Mark O'Keefe
                        Commissioner of Securities
                        Office of the Montana State Auditor
                        P.O. Box 4009
                        Helena, MT  59604
     
February 10, 1997
     
Jonathan Katz, Secretary
United State Securities and Exchange Commission 
450 5th Street, NW
Washington, DC  20549
     
RE: Rules Implementing Amendments to the Investment 
    Advisers Act of 1940
    Rel. No. IA-1601
    File No. S7-31-96
     
Dear Secretary Katz:
     
On behalf of the state of Montana Department of Securities, 
I am submitting this comment letter regarding the above- 
referenced release.  I appreciate the opportunity to submit 
these comments for the consideration of the Securities and 
Exchange Commission (Commission) as the Commission 
undertakes to administer the federal securities laws as 
amended by the National Securities Markets Improvements Act.  
Though the North American Securities Administration 
Association has articulated several concerns which represent 
the state regulator perspective related to the proposed 
regulations, it is likely useful to the Commission to 
receive indications of agreement with NASAA's commentary 
from the states undertaking regulation of the securities 
industry in accordance with federal and state laws.  As 
Commissioner of Securities for the state of Montana, I 
support the comments submitted by NASAA, especially those 
concerning the areas of the Commission's definitions of 
"investment adviser representative" and "place of business."
     
Definition of Investment Adviser Representative
     
Like NASAA, the Montana Securities Department heartily 
objects to any attempt by the Commission to define 
"investment adviser representative."  Though the 
Commission's rulemaking authority is limited to those  
issues which "are necessary or appropriate to the exercise 
of the functions and powers conferred upon the Commission 
elsewhere" in the federal securities laws, 15 USC 80b-11(a), 
the Commission provides a definition for "investment adviser 
representative" in the absence of either express or implied 
regulatory authority over such persons.  It is neither 
necessary nor appropriate to incorporate a federal 
definition for a person over which Congress has never sought 
to assert jurisdiction.
     
     
In addition to being unnecessary to the administration of 
the federal securities laws, the definition is unnecessary 
for the purposes of promoting uniformity among the states 
which is, at any rate, a Congressional endeavor rather than 
an administrative one.  State definitions for investment 
adviser representative, including Montana's, generally 
reflect the Uniform Securities Act of 1956, as amended.  
Montana is currently in the process of amending its own 
definition to reflect changes catalyzed by the enactment of 
NSMIA.  One may presume that Congress did not address the 
definition of investment adviser representative in order to 
allow the Commission to do so, but remained silent because 
the current laws, both federal and state, are adequate with 
respect to the issue.
     
Definition of Place of Business
     
The Montana Securities Department endorses NASAA's comments 
with respect to the proposed definition of "place of 
business" by the SEC in Section 275.203A-3 of the proposed 
rules.  To the extent that a definition is required for the 
Commission's functions, the definition of "place of 
business" should clarify, rather than confuse, the meaning 
of "place of business."  In order to assure proper 
compliance with NSMIA and state laws relating to 
registration of investment adviser representatives, the term 
"regularly" should be removed to create an objective 
standard for registration requirements.
     
     
Inclusion of the term "regularly" leaves compliance 
personnel, state securities departments, and the courts with 
the task of applying their own determinations relating to 
the undefined term.  Inevitably, industry representatives, 
the Commission, and regulators will  infer different 
constructions of the term, and omission of the term would 
serve to eliminate the potential conflicts, as well as 
create a more objective standard by which "place of 
business" may be measured.  The Commission's removal of the 
term "regularly" would serve to create the objective 
standard necessary to administer NSMIA's purpose at the 
state and federal level.
     
Alternatively, if the term "regularly" is determined to be a 
necessary component of the proposed definition of "place of 
business," inclusion of a definition of the term "regularly" 
may avert costly litigation and unnecessary expenditure of 
resources in the quest for proper application of the federal 
and state securities laws.  States, in their efforts to 
enforce registration requirements, would have to first argue 
that a representative regularly provides advisory services 
prior to ordinary enforcement activities.  Such an 
undertaking will prove costly and time consuming.  In order 
to prevent such a scenario, the Commission may wish to 
consider defining the term "regularly."
     
Also, contemplation of the impact of internet communications 
on the definition of "place of business" appears to be 
lacking.  It would be appropriate to provide some guidance 
with respect to internet communications.
     
Though these remarks are somewhat duplicative of those 
advanced by NASAA, I appreciate the opportunity to register 
the Montana Securities Department's agreement with NASAA's 
positions related to the above-referenced release and to 
elaborate further on issues of particular concern to this 
state.
     
Thank you for your consideration of the Montana Securities 
Department's concerns.  If you have any questions or 
concerns regarding the issues raised in this letter, please 
do not hesitate to contact me.
     
Sincerely,
     
     
     
Mark O'Keefe
State Auditor and
Commissioner of Securities
     
MOK/eol