NFA submitted to the CFTC proposed amendments to rules and interpretations on communications with the public and promotional materials (NFA Compliance Rule 2-29). The amendments would provide relief to certain CTA members that are also SEC-registered investment advisers regarding the disclosure of performance results to eligible contract participant ("ECP") clients.

According to NFA, the proposal would provide CTA members that are also SEC-registered investment advisers with greater flexibility in marketing a managed account program to ECP clients. Specifically, NFA proposed to allow these CTA Members to present past performance to ECPs on a gross basis in nonpublic, one-on-one presentations if the CTA Member:

  • gives the ECP client a written disclosure that the performance results are (i) presented on a gross basis and (ii) do not reflect the deduction of fees and expenses; and

  • offers to provide the client with the performance results, net of any fees and expenses agreed upon by the CTA Member and the ECP client at or prior to exercising discretion over the client's account.

Additionally, NFA proposed technical amendments to Notices 9025 and 9053 that would replace inadvertently deleted language regarding the disclosure of material assumptions used to assemble hypothetical performance results.

NFA invoked the "ten-day" provision of the CEA, and the proposed changes will go into effect unless the CFTC notifies NFA otherwise. NFA plans to issue a Notice to Members establishing the effective date for the proposal.

As previously covered, NFA adopted these rule amendments on January 1, 2020 to reflect current technology and business practices, and to create consistent requirements concerning hypothetical performance results in certain promotional materials. In addition to changes to NFA Compliance Rule 2-29 ("Communications with the Public and Promotional Material"), NFA modified NFA Compliance Rule 2-36 ("Requirements for Forex Transactions, Related Interpretive Notices and Other Technical Amendments to NFA Requirements"), and 13 Interpretive Notices corresponding with these amendments.

Commentary 

Historically, FINRA and NFA have taken mutually inconsistent positions on a number of advertising issues, most significantly as to the reporting of performance information. NFA's proposal is a nice step in the direction of resolving some of these inconsistencies. That is not to say that either self-regulatory organization has the superior set of rules. However, there is a good bit to be said for NFA's position on related performance information, which treats such information as something that investors should have, rather than the FINRA approach, which treats that information as inherently suspect.