FINRA issued a Regulatory Notice announcing that the effective date for new rules consolidating and amending NASD and NYSE Communications Rules and Interpretations is February 4, 2013. The new rules, which were approved by the SEC on March 29, 2012, are as follows:
The SEC approved FINRA’s proposal to adopt the new rules by release dated March 29, 2012. The content of the SEC release approving the new rules was discussed in the April 24, 2012 Financial Services Alert.
In announcing the effective date of the new rules, FINRA also provided guidance with respect to the application of the new rules. Among the topics covered in the guidance are the following:
Reason to Believe Standard. Noting that the definition of “institutional investor” in both new Rule 2210(a)(4) and in the prior rules require that “[n]o member may treat a communication as having been distributed to an institutional investor if the member has reason to believe that the communication or any excerpt thereof will be forwarded or made available to any retail investor[,]” FINRA confirmed that this standard does not impose an affirmative obligation on the member to inquire as to whether an institutional investor intends to distribute the communication to retail investors. Additionally, FINRA confirmed that this standard does not create an obligation for a fund underwriter to supervise the associated persons of recipient broker-dealers, and provided guidance on how a member should respond in the event that it becomes aware that a recipient institutional investor, is or may be, distributing the communication to retail investors.
Exemptive Relief. Noting that new Rule 2210(b)(1)(E) and new Rule 2210(c)(9) allow FINRA to grant exemptive relief with respect to pre-use approval requirements and concurrent-with-use filing requirements, respectively, FINRA clarified that it only intends to grant such relief in unique circumstances on a case-by-case basis. Furthermore, FINRA clarified that any such relief will apply only to the firms that have applied for the relief. If FINRA determines that similar relief is warranted for similarly situated members, it will file a proposed rule change.
Illustrations of Impact of Tax Decisions. Noting that new Rule 2210(d)(4)(C) adds new language concerning comparative illustrations of the mathematical principles of tax-deferred versus taxable compounding, FINRA describes in detail the required content of such illustrations and confirms that the standards contained in the new rule apply to any illustration of tax-deferred versus taxable compounding, regardless of whether it appears in a communication promoting variable insurance products or some other communication, such as one discussing the benefits of investing through a 401(k) retirement plan or individual retirement account.
Social Media. FINRA notes that under new Rule 2210(c)(7)(M) communications that are posted on an online interactive electronic forum, such as an electronic bulletin board or an interactive forum that is contained on a social media website, are considered retail communications; however, they are excluded from new Rule 2210’s filing obligations.
For more information about the contents of this alert, please contact:
Elizabeth Shea Fries
Consumer Financial Services
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