter 73, Title 6 of the Delaware Code by deleting paragraph (2) thereof in its entirety and inserting in lieu thereof the following:

"(2) 'Agent' means any individual, other than a broker-dealer, who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. 'Agent' does not include an individual who represents (A) an issuer in (i) effecting transactions in a security exempted by section 7309(a)(1), (2), (3), (10), or (11) of this title, (ii) effecting transactions exempted by section 7309(b) of this title, (iii) effecting transactions in a covered security as described in section 18(b)(3) and 18(b)(4)(D) of the Securities Act of 1933, or (iv) effecting transactions with existing employees, partners or directors of the issuer if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state; (B) a broker-dealer in effecting transactions in this state limited to those transactions described in section 15(h)(2) of the Securities Exchange Act of 1934; or (C) an issuer or a member of a bona fide agricultural cooperative whose securities are exempt from registration under section 7309(a)(12) of this title. A partner, officer, or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions, is an agent only if he otherwise comes within this definition."

Section 2. Amend Subsection (a), Section 7302, Chapter 73, Title 6 of the Delaware Code by deleting paragraph (6) thereof in its entirety and inserting in lieu thereof the following:

"(6) 'Investment Adviser means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. 'Investment Adviser also includes financial planners and other persons who, as an integral component of other financially related services, provide the foregoing investment advisory services to others for compensation and as part of a business or who hold themselves out as providing the foregoing investment advisory services to others for compensation. 'Investment Adviser does not include (A) an investment adviser representative; (B) a bank, savings institution, or trust company; (C) a lawyer, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice of his profession; (D) a broker-dealer or its agent whose performance of these services is solely incidental to the conduct of its business as a broker-dealer and who receives no special compensation for them; (E) a publisher of any bona fide newspaper, news column, newsletter, news magazine, or business or financial publication or service, whether communicated in hard copy form, or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client; (F) any person who is a federal covered adviser; or (G) such other persons not within the intent of this subsection as the Commissioner may by rule or order designate."

Section 3. Amend Subsection (a), Section 7302, Chapter 73, Title 6 of the Delaware Code by inserting after paragraph (6) thereof the following new paragraph:

"(6A) 'Investment adviser representative' means any partner, officer, director (or a person occupying a similar status or performing similar functions) or other individual, except clerical or ministerial personnel, who is employed by or associated with an investment adviser that is registered or required to be registered under this chapter, or who has a place of business located in this state and is employed by or associated with a federal covered adviser; and who does any of following: (A) makes any recommendations or otherwise renders advice regarding. securities, (B) manages accounts or portfolios of clients, (C) determines which recommendation or advice regarding securities should be given, (D) solicits, offers or negotiates for the sale of or sells investment advisory services, or (E) supervises employees who perform any of the foregoing."

Section 4. Amend Subsection (a), Section 7302, Chapter 73, Title 6 of the Delaware Code by adding the following new paragraph:

"(16) 'Federal covered adviser means a person who is registered under section 203 of the Investment Advisers Act of 1940."

Section 5. Amend Subsection (a), Section 7302, Chapter 73, Title 6 of the Delaware Code by inserting after paragraph (16) thereof the following new paragraph:

"(17) 'Federal covered security' means any security that is a covered security under section 18(b) of the Securities Act of 1933 or rules or regulations promulgated thereunder."

Section 6: Amend Chapter 73, Title 6 of the Delaware Code by deleting section 7304 in its entirety and inserting in lieu thereof the following:

"Section 7304. Registration of and Notice Filing for Securities.

It is unlawful for any person to offer or sell any security in this state unless (1) it is registered under this chapter; (2) the security or transaction is exempted under section 7309 of this title; or (3) it is a federal covered security for which a notice filing has been made pursuant to the provisions of section 7309A of this title."

Section 7. Amend Section 7308, Chapter 73, Title 6 of the Delaware Code by deleting the word "The" at the beginning of subsection (a) and inserting in lieu thereof the following:

"Subject to section 7309A(e) of this chapter, the"

Section 8. Amend Subsection (a), Section 7309, Chapter 73, Title 6 of the Delaware Code by deleting from the beginning of that subsection the clause The following securities are exempted from section 7304 and section 7312 of this title" and inserting in lieu thereof the following clause:

The following securities are exempted from section 7304, section 7309A, and section 7312 of this title"

Section 9. Amend Subsection (b), Section 7309, Chapter 73, Title 6 of the Delaware Code by deleting from the beginning of that subsection the clause The following transactions are exempted from section 7304 and section 7312 of this title' and inserting in lieu thereof the following:

The following transactions are exempted from section 7304, section 7309A, and section 7312 of this title

Section 10. Amend Subsection (b), Section 7309, Chapter 73, Title 6 of the Delaware Code by deleting paragraph (2) in its entirety and inserting in lieu thereof the following:

"(2) any nonissuer transaction by a registered agent of a registered broker-dealer, and any resale transaction by a sponsor of a unit investment trust registered under the Investment Company Act of 1940, in a security of a class that has been outstanding in the hands of the public for at least 90 days, provided, at the time of the transaction:

(A) The issuer of the security is actually engaged in business and not in the organization stage or in bankruptcy or receivership and is not a blank check, blind pool or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person or persons;

(B) The security is sold at a price reasonably related to the current market price of the security;

(C) The security does not constitute the whole or part of an unsold allotment to, or a subscription or participation by, the broker-dealer as an underwriter of the security;

(D) A nationally recognized securities manual designated by rule or order of the commissioner or a document filed with the Securities and Exchange Commission that is publicly available through the SEC's Electronic Data Gathering and Retrieval System (EDGAR) and contains:

(i) A description of the business and operations of the issuer;

(ii) The names of the issuer's officers and directors, if any, or, in the case of an issuer not domiciled in the United States, the corporate equivalents of such persons in the issuer's country of domicile;

() An audited balance sheet of the issuer as of a date within eighteen (18) months or, in the case of a reorganization or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet; and

(i) An audited income statement for each of the issuer's immediately preceding two fiscal years, or for the period of existence of the issuer, if in existence for less than two years or, in the case of a reorganization or merger where the parties to the reorganization or merger had such audited income statement, a pro forma income statement; and

(E) The issuer of the security has a class of equity securities listed on a national securities exchange registered under the Securities Exchange Act of 1934, or designated for trading on the National Association of Securities Dealers Automated Quotation System (NASDAQ), unless:

(i) The issuer of the security is a unit investment trust registered under the Investment Company Act of 1940, or

(ii) The issuer of the security has been engaged in continuous business (including predecessors) for at least three years, or

(iii) The issuer of the security has total assets of at least two million dollars ($2,000,000) based on an audited balance sheet as of a date within eighteen (18) months or, in the case of a reorganization or merger where parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet."

Section 11, Amend Chapter 73, Title 6 of the Delaware Code by adding the following new section: Section 7309A. Federal Covered Securities.

(a) The Commissioner, by rule or order, may require the filing of any or all of the following documents with respect to a covered security under Section 18(b)(2) of the Securities Act of 1933:

(1) Prior to the initial offer of such federal covered security in this state, all documents that are part of a federal registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933 (or, in lieu of filing such registration statement, a notice as prescribed by the Commissioner by rule or order), together with a consent to service of process signed by the issuer and with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000. In addition, the Commissioner may require reasonable fees for miscellaneous costs absorbed by the Securities Division for printing, copying, filing or transcription of other documents.

(2) After the initial offer of such federal covered security in this state, all documents that are part of an amendment to a federal registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, which shall be filed concurrently with the Commissioner.

(3) A report of the value of such covered securities offered or sold in this state, together with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000; provided, however, that if the filing fee paid is equal to $1,000, no report of the value of such covered securities offered or sold in this state need be filed.

(b) With respect to any security that is a covered security under Section 18(b)(4)(D) of the Securities Act of 1933, the Commissioner, by rule or order, may require the issuer to file a notice on S.E.C. Form D and a consent to service of process signed by the issuer no later than 15 days after the first sale of such covered security in this state, together with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000.

(c) The Commissioner, by rule or otherwise, may require the filing of any document filed with the Securities and Exchange Commission under the Securities Act of 1933, with respect to a covered security under Section 18(b)(3) or (4) of the Securities Act of 1933, together with a filing fee as provided by rule or regulation, but in no case shall the fee be less than $200 or more than $1,000.

(d) The Commissioner may require that filings made and fees paid pursuant to subsections (a), (b), and (c) of this section be renewed annually. Where the Commissioner finds that an additional security from the same issuer has different characteristics from the security as to which the first filing was made, such as being a separate portfolio or series of an investment company or mutual fund, the Commissioner may require separate filing, fee payment, and renewal for the additional security.

(e) The Commissioner may issue a stop order suspending the offer and sale of a covered security, except a covered security under Section 18(b)(1) of the Securities Act of 1933, if it finds that (1) the order is in the public interest and (2) there is a failure to comply with any condition established under this section.

(f) The Commissioner, by rule or order, may waive any and all provisions of this section.

(g) Notwithstanding the provisions of this section, until October 10, 1999, the Commissioner may require the registration of any federal covered security for which the fees required by this section have not been paid promptly following written notification from the Commissioner regarding any nonpayment or underpayment of such fees. An issuer shall be considered to have promptly paid such fees if they are remitted to the Commissioner within 15 days following such person's receipt of written notification from the Commissioner."

Section 12. Amend Section 7311, Chapter 73, Title 6 of the Delaware Code by deleting the section headnote in its entirety and inserting in lieu thereof the following new section headnote:

"Section 7311. Unlawful representations concerning registration, notice filing or exemption."

Section 13. Amend Subsection (a), Section 7311, Chapter 73, Title 6 of the Delaware Code by deleting the first sentence of that subsection and inserting in lieu thereof the following:

"Neither the fact that a notice filing under this chapter, an application for registration under this chapter, or a registration statement under this chapter, has been filed, nor the fact that a person or security is effectively registered, constitutes a finding by the Commissioner that any document filed under this chapter is true, complete and not misleading."

Section 14. Amend Chapter 73, Title 6 of the Delaware Code by striking section 7312 in its entirety and inserting in lieu thereof the following;

"Section 7312. Filing of Sales and Advertising Literature.

The Commissioner may by rule or order require the filing of any prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser unless the security or transaction is exempted by section 7309 of this title or is a federal covered security."

Section 15. Amend Chapter 73, Title 6 of the Delaware Code by deleting section 7313 in its entirety and inserting in lieu thereof the following:

"Section 7313. Registration and Notice Filing Requirements for Broker-Dealers, Agents, Investment Advisers, Federal Covered Advisers and Investment Adviser Representatives.

(a) It is unlawful for any person to transact business in this state as a broker-dealer or agent unless he is registered under this chapter.

(b) It is unlawful for any broker-dealer or issuer to employ an agent unless the agent is registered. When an agent begins or terminates a connection with a broker-dealer or issuer, or begins or terminates those activities which make him an agent, the agent as well as the broker-dealer or issuer shall promptly notify the Commissioner. Every registration of an agent expires when the agent terminates his connection with a broker-dealer or issuer, though the person may still be subject to disciplinary action by the Commissioner under subsection 7316(e). When such an agent begins a connection with another broker-dealer or another issuer, he shall the an application for initial registration as provided in subsection 7314(a) of this title and shall pay a filing fee prescribed by subsection 7314(c) of this title. Unless the Commissioner takes action under section 7316 or section 7315 of this title, the said agent registration shall become effective 30 days after receipt of a complete application by the Commissioner (or by his designee) and shall continue in effect until it expires under the provisions of subsection (f) hereof, or under the provisions of this subsection, whichever would earlier occur. The Commissioner shall be empowered to waive the 30 day period at his discretion.

(c) It is unlawful for any person to transact business in this state as an investment adviser or as an investment adviser representative unless:

(1) he is registered under this chapter; or

(2) he has no place of business in this state; and

(A) his only clients in this state are investment companies as defined in the Investment Company Act of 1940, other investment advisers, federal covered advisers, broker-dealers, banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than one million dollars ($1,000,000), and governmental agencies or instrumentalities, whether acting for themselves or as trustees with investment control, or other institutional investors as are designated by rule or order of the Commissioner; or

(B) during the preceding twelve-month period has had not more than 5 clients, other than those specified in subparagraphs (A), who are residents of this state.

(d) It is unlawful for any person required to be registered as an investment adviser under this chapter to employ an investment adviser representative unless the investment adviser representative is registered under this chapter. When an investment adviser representative begins or terminates employment with an investment adviser, the investment adviser representative as well as the investment adviser shall promptly notify the Commissioner. Every registration of an investment adviser representative expires when the investment adviser representative terminates his connection with an investment adviser, though the person may still be subject to disciplinary action by the Commissioner under subsection 7316(e). When such an investment adviser representative begins a connection with another investment adviser or federal covered adviser, he shall, unless he is exempt from registration, file an application for initial registration as provided in subsection 7314(a) of this title and shall pay a filing fee prescribed by subsection 7314(c) of this title. Unless the Commissioner takes action under section 7316 or section 7315 of this title, the said investment adviser representative registration shall become effective 30 days after receipt of a complete application by the Commissioner (or by his designee) and shall continue in effect until it expires under the provisions of subsection (f) hereof, or under the provisions of this subsection, whichever would earlier occur. The Commissioner shall be empowered to waive the 30 day period at his discretion.

(e) It is unlawful for any federal covered adviser to employ, supervise, or associate with an investment adviser representative having a place of business located in this state, unless such investment adviser representative is registered under this chapter, or is exempt from registration. When such an investment adviser representative begins or terminates employment with a federal covered adviser, the investment adviser representative shall promptly notify the Commissioner. Every registration of such an investment adviser representative expires when the investment adviser representative terminates his connection with the federal covered adviser, though the person may still be subject to disciplinary action by the Commissioner under subsection 7316(e). When such an investment adviser representative begins a connection with another federal covered adviser or investment adviser, he shall, unless he is exempt from registration, file an application for initial registration as provided in subsection 7314(a) of this title and shalt pay a filing fee prescribed by subsection 7314(c) of this title. Unless the Commissioner takes action under section 7316 or section 7315 of this title, the said investment adviser representative registration shall become effective 30 days after receipt of a complete application by the Commissioner (or by his designee) and shalt continue in effect until it expires under the provisions of subsection (f) hereof, or under the provisions of this subsection, whichever would earlier occur. The Commissioner shall be empowered to waive the 30 day period at his discretion.

(f) Every registration or notice filing under this section or under section 7314 of this title expires December 31st unless renewed.

(g) Except with respect to advisers whose only clients are those described in subsection (c)(2) of this section, it is unlawful for any federal covered adviser to conduct advisory business in this state unless such person complies with the provisions of section 7314(b) of this chapter. Notwithstanding the provisions of this subsection, until October 10, 1999, the Commissioner may require the registration of any federal covered adviser for which fees required by section 7314 have not been paid promptly following written notification from the Commissioner regarding the nonpayment or underpayment of any such fee. A federal covered adviser shall be considered to have promptly paid such fees if they are remitted to the Commissioner within 15 days following such person's receipt of written notification from the Commissioner."

Section 16. Amend Chapter 73, Title 6 of the Delaware Code by deleting section 7314 in its entirety and inserting in lieu thereof the following;

"Section 7314. Registration and Notice Filing Procedure for Broker-Dealers, Agents, Investment Advisers, Federal Covered Advisers, and Investment Adviser Representatives.

(a)(1) A broker-dealer, agent, investment adviser, or investment adviser representative may obtain an initial registration by filing with the Commissioner or his designee an application together with a consent to service of process pursuant to section 7327. The application shall contain whatever information the Commissioner by rule requires concerning such matters as: (A) the applicant's form and place of organization; (B) the applicant's proposed method of doing business; (C) the qualifications and business history of the applicant; in the case of the broker-dealer or investment adviser, the qualifications and business history of any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer or investment adviser; (D) any injunction or administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business and any conviction of a felony; (E) subject to the limitations of section 15 of the Securities Exchange Act of 1934 and section 222 of the Investment Advisers Act of 1940, the applicant's financial condition and history and (F) any information to be furnished or disseminated to any client or prospective client, if the applicant is an investment adviser. The Commissioner may by rule or order require an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in this state. If no denial order is in effect and no proceeding is pending under section 7316, registration becomes effective at noon of the 30th day after a complete application is filed. The Commissioner may by rule or order specify an earlier effective date, and he may by order defer the effective date until noon of the 30th day after the filing of any amendment. Registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions. Registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.

(2) A broker-dealer or investment adviser may obtain a renewal registration by filing with the Commissioner an application containing whatever information the Commissioner by rule requires to keep current the information contained in the application for initial registration. A broker-dealer, investment adviser or issuer may obtain a renewal registration for the agents or investment adviser representatives associated with it by filing with the Commissioner an application containing the names of the agents or investment adviser representatives associated with it and a certification that, to the best knowledge, information and belief of such broker-dealer, investment adviser, or issuer, there has been no change in the information contained in such agent's or investment adviser representative's application for registration then currently in effect, or if there has been any change, specifying the same. Every application for renewal registration shall become effective on the date it is received by the Commissioner or upon the expiration of the previous registration, whichever date is later.

(b)(1) Except with respect to federal covered advisers whose only clients are those described In section 7313(c)(2) of this chapter, a federal covered adviser shall file with the Commissioner, prior to acting as a federal covered adviser in this state, such documents as have been filed with the Securities and Exchange Commission as the Commissioner, by rule or order, may require.(2) A notice filing under this section expires on December 31st (unless renewed) and may be renewed by filing prior to its expiration such documents as have been filed with the Securities and Exchange Commission as required by the Commissioner, along with a renewal fee.

(2) A notice filing under this section expires on December 31st (unless renewed) and may be renewed by filing prior to its expiration such documents as have been filed with the Securities and Exchange Commission as required by the Commissioner, along with a renewal fee.

(3) A federal covered adviser may terminate a notice filing by providing the Commissioner notice of such termination, which shall be effective upon receipt by the Commissioner.

(4) The Commissioner, by rule or order, may waive any or all of the provisions of this section.

(5) The Commissioner may suspend the investment advisory activities in this state of any federal covered adviser that fails to comply with the requirements of this section.

(c) Fees.

(1) Broker-dealers and agents. Every applicant for initial or renewal registration as a broker-dealer shall pay a filing fee of $250 and every applicant for initial, transfer, or renewal registration as an agent shall pay a registration fee of $50.

(2) Investment advisers and investment adviser representatives. Every applicant for initial or renewal registration as an investment adviser who is subject to registration under this chapter shall pay a filing fee of $250 and every applicant for initial, transfer, or renewal registration as an investment adviser representative who is subject to registration under this chapter shall pay a registration fee of $50.

(3) Federal covered advisers. Every person acting as a federal covered adviser in this state shall pay an initial and renewal notice filing fee of $250.

(d) A registered broker-dealer or investment adviser may file an application for registration of a successor, whether or not the successor is then in existence, for the unexpired portion of the year. There shall be no filing fee.

(e) The Commissioner may, by rule or order, require a minimum capital for registered broker-dealers, subject to the limitations of section 15 of the Securities Exchange Act of 1934, and establish minimum financial requirements for investment advisers, subject to the limitations of section 222 of the Investment Advisers Act of 1940, which may include different requirements for those investment advisers who maintain custody of clients' funds or securities or who have discretionary authority over same and those investment advisers who do not.

(f) The Commissioner may, by rule or order, require registered broker-dealers, agents, and investment advisers who have custody of or discretionary authority over client funds or securities, to post bonds in amounts as the Commissioner may prescribe, subject to the limitations of section 15 of the Securities Exchange Act of 1934 (for broker-dealers) and section 222 of the Investment Advisers Act of 1949 (for investment advisers), and may determine their conditions. Any appropriate deposit of cash or securities shall be accepted in lieu of any bond so required. No bond may be required of any registrant whose net capital, or, in the case of an investment adviser, whose minimum financial requirements, which may be defined by rule, exceeds the amounts required by the Commissioner. Every bond shall provide for suit thereon by any person who has a cause of action under section 7323 and, if the Commissioner by rule or order requires, by any person who has a cause of action not arising under this chapter. Every bond shall provide that no suit may be maintained to enforce any liability on the bond unless brought within the time limitations of section 7323(e)."

Section 17. Amend Chapter 73, Title 6 of the Delaware Code by deleting section 7315 in its entirety and inserting in lieu thereof the following:

"Section 7315. Post-registration provisions for Broker-Dealers, Investment Advisers, and Federal Covered Advisers.

(a) Every registered broker-dealer and investment adviser shall make and keep such accounts, correspondence, memoranda, papers, books, and other records as the Commissioner prescribes by rule or order, except as provided by section 15 of the Securities Exchange Act 1934 (in the case of a broker-dealer) and section 222 of the Investment Advisers Act of 1940 (in the case of an investment adviser). All records so required, with respect to an investment adviser, shall be preserved for such period as the Commissioner prescribes by rule or order.

(b) With respect to investment advisers, the Commissioner may require that certain information be furnished or disseminated as necessary or appropriate in the public interest or for the protection of investors and advisory clients. To the extent determined by the Commissioner in his discretion, information furnished to clients or prospective clients of an investment adviser that would be in compliance with the Investment Advisers Act of 1940 and the rules thereunder may be used in whole or partial satisfaction of this requirement.

(c) Every registered broker-deafer and every registered investment adviser shaft file such financial reports as the Commissioner may prescribe by rule or order, except as provided by section 15 of the Securities Exchange Act of 1934 (in the case of a broker-dealer) and section 222 of the Investment Advisers Act of 1940 (in the case of an investment adviser).

(d) If the information contained in any document filed with the Commissioner is or becomes inaccurate or incomplete in any material respect, the registrant or federal covered adviser shall file a correcting amendment promptly if the document is filed with respect to a registrant, or when such amendment is required to be filed with the Securities and Exchange Commission if the document is filed with respect to a federal covered adviser, unless notification of the correction has been given under section 7313(b), (d) or (e).

(e) All the records referred to in subsection (a) are subject at any time or from time to time to such reasonable periodic, special, or other examinations by representatives of the Commissioner, within or without this state, as the Commissioner deems necessary or appropriate in the public interest or for the protection of investors. For the purpose of avoiding unnecessary duplication of examinations, the Commissioner, insofar as he deems it practicable in administering this subsection, may cooperate with the securities administrators of other states, the Securities and Exchange Commission, and any national securities exchange or national securities association registered under the Securities Exchange Act of 1934."

Section 18. Amend Section 7316, Chapter 73, Title 6 of the Delaware Code by deleting the section headnote in its entirety and inserting in lieu thereof the following new section headnote:

"Section 7316. Denial, revocation, suspension, cancellation and withdrawal of registration of broker-dealers, agents, investment advisers, and investment adviser representatives."

Section 19. Amend Subsection (a), Section 7316, Chapter 73, Title 6 of the Delaware Code by deleting paragraph (5) in its entirety and inserting in lieu thereof the following:

"(5) Is the subject of a cease and desist order of the Commissioner or of an order of the Commissioner denying, suspending, or revoking registration as a broker-dealer, agent, investment adviser, or investment adviser representative; or"

Section 20. Amend Paragraph (6), Subsection (a), Section 7316, Chapter 73, Title 6 of the Delaware Code by deleting the clause "broker-dealer, investment adviser or agent, or the substantial equivalent of those terms as defined in this chapter" in that paragraph and inserting in lieu thereof the following:

"broker-dealer, agent, investment adviser, or investment adviser representative, or the substantial equivalent of those terms as defined in this chapter"

Section 21, Amend Subsection (a), Section 7316, Chapter 73, Title 6 of the Delaware Code by deleting paragraph (10) in its entirety and inserting in lieu thereof the following:

"(10) Has failed reasonably to supervise (A) his agents or employees if he is a broker-dealer or broker-dealer agent with supervisory responsibilities, or (B) his adviser representatives or employees if he is an investment adviser or investment adviser representative with supervisory responsibilities, and the Commissioner may infer such failure from an agent's, investment adviser representative's, or employee's violations; or"

Section 22. Amend Section 7316, Chapter 73, Title 6 of the Delaware Code by deleting subsections (b) through (g) in their entirety and inserting in lieu thereof the following:

"(b) The following provisions govern the application of subdivision (9) of subsection (a) of this section:

(1) The Commissioner may not enter an order against a broker-dealer or investment adviser on the basis of the lack of qualification of any person other than (A) the broker-dealer or investment adviser himself (if he is an individual); (B) an agent of the broker-dealer; or (C) an investment adviser representative.

(0) The Commissioner may not enter an order solely on the basis of lack of experience if the applicant or registrant is qualified by training in or knowledge of securities, or both.

(1) The Commissioner shall consider that an agent who will work under the supervision of a registered broker-dealer need not have the same qualifications as a broker-dealer and that an investment adviser representative who will work under the supervision of a registered investment adviser or federal covered adviser need not have the same qualifications as an investment adviser or federal covered adviser,

(4) The Commissioner may by rule provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants.

(c) The Commissioner may by order summarily postpone or suspend registration pending final determination of any proceeding under this section. Upon the entry of an order, the Commissioner shall promptly notify the applicant or registrant, as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser representative, that it has been entered and of the reasons therefore and that within 15 days after the receipt of a written request the matter will be set down for a hearing. If no hearing is requested and none is ordered by the Commissioner, the order will remain in effect until it is modified or vacated by the Commissioner. If a hearing is requested or ordered, the Commissioner, after notice of and opportunity for hearing, may modify or vacate the order or extend it until final determination.

(d) If the Commissioner finds that any registrant or applicant for registration is no longer in existence or has ceased to do business as a broker-dealer, agent, investment adviser or investment adviser representative, or is subject to an adjudication of mental incompetence or to the control of a committee, conservator or guardian, or cannot be located after reasonable search, the Commissioner may by order cancel the registration or application.

(e) Withdrawal from registration as a broker-dealer, agent, investment adviser or investment adviser representative becomes effective 90 days after receipt of an application to withdraw or within such shorter period of time as the Commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or impose conditions upon the withdrawal is instituted within 90 days after the application is filed. If a proceeding is pending or instituted, withdrawal becomes effective at such time and upon such conditions as the Commissioner by order determines. If no proceeding is pending or instituted a withdrawal automatically becomes effective, but the Commissioner may nevertheless institute a revocation or suspension proceeding, and impose fines, costs and restitution, within two years after withdrawal becomes effective and enter a revocation or suspension as of the last date on which registration was effective.

(f) No order may be entered under any part of this section except the first sentence of subsection (c), without (1) appropriate prior notice to the applicant or registrant (as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser representative), (2) opportunity for a hearing, and (3) written findings of fact and conclusions of law. The Commissioner or his designee shall control the procedures and the conduct of the parties at the hearing.

(g) The Commissioner shall upon notice and hearing as further defined by subsection (c) of this section, have the right to fine any broker-dealer, agent, investment adviser or investment adviser representative in an amount not to exceed $10,000 for each and every violation of this chapter, plus the costs of investigation and prosecution."

Section 23. Amend Chapter 73, Title 6 of the Delaware Code by deleting section 7317 in its entirety and inserting in lieu thereof the following:

"Section 7317. Advisory Activities,

(a)(1) It is unlawful for an investment adviser, federal covered adviser, or investment adviser representative, all as defined in this chapter, to employ any device, scheme or artifice to defraud another person, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon another person.

(2) It is unlawful for an investment adviser, federal covered adviser, or investment adviser representative, all as defined in this chapter, in connection with giving investment advice or otherwise acting as an investment adviser, federal covered adviser, or investment adviser representative to make any untrue statement of fact that a reasonable client or prospective client would deem material or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they-are made, not misleading.

(b) It is unlawful for any investment adviser or investment adviser representative to enter into, extend, or renew any investment advisory contract unless it provides in writing:

(1) That the investment adviser or investment adviser representative shall not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client;

(2) That no assignment of a contract may be made by the investment adviser or investment adviser representative without the consent of the other party to the contract; and

(3) that the investment adviser or investment adviser representative, if a partnership, shall notify the other party to the contract of any change in the membership or the partnership within a reasonable time after the change.

Subsection (b)(1) does not prohibit an investment advisory contract which provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates or taken as of a definite date. 'Assignment', as used in subsection (b)(2), includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor; but if the investment adviser is a partnership, no assignment of an investment contract is considered to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.

(c) It is unlawful for any investment adviser or investment adviser representative to take or have custody of any securities or funds of a client if:

(1) the Commissioner by rule prohibits custody; or

(2) in the absence of rule, the investment adviser or investment adviser representative fails to notify the Commissioner that he has or may have custody."

Section 24. Chapter 73, Title 6 of the Delaware Code is amended by deleting section 7318 in its entirety and inserting in lieu thereof the following:

"Section 7318. Trading Markets.

(a) It is unlawful for any broker-dealer, agent, investment adviser, or investment adviser representative to effect transactions in, trade, or quote any security unless such security is covered by regulations under the Securities and Exchange Act of 1934 or unless the filing provisions of this chapter have been complied with it .regard to such security.

(b) Except as provided otherwise by the provisions of Section 18

Securities Act of 1933, the Commissioner is empowered to suspend trading in any security for a period of 10 days in the public interest."

Section 25, Amend Subsection (a), Section 7323, Chapter 73, Title 6 of the Delaware Code by deleting paragraph (1) thereof in its entirety and inserting in lieu thereof the following:

"(1) Offers or sells a security in violation of section 7313, 7304, or 7311(b), or of any rule or order under section 7312 which requires the affirmative approval of sales literature before it is used, or of any condition imposed under section 7306(d)."

Section 26. Amend Section 7326, Chapter 73, Title 6 of the Delaware Code by deleting subsection (b) in its entirety and inserting in lieu thereof the following:

"(b) The information contained in or filed with any registration statement, application, report, or filing may be made available to the public under such rules as the Commissioner prescribes."

Section 27. Amend Chapter 73, Title 6 of the Delaware Code by deleting section 7327 in its entirety and inserting in lieu thereof the following:

"Section 7327. Service of Process.

Every applicant for registration under this chapter, every person making a notice filing pursuant to this chapter, and every issuer which proposes to offer a security in this state through any person acting on an agency basis in the common-law sense shall file with the Commissioner, in such form as he by rule prescribes, an irrevocable consent appointing the Commissioner or his successor in office to be his attorney to receive service of any lawful process in any non-criminal suit, action, or proceeding against him or his successor executor or administrator which arises under this chapter or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous registration or notice filing need not file another. Service may be made by leaving a copy of the process in the office of the Commissioner, but it is not effective unless the plaintiff, who may be the Commissioner in a suit, action, or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered mail to the defendant or respondent at his last address on file with the Commissioner, and the plaintiffs affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.

When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this chapter or any rule or order hereunder, and he has not filed a consent to service of process under this section and personal jurisdiction over him cannot otherwise be obtained in this State, that conduct shall be considered equivalent to his appointment of the Commissioner or his successor in office to be his attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against him or his successor, executor or administrator which grows out of that conduct and which is brought under this chapter or any rule or order hereunder, with the same force and validity as if served on him personally. Service may be made in the same manner as stated above."

Section 28. Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued,

Section 29. If any provision of this act or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of the act which can be given effect without the invalid provision or application, and to this end the provisions of this act are severable.

Approved July 9, 1997