Securities Lawyer's Deskbook
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General Rules and Regulations
promulgated
under the
Securities Exchange Act of 1934





Rule 15g-9 -- Sales Practice Requirements for Certain Low-Priced Securities


  1. As a means reasonably designed to prevent fraudulent, deceptive, or manipulative acts or practices, it shall be unlawful for a broker or dealer to sell a penny stock to, or to effect the purchase of a penny stock by, any person unless:

    1. The transaction is exempt under paragraph (c) of this section; or

    2. Prior to the transaction:

      1. The broker or dealer has approved the person's account for transactions in penny stocks in accordance with the procedures set forth in paragraph (b) of this section; and

      2. The broker or dealer has received from the person a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.

  2. In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

    1. Obtain from the person information concerning the person's financial situation, investment experience, and investment objectives;

    2. Reasonably determine, based on the information required by paragraph (b)(1) of this section and any other information known by the broker-dealer, that transactions in penny stocks are suitable for the person, and that the person (or the person's independent adviser in these transactions) has sufficient knowledge and experience in financial matters that the person (or the person's independent adviser in these transactions) reasonably may be expected to be capable of evaluating the risks of transactions in penny stocks;

    3. Deliver to the person a written statement:

      1. Setting forth the basis on which the broker or dealer made the determination required by paragraph (b)(2) of this section;

      2. Stating in a highlighted format that it is unlawful for the broker or dealer to effect a transaction in a penny stock subject to the provisions of paragraph (a)(2) of this section unless the broker or dealer has received, prior to the transaction, a written agreement to the transaction from the person; and

      3. Stating in a highlighted format immediately preceding the customer signature line that:

        1. The broker or dealer is required by this section to provide the person with the written statement; and

        2. The person should not sign and return the written statement to the broker or dealer if it does not accurately reflect the person's financial situation, investment experience, and investment objectives; and

    4. Obtain from the person a manually signed and dated copy of the written statement required by paragraph (b)(3) of this section.

  3. For purposes of this section, the following transactions shall be exempt:

    1. Transactions that are exempt under Rule 15g-1(a),(b),(d), (e), and (f).

    2. Transactions that meet the requirements of Rule 505 or Rule 506 (including, where applicable, the requirements of Rule 501 through 230.503, and Rule 507 through Rule 508), or transactions with an issuer not involving any public offering pursuant to section 4(2) of the Securities Act of 1933.

    3. Transactions in which the purchaser is an established customer of the broker or dealer.

  4. For purposes of this section:

    1. The term penny stock shall have the same meaning as in Rule 3a51-1.

    2. The term established customer shall mean any person for whom the broker or dealer, or a clearing broker on behalf of such broker or dealer, carries an account, and who in such account:

      1. Has effected a securities transaction, or made a deposit of funds or securities, more than one year previously; or

      2. Has made three purchases of penny stocks that occurred on separate days and involved different issuers.


Regulatory History


57 FR 18045, Apr. 28, 1992

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