Targeted Examination Letters

November 2011

 

Re: Spread-Based Structured Products

 

FINRA's Advertising Regulation Department and Enforcement's Case Development Team are conducting an inquiry regarding spread-based structured products. In connection with our review, and pursuant to FINRA Rule 8210, please provide the following documents and information for the period from January 1, 2011 to August 31, 2011 ("the review period"), unless otherwise specified:
 

  1. All advertisements and sales literature, as defined in NASD Rule 2210(a), used during the review period, concerning spread-based structured products. This request is for general marketing communications as well as those on behalf of specific products. Please note that this request excludes communications that have already been filed with the Advertising Regulation Department.
     
  2. Institutional sales material, as defined in NASD Rule 2211(a), used during the review period, to train registered persons on spread-based structured products ("Educational Material"). Please provide both paper and electronic copies of the Educational Material.
     
  3. Complete the "Approval and Recordkeeping" Excel spreadsheet attached to this letter to list each communication identified in Items 1 and 2 above, including:
    1. A description of each communication,
    2. The dates of distribution of each communication,
    3. The manner in which it was distributed,
    4. The name and title of the registered principal who approved the material for use, and
    5. The date that the approval was given.
       
  4. Evidence that each advertisement or item of sales literature provided pursuant to Item 1 of this letter received written approval by a registered principal prior to use, as required by NASD Rule 2210(b)(1).
     
  5. Evidence that supervisory procedures for the review of Educational Material provided pursuant to Item 2 have been implemented and carried out as required by NASD Rule 2211(b)(1)(B).
     
  6. Copies of offering documents for any specific spread-based structured products discussed in the communications submitted pursuant to Items 1 and 2 of this letter.
     
  7. A transaction blotter or list (in searchable electronic format) of all spread-based structured product transactions during the review period including, but not limited to, the following:
    1. Transaction date,
    2. Purchase or sale,
    3. Account number,
    4. Account name,
    5. Name of Registered Representative,
    6. Registered Representative's Branch Office,
    7. Name of issuer,
    8. Product name,
    9. Symbol or CUSIP,
    10. Initial interest rate (if applicable),
    11. Reference index to which product is linked,
    12. Minimum initial investment required,
    13. Coupon rate,
    14. Total principal amount of transaction, and
    15. Total sales compensation and fees for the transaction.
       
  8. A description of the Firm's process for determining individual customer suitability for sales of spread-based structured products, standards for ensuring suitability of the transaction, and sample copies of all documents used by the Firm to determine suitability. Be sure to include a description of minimum eligibility standards (if any) and explain how the firm ensured clients met these standards. Include sample copies of any documentation of these standards and customer eligibility assessment.
     
  9. Copies of all risk disclosure documents used by the Firm in connection with the sale of spread-based structured products.
     
  10. For spread-based structured products sold during the review period, provide a description of all training provided to registered representatives and their supervisors along with copies of all training materials utilized (if not previously provided as part of this request).
     
  11. A detailed description of all spread-based structured products related sales contests, cash and non-cash incentives, promotions, programs and initiatives in effect during the review period.
     
  12. A list and description of all exception reports used by the Firm to monitor the sales of spread-based structured products. Provide a sample of each report identified.
     
  13. A copy of the Firm's written supervisory procedures, compliance manuals or branch manuals that pertain to spread-based structured product communications (including production, approval and distribution), sales, and supervision.
  14. Copies of all customer complaints (written and oral) and arbitration/litigation claims relating to, referring to, or concerning any spread-based structured products sold by the Firm and the Firm's response(s).
     

Your responses should be accompanied by a letter providing the following information: (i) whether a reasonable search has been conducted to locate responsive documents (and identify whose computer files were searched); (ii) whether all responsive documents found have been produced (if no documents responsive to a request were found, please so state); and (iii) whether any responsive documents have been withheld and the grounds for such withholding. Your response should also be accompanied by an index that identifies the documents produced.

 

Lists requested electronically may be provided in Excel, Access, or delimited file format. The first row of each file should contain the field name for each column. For each file provided, please supply a document listing the field names, the data type, field length, and description. If acronyms or codes are used in any field, provide an explanation of the acronyms or codes in the description.

 

This request is made pursuant to FINRA Rule 8210. The Firm's response to this request must be received no later than December 7, 2011.

 

This inquiry should not be construed as an indication that FINRA or its staff have determined that any violations of federal securities laws or FINRA, NASD, NYSE, or MSRB rules have occurred.