BILL ANALYSIS
C.S.H.B. 1295
By: Clemons
03-29-95
Committee Report (Substituted)
BACKGROUND
Under the Texas Securities Act, the State Securities Board is
charged with the responsibility of protecting investors.
Consistent with that purpose, the Board encourages capital
formation, job formation, free and competitive securities markets
and minimizes burdens on small businesses. Maximizing coordination
with federal and other Texas laws is another responsibility.
Unfortunately, recent years have seen a significant increase in
improper and illegal conduct due to a marked increase in securities
activities. Even the more sophisticated investor is falling prey
to a variety of schemes. This bill aims to curb this misconduct
and protect investors by providing the Board the statutory tools
needed to stop those who are engaging in activities contrary to the
standards of honesty and integrity vital to healthy securities
markets in Texas.
PURPOSE
This Act helps to protect investors. It also addresses concerns of
the regulated community by clarifying methods of registration and
renewal procedures; appropriately reducing certain fees owed by
small business persons and retired individuals; granting the Board
authority to exempt certain persons from dealer and agent
registration requirements; and clarifying provisions concerning
consents to service and actions by securities dealers or agents to
collect their commissions. This legislation further attempts to
encourage capital formation and reduce regulatory burdens for small
businesses by streamlining the registration application process for
certain small business issuers. The bill also contains certain
housekeeping amendments. Finally, the bill coordinates with other
laws and modernizes the Texas Securities Act by accommodating
participation in an electronic filing system and implementing
certain uniform renewal procedures.
RULEMAKING AUTHORITY
This bill grants rulemaking authority to the State Securities Board
in the following sections: SECTION 5: Subsection A(1)(f)(2),
Section 7, The Securities Act, Art. 581-7, V.T.C.S.; SECTION 6:
Section 8 The Securities Act, Art 581-8, V.T.C.S.; SECTION 7:
Section 12, Subsection B, The Securities Act, Art. 581-12,
V.T.C.S.; SECTION 18: Section 42, Subsections (A) and (B), The
Securities Act, Art. 581-1 et seq, V.T.C.S. SECTION 13: Sec. 23-1,
C grant the Board the authority to establish guidelines.
SECTION BY SECTION ANALYSIS
SECTION 1: Amends Subsection N, Section 2, The Securities Act
(Article 581-2, V.T.C.S.) by updating citations to the open
meetings law and the laws governing administrative procedure, the
Texas Register and the Texas Administrative Code.
SECTION 2: Amends The Securities Act (Article 581-1 et seq.,
V.T.C.S.) by clarifying that methods of enforcement under The
Securities Act are nonexclusive.
SECTION 3: Amends Subsection A, Section 4, The Securities Act
(Article 581-4, V.T.C.S.) by updating the designation of the Texas
Department of Insurance.
SECTION 4: Amends Section 5, The Securities Act (Article 581-5,
V.T.C.S.) concerning exempt transactions, as follows:
Subsection C (2): updates the designation of Texas Department
of Insurance.
Subsection I (b): clarifies the types of employee plans
covered.
Subsection I (c): eliminates obsolete language concerning the
revocation or suspension of an exemption.
Subsection N: provides consistent references to certain
cooperative entities.
Subsection O: updates the provisions concerning hearings,
renders the provision gender neutral, and provides consistent use
of terminology.
Subsection Q: makes a correction to grammar.
Subsection R: provides a consistent cross reference to another
section of the Securities Act.
SECTION 5: Amends Section 7, The Securities Act, (Article 581-7,
V.T.C.S.) concerning securities registration, as follows:
Subsection A (1): changes references from subdivisions to
subsections.
Subsection A (1)(f)(1): updates terminology and renders
language gender neutral.
Subsection A (1)(f)(2): permits small business issuers to
provide reviewed financial statements in connection with
registrations by qualification and gives the Board authority to
designate who can use such statements and prescribes the
circumstances under which such statements can be used.
Subsection B (1)(c): corrects spelling
Subsection B (2): changes references from subdivisions to
subsections.
Subsection B (2)(a)(5): clarifies existing terminology.
Subsection B (2)(a)(6): updates terminology.
Subsection C (1): corrects citations.
Subsection C (1)(a): reduces the number of prospectuses
required to be filed from three to one.
Subsection C (3): permits the Board to implement a uniform
renewal procedure for open-end investment companies and unit
investment trusts; thus allowing such entities to renew their state
applications at the same time they renew at the federal level.
SECTION 6: Amends Section 8, The Securities Act, (Article 581-8,
V.T.C.S.) concerning consents to service of process filed in
connection with applications to register securities by simplifying
language, eliminating the requirement that an out-of-state issuer
file a certificate of good standing, clarifying that the section
applies to a variety of business entities and a variety of
relationships those entities have with their agents, and
accommodating participation in the Securities Registration
Depositary system, which is designed to permit issuers to file
registration materials electronically.
SECTION 7: Amends Section 12, The Securities Act, (Article 581-12,
V.T.C.S.) concerning registration of persons selling securities by
adding Subsection B which expressly authorizes the Board to adopt
rules to exempt certain persons from registration requirements or
provide conditional exemptions from registration consistent with
the purposes of The Securities Act.
SECTION 8: Amends Subsection K, Section 13, The Securities Act,
(Article 581-13, V.T.C.S.) concerning methods of registration of
dealers, agents, or salesmen by emphasizing that uniform
examinations may be used to fulfill Texas examination requirements.
SECTION 9: Amends Section 14, The Securities Act, (Article 581-14,
V.T.C.S.) concerning administrative sanctions, as follows:
Subsection A simplifies language and expands and clarifies the
bases for administrative sanctions against registered persons. It
clarifies the types of criminal convictions which may bear on a
person's fitness to conduct securities-related activities. It also
provides that violation of any order issued by the Commissioner or
of any provision of any undertaking or agreement with the
Commissioner can constitute a ground for imposition of sanctions.
This section also expressly provides that certain administrative
orders and court judgments finding conduct bearing on a person's
fitness and ability to conduct securities-related business are
grounds for the imposition of sanctions. The provisions have been
reordered from the bill as introduced to promote clarity, but the
overall effect of the changes remains the same.
Subsection D reflects current law governing administrative
procedure.
SECTION 10: Amends Section 16, The Securities Act, (Article 581-16, V.T.C.S.) concerning consents to suit by certain dealers by
rendering language gender neutral, simplifying sentence structure
and word choice, and clarifying coverage of dealers organized under
the laws of foreign countries.
SECTION 11: Amends Subsection C, Section 19, The Securities Act,
(Article 581-19, V.T.C.S.) concerning renewals of registrations of
persons who sell securities or render investment advice by
clarifying its terms and coverage.
SECTION 12: Amends Subsection B, Section 23, The Securities Act,
(Article 581-23, V.T.C.S.) concerning cease publication orders by
simplifying its terms and clarifying that offers made through the
use of media, other than just print media, are the appropriate
subject of such orders.
SECTION 13: Amends The Securities Act, (Article 581-1 et seq.,
V.T.C.S.) by adding Section 23-1 giving the Commissioner the
authority to fine both registered and unregistered persons after
giving notice and opportunity for a hearing. The section sets a
$10,000 cap on a fine for a single violation and a $100,000 limit
for multiple violations, as well as setting a five year restriction
for commencing the proceedings for fines. It also specifies that
payment of a fine does not constitute an admission of misconduct
for purposes of private civil litigation.
SECTION 14: Amends Section 24, The Securities Act, (Article 581-24, V.T.C.S.) to reflect current law governing administrative
procedure.
SECTION 15: Amends Section 28, The Securities Act, (Article 581-28, V.T.C.S.) concerning investigations, investigatory materials,
and registration-related materials by simplifying language,
reflecting current law concerning open records, rendering language
gender neutral, forging a consistent approach to discretionary
disclosure of information made confidential by the section and
clarifying that intra-agency or interagency notes, memoranda,
reports, or other communications consisting of advice, opinions,
analyses or recommendations will be treated as confidential under
the section.
SECTION 16: Amends Section 29, The Securities Act, (Article 581-29, V.T.C.S.) as follows:
Subsection G clarifies terms.
Subsection H makes a person subject to criminal sanction if
that person violates a cease publication order by knowingly making
an offer prohibited by that order.
SECTION 17: Amends Section 34, The Securities Act, (Article 581-34, V.T.C.S.) concerning actions for collection of a commission by
updating, simplifying, and clarifying language. It emphasizes that
persons exempt from registration by Board rules adopted under
Section 12, new Subsection B, need not allege or prove their
registration to bring or maintain actions for collection of
commissions. The section also does not apply to any company or
person that renders services in connection with any transaction
exempted by Section 5 of The Securities Act or by any rule
promulgated by the Board under Section 5, Subsection T of The
Securities Act if the company or person was not required to be
registered by the terms of the exemption.
SECTION 18: Amends The Security Act, Article 581-1 et seq.,
V.C.T.S. by adding Section 42 concerning fees by authorizing the
Board to adopt rules to reduce the fees imposed by Sections 35 and
41 of The Securities Act on retired individuals or on small
business persons who are required to register in two or more of the
following capacities: dealer, agent or salesman, or officer.
SECTION 19: Savings Clause. Limits applicability of changes in
the law to violations occurring after the effective date of the
bill and continues the former law for purposes of violations
occurring before the effective date of the bill.
SECTION 20: Effective date.
SECTION 21: Emergency clause.
Committee on Pensions & Investments
COMPARISON OF ORIGINAL TO SUBSTITUTE
The committee substitute makes a variety of technical corrections
to the bill to render provisions gender neutral, to provide
consistency in references and terminology; to provide
clarification; and to correct grammar and punctuation. Instead of
amending existing Section 35 of the Securities Act (Article 581-35,
V.T.C.S.), Section 42 is added to The Securities Act (Article 581-1,et seq. V.T.C.S.) authorizing the Board to reduce fees for
certain registrants. A savings clause is added to clarify
applicable law to violations occurring before and after the
effective date of the bill.
SUMMARY OF COMMITTEE ACTION
The bill was considered in a public hearing on April 3, 1995.
Rep. Clemons testified as the bill's author.
The following persons testified for the bill:
Denise Voigt Crawford representing the State Securities Board
The bill was referred to a subcommittee consisting of
Representatives Rangel, Averitt and Johnson.
After being recalled from subcommittee the bill was considered in
the same public hearing on April 3, 1995.
The bill was reported favorably without amendment with the
recommendation that it do pass and be printed and be sent to the
Committee on Local and Consent Calendars, by a record vote of 5
ayes, 0 nays, 0 pnv, 4 absent.
The bill was reconsidered in a public hearing on April 4, 1995.
The committee considered a complete committee substitute for the
bill. One amendment was offered to the substitute. The amendment
was adopted without objection. The substitute as amended was
adopted. The chair directed the staff to incorporate the amendment
into the substitute.
The bill was reported favorably as substituted with the
recommendation that it do pass and be printed and be sent to the
Committee on Local & Consent Calendars by a record vote of 7 ayes,
0 nays, 0 pnv, 2 absent.