Chapter DFI-Sec 4

DFI-Sec 4.06(1) (1) The following are deemed “dishonest or unethical business practices” or “taking unfair advantage of a customer” by a broker-dealer under s. 551.412 (4) (m), Stats., without limiting those terms to the practices specified herein:

DFI-Sec 4.06(1)(a) (a) Causing any unreasonable delay in the transmitting of customer orders for execution, the delivery of securities purchased by any of its customers, the payment upon request of free credit balances reflecting completed transactions of any of its customers or the transfer of a customer’s account securities positions and balances to another broker-dealer;

DFI-Sec 4.06(1)(b) (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;

DFI-Sec 4.06(1)(c) (c)

DFI-Sec 4.06(1)(c)1. 1. Recommending to a customer the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the customer on the basis of information furnished by the customer after reasonable inquiry concerning the customer’s investment objectives, financial situation and needs, and any other information known by the broker-dealer;

DFI-Sec 4.06(1)(c)2. 2. For purposes of making purchase recommendations to a customer with respect to direct participation program securities, the following investor financial income and net worth suitability standards do not preclude the use of any other information, including without limitation the criteria in subd. 1., to establish suitability or lack of suitability in specific instances:

DFI-Sec 4.06(1)(c)2.a. a. The customer has an annual gross income of at least $70,000 and a net worth of at least $70,000 exclusive of the customer’s principal residence and its furnishing and personal use automobiles; or

DFI-Sec 4.06(1)(c)2.b. b. The customer has a net worth of at least $250,000, exclusive of the customer’s principal residence and its furnishings and personal use automobiles.

DFI-Sec 4.06(1)(d) (d) Executing a transaction on behalf of a customer without authority to do so, except that use by a broker-dealer of a negative response letter in conformity with rule 2510(d)(2) of the financial industry regulatory authority is not a violation of this rule;

DFI-Sec 4.06(1)(e) (e) Executing a transaction for the account of a customer upon instructions from a 3rd party without first having obtained written 3rd party authorization from the customer;

DFI-Sec 4.06(1)(f) (f) 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 pursuant to rule 2510(d)(1) of the financial industry regulatory authority;

DFI-Sec 4.06(1)(g) (g) Extending, arranging for, or participating in arranging for credit to a customer in violation of the securities exchange act of 1934 or the regulations of the federal reserve board;

DFI-Sec 4.06(1)(h) (h) Executing any transaction in a margin account without obtaining from its customer a written margin agreement not later than 15 calendar days after the initial transaction in the account;

DFI-Sec 4.06(1)(i) (i) Failing to segregate customers’ free securities or securities in safe-keeping;

DFI-Sec 4.06(1)(j) (j) Hypothecating a customer’s securities without having a lien thereon unless written consent of the customer is first obtained, except as permitted by rules of the U.S. securities and exchange commission;

DFI-Sec 4.06(1)(k) (k) Charging its customer an unreasonable commission or service charge in any transaction executed as agent for the customer;

DFI-Sec 4.06(1)(L) (L) Entering into a transaction for its own account with a customer with an unreasonable mark-up or mark-down;

DFI-Sec 4.06(1)(m) (m) Entering into a transaction for its own account with a customer in which a commission is charged;

DFI-Sec 4.06(1)(n) (n) Entering into a transaction with or for a customer at a price not reasonably related to the current market price;

DFI-Sec 4.06(1)(o) (o) Executing orders for the purchase by a customer of securities not registered under s. 551.303 or 551.304, Stats., unless the securities are exempted under s. 551.201, Stats., or the transaction is exempted under s. 551.202, Stats.;

DFI-Sec 4.06(1)(p) (p) Representing itself as a financial or investment planner, consultant, or adviser, when the representation does not accurately describe the nature of the services offered, the qualifications of the person offering the services, and the method of compensation for the services;

DFI-Sec 4.06(1)(q) (q) Violating any rule of any securities exchange or national securities association of which it is a member with respect to any customer, transaction or business in this state;

DFI-Sec 4.06(1)(r) (r) Failing to furnish to a customer purchasing securities in an offering, not later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include all information set forth in the final prospectus;

DFI-Sec 4.06(1)(s) (s) Introducing customer transactions on a “fully disclosed” basis to another broker-dealer that is not registered under ch. 551, Stats., unless the customer is a person described in s. 551.401 (2), Stats., or s. DFI-Sec 4.10;

DFI-Sec 4.06(1)(t) (t) Recommending to a customer that the customer engage the services of an investment adviser, broker-dealer or agent not registered under ch. 551, Stats., unless the customer is a person described in s. 551.401 (2) (h) or 551.402 (2) (i), Stats., or s. DFI-Sec 4.10;

DFI-Sec 4.06(1)(u) (u) Failing to accurately describe or disclose in advertising or other materials used in connection with the promotion or transaction of securities business in this state, the identity of the broker-dealer or the issuer. For purposes of this paragraph, “other materials” includes, but is not limited to, business cards, business stationery and display signs.

DFI-Sec 4.06(1)(v) (v) Disclosing the identity, investments, or other financial information of any customer or former client unless required by law to do so, or unless consented to by the client.

DFI-Sec 4.06(1)(w) (w) Using any term or abbreviation thereof in a manner that misleadingly states or implies that a person has special expertise, certification, or training in financial planning, including the misleading use of a senior-specific certification or designation as set forth in ch. DFI-Sec 10.

DFI-Sec 4.06(2) (2) The following are deemed “dishonest or unethical business practices” or “taking unfair advantage of a customer” by an agent under s. 551.412 (4) (m), Stats., without limiting those terms to the practices specified in this subsection:

DFI-Sec 4.06(2)(a) (a) Borrowing money or securities from, or lending money or securities to, a customer of the agent or the broker-dealer that employs the agent unless that customer is a financial institution or institutional investor designated in s. 551.401 (2) (b) or (c), Stats.

DFI-Sec 4.06(2)(b) (b) Acting as a custodian for money, securities or an executed stock power of a customer;

DFI-Sec 4.06(2)(c) (c) Effecting any securities transaction not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transaction is disclosed to, and authorized in writing by, the broker-dealer prior to execution of the transaction;

DFI-Sec 4.06(2)(d) (d) Effecting transactions in securities for an account operating under a fictitious name, unless disclosed to, and permitted in writing by, the broker-dealer or issuer which the agent represents;

DFI-Sec 4.06(2)(e) (e) Sharing directly or indirectly in profits or losses in the account of any customer without first obtaining written authorization of the customer and the broker-dealer which the agent represents;

DFI-Sec 4.06(2)(f) (f) Dividing or otherwise splitting commissions, profits or other compensation receivable in connection with the purchase or sale of securities in this state with any person not also registered as an agent for the same broker-dealer, or for a broker-dealer under direct or indirect common control; and

DFI-Sec 4.06(2)(g) (g) Failing to accurately describe or disclose in advertising or other materials used in connection with the promotion or transaction of securities business in this state, the identity of an agent’s employing broker-dealer or issuer or the nature of the agent’s securities services offered. For purposes of this paragraph, “other materials” include, but are not limited to, business cards, business stationery and display signs.

DFI-Sec 4.06(2)(h) (h) Misrepresenting the services of a registered investment adviser on whose behalf the agent is soliciting business or accounts.

DFI-Sec 4.06(2)(i) (i) Engaging in any of the practices specified in sub. (1) (a), (b), (c), (d), (e), (f), (g), (h), (o), (p), (q), (r), (t), (v) and (w).

DFI-Sec 4.06 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; r. (1) (u), Register, September, 1978, No. 273, eff. 10-1-78; am. (2) (g), Register, December, 1979, No. 288, eff. 1-1-80; renum. (1) (e) to (u) to be (1) (f) to (v) and am. (1) (f), (p) and (q), cr. (1) (e) and (2) (g), am. (2) (intro.), (a), (d) and (h), Register, December, 1980, No. 300, eff. 1-1-81; r. (1) (u) and am. (2) (h), Register, December, 1981, No. 312, eff. 1-1-82; am. (1) (h), renum. (2) (h) to be (2) (i) and cr. (2) (h), Register, December, 1982, No. 324, eff. 1-1-83; am. (2) (e), Register, December, 1983, No. 336, eff. 1-1-84; am. (1) (a), Register, December, 1984, No. 348, eff. 1-1-85; am. (1) (t), Register, December, 1986, No. 372, eff. 1-1-87; am. (1) (a), r. and recr. (2) (g), Register, December, 1988, No. 396, eff. 1-1-89; am. (2) (a), Register, December, 1992, No. 444, eff. 1-1-93; am. (1) (d) and (2) (c), cr. (1) (u), Register, December, 1994, No. 468, eff. 1-1-95; renum. (1) (c) to be (1) (c) 1., cr. (1) (c) 2., am. (1) (s) to (u), (2) (a), Register, December, 1996, No. 492, eff. 1-1-97; am. (2) (i), Register, December, 2000, No. 540, eff. 1-1-01; CR 02-102: am. (1) (d), Register December 2002 No. 564, eff. 1-1-03; CR 08-077: am. (title), (1) (intro.), (c) 2. a., b., (d), (f), (o), (s), (t), (2) (intro.), (a), (f), (h) and (i), cr. (1) (v) Register December 2008 No. 636, eff. 1-1-09; EmR0829: emerg. cr. (1) (w), am. (2) (i), eff. 9-18-08; CR 08-095: cr. (1) (w), am. (2) (i) Register March 2009 No. 639, eff. 4-1-09.

DFI-Sec 4.07 DFI-Sec 4.07 Registration period.

DFI-Sec 4.07(1) (1) The registration of an agent is not effective during any period when any of the following apply:

DFI-Sec 4.07(1)(a) (a) The broker-dealer that the agent represents is not registered.

DFI-Sec 4.07(1)(b) (b) When the securities of the issuer that the agent represents are not subject to an effective registration statement or an effective exemption, or upon termination of the offering.

DFI-Sec 4.07(1)(c) (c) The agent’s status with the financial industry regulatory authority or a national securities exchange is deficient for failure to meet continuing education requirements.

DFI-Sec 4.07(2) (2) The division may by order limit the period of, or specify an earlier expiration date for, any registration.

DFI-Sec 4.07 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; am. Register, December, 1980, No. 300, eff. 1-1-81; am. (1), Register, December, 1982, No. 324, eff. 1-1-83; am. (1), Register, December, 1983, No. 336, eff. 1-1-84; am. (2), Register, December, 1984, No. 348, eff. 1-1-85; am. (1) (a) and (b), r. (1) (c), renum. (1) (d) and (e) to be (1) (c) and (d), Register, December, 1985, No. 360, eff. 1-1-86; am. (1) (c), Register, December, 1994, No. 468, eff. 1-1-95; CR 02-102: r. and recr (2), Register December 2002 No. 564, eff. 1-1-03; CR 08-077: r. and recr. Register December 2008 No. 636, eff. 1-1-09.

DFI-Sec 4.08 DFI-Sec 4.08 Withdrawal of registrations.

DFI-Sec 4.08(1) (1) An application for withdrawal from the status of a registered broker-dealer under s. 551.409, Stats., shall be filed by the registrant on Form BDW with the central registration depository. If the registrant has any open customer accounts in this state, the settlement of those accounts is a condition of its withdrawal. Additional information may be required by the division and withdrawal is not effective until electronically noticed through the central registration depository.

DFI-Sec 4.08(2) (2) An application for withdrawal from the status of a registered agent shall be filed by the broker-dealer or issuer which the agent represents within 30 days of the termination of the agent’s employment on Form U-5 prescribed in s. DFI-Sec 9.01 (1), together with any additional information required by the division.

DFI-Sec 4.08 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; am. (1) and (2), Register, December, 1979, No. 288, eff. 1-1-80; am. (2), Register, December, 1982, No. 324, eff. 1-1-83; am. (2), Register, December, 1984, No. 348, eff. 1-1-85; am. (1), Register, December, 1994, No. 468, eff. 1-1-95; correction in (1) made under s. 13.93 (2m) (b) 7., Stats., Register, August, 1999, No. 524; CR 08-077: am. Register December 2008 No. 636, eff. 1-1-09.

DFI-Sec 4.09 DFI-Sec 4.09 Denial, suspension, revocation and censure.

DFI-Sec 4.09(1) (1) Any order denying, suspending or revoking the registration of a broker-dealer or agent or censuring a registrant may include such other sanctions as the division finds appropriate.

DFI-Sec 4.09(2) (2) For purposes of s. 551.412 (1), Stats., the public interest or protection of investors does not require a showing of ongoing harm to summarily deny an application for a registration as a broker-dealer or agent.

DFI-Sec 4.09 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; renum. (1) and am., r. (2), Register, December, 1981, No. 312, eff. 1-1-82; CR 08-077: renum. to be (1) and am., cr. (2) Register December 2008 No. 636, eff. 1-1-09.

DFI-Sec 4.10 DFI-Sec 4.10 Registration exemptions.

DFI-Sec 4.10(1) (1) For purposes of ss. 551.401 (2) (h) and 551.402 (2) (i), Stats., a broker-dealer or agent is exempt from the registration requirement if the broker-dealer’s or agent’s only transactions effected in this state are with:

DFI-Sec 4.10(1)(a) (a) This state or any of its agencies or political subdivisions or the state investment board.

DFI-Sec 4.10(1)(b) (b) The federal government or any of its agencies or instrumentalities.

DFI-Sec 4.10(2) (2) For purposes of s. 551.402 (2), Stats., an agent is exempt from the registration requirement if the agent represents an issuer in effecting transactions in a security exempted by s. 551.201, Stats.

DFI-Sec 4.10(3) (3) A person who gives a group presentation relating to an issuer or the securities of an issuer at a meeting or seminar sponsored by a broker-dealer registered under this chapter is not required to register as an agent if the person makes no solicitations, offers or sales of the issuer’s securities on an individual basis with any person in this state and if the person does not in any other way transact business in this state as an agent.

DFI-Sec 4.10(4) (4) 

DFI-Sec 4.10(4)(a) (a) A broker-dealer that is registered in good standing in Canada and that does not have a place of business in this state is exempt from registration if it complies with all of the requirements of s. 551.401 (4) (a), Stats., and discloses to each customer in this state that the broker-dealer and its agents are not registered under ch. 551, Stats.

DFI-Sec 4.10(4)(b) (b) An agent of a broker-dealer located in Canada that is exempt from registration on the basis of compliance with s. 551.401 (4) (a), Stats., is exempt from the registration requirement in s. 551.402, Stats.

DFI-Sec 4.10 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; am. (1) (b), (2) and (3), Register, December, 1980, No. 300, eff. 1-1-81; emerg. am. (1) (intro.), renum. (1) (a) and (b) to be (1) (c) and (d), cr. (1) (a) and (b) and (4), eff. 4-15-83; renum. (1) (a) and (b) to be (1) (c) and (d), cr. (1) (a) and (b) and (4), Register, August, 1983, No. 332, eff. 9-1-83; am. (4) (a), Register, December, 1984, No. 348, eff. 1-1-85; am. (1) (d), (2), Register, December, 1996, No. 492, eff. 1-1-97; CR 02-041: renum. (1) to (4) to be (1) (a) to (d), cr. (2) Register August 2002 No. 560, eff. 9-1-02; correction in (1) (a) 1. made under s. 13.93 (2m) (b) 7., Stats., Register August 2002 No. 560; CR 02-102: am. (1) (d) 1., Register, December 2002 No. 564, eff. 1-1-03; CR 08-077: r. and recr. Register December 2008 No. 636, eff. 1-1-09.