Commissioner’s Release: 107-C

USE OF THE INTERNET BY BROKER-DEALERS AND INVESTMENT ADVISERS FOR THE DISSEMINATION OF INFORMATION ON PRODUCTS & SERVICES

Pete Wilson, Governor
Date: August 19, 1997

Keith Paul Bishop, Commissioner

The Internet, the World Wide Web, and similar proprietary or common carrier electronic systems (collectively, the “Internet”) have facilitated the ability of broker-dealers, investment advisers, broker-dealer agents and investment adviser representatives or associated persons to advertise and otherwise disseminate information on products and services to prospective customers and clients. Certain of the communications made on the Internet are directed generally to anyone having access to the Internet and may be transmitted through postings on bulletin boards, displays on “home pages” or similar methods electronic communication methods (the “Internet Communications”).

Moreover in certain instances, by distributing information on available products and services through Internet Communications available to persons “in this state” (Corporations Code Section 25008), broker-dealers, investment advisers, broker-dealer agents and investment adviser representatives or associated persons could be construed as “transacting business” for the purposes of Sections 25210 and 25230 of the Corporations Code under the Corporate Securities Law of 1968, as amended, so as to require licensure and certification in this state, since Internet Communications will be received in this state regardless of the intent of the person originating such communication.

As a consequence of the uniqueness of Internet Communications, and consistent with the basis for the order issued under Commissioner’s Release No. 100-C (November 5, 1996), the Commissioner of Corporations finds that the issuance of this Order under Section 25610 of the Corporations Code is necessary to carry out the provisions of the Corporate Securities Law of 1968 with respect of the following:

1. Broker-dealers, investment advisers, broker-dealer agents (“BD agents”) and investment adviser representatives or associated persons (“IA reps”) who use the Internet to distribute information on available products and services directed generally to anyone having access to the Internet,and transmitted through Internet Communications, shall not be deemed to be “transacting business” in this state for purposes of Sections 25210 and 25230 of the Corporations Code based solely on that fact, if all of the following conditions are met:
   1. The Internet Communications contain a written legend which clearly states the following:
      “IMPORTANT CONSUMER INFORMATION: ”
      1. “A broker-dealer, investment adviser, BD agent or IA rep may only transact business in a particular state after licensure or satisfying qualifications requirements of that state, or only if they are excluded or exempted from the state’s broker-dealer, investment adviser, BD agent or IA rep requirements, as the case may be; and
      2. Follow-up, individualized responses to consumers in a particular state by broker-dealer, investment adviser, BD agent or IA rep that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, shall not be made without first complying with the state’s broker-dealer, investment adviser, BD agent or IA rep requirements, or pursuant to an applicable state exemption or exclusion.
      3. for information concerning the licensure status or disciplinary history of a broker-dealer, investment adviser, BD agent or IA rep, a consumer should contact his or her state securities law administrator.“
   2. The Internet Communications shall contain a mechanism, including without limitation, technical “firewalls” or other implemented policies and procedures, designed to ensure that prior to any subsequent, direct communication with prospective customers or clients in this state, the broker-dealer, investment adviser, BD agent or IA rep is first Licensed or qualified in California or qualifies for an exemption or exclusion from this requirement. Nothing in this paragraph shall be construed to relieve a broker-dealer, investment adviser, BD agent or IA rep who is Licensed or satisfies the qualifications under the Corporate Securities Law of 1968 from any applicable qualification with respect to the offer or sale of securities in this state;
   3. The Internet Communications shall not involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, as the case may be, in this state over the Internet, but shall be limited to the dissemination of general information on products and services; and
   4. The positions expressed in this Order extend to broker-dealers, investment advisers, BD agents, and IA reps subject to the licensure, certification, and qualifications requirements only under Corporations Code Sections 25210 and 25230. This Order does not abrogate, nullify or otherwise make unenforceable compliance with the applicable qualification, notification, antifraud, or other provisions of the Corporate Securities Law of 1968.
   5. Nothing in this Order shall be construed to affect the activities of any broker-dealer, investment adviser, BD agent or IA rep engaged in business in this state (Corporations Code Section 25008) that is not subject to Corporations Code Section 25210 and 25230 as a result of the exemption established by Rule 260.204.9 (10 C.C.R. Section 260.204.9).
   6. This Order shall remain in effect until amended or rescinded by the Commissioner.

WILLIAM KENEFICK
Assistant Commissioner
Office of Policy
(916) 322-355