Section 26-B181. INVESTMENT ADVISER RECORDKEEPING

 

181.1An investment adviser whose principal place of business is located in the District shall maintain and preserve the following books, ledgers, and records:

 

(a)A journal or journals, including cash receipts and disbursements records and any other records of original entry forming the basic of entries in any ledger;

 

(b)General and auxiliary ledgers (or other comparable records) reflecting assets, liability, reserve, capital, income and expense accounts;

 

(c)A memorandum of each order given by the investment adviser for the purchase or sale of any security or assets, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt, or delivery of a particular security or asset, and of any modification or cancellation of any order or instruction. These memoranda shall show the terms and conditions of the order, instruction, modification or cancellation, shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order, and shall show the account for which entered, the date of entry, whether the order was entered pursuant to the exercise of discretionary power and, when appropriate, the bank, broker-dealer or other entity or person by or through which the transaction was effected;

 

(d)All checkbooks, bank statements, cancelled checks, and cash reconciliations of the investment adviser;

 

(e)All bills or statements, or copies thereof, paid or unpaid, relating to the business of the investment adviser as such;

 

(f)All trial balances, financial statements, and internal audit working papers relating to the business of the investment adviser;

 

(g)Originals of all written communications received, and copies of all written communications sent, by the investment adviser relating to any recommendation made or proposed to be made and any advice given or proposed to be given, any receipt, disbursement or delivery of funds, securities or assets, or the placing or execution of any order to purchase or sell any security or asset, provided that:

 

(1)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; and

 

(2)If the investment adviser sends any notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service to more than 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, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with a copy of the notice, circular, or advertisement a memorandum describing the list and the source thereof;

 

(h)A list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities, assets, or transactions of any client;

 

(i)All powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser, or copies thereof;

 

(j)All written agreements, or copies thereof, entered into by the investment adviser with any client or otherwise relating to the business of the investment adviser as such;

 

(k)A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons, (other than persons connected with the investment adviser), and, if the notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication recommends the purchase or sale of a specific security or asset, and does not state the reasons for this recommendation, a memorandum of the investment adviser indicating the reasons therefor.

 

181.2Records of Securities or Asset Transactions shall be maintained and preserved for the following:

 

(a)A record of every transaction involving a security or asset in which the investment adviser or any investment adviser representative of the investment adviser has, or by reason of the transaction acquires, any direct or indirect beneficial ownership, except transactions effected over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control, and transactions in securities that are direct obligations of the United States.

 

(b)The record shall state the title and amount of the security or asset involved, the date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition), the price at which it was effected, and the name of the broker-dealer, bank or other entity or person with or through which the transaction was effected.

 

(c)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)The record may also contain a statement declaring that the reporting or recording of the transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security or asset.

 

(e)An investment adviser will not be deemed to have violated the provisions of this subsection by the investment adviser's failure to record securities or asset transactions of any investment adviser representative if the investment adviser establishes that it instituted adequate procedures and used reasonable diligence to obtain prompt reports of all transactions required to be recorded.

 

(f)For purposes of this section, the term "advisory representative" shall mean any partner, officer or director of the investment adviser; any employee who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made; any employee who, in connection with his duties (other than clerical, ministerial or administrative duties), obtains any information concerning which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations; and any of the following persons who obtain information concerning securities recommendations being made by such investment adviser prior to the effective dissemination of such recommendations or of the information concerning such recommendations:

 

(1)Any person in a control relationship to the investment advisor, "control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940, as amended;

 

(2)Any affiliated person of such controlling person; and

 

(3)Any affiliated person of such affiliated person.

 

181.3Records of Securities or Assets Involving Direct or Indirect Beneficial Ownership shall maintain and preserve the following:

 

(a)Notwithstanding the provisions of § 181.2 when the investment adviser is primarily engaged in a business other than advising registered investment companies or other advisory clients, a record shall be maintained of every transaction involving a security or asset in which the investment adviser or any investment adviser representative of the investment adviser has, or by reason of the transaction acquires, any direct or indirect beneficial ownership, except transactions effected in any account over which neither the investment adviser nor any investment adviser representative of the investment adviser has any direct or indirect influence or control, and transactions in securities that are direct obligations of the United States.

 

(b)The record shall state the title and amount of security or asset involved, the date and nature of the transaction (i.e. purchase, sale, or other acquisition or disposition), the price at which it was effected, and the name of the broker-dealer, bank or other entity or person with or through which the transaction was effected.

 

(c)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)The record may also contain a statement declaring that the reporting or recording of the transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security or asset.

 

(e)An investment adviser is "primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients" if, for each of its three (3) most recent fiscal years or for the period of time since organization, whichever is less, the investment adviser derived from such other business or businesses, on an unconsolidated basis, more than 50 percent of both its total sales and revenues and its income (or loss) before income taxes and extraordinary items.

 

(f)An investment adviser shall not be deemed to have violated the provisions of this subsection by its failure to record securities or asset transactions of any investment adviser representative if the investment adviser establishes that it instituted adequate procedures and used reasonable diligence to obtain prompt reports of all transactions required to be recorded.

 

(g)For purposes of this subsection, the term "advisory representative" shall mean any partner, officer or director of the investment adviser; any employee who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made; any employee who, in connection with his duties (other than clerical, ministerial or administrative duties), obtains any information concerning which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations; and any of the following persons who obtain information concerning securities recommendations being made by such investment adviser prior to the effective dissemination of such recommendations or of the information concerning such recommendations:

 

(1)Any person in a control relationship to the investment advisor, "control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940, as amended;

 

(2)Any affiliated person of such controlling person; and

 

(3)Any affiliated person of such affiliated person.

 

181.4A copy of each written statement, and each amendment or revision thereof, given or sent to any client or prospective client of the investment adviser in accordance with the provisions of section 172 and a record of the dates that each written statement, and each amendment, or revision thereof, was given, or offered to be given, to any client or prospective client who subsequently became a client.

 

181.5All accounts, books, internal working papers, and any other records or documents that are 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 or assets recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin or 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, provided that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits and other transactions in a client's account for the period of the statement, and all 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 subsection.

 

181.6If any investment adviser subject to § 181 has custody or possession of securities, assets, or funds of any client, the records required to be made and kept shall include:

 

(a)A journal or other record showing all purchases, sales, receipts and deliveries of securities (including certificate numbers) and other assets (including identifying or descriptive materials as appropriate) for these accounts, as well as all other debits and credits to the accounts;

 

(b)A separate ledger account for each client showing all purchases, sales, receipts, and deliveries of securities or assets, the date and price of each purchase and sale, and all debits and credits;

 

(c)Copies of confirmations of all transactions affected by or for the account of each client; and

 

(d)A record of each security or asset in which each client has a position or ownership interest, which record shall show the name of the client having the position or interest, the amount of the position or interest, and the location of each security or asset.

 

181.7An investment adviser subject to § 181 who renders any investment supervisory or management service to any client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, make and keep the following:

 

(a)True, accurate, and current records showing separately for each client the securities or assets purchased and sold, and the date, amount, and price of each purchase and sale; and

 

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

 

181.8Books or records required by this section may be maintained by the investment adviser in a manner such that the identity of any client to whom the investment adviser renders investment advisory services is indicated by numerical or alphabetical code or some similar designation.