FINRA Rule 2210 Questions and Answers
1. FINRA Rule 2210(a)(3) defines "institutional communication" to exclude a firm's internal communications. Does "internal communication" include training and educational material prepared for use with registered representatives of affiliated broker-dealers?
No. "Internal communication" refers to communications within a firm. If a firm uses material to train or educate registered representatives of other broker-dealers (whether affiliated or unaffiliated), the material would be considered an institutional communication.
1. If a firm distributes only to institutional investors a non-independent third-party research report as defined in NASD Rule 2711(h)(13)(E), is the firm required to have a registered principal or supervisory analyst approve the report prior to distribution?
No. A third-party research report that is distributed only to institutional investors as defined in FINRA Rule 2210(a)(4) is considered an institutional communication under FINRA Rule 2210(a)(3). FINRA Rule 2210(b)(3) permits a firm to distribute an institutional communication without having a registered principal approve the communication prior to distribution, provided that the firm establishes and implements certain written procedures for the supervision and review of such communications.
NASD Rule 2711(h)(13)(C) requires a registered principal or supervisory analyst to approve third-party research reports distributed by the firm unless the report meets the definition of "independent third-party research report."1 However, this rule is not intended to require registered principal or supervisory analyst approval of a third-party research report that meets the definition of institutional communication. Accordingly, a firm may supervise such a report in the same manner as any other institutional communication pursuant to FINRA Rule 2210(b)(3).2
Transitional Filing Issues
1. If a firm previously has filed with the FINRA Advertising Regulation Department an advertisement or item of sales literature under NASD Rule 2210 filing requirements, and intends to continue using this material on or after February 4, 2013, must the firm re-file this material under FINRA Rule 2210?
No. However, if the firm makes material changes to a previously filed retail communication, the firm will be required to re-file the communication.
2. If a firm is using a retail communication that is not subject to a filing requirement under NASD Rule 2210 (and has not been previously filed), but will become subject to a filing requirement under the new FINRA Rule 2210, and the firm intends to continue to use the retail communication on or after February 4, 2013, must the firm file this material with FINRA?
Yes. The firm must file the retail communication with FINRA within ten business days of February 4, 2013 (i.e., by February 19, 2013). For example, a firm would need to file a retail communication concerning a closed-end fund that is used after the initial public offering period, or a retail communication concerning a registered structured product, if the firm had not previously filed this communication with FINRA. A new filing requirement could also apply to a communication that is deemed correspondence under the existing rule but would be considered a retail communication under the new rule.3
Firms are not required to file the manager's discussion of fund performance in shareholder reports concerning closed-end funds that were published prior to February 4, 2013, and that remain available for review on a firm's website after that date. Given the age of these reports, FINRA does not consider them to be promotional in nature.
3. Will FINRA accept submissions of retail communications required to be filed for the first time under the new rule prior to February 4, 2013?
Yes. If a firm files before February 4, FINRA will review the communication under the content standards of NASD Rule 2210. However, the firm will be deemed to have met its filing requirements under the new rule and will not be required to re-file the material after February 4, provided it is used without material change.
New Member Firms
1. How does the new rule change the filing requirements for new member firms?
Under NASD Rule 2210, a firm that has not previously filed advertisements with FINRA (or with a registered securities exchange having comparable standards) must file its initial advertisement with FINRA at least 10 business days prior to use and must continue to file its advertisements at least 10 business days prior to use for a period of one year.
FINRA Rule 2210 revises this standard in two respects. First, a new firm's one-year filing period commences on the date reflected in the Central Registration Depository (CRD) system as the date that FINRA membership became effective, rather than on the date the firm files its first advertisement with FINRA. However, the filing requirement only applies to a subset of communications that fall within the definition of "retail communication": those that would have been considered "advertisements" under NASD Rule 2210, such as print or public media advertisements or generally accessible websites. Second, if the retail communication is a free writing prospectus that has been filed with the SEC pursuant to Securities Act Rule 433(d)(1)(ii), the firm may file the retail communication within 10 business days of first use rather than 10 business days prior to first use.
2. If a firm that has not previously filed an advertisement with FINRA files its initial advertisement less than one year before February 4, 2013, will the firm have to continue filing after February 4, 2013?
In such a case, the firm must continue to file its advertisements with FINRA through February 1, 2013 (the last business day before the effective date of the new rule) pursuant to NASD Rule 2210(c)(5)(A). Starting on February 4, 2013, the one-year filing period will be based on the firm's membership effective date as listed in the CRD system. The firm will only be required to file its retail communications until one year after the CRD date. If that one-year period will have already expired as of February 4, 2013, the firm will no longer be required to file retail communications under FINRA Rule 2210(c)(1)(A) on and after that date.
3. What if a firm has never filed an advertisement with FINRA before February 4, 2013, but its membership had been effective for more than one year as of that date?
In that case, the firm would not be required to file any retail communications pursuant to FINRA Rule 2210(c)(1)(A) on or after February 4, 2013.
1. Is a firm required to file the Management's Discussion of Fund Performance (MDFP) of a registered investment company shareholder report if the report is distributed only to existing fund shareholders?
No. FINRA requires firms to file the MDFP and sales material portion of a registered investment company's annual or semi-annual report if a member intends to use the report to market the fund to prospective investors. This filing requirement does not apply to shareholder reports that are provided only to existing fund shareholders.
Retail Structured Products
1. New FINRA Rule 2210(c)(3)(E) requires a firm to file within 10 business days of first use or publication retail communications concerning any security that is registered under the Securities Act of 1933 and that is derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance or a foreign currency (registered structured products). What types of products does this filing requirement cover?
While it is not possible to list all registered structured products, examples include exchange-traded notes that are not registered under the Investment Company Act but are registered under the Securities Act, registered reverse convertibles, registered structured notes, registered principal protection notes, and any other registered security that includes embedded derivative-like features. See Regulatory Notice 12-03 for some examples of registered structured products.
The purpose of this filing requirement is to have firms file with FINRA retail communications about structured products that are registered under the Securities Act. It is not intended to create a duplicative requirement for retail communications that are already subject to filing, such as retail communications concerning mutual funds, closed-end funds, exchange-traded funds that are registered under the Investment Company Act, variable insurance products, direct participation programs or collateralized mortgage obligations.
While this filing requirement applies to retail communications concerning registered structured products, it does not apply to issuer-prepared prospectuses, including issuer-prepared free-writing prospectuses, that are filed with the SEC. 4
1. Do the disclosure requirements regarding recommendations apply to a mutual fund portfolio manager's discussion of the fund's past performance (such as a manager's discussion that accompanies an annual or semi-annual report)?
No. While these discussions must comply with the other provisions of new FINRA Rule 2210, FINRA does not consider a portfolio manager's discussion of a fund's past performance to be a firm's recommendation of the individual securities included in the discussion.
1. If a registered representative makes a scripted presentation at a seminar for prospective retail investors, what is the responsibility of the firm with which the representative is associated to supervise the presentation?
A sales script used in a seminar is considered a retail communication under new FINRA Rule 2210 (assuming the script is used with more than 25 retail investors within a 30 calendar-day period).
The firm with which the representative is associated is responsible for approving prior to use any retail communication used as part of the seminar presentation. If a retail communication is subject to a filing requirement under FINRA Rule 2210, the firm also must file the communication with FINRA. FINRA Rule 2210(f)(3) requires each firm to establish written procedures that are appropriate to its business, size, structure and customers to supervise its registered representative's public appearance. These procedures must provide for education and training, documentation of such education and training, and surveillance and follow-up to ensure that representatives implement and adhere to the procedures.
2. Is a registered representative required to disclose the firm's name during a public appearance?
The requirement in FINRA Rule 2210(d)(3) to disclose a firm's name applies to retail communications and correspondence. Accordingly, sales scripts, slide presentations and brochures used in connection with a public appearance must disclose the firm's name. A registered representative is not required to disclose the firm's name as part of non-scripted, extemporaneous remarks during a public appearance.
1. Is a firm required to file with FINRA, or have a principal approve prior to use, a retail communication that is limited to market commentary concerning overall changes in the market on a particular day, or a discussion of economic news?
A. No. General market commentaries or economic discussions that are not used for the purpose of promoting a product or service of the firm would be considered retail communications that do not make any financial or investment recommendation or otherwise promote a product or service of the member. See FINRA Rules 2210(b)(1)(D)(iii) and 2210(c)(7)(C).
2. Is a firm required to file, or have a principal approve prior to use, a retail communication that merely explains factual information regarding an individual retirement account, qualified plan or 401(k) account?
A. No. These kinds of retail communications also would be considered to be non-promotional and thus not subject to the principal pre-use approval or filing requirements. See FINRA Rules 2210(b)(1)(D)(iii) and 2210(c)(7)(C).
3. Is a firm required to file its stationery or the business cards of its associated persons?
A. No. These communications are not subject to filing requirements.
4. Is a firm required to file, or have a principal approve prior to use, a retail communication that merely provides information to participants in an employee retirement plan as required by the Employee Retirement Income Security Act of 1974 (ERISA) or the current Department of Labor (DOL) rules under ERISA? For example, would a firm be required to file a retail communication that merely informs participants in an employee retirement plan of changes to the investment options that are available through the plan?
A. In most cases, no. A firm would not be required to file or have a principal approve prior to use a notice distributed to plan participants that is required by ERISA or DOL rules, such as a notice that merely informs the participants of investment options that will no longer be available through the plan as of a particular date, and the investment options that will replace the eliminated options.
FINRA would consider such a notice to be a retail communication that does not make any financial or investment recommendation or otherwise promote a product or service of the member. However, if the notice also includes performance or other information that describes the investment objectives of the new investment options, or otherwise includes a headline or other graphic or text that promotes these new options, the firm would be required to file the notice, unless this information is required by ERISA or DOL rules.5
Social Media Posts in Online Interactive Electronic Forums
1. Did the adoption of FINRA Rule 2210 change the exceptions from the principal pre-use approval and filing requirements for posts in the interactive electronic forum portions of social media as compared to the requirements under NASD Rule 2210?
A. No, these exceptions have not changed. NASD Rule 2210 included as a communication category public appearances, which was defined to include participation in an interactive electronic forum. NASD Rule 2210 did not require principals to approve public appearances prior to use, and did not require firms to file public appearances with FINRA.
FINRA Rule 2210 treats interactive electronic forum posts, such as social media status updates, as retail communications rather than public appearances; however, the rule specifically excludes these posts from both the principal pre-use approval requirements and the filing requirements. See FINRA Rules 2210(b)(1)(D)(ii) and 2210(c)(7)(M). Accordingly, these exceptions have not changed with respect to posts on interactive electronic forums, despite the fact that they are no longer considered public appearances for purposes of the rule.6
Filing Exclusion for Templates
1. A firm acts as a principal underwriter of a mutual fund family, and each fund in the family offers multiple classes of shares. If the firm creates a separate fact sheet for each share class of every fund in the family, is the firm required to file every fact sheet with FINRA if the only differences between the fact sheets for each share class of a particular fund are a share class's sales load, fees and performance?
A. No. FINRA Rule 2210(c)(7)(B) excludes from filing retail communications that are based on templates that were previously filed with FINRA the changes to which are limited to updates of more recent statistical or other non-narrative information. If a firm files fact sheets for all share classes of one fund in its fund family, and the share class fact sheets for other funds follow the same format in presenting sales load, fee and performance information, then the firm would not be required to file the fact sheet for each share class of the other funds in the family. Instead, pursuant to the filing exclusion for templates, the firm would be permitted to file the fact sheet for only one share class of each of the other funds in the fund family. The firm should indicate as part of its filing that it is relying on the filing exclusion for templates in cases where the firm is filing only one share class fact sheet for a particular fund.7
Filing Exclusion for Non-Material Changes to Previously Filed Retail Communications
1. If a firm has previously filed a retail communication and then decides to use the same communication in a different format, must the firm refile the communication as it appears in the new format?
A. No. FINRA Rule 2210(c)(7)(A) excludes from filing retail communications that previously have been filed with FINRA and that are used without material change. FINRA would not consider revising a retail communication to appear in a different format to be a material change, provided that the content has not materially changed. For example, if a firm has previously filed a retail communication in the format that it appears on a desktop or laptop computer, and the firm is redesigning the presentation to appear on a tablet or smart phone, the firm would not have to refile the version that will appear on a tablet or smart phone.
2. What if a firm uses responsive Web design technology8 to deliver a retail communication in different formats depending on the device used by a customer? Must the firm file each version of the retail communication to show how it will appear on each device?
A. No. For the same reasons set forth in the answer to the previous question, FINRA would not consider delivery of the same content in a retail communication in different formats using responsive design technology to be a material change to the communication. Accordingly, a firm would only have to file the retail communication once.
3. If a firm previously filed a retail communication that was initially distributed in print form, and the firm later decides to post the same communication on its website, must the firm refile the website version of the retail communication with FINRA?
A. No, provided that the content of the website version of the retail communication appears without material change from the previously filed print version.
4. If a firm changes the color scheme of a previously filed retail communication, must the firm refile the new version of the retail communication?
A. No. FINRA would not regard merely changing the color scheme of a previously filed retail communication to be a material change to the communication.
5. Is a firm required to re-file retail communications concerning a mutual fund that changes its name, if the only changes to the previously filed communications are substitutions of the fund's new name for its old name?
A. No. Assuming the fund has changed its name in any required filings with the SEC, FINRA would not consider merely changing the fund's name from previously filed retail communications concerning the fund to be a material change to the communications.
6. If a mutual fund passes its five-year or ten-year anniversary since inception, and a firm adds a new line to previously filed retail communications that present fund performance to show the fund's five-year or ten-year performance record as required by SEC Rule 482, must the firm re-file the revised retail communications?
A. No. FINRA would not consider merely adding a fund's five-year or ten-year performance record as required by Rule 482 to previously filed retail communications to be a material change.
1. If a firm wishes to distribute to its customers a reprint of an article concerning a product subject to one of the filing requirements that appeared in an unaffiliated magazine or newspaper, and the only change that the firm made to the article was to add the firm's name and any disclosures necessary to meet applicable regulatory standards, is the firm required to file the article reprint with FINRA?
A. No. If a firm merely adds its name to the reprint or adds disclosures required to make the reprint consistent with applicable regulatory standards, the firm is not required to file the reprint with FINRA pursuant to FINRA Rule 2210(c)(7)(I).9
1. If a firm distributes an institutional communication to intermediaries that fall within the definition of "institutional investor" and labels the communication for use only with institutional investors, and an intermediary subsequently distributes the communication to retail investors, is the member then required to treat the communication as a retail communication?
A. Unless the firm becomes aware that the intermediary has distributed the communication to retail investors, or the firm has not adequately labeled the communication, the firm will not be required to treat the communication as retail. FINRA Rule 2210(a)(3) defines "institutional communication" as "any written (including electronic) communication that is distributed or made available only to institutional investors, but does not include a member's internal communications." FINRA Rule 2210(a)(4) (the definition of "institutional investor") states in part that "No 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."
For example, a broker-dealer that receives an institutional communication from a mutual fund underwriter is responsible for assuring that its associated persons do not forward the communication to retail investors. The "reason to believe" standard is not intended to require a mutual fund underwriter to audit recipient broker-dealers' use of institutional communications.
Assuming a firm adequately labels an institutional communication as being for institutional use only, the firm would not have reason to believe, absent other facts, that the communication will be distributed to retail investors. However, if the recipient broker-dealer informs the fund underwriter that it intends to distribute the communication to its retail customers, or the fund underwriter otherwise becomes aware of this practice, the fund underwriter must either treat the communication as a retail communication going forward, or cease distributing institutional communications to the recipient broker-dealer until it reasonably concludes that the broker-dealer has adopted appropriate procedures to prevent redistribution.
Rule 482 Issues
1. Does a promotional item, such as a t-shirt, cap or pen, that contains only the name of a mutual fund or fund family, have to include the prospectus offering legend required by SEC Rule 482 under the Securities Act?
A. No. In FINRA's view, promotional items that only contain the name of a mutual fund or fund family would not be considered an "advertisement" for purposes of Rule 482, and therefore, are not subject to the requirements of that rule, including the requirement to include a prospectus offering legend.
2. Is a communication to a customer that lists the customer's securities and other investments held at a firm, or at various broker-dealers, investment advisers and other entities, and the performance of those investments, subject to Rule 482 or Rule 34b-1 under the Investment Company Act of 1940?
A. No. In FINRA's view, assuming the communication merely informs an existing customer of his or her securities holdings and other investment positions held at the firm or at multiple intermediaries, and the prior performance of those investments, and it does not offer securities of a registered investment company, we believe that the communication would not be considered an advertisement for purposes of Rule 482 and Rule 34b-1. However, if the communication explicitly or implicitly induces the purchase of shares of a registered investment company, we believe that the communication could be subject to the requirements of Rule 482 and Rule 34b-1.
Disclosure of Expense Reimbursement Arrangements in Mutual Fund Performance Advertising
1. If a firm presents mutual fund performance information in a retail communication, and the fund's expenses are subsidized through a fee waiver or expense reimbursement arrangement, must the firm disclose this arrangement?
A. FINRA Rule 2210(d)(5)(A) requires retail communications and correspondence that present non-money market fund open-end management investment company performance data as permitted by Securities Act Rule 482 and Investment Company Act Rule 34b-1 to disclose, among other things, the fund's total annual operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fund's prospectus fee table.
FINRA also permits a firm to present in performance communications the fund's subsidized expense ratio, as long as the firm presents both the gross and subsidized expense ratios in a fair and balanced manner. If a firm wishes to present a fund's subsidized expense ratio in correspondence or retail communications, the communication must disclose whether the fee waivers or expense reimbursements were voluntary or mandated by contract, and the time period, if any, during which the fee waiver or expense reimbursement obligation remains in effect.10
Business Development Companies
1. Is a firm required to file with FINRA a retail communication concerning a business development company (BDC) that is registered under the Securities Act?
A. Yes. BDCs fall within the definition of direct participation program under FINRA Rule 2310(a)(4). Accordingly, firms must file with FINRA retail communications concerning BDCs that are registered under the Securities Act within 10 business days of first use or publication pursuant to FINRA Rule 2210(c)(3)(B).
2. Does a Series 26 registration (Limited Principal - Investment Company and Variable Contracts Products) qualify a principal to approve a retail communication concerning a BDC?
A. No. A BDC is not registered as an investment company under the Investment Company Act of 1940. Accordingly, the Series 26 registration does not qualify a principal to approve a retail communication concerning a BDC. To approve a retail communication concerning a BDC, the registered principal must possess either a Series 24 (General Securities Principal), a Series 9/10 (General Securities Sales Supervisor) or a Series 39 (Limited Principal - Direct Participation Programs) registration, if the BDC is structured as a direct participation program as defined in NASD Rule 1022(e)(2).11
1. See NASD Rule 2711(h)(13)(C), (D) and (E).
2. Unless FINRA specifically directs a firm to file its institutional communications pursuant to FINRA Rule 2210(c)(1)(B), a firm is not required to file its institutional communications with the Advertising Regulation Department. If a firm chooses voluntarily to file a third-party research report that qualifies as an institutional communication, however, an appropriately qualified principal must approve the report prior to filing. See FINRA Rule 2210(b)(1)(F).
3. NASD Rule 2211 defines "correspondence" as any written letter or electronic mail message and any market letter distributed by a member to (A) one or more of its existing retail customers; and (B) fewer than 25 prospective retail customers within any 30 calendar-day period. New FINRA Rule 2210 defines "correspondence" as any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. If a written (including electronic) communication is distributed or made available to more than 25 retail investors within any 30 calendar-day period, it is considered a "retail communication" under FINRA Rule 2210(a)(6). It is possible that a communication that a firm currently is distributing to more than 25 existing retail customers within a 30 calendar-day period would be "correspondence" under NASD Rule 2211 but would be a "retail communication" under FINRA Rule 2210.
4. See FINRA Rule 2210(c)(7)(F).
5. For example, FINRA has stated that firms are not required to file information, including performance information, provided to participant-directed individual account plan participants pursuant to DOL Rule 404a-5 under ERISA. See Regulatory Notice 12-02 (January 2012).
6. The SEC staff has taken the position, however, that certain interactive content posted on a real-time electronic forum (i.e., chat rooms or other social media) should be filed under the filing requirements of Section 24(b) of the Investment Company Act of 1940 or Rule 497 under the Securities Act of 1933 (Securities Act), even if it is not required to be filed with FINRA under FINRA Rule 2210. See U.S. Securities and Exchange Commission, Division of Investment Management, IM Guidance Update No. 2013-01 (March 2013).
7. Pursuant to FINRA Rule 2210(c)(7)(B), the firm also would not be required to file future versions of the fund fact sheets (such as fact sheets issued after the end of the next calendar quarter) where the changes are limited to updates of more recent statistical or other non-narrative information.
8. "Responsive web design" refers to technology that changes the display of a web page in response to the needs of users and the devices they're using. The layout may change based on the size and capabilities of the device. For example, on a phone, users would see content shown in a single column view; a tablet might show the same content in two columns. See "Responsive Web Design Basics."
9. FINRA Rule 2210(c)(7)(I) excludes from the filing requirements any reprint or excerpt of any article or report issued by a publisher, provided that (i) the publisher is not an affiliate of the member using the reprint or any underwriter or issuer of a security mentioned in the reprint that the member is promoting; (ii) neither the member using the reprint nor any underwriter or issuer of a security mentioned in the reprint has commissioned the reprinted article or report; and (iii) the member using the reprint has not materially altered its contents except as necessary to make the reprint consistent with applicable regulatory standards or to correct factual errors.
10. See Notice to Members 06-48 (September 2006).
11. See also letter from Afshin Atabaki, FINRA, to Wallace W. Kunzman, Jr. (December 1, 2014).