Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 120 -- Definitions

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As used in this subpart, unless the context requires otherwise:

1. Affiliate of a broker, dealer, or investment company, or an investment adviser or transfer agent registered with the Commission means any person that is related by common ownership or common control with the broker, dealer, or investment company, or the investment adviser or transfer agent registered with the Commission. In addition, a broker, dealer, or investment company, or an investment adviser or transfer agent registered with the Commission will be deemed an affiliate of a company for purposes of this subpart if:
   
   
   1. That company is regulated under section 214 of the FACT Act, Public Law 108-159, 117 Stat. 1952 (2003), by a government regulator other than the Commission; and
      
      
   2. Rules adopted by the other government regulator under section 214 of the FACT Act treat the broker, dealer, or investment company, or investment adviser or transfer agent registered with the Commission as an affiliate of that company.
      
      
2. Broker has the same meaning as in section 3(a)(4) of the Securities Exchange Act of 1934. A "broker" does not include a broker registered by notice with the Commission under section 15(b)(11) of the Securities Exchange Act of 1934.
   
   
3. Clear and conspicuous means reasonably understandable and designed to call attention to the nature and significance of the information presented.
   
   
4. Commission means the Securities and Exchange Commission.
   
   
5. Company means any corporation, limited liability company, business trust, general or limited partnership, association, or similar organization.
   
   
6. Concise.
   
   1. In general. The term "concise" means a reasonably brief expression or statement.
      
      
   2. Combination with other required disclosures. A notice required by this subpart may be concise even if it is combined with other disclosures required or authorized by Federal or State law.
   
   
   
7. Consumer means an individual.
   
   
8. Control of a company means the power to exercise a controlling influence over the management or policies of a company whether through ownership of securities, by contract, or otherwise. Any person who owns beneficially, either directly or through one or more controlled companies, more than 25 percent of the voting securities of any company is presumed to control the company. Any person who does not own more than 25 percent of the voting securities of any company will be presumed not to control the company. Any presumption regarding control may be rebutted by evidence, but, in the case of an investment company, will continue until the Commission makes a decision to the contrary according to the procedures described in section 2(a)(9) of the Investment Company Act of 1940.
   
   
9. Dealer has the same meaning as in section 3(a)(5) of the Securities Exchange Act of 1934. A "dealer" does not include a dealer registered by notice with the Commission under section 15(b)(11) of the Securities Exchange Act of 1934.
   
   
10. Eligibility information means any information the communication of which would be a consumer report if the exclusions from the definition of "consumer report" in section 603(d)(2)(A) of the FCRA did not apply. Eligibility information does not include aggregate or blind data that does not contain personal identifiers such as account numbers, names, or addresses.
    
    
11. FCRA means the Fair Credit Reporting Act.
    
    
12. GLBA means the Gramm-Leach-Bliley Act.
    
    
13. Investment adviser has the same meaning as in section 202(a)(11) of the Investment Advisers Act of 1940.
    
    
14. Investment company has the same meaning as in section 3 of the Investment Company Act of 1940 and includes a separate series of the investment company.
    
    
15. Marketing solicitation.
    
    1. (1) In general. The term "marketing solicitation" means the marketing of a product or service initiated by a person to a particular consumer that is:
       
       
       1. Based on eligibility information communicated to that person by its affiliate as described in this subpart; and
          
          
       2. Intended to encourage the consumer to purchase or obtain such product or service.
          
          
    2. Exclusion of marketing directed at the general public. A marketing solicitation does not include marketing communications that are directed at the general public. For example, television, general circulation magazine, billboard advertisements and publicly available Web sites that are not directed to particular consumers would not constitute marketing solicitations, even if those communications are intended to encourage consumers to purchase products and services from the person initiating the communications.
       
       
    3. Examples of marketing solicitations. A marketing solicitation would include, for example, a telemarketing call, direct mail, e-mail, or other form of marketing communication directed to a particular consumer that is based on eligibility information received from an affiliate.
       
       
16. Person means any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.
    
    
17. Pre-existing business relationship.
    
    1. In general. The term "pre-existing business relationship" means a relationship between a person, or a person's licensed agent, and a consumer based on:
       
       
       1. A financial contract between the person and the consumer which is in force on the date on which the consumer is sent a solicitation covered by this subpart;
          
          
       2. The purchase, rental, or lease by the consumer of the person's goods or services, or a financial transaction (including holding an active account or a policy in force or having another continuing relationship) between the consumer and the person, during the 18-month period immediately preceding the date on which the consumer is sent a solicitation covered by this subpart; or
       3. An inquiry or application by the consumer regarding a product or service offered by that person during the three-month period immediately preceding the date on which the consumer is sent a solicitation covered by this subpart.
          
          
    2. Examples of pre-existing business relationships.
       1. If a consumer has a brokerage account with a broker-dealer that is currently in force, the broker-dealer has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services.
          
          
       2. If a consumer has an investment advisory contract with a registered investment adviser, the investment adviser has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services.
          
          
       3. If a consumer was the record owner of securities issued by an investment company, but the consumer redeems these securities, the investment company has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for 18 months after the date the consumer redeemed the investment company's securities.
          
          
       4. If a consumer applies for a margin account offered by a broker-dealer, but does not obtain a product or service from or enter into a financial contract or transaction with the broker-dealer, the broker-dealer has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for three months after the date of the application.
          
          
       5. If a consumer makes a telephone inquiry to a broker-dealer about its products or services and provides contact information to the broker-dealer, but does not obtain a product or service from or enter into a financial contract or transaction with the institution, the broker-dealer has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for three months after the date of the inquiry.
          
          
       6. If a consumer makes an inquiry by e-mail to a broker-dealer about one of its affiliated investment company's products or services but does not obtain a product or service from, or enter into a financial contract or transaction with the broker-dealer or the investment company, the broker-dealer and the investment company both have a pre-existing business relationship with the consumer and can therefore use eligibility information they receive from their affiliates to make solicitations to the consumer about their products or services for three months after the date of the inquiry.
          
          
       7. If a consumer who has a pre-existing business relationship with an investment company that is part of a group of affiliated companies makes a telephone call to the centralized call center for the affiliated companies to inquire about products or services offered by a broker-dealer affiliated with the investment company, and provides contact information to the call center, the call constitutes an inquiry to the broker-dealer. In these circumstances, the broker-dealer has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from the investment company to make solicitations to the consumer about its products or services for three months after the date of the inquiry.
          
          
    3. Examples where no pre-existing business relationship is created.
       
       
       1. If a consumer makes a telephone call to a centralized call center for a group of affiliated companies to inquire about the consumer's existing account at a broker-dealer, the call does not constitute an inquiry to any affiliate other than the broker-dealer that holds the consumer's account and does not establish a pre-existing business relationship between the consumer and any affiliate of the account-holding broker-dealer.
          
          
       2. If a consumer who has an advisory contract with a registered investment adviser makes a telephone call to an affiliate of the investment adviser to ask about the affiliate's retail locations and hours, but does not make an inquiry about the affiliate's products or services, the call does not constitute an inquiry and does not establish a pre-existing business relationship between the consumer and the affiliate. Also, the affiliate's capture of the consumer's telephone number does not constitute an inquiry and does not establish a pre-existing business relationship between the consumer and the affiliate.
          
          
       3. If a consumer makes a telephone call to a broker-dealer in response to an advertisement offering a free promotional item to consumers who call a toll-free number, but the advertisement does not indicate that the broker-dealer's products or services will be marketed to consumers who call in response, the call does not create a pre-existing business relationship between the consumer and the broker-dealer because the consumer has not made an inquiry about a product or service offered by the institution, but has merely responded to an offer for a free promotional item.
          
          
18. Transfer agent has the same meaning as in section 3(a)(25) of the Securities Exchange Act of 1934.
    
    
19. You means:
    
    1. Any broker or dealer other than a broker or dealer registered by notice with the Commission under section 15(b)(11) of the Securities Exchange Act of 1934;
       
       
    2. Any investment company;
       
       
    3. Any investment adviser registered with the Commission under the Investment Advisers Act of 1940; and
       
       
    4. Any transfer agent registered with the Commission under section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1).
    
    

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