The SEC recently published Release No. 34-64984, concerning a FINRA proposal to adopt FINRA Rules 2210 and 2212 through 2216 governing communications by member firms. Currently, NASD Rules 2210 and 2211, and the related interpretive materials, generally govern all FINRA members’ communications with the public. Incorporated NYSE Rule 472 governs communications with the public by FINRA members that also are members of the New York Stock Exchange. The text of proposed FINRA Rules 2210 and 2212 through 2216 is available here.
The most significant change in the proposed rules relates to the new definitions of the various categories of communications. The current rules divide communications into the following six separate categories: advertisement; sales literature; correspondence; institutional sales material; independently prepared reprint; and public appearance. The proposed rules would eliminate the current definitions and reduce the number of communication categories from six to three, as follows:
- Correspondence would include any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period, including communications that currently qualify as “independently prepared reprints,” but only to the extent that they are made available to 25 or fewer retail investors within 30 calendar days.
- Retail communication would include any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period, which would generally include communications that fall within the current definition of “advertisement” and “sales literature.”
- Institutional communication would include any written (including electronic) communication that is distributed or made available only to institutional investors, which would generally include communications that currently qualify as “institutional sales material” under NASD Rule 2211.
The proposed rules maintain the current prohibition on communications that predict performance, imply that past performance is indicative of future results, or make any exaggerated or unwarranted claim or forecast. Hypothetical illustrations would be permitted, so long as they do not predict or project the performance of an investment or strategy. The proposed rules would also allow projections in reports produced by investment analysis tools otherwise meeting the requirements of the rules and price targets in research reports on debt or equity securities.
Comments on the proposed revisions are due by August 24, 2011 and may be submitted electronically using the SEC’s Internet comment form or by sending an email to firstname.lastname@example.org and including File Number SR-FINRA-2011-035 on the subject line. For additional information, please contact Zac Rosenberg, Compliance Consultant by email at email@example.com or by phone at (619) 278-0020.