On July 28, 2011, the SEC published for comment a proposal by FINRA to adopt new rules governing member firms‟ communications with the public. As proposed, the following FINRA rules would encompass, with certain changes, the current provisions of NASD Rules 2210 and 2211 and NASD Interpretive Materials 2210-1 and 2210-3 through 2210-8.
- FINRA Rule 2210 would replace NASD Rules 2210 and 2211 and NASD Interpretive Materials 2210-1 and 2210-4. FINRA Rule 2210 would reduce the six categories of communications included in NASD Rule 2210 to the following three categories: (1) Institutional Communications, which would include any written communication distributed or made available only to institutional investors; (2) Retail Communications, which would include any written communication distributed or made available to more than 25 retail investors within any 30-day calendar period; and (3) Correspondence, which would include any written communication that is distributed or made available to 25 or fewer retail investors within any 30-day calendar period. FINRA Rule 2210 would continue to require, subject to certain exceptions, that an appropriately qualified registered principal of the member firm also approve each “retail communication” before the earlier of its use or filing with FINRA. The content requirements of the current NASD rules are also largely incorporated into FINRA Rule 2210.
- FINRA Rule 2212 would replace NASD Interpretive Materials 2210-3 regarding the standards applicable to the use of investment company rankings in communications. Although the standards would generally remain the same, FINRA Rule 2212 would revise the standards applicable to investment company rankings for more than one class of shares within the same portfolio. These rankings would need to be accompanied by prominent disclosure of the fact that the classes have different expense structures.
- FINRA Rule 2213 would replace NASD Interpretive Materials 2210-5 regarding the standards applicable to the use of bond mutual fund volatility ratings in communications, but the standards would remain unchanged.
- FINRA Rule 2214 would replace NASD Interpretive Materials 2210-6 regarding the standards applicable to the use of investment analysis tools. The current NASD interpretation requires a member firm that offers or intends to offer an investment analysis tool to provide FINRA with access to the tool and file any template for written reports produced by, or advertisements or sales literature concerning, the tool within 10 days of its first use. FINRA Rule 2214 would require that FINRA be provided with such access and the accompanying filings made within 10 business days of the first use. FINRA Rule 2215 would replace NASD Interpretive Materials 2210-7 regarding the standards applicable to communications concerning security futures and would include several changes. First, the proposed rule would apply to all retail communications (as defined under proposed FINRA Rule 2210), as opposed to the current rule which applies only to advertisements. Second, the proposed rule would require members to submit all retail communications concerning security futures to FINRA at least 10 business day prior to first use, and prohibit firms from using such communications until any changes specified by FINRA have been made. Third, the proposed rule would revise the requirement regarding delivery of a security futures risk disclosure document to apply only to communications that contain the names of specific securities. Fourth, communications containing historical performance of security futures would be required to disclose all relevant costs associated with the investment, and reflect such costs in the performance information.
- FINRA Rule 2216 would replace NASD Interpretive Materials 2210-8 regarding the standards applicable to retail communications concerning collateralized mortgage obligations, but the standards would remain unchanged.
If approved by the SEC, the new rules would become effective within 45 days after their publication in the Federal Register or such later date designated by the SEC or consented to by FINRA. Following SEC approval, FINRA, within 90 days, will publish a Regulatory Notice setting the implementation date for the new rules, which will be no later than one year from the date of SEC approval.