2212. Use of Investment Companies Rankings in Retail Communications
(a) Definition of "Ranking Entity"
For purposes of this Rule, the term "Ranking Entity" refers to any entity that provides general information about investment companies to the public, that is independent of the investment company and its affiliates, and whose services are not procured by the investment company or any of its affiliates to assign the investment company a ranking.
(b) General Prohibition
Members may not use investment company rankings in any retail communication other than (1) rankings created and published by Ranking Entities or (2) rankings created by an investment company or an investment company affiliate but based on the performance measurements of a Ranking Entity. Rankings in retail communications also must conform to the following requirements.
(c) Required Disclosures
(1) Headlines/Prominent Statements
A headline or other prominent statement must not state or imply that an investment company or investment company family is the best performer in a category unless it is actually ranked first in the category.
(2) Required Prominent Disclosure
All retail communications containing an investment company ranking must disclose prominently:
(A) the name of the category (e.g., growth);
(B) the number of investment companies or, if applicable, investment company families, in the category;
(C) the name of the Ranking Entity and, if applicable, the fact that the investment company or an affiliate created the category or subcategory;
(D) the length of the period (or the first day of the period) and its ending date; and
(E) criteria on which the ranking is based (e.g., total return, risk-adjusted performance).
(3) Other Required Disclosure
All retail communications containing an investment company ranking also must disclose:
(A) the fact that past performance is no guarantee of future results;
(B) for investment companies that assess front-end sales loads, whether the ranking takes those loads into account;
(C) if the ranking is based on total return or the current SEC standardized yield, and fees have been waived or expenses advanced during the period on which the ranking is based, and the waiver or advancement had a material effect on the total return or yield for that period, a statement to that effect;
(D) the publisher of the ranking data (e.g., "ABC Magazine, June 2011"); and
(E) if the ranking consists of a symbol (e.g., a star system) rather than a number, the meaning of the symbol (e.g., a four-star ranking indicates that the fund is in the top 30% of all investment companies).
(d) Time Periods
(1) Current Rankings
Any investment company ranking included in a retail communication must be, at a minimum, current to the most recent calendar quarter ended prior to use or submission for publication. If no ranking that meets this requirement is available from the Ranking Entity, then a member may only use the most current ranking available from the Ranking Entity unless use of the most current ranking would be misleading, in which case no ranking from the Ranking Entity may be used.
(2) Rankings Time Periods; Use of Yield Rankings
Except for money market mutual funds:
(A) retail communications may not present any ranking that covers a period of less than one year, unless the ranking is based on yield;
(B) an investment company ranking based on total return must be accompanied by rankings based on total return for a one year period for investment companies in existence for at least one year; one and five year periods for investment companies in existence for at least five years; and one, five and ten year periods for investment companies in existence for at least ten years supplied by the same Ranking Entity, relating to the same investment category, and based on the same time period; provided that, if rankings for such one, five and ten year time periods are not published by the Ranking Entity, then rankings representing short, medium and long term performance must be provided in place of rankings for the required time periods; and
(C) an investment company ranking based on yield may be based only on the current SEC standardized yield and must be accompanied by total return rankings for the time periods specified in paragraph (d)(2)(B).
(1) The choice of category (including a subcategory of a broader category) on which the investment company ranking is based must be one that provides a sound basis for evaluating the performance of the investment company.
(2) An investment company ranking must be based only on (A) a published category or subcategory created by a Ranking Entity or (B) a category or subcategory created by an investment company or an investment company affiliate, but based on the performance measurements of a Ranking Entity.
(3) Retail communications must not use any category or subcategory that is based upon the asset size of an investment company or investment company family, whether or not it has been created by a Ranking Entity.
(f) Multiple Class/Two-Tier Funds
Investment company rankings for more than one class of investment company with the same portfolio must be accompanied by prominent disclosure of the fact that the investment companies or classes have a common portfolio and different expense structures.
(g) Investment Company Families
Retail communications may contain rankings of investment company families, provided that these rankings comply with this Rule, and further provided that no retail communication for an individual investment company may provide a ranking of an investment company family unless it also prominently discloses the various rankings for the individual investment company supplied by the same Ranking Entity, as described in paragraph (d)(2)(B). For purposes of this Rule, the term "investment company family" means any two or more registered investment companies or series thereof that hold themselves out to investors as related companies for purposes of investment and investor services.
(h) Independently Prepared Reprints
This Rule shall not apply to any reprint or excerpt of any article or report that is excluded from the FINRA Advertising Regulation Department filing requirements pursuant to Rule 2210(c)(7)(I).
Amended by SR-FINRA-2011-035 eff. Feb. 4, 2013.
Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
Amended by SR-NASD-96-39 eff. Mar. 5, 1997.
Adopted by SR-NASD-93-69 eff. July 12, 1994.
Selected Notices: 86-41, 92-59, 93-18, 93-73, 93-76, 93-85, 93-87, 94-16, 94-25, 94-36, 94-60, 95-49, 95-74, 95-80, 12-29.