21.8042.01000
Sixty-seventh
Legislative Assembly HOUSE BILL NO. 1085
of North Dakota
Introduced by
Industry, Business and Labor Committee
(At the request of the Securities Commissioner)
1 A BILL for an Act to amend and reenact subsection 3 of section 10-04-02, sections 10-04-05,
2 10-04-06, 10-04-07.1, 10-04-08.1, 10-04-08.3, and 10-04-08.4, and subsection 2 of section
3 10-04-10 of the North Dakota Century Code, relating to the definition of broker-dealer,
4 registration by coordination, federal covered securities, and qualifications of registered agents.
5 BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF NORTH DAKOTA:
6 SECTION 1. AMENDMENT. Subsection 3 of section 10-04-02 of the North Dakota Century
7 Code is amended and reenacted as follows:
8 3. "Broker-dealer" means a person engaged in the business of effecting transactions in
9 securities issued by another person or by such person for the account of others or for
10 the person's own account. The term does not include:
11 a. An agent; or
12 b. A bank or savings institution if its activities as a broker-dealer are limited to those
13 specified in subsections 3(a)(4)(B)(i) through (vi), (viii) through (x), and (xi) if
14 limited to unsolicited transactions; 3(a)(5)(B) and 3(a)(5)(C) of the Securities
15 Exchange Act of 1934 or a bank that satisfies the conditions described in
16 subsection 3(a)(4)(E) of the Securities Exchange Act of 1934; or
17 c. An issuer, including an officer, director, employee, or trustee of, or member or
18 manager of, or partner in, or a general partner of, an issuer, that sells, offers for
19 sale, or does any act in furtherance of the sale of a security that represents an
20 economic interest in that issuer, provided no commission, fee, or other similar
21 remuneration is paid to or received by the issuer for the sale.
22 SECTION 2. AMENDMENT. Section 10-04-05 of the North Dakota Century Code is
23 amended and reenacted as follows:
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1 10-04-05. Exempt securities.
2 Sections 10-04-04, 10-04-07.1, 10-04-07.2, 10-04-08, and 10-04-08.4 do not apply to any of
3 the following securities:
4 1. A security, including a revenue obligation or a separate security as defined in rule 131
5 adopted under the Securities Act of 1933, issued, insured, or guaranteed by the United
6 States, by a state, by a political subdivision of a state, by a public authority, agency, or
7 instrumentality of one or more states, by a political subdivision of one or more states,
8 or by a person controlled or supervised by and acting as an instrumentality of the
9 United States under authority granted by the Congress, or a certificate of deposit for
10 any of the foregoing, except that this exemption does not include a municipal security
11 with respect to the offer or sale in this state if the security is payable solely from
12 revenues to be received from a nongovernmental industrial or commercial enterprise,
13 unless such payments are made or unconditionally guaranteed by a person whose
14 securities are exempt from registration or the issuer first files a notice in a record
15 specifying the terms of the proposed offer or sale and pays a nonrefundable filing fee
16 of one hundred dollars.
17 2. Securities issued by and representing or that will represent an interest in or a direct
18 obligation of, or be guaranteed by a banking institution organized under the laws of the
19 United States, a member bank of the federal reserve system, or a depository
20 institution a substantial portion of the business of which consists or will consist of
21 receiving deposits or share accounts that are insured to the maximum amount
22 authorized by statute by the federal deposit insurance corporation, the national credit
23 union share insurance fund, or a successor authorized by federal law or exercising
24 fiduciary powers that are similar to those permitted for national banks under the
25 authority of the comptroller of currency pursuant to section 1 of Public Law 87-722 or
26 issued or guaranteed as to both principal and interest by an international bank of
27 which the United States is a member.
28 3. Securities issued by a building and loan association subject to supervision by an
29 agency of the state of North Dakota, or policy contracts, including variable annuity
30 contracts, of an insurance company subject to supervision by an agency of the state of
31 North Dakota.
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1 4. Securities issued or guaranteed by a railroad, other common carrier, public utility, or
2 public utility holding company that is regulated in respect to its rates and charges by
3 the United States or a state, regulated in respect to the issuance or guarantee of the
4 security by the United States, a state, Canada, or a Canadian province or territory, or a
5 public utility holding company registered under the Public Utility Holding Company Act
6 of 1935 or a subsidiary of such a registered holding company within the meaning of
7 that Act.
8 5. Any security issued by any person organized and operated not for private profit but
9 exclusively for religious, educational, benevolent, fraternal, charitable, social, or
10 reformatory purposes; provided that prior to any offer of such security each person
11 must meet the following conditions:
12 a. Apply for and obtain the written approval of the commissioner.
13 b. File an application, offering disclosure document, and pay a nonrefundable filing
14 fee of one hundred fifty dollars, which document and fee must accompany the
15 application.
16 c. File a notice identifying the basis of its qualification under this exemption with
17 such additional information as the commissioner may require.
18 d. Provide a copy of the offering disclosure document to each person to whom an
19 offer to sell or sale is made.
20 The approval is effective for a period of one year from the date of approval. At least
21 thirty days prior to the expiration date, there must be filed an application, offering
22 disclosure document, and a nonrefundable fee of one hundred dollars for the renewal
23 of the filing for additional periods of one year.
24 6. Any note, draft, bill of exchange, or bankers' acceptance which arises out of a current
25 transaction or the proceeds of which have been or are to be used for current
26 transactions, is not the subject of a public offering, is prime quality negotiable
27 commercial paper which has at the time of issuance a definite maturity of not
28 exceeding nine months, is payable in cash only, and is not convertible into and does
29 not carry an option or right to receive payment or any bonus in any other security.
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1 7. Securities, other than common stock, providing for a fixed return, which have been
2 outstanding and in the hands of the public for not less than five years and upon which
3 no default has occurred during the five years next preceding the date of sale.
4 8. Securities, including patronage dividends or refunds, issued by any cooperative
5 organized under the statutes of this state.
6 9. An equipment trust certificate with respect to equipment leased or conditionally sold to,
7 a person, if any security issued by the person would be exempt under this section or
8 would be a federal covered security under section 18(b)(1) of the Securities Act of
9 1933.
10 10. Any bond, note, or other evidence of debt issued by a holding corporation or limited
11 liability company and secured by collateral consisting of any of the securities
12 described in subsections 4 and 9, if the collateral securities equal in fair value at least
13 one hundred twenty-five percent of the par value of the bonds, notes, or other
14 evidences of debts secured thereby.
15 11. The execution of orders for purchase of securities by a registered broker-dealer
16 provided such broker-dealer acts as agent for the purchaser, has made no solicitation
17 of the order to purchase such securities, has no direct material interest in the sale or
18 distribution of the securities ordered, receives no commission, profit, or other
19 compensation other than the commissions involved in the purchase and sale of the
20 securities and delivery to the purchaser of written confirmation of the order which
21 clearly itemizes the commissions paid to the registered broker-dealer. Clear and
22 complete records of all transactions exempted under this subsection shall be
23 maintained by the registered broker-dealer.
24 12. Any security issued, insured, or guaranteed by a foreign government with which the
25 United States currently maintains diplomatic relations, or any of its political
26 subdivisions, if the security is recognized as a valid obligation by the issuer, insurer, or
27 guarantor.
28 13. a. A federal covered security specified in section 18(b)(1) of the Securities Act of
29 1933 or by rule adopted under that provision or a security listed or approved for
30 listing on:
31 (1) The New York stock exchange;
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1 (2) The American stock exchange;
2 (3) The national association of securities dealers automated quotation national
3 market system;
4 (4) Tier I of the Philadelphia stock exchange, incorporated;
5 (5) Tier I of the Pacific exchange, incorporated;
6 (6) Chicago board options exchange, incorporated; or
7 (7) Any other stock exchange or automated quotation system which the
8 securities and exchange commission approves by rule.
9 b. A put or call option contract; a warrant; a subscription right on or with respect to
10 such securities; or an option or similar derivative security on a security or an
11 index of securities or foreign currencies issued by a clearing agency registered
12 under the Securities Exchange Act of 1934 and listed or designated for trading on
13 a national securities exchange, a facility of a national securities exchange, or a
14 facility of a national securities association registered under the Securities
15 Exchange Act of 1934 or an offer or sale, of the underlying security in connection
16 with the offer, sale, or exercise of an option or other security that was exempt
17 when the option or other security was written or issued; or an option or a
18 derivative security designated by the securities and exchange commission under
19 section 9(b) of the Securities Exchange Act of 1934.
20 14. Securities issued by North Dakota united dues credit trust to members of North Dakota
21 united.
22 15. A security of a foreign issuer that is a margin security defined in regulations or rules
23 adopted by the board of governors of the federal reserve system.
24 SECTION 3. AMENDMENT. Section 10-04-06 of the North Dakota Century Code is
25 amended and reenacted as follows:
26 10-04-06. Exempt transactions.
27 Except as hereinafter in this section expressly provided, sections 10-04-04, 10-04-07.1,
28 10-04-07.2, 10-04-08, 10-04-08.4, and 10-04-10 do not apply to any of the following
29 transactions:
30 1. A transaction by an executor, administrator of an estate, sheriff, marshal, receiver,
31 guardian, conservator, or trustee in bankruptcy.
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1 2. The sale, in good faith and not for the purpose of avoiding the provisions of this
2 chapter, by a pledgee of securities pledged for a bona fide debt.
3 3. An isolated sale of any security made by or on behalf of a bona fide owner for the
4 owner's account, such owner not being an issuer, underwriter, broker-dealer, or agent
5 and such sale not being made in the course of repeated and successive transactions
6 of a like character. This subsection shall not exempt any broker-dealer or agent
7 participating in an isolated sale from registering in accordance with section 10-04-10.
8 4. A transaction by an issuer for:
9 a. Securities dividends or other distributions by a corporation, cooperative, limited
10 partnership, limited liability limited partnership, or limited liability company out of
11 its earnings or surplus; or
12 b. The sale or distribution of additional capital stock of a corporation or cooperative,
13 interest of a partnership, or membership interest of a limited liability company to
14 or among its own stockholders, partners, or members.
15 5. A sale or offer to sell to:
16 a. An institutional investor;
17 b. A federal covered investment adviser; or
18 c. Any other person exempted by rule adopted or order issued by the
19 commissioner.
20 6. Any transaction incident to a vote by stockholders, partners, or members pursuant to
21 the articles of incorporation, bylaws, partnership agreement, articles of organization,
22 member-control agreement, or the applicable corporation, partnership, or limited
23 liability company statute on a merger, consolidation, exchange of securities, or sale of
24 corporate, partnership, or limited liability company assets in consideration of the
25 issuance of securities of another corporation, partnership, or limited liability company,
26 other reorganization to which the issuer, or its parent or subsidiary and the other
27 person or its parent or subsidiary, are parties, or any transaction incident to a judicially
28 approved reorganization in which a security is issued in exchange for one or more
29 outstanding securities, claims, or property interests, or partly in such exchange and
30 partly for cash, or the solicitation of tenders of securities by an offeror in a tender offer
31 in compliance with rule 162 adopted under the Securities Act of 1933.
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1 7. A transaction under an offer to existing securityholders of the issuer, including persons
2 that at the date of the transaction are holders of convertible securities, options, or
3 warrants, if a commission or other remuneration, other than a standby commission, is
4 not paid or given, directly or indirectly, for soliciting a securityholder in this state.
5 8. A nonissuer transaction by or through a broker-dealer and agent, both of which are
6 registered or exempt from registration under this chapter, or a resale transaction by a
7 sponsor of a unit investment trust registered under the Investment Company Act of
8 1940, in a security of a class that has been outstanding in the hands of the public for
9 at least ninety days, if, at the date of the transaction:
10 a. The issuer of the security is engaged in business, the issuer is not in the
11 organizational stage or in bankruptcy or receivership, and the issuer is not a
12 blank check, blind pool, or shell company that has no specific business plan or
13 purpose or has indicated that its primary business plan is to engage in a merger
14 or combination of the business with, or an acquisition of, an unidentified person;
15 b. Such securities are sold at prices reasonably related to the current market price;
16 c. Such securities do not constitute the whole or part of an unsold allotment to, or
17 subscription or participation by, the broker-dealer as an underwriter of the
18 security or a redistribution;
19 d. Such securities are listed in Mergent's Industrial Manual, Mergent's Bank and
20 Finance Manual, Mergent's Transportation Manual, Mergent's Public Utility
21 Manual, or Fitch investor service, incorporated, are on the OTCQX or OTCQB
22 markets operated by OTC Markets Group Incorporated, or are filed under
23 section 13 or 15(d) of the Securities Exchange Act of 1934 [ch. 404, title I, sec. 1;
24 48 Stat. 881; 15 U.S.C. 78 et seq.]; and
25 e. Any one