Md. Code Regs. 02.02.05.06

Current through Register Vol. 51, No. 22, November 1, 2024

Section 02.02.05.06 - Agency Cross Transactions

A. Definition. For purposes of this regulation, "agency cross transaction for an advisory client" means a transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser, or a person controlling, controlled by, or under common control with the investment adviser, including an investment adviser representative, acts as a broker-dealer for both the client and another person on the other side of the transaction. When acting in this capacity, the person is required to be registered as a broker-dealer in this State unless excluded from the definition.

B. Conditions of Compliance. An investment adviser effecting an agency cross transaction for an advisory client shall be in compliance with the Maryland Securities Act, Corporations and Associations Article, §11-302(a)(4), Annotated Code of Maryland, if the following conditions are met:

(1) The advisory client executes a written consent prospectively authorizing the investment adviser to effect agency cross transactions for the client;

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

(3) At or before the completion of each agency cross transaction, the investment adviser or other person relying on this regulation sends to the client a written confirmation including:

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

(b) The date the transaction took place;

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

(d) The source and amount of any other remuneration the investment adviser received or will receive in connection with the transaction;

(4) In the case of a purchase, if the investment adviser was not participating in a distribution, or, in the case of a sale, if the investment adviser was not participating in a tender offer, the written confirmation may state whether the investment adviser has been receiving or will receive other remuneration and that the investment adviser will furnish the source and amount of the remuneration to the client upon the client's written request;

(5) At least annually, and with or as a part of a written statement or summary of the client's account provided by the investment adviser, the investment adviser or another person relying on this regulation sends the client a written disclosure statement identifying:

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

(b) The total amount of all commissions or other remuneration the investment adviser received or will receive in connection with agency cross transactions for the client during the period;

(6) Each written disclosure and confirmation required by this regulation shall include a conspicuous statement that the client may revoke the written consent required under §B(1) of this regulation at any time by providing written notice of the revocation to the investment adviser; and

(7) An agency cross transaction may not be effected in which the same investment adviser recommended the transaction to both a seller and a purchaser.

C. Duties to Clients. Nothing in this regulation shall be construed to relieve an investment adviser or investment adviser representative from acting in the best interests of the client, including fulfilling the duty with respect to the best price and execution for the particular transaction for the client, nor shall it relieve an investment adviser or investment adviser representative of any obligations under any other disclosure requirement of the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, or a regulation or order promulgated under it, or any other state or federal law, rule or regulation.

Md. Code Regs. 02.02.05.06

Regulations .06 adopted as an emergency provision effective July 25, 1989 (16:16 Md. R. 1733); emergency status expired December 22, 1989
Regulations .06 adopted as an emergency provision effective December 23, 1989 (17:1 Md. R. 63); adopted permanently effective April 16, 1990 (17:7 Md. R. 845)