RCA - Winter 1999 - Ask the Analyst - Rankings of BD Offerings NASD

Q. If a member firm properly discloses how the ranking was calculated and the source of the data, can the firm produce a ranking sheet listing broker/dealers and how they rank in terms of the dollar amount of money raised in Initial Public Offerings (IPOs) or the number of IPOs and secondary offerings conducted?

A. This type of communication would be difficult to fairly create and present in light of the risks of bias. Unlike rankings of investment company performance, the NASD Conduct Rules do not have specific standards for ranking performance1 of member firms’ underwriting activities. Instead, this type of communication must comply with the general standards of NASD Rule 2210 which prohibit false or misleading communications and require the disclosure of material facts necessary to make member firms’ communications fair and not misleading.

While the compliance of a communication like the one described in the question would have to be judged on a case-by-case basis, members must consider several factors in creating such material. First, the ranking methodology must be fair and not misleading. For example, it would be misleading for the member firm that created the ranking to omit other broker/dealers from the assessment simply because they outperformed the member firm that created the ranking. Similarly, the time period used for the assessment should be based on objective criteria such as year-end or calendar-quarter end results; it would be misleading to select a time period that exaggerated the performance of the firm preparing the ranking.

Any such communication would need to include clear explanations regarding: the ranking methodology; the source of any underlying data; factors such as costs that might effect the ranking; the time period upon which the data is based; the fact that the ranking was created by the member firm sponsoring the communication and that past performance cannot guarantee future results; and any other material information necessary to make the ranking presentation fair and not misleading.


1 See IM-2210-3 titled, "Use of Rankings in Investment Company Advertisements and Sales Literature."