FINRA provided guidance that free writing prospectuses distributed by broker-dealers in a manner reasonably designed to lead to their broad unrestricted dissemination are now subject to the content standards, the principal review requirements and applicable filing requirements in NASD Rules 2210 (Communications with the Public) and 2211 (Institutional Sales Material and Correspondence). FINRA withdrew its prior guidance excluding these types of free writing prospectuses from such requirements. Free writing prospectuses that are not distributed in a manner reasonably designed to lead to broad unrestricted dissemination continue to be excluded from these requirements.
Securities Act Rule 405 defines a free writing prospectus as a written communication, including an electronic communication, that constitutes an offer to sell or a solicitation to buy securities in a registered offering by means other than the statutory prospectus. The free writing prospectus was introduced as part of the SEC’s Securities Offering Reform and was intended to provide issuers with greater flexibility in the use of communications during the registered offering process. Securities Act Rule 433 requires any offering participant other than the issuer to file with the SEC any free writing prospectus that is distributed by or on behalf of the offering participant in a manner reasonably designed to lead to its broad unrestricted dissemination.
FINRA noted that it has seen sales material that seemed to be in serious noncompliance with the content standards of Rule 2210, but was excluded from the application of that rule merely because the broker-dealer asserted that it constituted a free writing prospectus.
FINRA incorporated the SEC’s recent guidance concerning the meaning of the term “broad unrestricted dissemination.” Specifically, the SEC has noted that examples of broad unrestricted dissemination of a free writing prospectus by a broker-dealer would include posting such prospectus on an unrestricted website or releasing it to the media. Conversely, the SEC has stated that a broker-dealer does not make a broad unrestricted dissemination if a free writing prospectus is posted to a restricted website or sent directly to its customers, regardless of the number of customers.