Section 710IAC4-9-7. Books and records; maintenance

   Every investment adviser subject to IC 23-19 shall make and keep true, accurate, and current the following books and records relating to its investment advisory business:

(1) Journals, including cash receipts and disbursement records, and any other record of original entry forming the basis of entries in any ledger.

(2) General and auxiliary ledgers, or other comparable records, reflecting:

(A) asset;

(B) liability;

(C) reserve;

(D) capital;

(E) income; and

(F) expense accounts.

(3) A memoranda of each order given by the investment adviser that:

(A) is for:

(i) purchase or sale of any security;

(ii) any instruction received by the investment adviser from a client concerning:

(AA) purchase;

(BB) sale;

(CC) receipt; or

(DD) delivery;

of a particular security; or

(iii) any modification or cancellation of any order or instruction; and

(B) shall:

(i) show the terms and conditions of the:

(AA) order;

(BB) instruction;

(CC) modification; or

(DD) cancellation;

(ii) identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order;

(iii) show the:

(AA) account for which the order was entered;

(BB) date of entry; and

(CC) bank or broker-dealer by or through whom the order was executed, if appropriate.

Orders entered under the exercise of discretionary power shall be so designated.

(4) All:

(A) checkbooks;

(B) bank statements;

(C) canceled checks; and

(D) cash reconciliations;

of the investment adviser.

(5) All bills or statements, or copies thereof, paid or unpaid, relating to the business of the investment adviser.

(6) All:

(A) trial balances;

(B) financial statements; and

(C) internal audit working papers;

relating to the business of the investment adviser.

(7) Originals of all written communications received and copies of all written communications sent by the investment adviser relating to the following:

(A) Any recommendation made or proposed to be made and any advice given or proposed to be given.

(B) Any:

(i) receipt;

(ii) disbursement; or

(iii) delivery;

of funds or securities.

(C) The placing or execution of any order to purchase or sell any security.

(D) The investment adviser shall not be required to keep any unsolicited market letters and other similar communications of general public distribution, not prepared by or for the investment adviser.

(E) If the investment adviser sends any notice, circular, or other advertisement that offers any report, analysis, publication, or other investment advisory service to more than ten (10) persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except that, if the notice is distributed to persons named on any list, the investment adviser shall retain with the copy of the notice or a memorandum describing the list and the source.

(8) A list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to the:

(A) funds;

(B) securities; or

(C) transactions;

of any client.

(9) All powers of attorney given to the investment adviser for the purpose of providing investment advice and other evidence of the granting of any discretionary authority by any client to the investment adviser, or copies of those documents.

(10) All written agreements, or copies of those agreements, entered into by the investment adviser with any client or otherwise relating to the business of the investment adviser.

(11) The following related to communications:

(A) A copy of each:

(i) notice;

(ii) circular;

(iii) advertisement;

(iv) newspaper article;

(v) investment letter;

(vi) bulletin; or

(vii) other communication;

that the investment adviser circulates or distributes, directly or indirectly, to ten (10) or more persons, other than persons connected with the investment adviser.

(B) If the items referenced in clause (A) recommends the purchase or sale of a specific security and does not state the reasons for the recommendation, a memorandum of the investment adviser indicating the reasons therefor.

(12) A record of every transaction in a security in which the investment adviser or any advisory representative of the investment adviser has or, by reason of the transaction, acquires any direct or indirect beneficial ownership, except with respect to the following:

(A) Transactions effected in any account over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control.

(B) Transactions in securities that are direct obligations of the United States.

(C) The records required to be kept under this subdivision shall state the following:

(i) The title and amount of the security involved.

(ii) The date and nature of the transaction.

(iii) The price at which it was affected.

(iv) The name of the broker-dealer or bank with or through whom the transaction was effected.

The record may also contain a statement declaring that the reporting or recording of any of these transactions shall not be construed as an admission that the investment adviser, or advisory representative, has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than ten (10) days after the end of the calendar quarter in which the transaction was effected.

(D) For purposes of clause (A), "control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940, (15 U.S.C. 80a-2(a)(9)), as amended.

(E) An investment adviser shall not be deemed to have violated the provisions of this subdivision because of its failure to record securities transactions of any advisory representative if it establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded.

(F) For purposes of this subdivision, "advisory representative" means the following:

(i) Any:

(AA) partner;

(BB) officer; or

(CC) director;

of the investment adviser.

(ii) Any employee:

(AA) who makes any recommendation;

(BB) who participates in the determination of which recommendation shall be made; or

(CC) whose functions or duties relate to the determination of which recommendation shall be made.

(iii) Any employee who, in connection with his or her duties, obtains any information concerning that securities are being recommended prior to the effective dissemination of the recommendations or of the information concerning the recommendations.

(iv) Any of the following persons who obtain information concerning securities recommendations being made by the investment adviser prior to the effective dissemination of the recommendations or of the information concerning the recommendations:

(AA) Any person in a control relationship to the investment adviser.

(BB) Any affiliated person of the controlling person.

(CC) Any affiliated person of the affiliated person.

(13) Notwithstanding the provision of subdivision (12) where the investment adviser is primarily engaged in a business other than advising registered investment companies or other advisory clients, a record must be maintained of every transaction in a security in which the investment adviser or any advisory representative of the investment adviser has or, by reason of the transaction, acquires any direct or indirect beneficial ownership, except with respect to the following:

(A) Transactions effected in any account over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control.

(B) Transactions in securities that are direct obligations of the United States.

(C) The records required to be kept by this subdivision shall state the following:

(i) Title and amount of the security involved.

(ii) The date and nature of the transaction.

(iii) The price at which it was affected.

(iv) The name of the broker-dealer or bank with or through whom the transaction was effected. The record may also contain a statement declaring that the reporting or recording of any of these transactions shall not be construed as an admission that the investment adviser, or investment adviser representative, has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than ten (10) days after the end of the calendar quarter in which the transaction was effected.

(D) As used in this subdivision, "control" shall have the same meanings as set forth in Section 2(a)(9), (15 U.S.C. 80a-2(a)(9)) of the Investment Company Act of 1940, as amended.

(E) For purposes of this subdivision, an investment adviser is primarily engaged in a business other than advising registered investment companies or other advisory clients when, for each of its most recent three (3) fiscal years or for the period of time since organization, whichever is later, the investment adviser derived, on an unconsolidated basis, more than fifty percent (50%) of its total sales and revenues, and its income, or loss, before income taxes and extraordinary items, from the other business.

(F) An investment adviser shall not be deemed to have violated the provisions of this subdivision because of its failure to record securities transactions of any advisory representative if it establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded.

(G) For purposes of this subdivision, "advisory representative", when used in connection with a company primarily engaged in a business other than advising registered investment companies or other advisory clients, means the following:

(i) Any:

(AA) partner;

(BB) officer;

(CC) director; or

(DD) employee;

of the investment adviser;

(ii) does any of the following:

(AA) who makes any recommendation;

(BB) who participates in the determination of which recommendation shall be made; or

(CC) whose functions or duties relate to the determination of which recommendation shall be made, or who in connection with his or her duties obtains any information concerning which securities are being recommended prior to the effective dissemination of the recommendations or of the information concerning the recommendations.

(iii) Any of the following persons who obtain information concerning securities recommendations being made by the investment adviser prior to the effective dissemination of the recommendations or of the information concerning the recommendations:

(AA) Any person in a control relationship to the investment adviser.

(BB) Any affiliated person of the controlling person.

(CC) Any affiliated person of the affiliated person.

(14) A copy of each written statement, and each amendment, given or sent to any client or prospective client of the investment adviser under IC 23-19, and a record of the dates that each written statement and each amendment was given or offered to be given to any client or prospective client who subsequently becomes a client.

(15) In relation to rate of return, the following applies:

(A) All:

(i) accounts;

(ii) books;

(iii) internal working papers; and

(iv) any other records or documents;

(B) necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any or all managed accounts or securities recommendations in any communication referenced in subdivision (11)(A);

(C) provided, however, that with respect to the performance of managed accounts, the retention of all account statements, if they reflect all:

(i) debits;

(ii) credits;

(iii) other transactions in a client's account for the period of the statement; and

(iv) work sheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts;

shall be deemed to satisfy the requirements of this subdivision.

(16) With respect to any investment adviser who has custody or possession of securities or funds of any client, the records required to be made and kept under this section shall contain the following:

(A) A journal or other record showing all:

(i) purchases;

(ii) sales;

(iii) receipts; and

(iv) deliveries;

of securities, including certificate numbers, for accounts and all other debits and credits to the accounts.

(B) A separate ledger account for each client showing the following:

(i) All:

(AA) purchases;

(BB) sales;

(CC) receipts; and

(DD) deliveries;

of securities.

(ii) The date and price of each purchase and sale.

(iii) All debits and credits.

(C) Copies of confirmations of all transactions effected by or for the account of any of these clients.

(D) A record for each security in which any of these clients has a position, and these records shall show the:

(i) name of the client having any interest in each security;

(ii) amount or interest of the client; and

(iii) location of the security.

(17) With respect to any investment adviser who renders any investment supervisory or management service to any client and to the extent that the information is reasonably available to or obtainable by the investment adviser, the records required to be made and kept under this rule with respect to the portfolio being supervised or managed shall include the following:

(A) Accurate and current records showing separately for the client the securities purchased and sold and the:

(i) date;

(ii) amount; and

(iii) price;

of the purchase and sale.

(B) For each security in which any of these clients has a current position, accurate and current information from which the investment adviser can promptly furnish the name of the client and the current amount or interest of the client.

(C) Any books or records required by this section may be maintained by the investment adviser in the manner that the identity of any client to whom the investment adviser renders investment supervisory services is indicated by numerical or alphabetical code or some similar designation.

(D) All books and records required to be made under this section, except for books and records required to be made under subdivisions (11) and (15), shall be maintained and preserved in an easily accessible place for at least five (5) years from the end of the fiscal year during which the last entry was made on the record, with books and records for the first two (2) most recent years stored in an appropriate office of the investment adviser.

(E) The following shall be maintained in the principal office of the investment adviser and preserved until at least three (3) years after termination of the enterprise:

(i) partnership articles with any amendments;

(ii) articles of incorporation;

(iii) charters;

(iv) minute books; and

(v) stock certificate books;

of the investment adviser and of any predecessor.

(F) An investment adviser subject to this section, before ceasing to conduct or discontinuing business as an investment adviser, shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this section, for the remainder of the periods specified herein. The investment adviser shall notify the commissioner in writing of the exact address where the books and records will be maintained during these periods.

(G) The records required to be maintained and preserved under this section may be stored electronically and be maintained and preserved for the required time in that form. If records are produced or reproduced through electronic storage, the investment adviser shall do the following:

(i) Arrange the records and index storage medium so as to permit the immediate location of any particular record.

(ii) Be prepared to promptly provide any paper copy of the storage medium that the commissioner may request.

(iii) Create a suitable backup for that electronic storage medium.

(iv) With respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration, or destruction.

(v) With respect to records stored on photographic film, at all times have available for the commissioner's examination of its records under IC 23-19, facilities for:

(AA) immediate, easily readable projection of the film; and

(BB) producing easily readable facsimile enlargements.

(H) Under clause (G), an investment adviser may, on electronic storage medium, maintain and preserve records that, in the ordinary course of the investment adviser's business, are created by the investment adviser on electronic media or are received by the investment adviser solely on electronic media or by electronic data transmission.

(I) Any book or other record made, kept, maintained, and preserved in compliance with IC 23-19 that is substantially the same as the book or other record required to be maintained or preserved under this section shall be deemed to be maintained and preserved in compliance with this section.

(J) A record made and kept under this section that contains all the information required to be kept under any other provision of this rule need not be maintained in duplicate.

(K) As used in this section, "discretionary power" shall not include discretion as to the price at which or the time when a transaction is or is to be effected if, before the order is given by the investment adviser, the client has directed or approved the purchase or sale of a definite amount of the particular security.

(L) Except as provided in clause (N), each nonresident investment adviser registered or applying for registration under IC 23-19 shall maintain and preserve at a place within the state of Indiana designated in a notice from it, as provided in this section, true, correct, complete, and current copies of books and records that it is required to make, keep current, maintain, or preserve.

(M) Except as provided in clause (N), each nonresident investment adviser subject to clause (L), shall furnish to the commissioner a written notice specifying the address of the place within the state of Indiana where the copies of the books and records required to be kept and preserved by it under clause (L) are located. Each nonresident broker-dealer registered or applying for registration as an investment adviser shall file the notice within thirty (30) days after this section becomes effective. Each nonresident investment adviser who files an application for registration after this section becomes effective shall file the notice with the application for registration.

(N) Notwithstanding the provisions of clauses (L) and (M), a nonresident investment adviser need not keep or preserve within the state of Indiana copies of the books and records to which clauses (L) and (M) refer if the following occur:

(i) The nonresident investment adviser files with the commissioner, at the time or within the period provided by clause (M), a written undertaking, in a form acceptable to the commissioner and signed by a duly authorized person, to furnish to the commissioner, upon demand, at the commissioner's office complete and current copies of any or all of the books and records that it is required to keep and maintain, or preserve under IC 23-19. The undertaking shall be in substantially the following form:

(AA) The undersigned hereby undertakes to furnish to the commissioner at its own expense true, correct, complete, and current copies of any, all, or any part of the books and records that the undersigned is required to make, keep current, or preserve under IC 23-19.

(BB) This undertaking shall be suspended during any period when the undersigned is making, keeping current, and preserving copies of all the books and records at a place within the state of Indiana in compliance with this rule. This undertaking shall be binding upon the undersigned and the heirs, successors, and assigns of the undersigned, and the written irrevocable consents and powers of attorney of the undersigned, its general partners, and managing agents filed with the commissioner, shall extend to and cover any action to enforce the same.

(ii) The nonresident investment adviser furnishes to the commissioner, at the investment adviser's expense, fourteen (14) days after written demand, that has been forwarded to the investment adviser, at its last address filed with the commissioner, by certified mail, return receipt requested that has been signed by the commissioner or the other person as the commissioner may authorize to act on his or her behalf, complete and current copies of any or all books and records that the investment adviser is required to keep current or preserve, or any part of the books and records that may be specified in the written demand. The copies shall be furnished to the commissioner at the commissioner's office in Indianapolis, Indiana, or at any other place within the state of Indiana that may be specified in the written demand.

(O) For purposes of this section, "nonresident investment adviser" means the following:

(i) In the case of an individual, one who resides in or has his or her principal place of business in any place not subject to the jurisdiction of the state of Indiana.

(ii) In the case of a corporation, one incorporated in or having its principal place of business in any place not subject to the jurisdiction of the state of Indiana.

(iii) In the case of a partnership or other unincorporated organization, one having its principal place of business in any place not subject to the jurisdiction of the state of Indiana.

(P) Books and records required to be made under subdivisions (11) and (15) shall be maintained and preserved in an easily accessible place for at least five (5) years from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, the:

(i) notice;

(ii) circular;

(iii) advertisement;

(iv) newspaper article;

(v) investment letter;

(vi) bulletin; or

(vii) other communication;

with books and records for the first two (2) years stored in an appropriate office of the investment adviser.

(Securities Division; 710 IAC 4-9-7; filed Jun 28, 2010, 2:36 p.m.: 20100728-IR-710100044FRA; readopted filed May 12, 2016, 1:47 p.m.: 20160608-IR-710160136RFA)