2. Statutory authority:
3. Explanation of agency authority:
Pursuant to Wis. Stats., s. 551.401 (2) (h), the Division Administrator is empowered to create new exemptions to the broker-dealer requirements by rule. Pursuant to Wis. Stats., s. 551.411 (8), the Division Administrator is further authorized to adopt rules that require continuing education for investment adviser representatives. Wis. Stats., s. 551.605 (1) grants the Division Administrator the authority to adopt any “rules necessary or appropriate to carry out” chapter 551. _Hlk167370403Wis. Stats., s. 227.14 (1), requires agencies drafting administrative rules to “adhere substantially to the form and style used by the legislative reference bureau in the preparation of bill drafts and the form and style specified in the manual prepared by the legislative council staff and the legislative reference bureau under s. 227.15 (7),” while Wis. Stat. s. 227.29 (1) directs agencies to address rules that are unauthorized, obsolete or unnecessary, or duplicative of, superseded by, or in conflict with other applicable state or federal law. 4. Related statutes or rules:
Wisconsin law requires the Division Administrator to ensure that a rule adopted or amended or an order issued or amended, under Wis. Stats., ch. 551, is not only “necessary or appropriate in the public interest or for the protection of investors”, but serves “to achieve uniformity among the states and coordination with federal laws in the form and content of registration statements, applications, reports, and other records, including the adoption of uniform rules, forms, and procedures. See Wis. Stats., ss. 551.605 (2) and 551.608. Parts of the proposed rule are based on this requirement to achieve uniformity in two ways: First, by implementing a program of the North American Securities Administrators Association (NASAA), the Exam Validity Extension Program (EVEP) and second, by implementing a NASAA model rule which creates new exemption from registration requirements for broker-dealers and agents under Wis. Stats., ss. 551.401 (1) and 551.402 (1). Approximately 25 states have adopted provisions that are based on or similar to the NASAA model rule. 5. Plain language analysis:
The Division of Securities, a division of the Department of Financial Institutions, seeks to amend certain rules it administers in three respects.
First, it seeks amendments in order to implement the North American Securities Administrators Association (NASAA) Exam Validity Extension Program (EVEP), which offers an opportunity for registered representatives and investment adviser representatives to extend the validity of their NASAA professional qualification exams for a period of up to five years by opting in to the program, paying an annual fee, and maintaining certain continuing education requirements. The examinations to which EVEP applies include the Series 63 Uniform Securities Agent State Law Examination and the Series 65 Uniform Investment Adviser Law Examination. It should be noted that the Series 66 Uniform Combined State Law Examination qualifies individuals in two capacities, as a representative of both a broker-dealer and an investment adviser. To extend both credits of the Series 66 exam, an individual must enroll both Series 63 and Series 65 credits, if applicable.
_Hlk185590720Second, the rule creates a new exemption from the registration requirements for broker-dealers and agents under Wis. Stats. ss. 551.401 (1) and 551.402 (1) for certain merger and acquisition brokers, based on a model rule prepared by NASAA related to merger and acquisition brokers. The NASAA model rule was recently updated in May 2024. Under the proposed rule, the exemption generally applies to a merger and acquisition broker, defined as a broker, and any associated person, who effects securities transactions solely in connection with the transfer of ownership of an eligible privately held company, subject to several conditions and limitations. To be considered a merger and acquisition broker under the rule, the individual must reasonably believe that upon the conclusion of the transaction, any person acquiring securities or assets of the eligible company will, alone or acting with others, control and be active in the management of the company and engage in activities such as electing executive officers, approving the annual budget, and serving as an executive or executive manager of the company. Third, the Division proposes non-substantive revisions to its rules to keep up to date with current law and modern drafting practices, including:
a. Eliminating obsolete rules, references, and cross-references identified by staff or in the rules report required under Wis. Stat., s. 227.29 (1) (c); correcting erroneous or changed cross-references; and updating references to state, national, and international organizations to refer to them by the proper name. b. Modifying the structure of existing rules in nonsubstantive ways to ensure that the rules are drafted to be substantially in the form and style used by the legislative reference bureau (LRB), and consistent with the manual prepared by the bureau and the legislative council staff, as provided in Wis. Stat., ss. 227.14 (1) and 227.15 (7). c. Improving clarity by reorganizing various definitions, and fixing stylistic problems, to address incorrect alphabetization, formatting, and punctuation issues that do not follow current LRB drafting standards, and relocating rules improperly listed as “definitions” to more appropriate locations in the rules.
6. Summary of, and comparison with, existing or proposed federal regulation:
There are several federal laws that apply to those individuals and firms affected by the proposed rule, such as broker-dealers, agents, investment advisers, investment adviser representatives, federal covered investment advisers, and securities firms. Those federal laws include the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. The federal laws, Wisconsin’s securities laws (see Wis. Stats., chs. 551 to 553), and the administrative rules work together to protect consumers and regulate the securities industry, and those individuals described in this item who work in that industry. Regarding EVEP, federal law does not regulate the registration of individuals and the examinations that qualify them for registration with state securities regulators. It is therefore important for state regulations to address the validity of the qualification examinations that individuals must maintain for their registration
applications.
Federal law does include a registration exemption for merger and acquisition brokers which became effective in March 2023 after an amendment to subsection 15(b)(13) of the Securities Exchange Act (and previously existed under an SEC no-action letter). NASAA then amended its existing model rule to achieve uniformity with federal law. Without that uniformity, state law would require securities registration for brokerage activities that are exempt under federal law, thus frustrating this state’s obligation to “effectuate greater uniformity in securities matters among the federal government, self-regulatory organizations, states, and foreign governments”, as provided in Wis. Stat. s. 551.608 (1). 7. Comparison with rules in adjacent states:
The neighboring states of Illinois, Iowa, and Michigan have all adopted a similar rule, based on the NASAA model rule. See Ill. Admin. Code title 14, subtitle A, ch. 1, part 130, Subpart H, § 130.830; Iowa Admin. Code, ch. 50, Div. II, § 191-50.10 (502); Mich. Admin. Code R. 451.4.2 Minnesota has not adopted a similar rule, but it is the Division's understanding that Minnesota plans on incorporating by reference the recent amendments to the federal Securities Exchange Act, which was the impetus for NASAA to adopt the amendments to the model rule.
8. Summary of factual data and analytical methodologies:
The proposed changes are based on the experience of DFI staff in administering the securities statutes and administrative code provisions under its jurisdiction, pursuant to state law and rules, and federal law contained in acts such as the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.
The Division's staff has had multiple discussions with NASAA and colleagues in other states, as well as representatives of industry, regarding EVEP and the exemption of merger and acquisition brokers from the registration requirements. These discussions are predicated on the goals of increasing uniformity with other states, protecting consumers, and simplifying the regulatory procedures for industry.
The revisions foster compliance with existing statutory policies requiring the elimination of obsolete or unauthorized rules, correction of cross-reference errors, elimination of conflicts with current statutes, and modification of existing rules to ensure consistency with current drafting conventions.
9. Analysis and supporting documents used to determine effect on small business:
Small businesses are at most minimally affected by these revisions, as described in item # 10.
10. Anticipated costs incurred by private sector:
The rule's estimated economic and fiscal impact on securities firms and investment advisers is expected to be negligible because the changes contained in the rule do not require these firms or individuals to assume any new duties or obligations, significantly change existing practices, or incur new costs.
11. Effect on small business:
_Hlk154073261Small businesses are at most minimally affected by these revisions. 12. Agency contact person:
Leslie Van Buskirk
Administrator, Division of Securities
Wisconsin Department of Financial Institutions
PO Box 8861
Madison, WI 53708-8861
