This rule is no longer applicable. NASD Rule 2220 has been superseded by FINRA Rule 2220. Please consult the appropriate FINRA Rule.
(a) Definitions
For purposes of this Rule and any interpretation thereof:
(1) "Options communications" consist of:
(A) "Advertisement
."
Any "Advertisement" as defined in Rule 2210(a)(1) concerning options.
(B) "Sales literature
."
Any "Sales Literature" as defined in Rule 2210(a)(2) concerning options including worksheet templates.
(C) "Correspondence." Any "Correspondence" as defined in Rule 2211(a)(1) concerning options.
(D) "Institutional sales material." Any "Institutional Sales Material" as defined in Rule 2211(a)(2) concerning options.
(E) "Public appearance." Any participation in a seminar, forum (including an interactive electronic forum), radio, television or print media interview, or other public speaking activity, or the writing of a print media article, concerning options.
(F) "Independently prepared reprint." Any "Independently Prepared Reprint" as defined in Rule 2210(a)(6)(A) concerning options.
(2) "Existing retail customer" as is defined in Rule 2211(a)(4).
(3) "Standardized option." means any option contract issued, or subject to issuance, by The Options Clearing Corporation, that has standardized terms for the strike price, expiration date, and amount of the underlying security, and is traded on a national securities exchange registered pursuant to section 6(a) of the Act.
(4) "Options" as is defined in [Rule 2860](a).
(5) "Options disclosure document" has the same meaning as the term "disclosure document" as defined in [Rule 2860](b)(2)(T).
(b) Approval by a Registered Options Principal and Recordkeeping
(1) Advertisements, Sales Literature, and Independently Prepared Reprints. All advertisements, sales literature (except completed worksheets), and independently prepared reprints issued by a member concerning options shall be approved in advance by a Registered Options Principal designated by the member's written supervisory procedures.
(2) Correspondence. Correspondence need not be approved by a Registered Options Principal prior to use, unless such correspondence is distributed to 25 or more existing retail customers within any 30 calendar-day period and makes any financial or investment recommendation or otherwise promotes a product or service of the member. All correspondence is subject to the supervision and review requirements of [Rule 3010](d).
(3) Institutional Sales Material. Each member shall establish written procedures that are appropriate to its business, size, structure, and customers for the review by a Registered Options Principal of institutional sales material used by the member and its registered representatives as described in Rule 2211(b)(1)(B).
(4) Copies of the options communications shall be retained by the member in accordance with SEC Rule 17a-4 of the Act. The names of the persons who prepared the options communications, the names of the persons who approved the options communications and, the source of any recommendations contained therein, shall be retained by the member and be kept in the form and for the time period required for options communications by SEC Rule 17a-4 of the Act.
(c) Association Approval Requirements and Review Procedures
(1) In addition to the approval required by paragraph (b) of this Rule, all advertisements, sales literature, and independently prepared reprints issued by a member concerning standardized options used prior to delivery of the applicable current options disclosure document or prospectus shall be submitted to the Advertising Regulation Department of the Association (the "Department") at least ten calendar days prior to use (or such shorter period as the Department may allow in particular instances) for approval and, if changed or expressly disapproved by the Department, shall be withheld from circulation until any changes specified by the Department have been made or, in the event of disapproval, until such options communication has been resubmitted for, and has received, Department approval.
(2)(A) Notwithstanding the foregoing provision, the Department, upon review of a member's options communications, and after determining that the member has departed from the standards of this Rule, may require that such member file some or all options communications or the portions of such member's communications that are related to options with the Department, at least ten calendar days prior to use.
(B) The Department shall notify the member in writing of the types of
options communications to be filed and the length of time such requirement is to be in effect. The requirement shall not exceed one year, however, and shall not take effect until 21 calendar days after service of the written notice, during which time the member may request a hearing under Rules
9551 and
9559.
(3) In addition to the foregoing requirements, every member's options communications shall be subject to a routine spot-check procedure. Upon written request from the Department, each member shall promptly submit the communications requested. Members will not be required to submit communications under this procedure that have been previously submitted pursuant to one of the foregoing requirements.
(4) The requirements of this paragraph (c) shall not be applicable to:
(A) options communications submitted to another self-regulatory organization having comparable standards pertaining to such communications;
(B) communications in which the only reference to options is contained in a listing of the services of the member;
(C) the options disclosure document; and
(D) the prospectus.
(d) Standards Applicable to Communications
(1) Communications Regarding Standardized Options used Prior to Delivery of Options Disclosure Document
(A) Options communications regarding standardized options exempted under SEC Rule 238 under the Securities Act of 1933 used prior to options disclosure document delivery:
(i) must be limited to general descriptions of the options being discussed. The text may also contain a brief description of options, including a statement that identifies registered clearing agencies for options and a brief description of the general attributes and method of operation of the exchanges on which such options are traded, including a discussion of how an option is priced;
(ii) must contain contact information for obtaining a copy of the options disclosure document;
(iii) must not contain recommendations or past or projected performance figures, including annualized rates of return, or names of specific securities;
(iv) may include any statement required by any state law or administrative authority;
(v) may include advertising designs and devices, including borders, scrolls, arrows, pointers, multiple and combined logos and unusual type faces and lettering as well as attention-getting headlines and photographs and other graphics, provided such material is not misleading; and
(B) Options communications regarding options not exempted under SEC Rule 238 under the Securities Act of 1933 used prior to delivery of a prospectus that meets the requirements of Section 10(a) of said Act must conform to SEC Rule 134 or 134a under said Act, as applicable.
(2) General Standards
(A) No member
or
associated person
of the member shall
use any options communications
which:
(i) contains any untrue statement or omission of a material fact or is otherwise false or misleading;
(ii) contains promises of specific results, exaggerated or unwarranted claims, opinions for which there is no reasonable basis or forecasts of future events which are unwarranted or which are not clearly labeled as forecasts;
(iii) contains cautionary statements or caveats that are not legible, are misleading, or are inconsistent with the content of the material;
(iv) would constitute a prospectus as that term is defined in the Securities Act of 1933, unless it meets the requirements of Section 10 of said Act;
(v) contains statements suggesting the certain availability of a secondary market for options;
(vi) fails to reflect the risks attendant to options transactions and the complexities of certain options investment strategies;
(vii) fails to include a warning to the effect that options are not suitable for all investors or contains suggestions to the contrary; or
(viii) fails to include a statement that supporting documentation for any claims (including any claims made on behalf of options programs or the options expertise of sales persons), comparison, recommendations, statistics, or other technical data, will be supplied upon request.
(B) Subparagraphs (vii) and (viii) above shall not apply to institutional sales material as defined in paragraph (a) of this Rule.
(C) Any statement in any options communications referring to the potential opportunities or advantages presented by options shall be balanced by a statement of the corresponding risks. The risk statement shall reflect the same degree of specificity as the statement of opportunities, and broad generalities must be avoided.
(3) Projections
Options communications may contain projected performance figures (including projected annualized rates of return) provided that:
(A) all such communications regarding standardized options are accompanied or preceded by the options disclosure document;
(B) no suggestion of certainty of future performance is made;
(C) parameters relating to such performance figures are clearly established (e.g., to indicate exercise price of option, purchase price of the underlying stock and its market price, option premium, anticipated dividends, etc.);
(D) all relevant costs, including commissions, fees, and interest charges (as applicable ) are disclosed and reflected in the projections;
(E) such projections are plausible and are intended as a source of reference or a comparative device to be used in the development of a recommendation;
(F) all material assumptions made in such calculations are clearly identified (e.g., "assume option expires," "assume option unexercised," "assume option exercised," etc.);
(G) the risks involved in the proposed transactions are also disclosed; and
(H) in communications relating to annualized rates of return, that such returns are not based upon any less than a sixty-day experience; any formulas used in making calculations are clearly displayed; and a statement is included to the effect that the annualized returns cited might be achieved only if the parameters described can be duplicated and that there is no certainty of doing so.
(4) Historical Performance
Options communications may feature records and statistics
that portray the performance of past recommendations or of actual transactions, provided that:
(A) all such communications regarding standardized options are accompanied or preceded by the options disclosure document;
(B) any such portrayal is done in a balanced manner, and consists of records or statistics that are confined to a specific "universe" that can be fully isolated and circumscribed and that covers at least the most recent 12-month period;
(C) such communications include the date of each initial recommendation or transaction, the price of each such recommendation or transaction as of such date, and the date and price of each recommendation or transaction at the end of the period or when liquidation was suggested or effected, whichever was earlier; provided that if the communications are limited to summarized or averaged records or statistics, in lieu of the complete record there may be included the number of items recommended or transacted, the number that advanced and the number that declined, together with an offer to provide the complete record upon request;
(D) all relevant costs, including commissions, fees, and daily margin obligations (as applicable) are disclosed and reflected in the performance;
(E) whenever such communications contain annualized rates of return, all material assumptions used in the process of annualization are disclosed;
(F) an indication is provided of the general market conditions during the period(s) covered, and any comparison made between such records and statistics and the overall market (e.g., comparison to an index) is valid;
(G) such communications state that the results presented should not and cannot be viewed as an indicator of future performance; and
(H) a Registered Options Principal determines that the records or statistics fairly present the status of the recommendations or transactions reported upon and so initials the report.
(5) Options Programs
In communications regarding an options program (i.e., an investment plan employing the systematic use of one or more options strategies), the cumulative history or unproven nature of the program and its underlying assumptions shall be disclosed.
(6) Violation of Other Rules
Any violation by a member or associated person of any rule or requirement of the SEC or any rule of the Securities Investor Protection Corporation applicable to member communications concerning options will be deemed a violation of this Rule 2220.
