Introduction

On March 29, 2012, the SEC approved FINRA’s amended proposed rule revisions relating to broker-dealers’ communications with the public.1 In June 2012, FINRA announced that the effective date of the new rules will be February 4, 2013. FINRA’s announcement of the effective date (Regulatory Notice 12-29), together with a summary of the new rules, may be found on FINRA’s website: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p127014.pdf.

We previously discussed the impact of the revisions on the structured product market in prior issues of Structured Thoughts:

Principal Impact

The key impacts of the new rules for participants in the structured note market would be:

  • “Retail communications” (a newly defined term under the rules)2 relating to registered structured notes would need to be filed with the FINRA Advertising Department within 10 days of their first use.3 This requirement would not include prospectuses and similar documents that have been filed with the SEC. However, freewriting prospectuses that have been filed with the SEC under SEC Rule 433(d)(1)(ii)4 would still need to be filed. A variety of materials prepared by structured note underwriters, such as marketing brochures and educational materials, would be required to be filed. 
  • Retail communications would need to be approved by an appropriately qualified registered principal of a FINRA member prior to their use. 
  • FINRA’s disclosure rules that apply to member communications, including structured products, would be supplemented to specify that:
    • Members must ensure that statements are clear and not misleading within the context in which they are made, and that they provide balanced treatment of risks and potential benefits. For example, communications must be consistent with the risks of fluctuating prices and the uncertainty of dividends, rates of return, and yield. (Rule 2210(d)(1)(D).)
    • FINRA members must consider the nature of the audience to whom the communication will be directed, and must provide details and explanations appropriate to the audience. (Rule 2210(d)(1)(E).)

Internal Training Materials

The final rules omit a proposed rule that would require a member’s internal written communications relating to training to be treated as “institutional communications,” which would trigger certain of FINRA’s procedural and related requirements. However, FINRA reminds members that these types of materials are subject to NASD Rule 3010, which requires brokers to establish, maintain and enforce procedures to supervise their personnel.5

Conclusion

These FINRA Rules were initially proposed in July 2009. Accordingly, many broker-dealers have been planning their compliance literally for years. With the February 2013 effective date now in place, firms will have a target date for their new procedures and filings.