SECURITIES FREQUENTLY ASKED QUESTIONS

General Questions

Q: What is the role of the Division of Securities?

A: The Division of Securities administers the Ohio Securities Act, Ohio Revised Code Chapter 1707. The work of the Division falls into 3 main areas: 1) overseeing the licensing of securities salespersons, dealers, investment advisers and investment adviser representatives; 2) ensuring that securities sold in Ohio are registered or properly exempted; and 3) investigating alleged violations of the Ohio Securities Act and enforcing its provisions.

Q: What is the jurisdiction of the Division?

A: The Ohio Securities Act applies to all "securities" which are "sold" in Ohio. Thus, the Division has jurisdiction over all securities transactions in Ohio, overall sales and offers of securities that originate outside Ohio but are made to Ohio residents, and over all offers or sales that originate in Ohio but are made to non-Ohio residents.

Q: What is a "security"?

A: The Ohio Securities Act defines a “security” to include shares of stock, warrants, options, promissory notes, membership interests in limited liability companies, bonds and debentures. Limited partnership interests are considered to be securities, while general partnership interests are generally not considered to be securities. Ohio law also includes investment opportunities and business schemes which at first glance may not appear to fit within the definition of "security." If you are considering soliciting investors, check with the Division of Securities to better understand your responsibilities under the law.

Q: What constitutes a "sale" for purposes of the Ohio Securities Act?

A: The term "sale" is defined broadly and includes every disposition of, or attempt to dispose of, a security."

Q: Does the Division determine the value of a security?

A: No. The value of a security is determined by the market for that security. The Division is prohibited from issuing a statement or opinion regarding the value of any security. O.A.C. 1301:6-01

Q: Does the Division recommend or rate companies or securities in which to invest?

A: No. The Division reviews registration and exemption statements and applies fairness guidelines to public offerings. .

Q: Does the Division maintain shareholder lists or financial statements for companies that issue securities?

A: No. Under the Ohio General Corporation Law, Revised Code Chapter 1701, the company itself is responsible for maintaining shareholder lists and current financial statements. Under Revised Code 1701.37 and 1701.38, a shareholder is generally entitled to get this information from the company.

Questions about the Registration of Securities

Q: Must all "sales" of "securities" in Ohio be registered with the Division?

A: The Ohio Securities Act requires all securities sold in Ohio be registered with the Division or be properly exempted. Exemptions are listed in the Ohio Securities Act, R.C. 1707.02 and 1707.03.

Q: Does the Division have current information about companies that issue securities?

A: Possibly. The Division retains information that is contained in a filing submitted to the Division for eight years. Exempt offerings may not require a filing. Routine financial reports are not always required to be filed with the Division.

Q: I have checked with the file room of the Division or on the ERNIE database, and find that there are no filings for an issuer of the securities. Have they violated the Ohio Securities Act when they sold me the securities?

A: Not necessarily. Under Sections 1707.02 and 1707.03 of the Ohio Revised Code, numerous exemptions are available for a company that do not require a filing. Ask the person selling the securities how they are complying with the Ohio Securities Act. Section 1707.45 of the Revised Code places the burden of proof for compliance with an exemption or registration upon the seller of the securities.

Q: I am contemplating a public offering and wish to review previous public offerings for a sample. Could you please recommend a good public offering?

A: No. The Division does not recommend filings for review or public distribution. Filings are public records pursuant to Section 1707.12 of the Revised Code, but you must have the name of the issuer. The Division will make any filing available upon your request for your review at the offices of the Division, or will photocopy any filing upon payment of all applicable reproduction costs of five cents per page plus postage.

Questions about Licensing of Securities Industry Personnel - General Licensing Questions

Q: Does a securities salesperson or dealer have to be licensed by the Division before selling securities in Ohio?

A: Yes, salespersons and dealers must be licensed by the Division or properly exempted from licensure. Keep in mind that "selling" includes soliciting securities purchases.

Q: Do investment advisers and investment adviser representatives have to be licensed with the Division?

A: The Division provides oversight of investment advisers and investment adviser representatives operating in Ohio. R.C. 1707.151, 1707.161. People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. .Investment Advisers with more that $100 million in assets under management are exclusively licensed (or registered) with the SEC and will be subject to federal regulation. Ohio Investment Advisers with $100 million or fewer assets under management must be licensed and regulated by the Division. Investment advisers often employ investment adviser representatives, the people who actually work with clients. In most cases, these people must be licensed or registered with the Division.

Q: Does licensure by the Division insure that a salesperson, dealer, investment adviser, or investment adviser representative is "legitimate"?

A: Hopefully, but not necessarily. The Division performs a background check of license applicants to make sure that they are of "good business repute." The Division also constantly investigates complaints against licensees and also performs regular examinations, and has the authority to revoke a license if improprieties or non-compliance with the Ohio Securities Act are proven.

Q: How do I check to see if my financial advisor has a valid securities license, or check out my financial advisor’s background?

A: To obtain information about your securities firm or professional, check out the website of the national Financial Industry Regulatory Authority, www.finra.org, which provides background information through their public database. The Central Registration Depository (CRD) is a centralized reporting system for salespersons and dealers. You may also call the Division at 614-466-3466, or long distance (or toll-free) at 1-800-788-1194 to obtain the same information. There is no charge for the information. To optimize the Division’s ability to provide you with information, have as much information as possible regarding the firm or person, including Central Registration Depository (CRD) number or Social Security Number.

Q: Is the Central Registration Depository information public information? What information is available there?

A: The licensing, examination, and disciplinary incidents of salespersons and dealers contained within the CRD are public information. CRD disciplinary incidents include final disciplinary actions taken by State and Federal regulators, self-regulatory organizations (such as FINRA), civil judgments, arbitration decisions, criminal convictions, bankruptcies filed within the last 10 years, settlements and some pending actions, including pending written complaints alleging sales practice violations.

Q: Does the Division recommend or give ratings to securities salespersons or dealers?

A: No. The Division licenses securities salespersons and dealers, but does not recommend or rate them. The Division does, however, have access to a list of formal disciplinary incidents of a securities salesperson or dealer as maintained on behalf of Ohio and other states by the national Central Registration Depository.

Q: May issuers sell securities itself or is a licensed dealer required?

A: An issuer may sell the securities itself without a licensed dealer provided that no commissions or other remuneration is paid for the sales. For more information, see Section 1707.01(E) of the Ohio Revised Code.

>Dealer Member Firms

Q: What are the minimum competency standards to be a designated principal of a Dealer Member firm in Ohio? (What tests are required?)

A: Ohio Administrative Code Section 1301:6-3-15(B) states the requirements of a designated principal. A designated principal must have either been (1) continuously licensed as a dealer of securities by the Division since May 1, 1991; or (2) achieved a passing score on one of the following examinations administered by the Financial Industry Regulatory Authority; • (a) Registered options principal, series 4, • (b) General securities principal, series 24, • (c) Investment company and variable contracts products principal, series 26, • (d) Direct participation programs principal, series 39, • (e) Municipal securities principal, series 53, or • (f) “Uniform Combined State Law Exam,” series 66.

Q: Are FINRA member firms required to file branch offices in Ohio?

A: Effective July 3, 2006, dealers are requires to file a uniform Form BR for each new and existing branch office through the CRD. A Form BR is considered filed with the Division upon acceptance by the CRD.

Q: Is a FINRA member firm required to file audited financial statements annually?

A: The Division no longer requires that FINRA member firms submit audited financials to the Division.

Q: Is there a de minimis exemption from registration as a dealer in Ohio?

A: There is no de minimis exemption from registration as a dealer in Ohio, regardless of type of client (i.e. retail vs. institutional). However, there are a limited number of exceptions from registration as a dealer in Ohio. The exceptions can be found in Ohio Revised Code Section 1707.14.

Q: What, if anything, does the State of Ohio require from a dealer wanting to be licensed in Ohio, other than an electronically filed Form BD?

A: To register in Ohio, dealers need to file an Affidavit of No Prior Sales and a separate letter stating the name and position of the designated principal in addition to the electronic filing of Form BD.

Q: We are an Ohio registered BD and are changing our name. Is anything required other than a change to CRD?

A: No, all changes made to the Form BD through Web CRD is all that is required.

Q: Will I get something official from the Division that shows that I am licensed?

A: No, the only notification that you will receive is the change in status on the Web CRD.

Q: I have filed an application for one of my representatives, how long will it take until I see an approved status?

A: Applications which have no disclosure are processed and approved each business day. If an applicant has disclosure, whether it is classified as current or archived, will usually take longer to process as we have to review the disclosures and possibly request additional information. Non-FINRA member firms

Q: What are the minimum competency standards to be a designated principal in A Non-FINRA member firm in Ohio? (What tests are required?)

A: Ohio Administrative Code Section 1301:6-3-15(B) states the requirements of a designated principal. A designated principal must have either been (1) continuously licensed as a dealer of securities by the Division since May 1, 1991; or (2) achieved a passing score on one of the following examinations administered by the Financial Industry Regulatory Authority; • (a) Registered options principal, series 4, • (b) General securities principal, series 24, • (c) Investment company and variable contracts products principal, series 26, • (d) Direct participation programs principal, series 39, • (e) Municipal securities principal, series 53, or • (f) “Uniform Combined State Law Exam,” series 66.

Q: Is a Non-FINRA member firm required to file audited financial statements annually?

A: Yes, audited financial statements must be filed with the Division within 90 days of the firm’s fiscal year end.

Q: Is there an exemption from registration as a dealer in Ohio if you only do a limited amount of business?

A: No; dealer registration exemption is based on type of client (i.e. retail vs. institutional) or value of the product. However, there are a limited number of exceptions from registration as a dealer in Ohio which can be found in Ohio Revised Code Section 1707.14.

Q: How does a dealer get licensed in Ohio?

A: To register in Ohio, dealers need to file an Affidavit of No Prior Sales, audited financial statements, a separate letter stating the name and position of the designated principal, a Form U-4 for the designated principal and fee filed with the Division, in addition to the filing of Form BD.

Q: As an Ohio registered Broker Dealer, how can we change our name?

A: Submit an updated Form BD to the Division.

Q: Will I get something official from the Division that shows that I am licensed?

A: Yes, once the firm is licensed by Ohio you will receive a physical license for the firm and your designated principal.

Q: I have filed an application for one of my representatives. How long will it take until I see an approved status?

A: Applications which have no disclosure are processed and approved each business day. If an applicant has disclosure, whether it is classified as current or archived, will usually take longer to process as we have to review the disclosures and possibly request additional information.

Investment Advisers and Investment Adviser Representatives

Q: What is the difference between a notice filing and an application for licensure as an Investment Adviser?

A: Those investment advisers registered with the SEC must submit a notice filing to the Division unless they have an exception or exemption from filing. Those investment advisers who are not eligible to register with the SEC must submit an application for licensure in Ohio unless they have an exception from filing. The difference between a notice filing and an application is that with the notice filing, the investment adviser is merely informing Ohio that they are operating in the State, whereas with an application, the investment adviser is requesting permission to operate in Ohio.

Q: What is an Investment Adviser Representative?

A: An investment adviser representative (IAR) is someone who gives advice on behalf of an investment adviser to clients through regular meetings or communications. If a person provides advisory services only, written or spoken, that do not meet the objectives or needs of specific individuals or accounts they may be excluded from the definition. Check with the Division to be sure.

Q: What is the licensing fee for Investment Adviser Representative Licensure?

A: The fee is $35 per investment adviser representative.

Q: How does an Investment Adviser Representative become licensed in Ohio?

A: An investment adviser must submit, via the Investment Adviser Registration Depository at www.iard.com , a completed Form U-4 along with the license fee for each investment adviser representative.

Q: What are the investment adviser representative’s minimum competency requirements?

A: There are two methods for Investment Adviser Representatives to establish minimum competency: (1) by achieving and maintaining a designation of Certified Financial Planner, Chartered Financial Analyst, Chartered Financial Consultant, Chartered Investment Counselor or Certified Public Accountant/Personal Financial Specialist; or (2) by achieving a passing score on one of the examinations of Series 6, 7, 22, 24, 26, 39, 62, 63, 65 or 66.

Q: I own a fee-only financial planning firm in Ohio and I recommend only mutual funds, not individual stocks, as part of my practice. Am I subject to the Ohio law?

A: Yes. The law does not distinguish between kinds of securities or types of compensation.

Q: I am an Investment Adviser Representative through my broker-dealer. I am thinking of starting a separate financial planning firm but still want to keep my broker-dealer affiliation. May I do this?

A: Ohio law allows a person to act as an investment adviser and an Investment Adviser Representative (IAR). Ohio law further allows a licensed IAR to be associated with, or employed by, up to two non-affiliated investment advisers.

Q: What are "assets under management"?

A: "Assets under management" means the securities portfolios to which an advisory firm provides continuous and regular supervisory or management services. Generally, those securities portfolios of which you have full discretionary authority will be considered assets under management. If you do not have discretion, then you would need to document and to be able to prove to the Securities and Exchange Commission that you continuously managed the account on behalf of the client.

Q: As an SEC-registered firm, what will I need to do to meet State requirements?

A: Generally, you must submit a notice filing via the Investment Adviser Registration Depository (IARD) at www.iard.com to the Division consisting of a completed Form ADV and a filing fee. Please note that ALL filings to be submitted by investment advisers must be submitted via the IARD.

Q: When I de-register from the SEC, what do I do with the old books and records?

A: You must retain all copies of your old books and records for five years. Because the Ohio rule for books and records is the same as the Federal requirements, the transition should be seamless.

Q: I am a small, sole proprietor, advisory firm in Ohio. Do I need to become licensed as an Investment Adviser Representative since I am becoming licensed as an investment adviser?

A: No. You will need only to submit an application to become licensed as an investment adviser in Ohio. You would only need to obtain an IAR license if you were going to act as an IAR for another investment adviser. Enforcement Questions

Q: What types of enforcement actions can the Division take?

A: The Division enforces its licensing, registration and anti-fraud standards through three primary remedies: administrative actions, civil injunctive actions and criminal prosecutions. Enforcement actions must be brought within five years of the alleged violation.

Q: Can the Division recover money lost on an investment?

A: No. The Ohio Securities Act, which the Division administers and enforces, does not grant the Division direct authority to recover money on behalf of investors. The Division has no authority to fine or impose monetary penalties. The Act does provide investors with a private cause of action. R.C. 1707.43 provides that every sale or contract for sale made in violation of the Act is voidable at the election of the purchaser. An action for rescission under this section must be brought within two years of when the purchaser knew of the violation or within four years of when the purchase was made, whichever is shorter. A purchaser should consult legal counsel to pursue this remedy.

Q: Are complaints filed with the Division open to the public?

A: No. Pursuant to the Ohio Securities Act, R.C. 1707.12, complaints filed with the Division and information obtained by the Division during an investigation are not open to the public.

Q: Is the list of persons and entities under investigation by the Division open to the public?

A: No. Pursuant to the Ohio Securities Act, R.C. 1707.12, information obtained during an investigation, including the targets of investigations, is not open to the public.

Q: Are administrative orders that have been issued by the Division open to the public?

A: Yes. Administrative or enforcement orders are public records and are available on our website.