20452 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices 

9See Order Instituting Proceedings, supra note 6 

at 318, 319. 

10 15 U.S.C. 78s(b)(2). 

11 17 CFR 200.30–3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 64984 (July 28, 

2011), 76 FR 46870 (August 3, 2011) (‘‘Original 

Proposal’’). The comment period closed on August 

24, 2011. 

4See letter from Peter J. Mougey, Public Investors 

Arbitration Bar Association, dated August 23, 2011 

(‘‘PIABA August Letter’’); letter from Oscar S. 

Hackett, BrightScope, Inc., dated August 23, 2011 

(‘‘BrightScope August Letter’’); letter from Z. Jane 

Riley, The Leaders Group, Inc., dated August 24, 

2011 (‘‘TLGI August Letter’’); letter from Dorothy M. 

Donohue, Investment Company Institute, dated 

August 24, 2011 (‘‘ICI August Letter’’); letter from 

Sandra J. Burke, Vanguard, dated August 24, 2011 

(‘‘Vanguard August Letter’’); letter from Alexander 

C. Gavis, Fidelity Investments, dated August 24, 

2011 (‘‘Fidelity August Letter’’); letter from David 

T. Bellaire, Esq., Financial Services Institute, Inc., 

dated August 24, 2011 (‘‘FSI August Letter’’); letter 

from John Polanin and Claire Santaniello, Securities 

Industry and Financial Markets Association, dated 

August 24, 2011 (‘‘SIFMA August Letter’’); and 

letter from Yoon-Young Lee, Wilmer Hale LLP, on 

behalf of Citigroup Global Markets, Inc., Credit 

Suisse Securities (USA) LLC, Goldman, Sachs & 

Co., JP Morgan Securities Inc., Merrill Lynch, 

Pierce, Fenner & Smith Incorporated, Morgan 

Stanley & Co., LLC, and UBS Securities LLC, dated 

August 26, 2011 (‘‘Wilmer August Letter’’). 

Comment letters are available at www.sec.gov. 

5See letter from Joseph P. Savage, FINRA, dated 

October 31, 2011 (‘‘October Response Letter’’). The 

text of proposed Amendment No. 1 and FINRA’s 

Response Letter are available on FINRA’s Web site 

at http://www.finra.org, at the principal office of 

FINRA and at the Commission’s Public Reference 

Room. FINRA’s Response Letter is also available on 

the Commission’s Web site at http://www.sec.gov. 

6See Exchange Act Release No. 65663 (November 

1, 2011), 76 FR 68800 (November 7, 2011) (Notice 

of Filing of Amendment No. 1 and Order Instituting 

Proceedings SR–FINRA–2011–035) (‘‘Notice and 

Proceedings Order’’). The comment period closed 

on December 7, 2011. 

7See letter from Melissa Callison, Vice President, 

Compliance, Charles Schwab & Co., Inc., dated 

December 7, 2011 (‘‘Schwab December Letter’’); 

letter from Alexander C. Gavis, Vice President & 

Associate General Counsel, Fidelity Investments, 

dated December 7, 2011 (‘‘Fidelity December 

Letter’’); letter from David T. Bellaire, General 

Counsel and Director of Government Affairs, 

Financial Services Institute, dated December 7, 

2011 (‘‘FSI December Letter’’); letter from Dorothy 

M. Donohue, Senior Associate Counsel, Investment 

Company Institute, dated December 7, 2011 (‘‘ICI 

December Letter’’); letter from John Polanin and 

Claire Santaniello, Co-Chairs, Compliance and 

Regulatory Policy Committee of the Securities 

Industry and Financial Markets Association, dated 

December 7, 2011 (‘‘SIFMA December Letter’’); 

letter from Sandra J. Burke, Principal, Vanguard, 

dated December 7, 2011 (‘‘Vanguard December 

Letter’’); and letter from Jeremiah McGair, Attorney, 

Wolverine Execution Services, LLC, dated 

December 7, 2011 (‘‘Wolverine Letter’’). Comment 

letters are available at www.sec.gov. 

8 Joseph P. Savage, FINRA, dated December 22, 

2011 (‘‘December Response Letter’’). The text of 

proposed Amendment No. 2 and FINRA’s Response 

Letter are available on FINRA’s Web site http:// 

www.finra.org, at the principal office of FINRA and 

at the Commission’s Public Reference Room. 

FINRA’s Response Letter is also available on the 

Commission’s Web site at http://www.sec.gov. 

SRO Proposals not later than 180 days 

after the date of publication of notice of 

the filing of the proposed rule change. 

The Commission may extend the period 

for issuing an order approving or 

disapproving the SRO Proposals, 

however, by not more than 60 days if 

the Commission determines that a 

longer period is appropriate and 

publishes the reasons for such 

determination. The SRO Proposals were 

published for notice and comment in 

the Federal Register on October 4, 2011. 

April 1, 2012 is 180 days from that date, 

and May 31, 2012 is an additional 60 

days from that date. 

The Commission finds it appropriate 

to designate a longer period within 

which to issue an order approving or 

disapproving the SRO Proposals so that 

it has sufficient time to consider the 

SRO Proposals and the issues raised in 

the comment letters that have been 

submitted in connection with the SRO 

Proposals. Specifically, as the 

Commission noted in the Order 

Instituting Proceedings, the SRO 

Proposals raise issues including the 

potential interaction between the 

mechanisms for moderating volatility in 

individual securities and those for 

moderating volatility market-wide. In 

addition, the Commission is also 

considering commenters’ concerns with 

the details of the SRO Proposals, 

including whether only the Level III 

circuit breaker should halt trading after 

3:25 p.m. and whether the market-wide 

circuit breakers should be triggered if a 

significant number of volatility 

moderators for individual securities are 

triggered.9

Accordingly, the Commission, 

pursuant to Section 19(b)(2) of the 

Act,10 designates May 31, 2012, as the 

date by which the Commission shall 

either approve or disapprove the SRO 

Proposals. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8060 Filed 4–3–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66681; File No. SR–FINRA– 

2011–035] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Amendment No. 3 and Order Granting 

Accelerated Approval of a Proposed 

Rule Change, as Modified by 

Amendments Nos. 1, 2 and 3, To Adopt 

FINRA Rules 2210 (Communications 

With the Public), 2212 (Use of 

Investment Companies Rankings in 

Retail Communications), 2213 

(Requirements for the Use of Bond 

Mutual Fund Volatility Ratings), 2214 

(Requirements for the Use of 

Investment Analysis Tools), 2215 

(Communications With the Public 

Regarding Security Futures), and 2216 

(Communications With the Public 

About Collateralized Mortgage 

Obligations (CMOs)) in the 

Consolidated FINRA Rulebook 

March 29, 2012. 

I. Introduction 

On July 14, 2011, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change to adopt NASD Rules 2210 and 

2211 and NASD Interpretive Materials 

2210–1 and 2210–3 through 2210–8 as 

FINRA Rules 2210 and 2212 through 

2216, and to delete paragraphs (a)(1), (i), 

(j) and (l) of Incorporated NYSE Rule 

472, Incorporated NYSE Rule 

Supplementary Material 472.10(1), (3), 

(4) and (5) and 472.90, and Incorporated 

NYSE Rule Interpretations 472/01 and 

472/03 through 472/11. The proposed 

rule change was published for comment 

in the Federal Register on August 3, 

2011.3 The Commission received nine 

comment letters in response to the 

Original Proposal.4 On October 31, 

2011, FINRA filed Amendment No. 1 to 

the proposed rule change and a letter 

responding to comments.5 In order to 

solicit additional input from interested 

parties on the issues presented in 

FINRA’s proposed rule change, on 

November 1, 2011, the Commission 

published notice of Amendment No. 1 

and instituted proceedings pursuant to 

Section 19(b)(2)(B) of the Act, to 

determine whether to approve or 

disapprove FINRA’s proposal as 

modified by Amendment No. 1.6 The 

Commission received seven comment 

letters in response to the Notice and 

Proceedings Order.7 On December 22, 

2011, FINRA filed Amendment No. 2 to 

the proposed rule change and a letter 

responding to comments.8 The 


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9See Exchange Act Release No. 66049 (Dec. 23, 

2011), 76 FR 82014 (Dec. 29, 2011) (‘‘Notice of 

Amendment No. 2’’). The comment period closed 

on January 18, 2012. 

10See letter from Dorothy M. Donohue, Senior 

Associate Counsel, Investment Company Institute, 

dated January 18, 2012 (‘‘ICI January Letter’’) and 

letter from Yoon-Young Lee, Wilmer Hale LLP, on 

behalf of Citigroup Global Markets, Inc., Credit 

Suisse Securities (USA) LLC, Goldman, Sachs & 

Co., JP Morgan Securities Inc., Merrill Lynch, 

Pierce, Fenner & Smith Incorporated, Morgan 

Stanley & Co., LLC, and UBS Securities LLC, dated 

January 19, 2012 (‘‘Wilmer January Letter’’). 

Comment letters are available at www.sec.gov. 

11See letter from Joseph P. Savage, FINRA, to 

Elizabeth M. Murphy, Secretary, SEC, dated March 

6, 2012 (‘‘March Response Letter’’). The text of 

proposed Amendment No. 3 and FINRA’s Response 

Letter are available on FINRA’s Web site at http: 

//www.finra.org, at the principal office of FINRA 

and at the Commission’s Public Reference Room. 

FINRA’s Response Letter is also available on the 

Commission’s Web site at http://www.sec.gov. 

12The current FINRA rulebook consists of (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

The FINRA Rules apply to all FINRA members, 

unless such rules have a more limited application 

by their terms. For more information about the 

rulebook consolidation process, see Information 

Notice, March 12, 2008 (Rulebook Consolidation 

Process). 

13NASD Interpretive Material 2210–2 is the 

subject of a separate proposed rule change. See 

Securities Exchange Act Release No. 61107 

(December 3, 2009), 74 FR 65180 (December 9, 

2009) (Notice of Filing File No. SR–FINRA–2009– 

070) (proposing to replace NASD Interpretive 

Material 2210–2 with proposed FINRA Rule 2211 

(Communications with the Public About Variable 

Insurance Products)). 

14See supra footnote 6. 

15See supra footnote 9. 

16See supra footnote 3. 

17See supra footnote 4. 

18See supra footnote 5. 

19See supra footnote 7. 

20See supra footnote 8. 

21See supra footnote 9. 

22See supra footnote 10. 

Commission published notice of 

Amendment No. 2 on December 23, 

2011,9 and the Commission received 

two comment letters in response to 

Amendment No. 2.10 On March 6, 2012, 

FINRA filed Amendment No. 3 to the 

proposed rule change and a letter 

responding to comments.11 The 

Commission is publishing this Notice 

and Order to solicit comment on 

Amendment No. 3 and to approve the 

proposed rule changes, as modified by 

Amendments Nos. 1, 2, and 3, on an 

accelerated basis. 

II. Description of Proposal 

As described in the Original Proposal, 

FINRA is proposing to adopt NASD 

Rules 2210 and 2211 and NASD 

Interpretive Materials 2210–1 and 2210– 

3 through 2210–8 as FINRA Rules 2210 

and 2212 through 2216, and to delete 

paragraphs (a)(1), (i), (j) and (l) of 

Incorporated NYSE Rule 472, 

Incorporated NYSE Rule Supplementary 

Material 472.10(1), (3), (4) and (5) and 

472.90, and Incorporated NYSE Rule 

Interpretations 472/01 and 472/03 

through 472/11 as part of the process of 

developing a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’).12

The proposed rule change would 

create a new FINRA Rule 2210 that 

would encompass, subject to certain 

changes, the provisions of current 

NASD Rules 2210 and 2211, NASD 

Interpretive Materials 2210–1 and 2210– 

4, and the provisions of Incorporated 

NYSE Rule 472 that do not pertain to 

research analysts and research reports. 

Each of the other Interpretive Materials 

that follow NASD Rule 2210 would 

receive its own FINRA rule number and 

would adopt the same communication 

categories used in proposed FINRA Rule 

2210.13

Proposed FINRA Rule 2210 would 

reduce the number of defined categories 

of communication from six (in the 

current rule) to three and would set 

forth requirements governing pre-use 

principal approval of communications, 

recordkeeping, filing with FINRA’s 

Advertising Regulation Department (the 

‘‘Department’’) and content standards. 

The definitions of the three 

communication categories 

(‘‘institutional communications,’’ ‘‘retail 

communication,’’ and 

‘‘correspondence’’) are important 

because the principal approval, filing 

and content standards apply differently 

to each category. 

The remaining proposed rules 

establish guidelines and restrictions 

governing: the use of investment 

companies rankings in retail 

communications (proposed FINRA Rule 

2212); the use of bond mutual fund 

volatility ratings (proposed FINRA Rule 

2213); the use of investment analysis 

tools (proposed FINRA Rule 2214); 

communications with the public 

regarding security futures (proposed 

FINRA Rule 2215); and communications 

with the public about collateralized 

mortgage obligations (proposed FINRA 

Rule 2216). 

FINRA has modified its Original 

Proposal in certain respects through 

Amendments Nos. 1 and 2, as described 

in the Notice and Proceedings Order 14

and Notice of Amendment No. 2,15

respectively. FINRA has further 

modified its proposal through 

Amendment No. 3, as described 

immediately below. 

III. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

Proposed Amendment No. 3 

FINRA is proposing to amend FINRA 

Rule 2210 to expand the scope of retail 

communications that a Supervisory 

Analyst may approve pursuant to NYSE 

Rule 344. In this regard, FINRA 

proposes to replace proposed FINRA 

Rule 2210(b)(1)(B) with the following: 

(B) The requirements of paragraph (b)(1)(A) 

may be met by a Supervisory Analyst 

approved pursuant to NYSE Rule 344 with 

respect to: (i) research reports on debt and 

equity securities; (ii) retail communications 

as described in NASD Rule 2711(a)(9)(A); 

and (iii) other research that does not meet the 

definition of ‘‘research report’’ under NASD 

Rule 2711(a)(9), provided that the 

Supervisory Analyst has technical expertise 

in the particular product area. A Supervisory 

Analyst may not approve a retail 

communication that requires a separate 

registration unless the Supervisory Analyst 

also has such other registration. 

IV. Discussion of Comment Letters 

On August 3, 2011 the Commission 

published in the Federal Register, 

FINRA’s proposed rule change 

governing communications with the 

public.16 The comment period ended on 

August 24, 2011, and the Commission 

received the nine comment letters listed 

above.17 Many of the commenters 

generally supported the proposal, but 

eight of the commenters raised specific 

concerns discussed in more detail 

below. FINRA filed Amendment No. 1 

to address commenter concerns and 

responded to comments in a letter dated 

October 31, 2011.18

On November 7, 2011 the 

Commission published in the Federal 

Register, the Notice and Proceedings 

Order. The comment period ended on 

December 7, 2011, and the Commission 

received the seven comment letters 

listed above.19 Again, many of the 

commenters generally supported the 

proposal, but each of the commenters 

raised specific concerns discussed in 

more detail below. FINRA filed 

Amendment No. 2 to address 

commenter concerns and responded to 

comments in a letter dated December 

22, 2011.20

On December 29, 2011, the 

Commission published in the Federal 

Register, Amendment No. 2 to the 

Original Proposal, as modified by 

Amendment No. 1.21 The comment 

period ended on January 17, 2012, and 

the Commission received the two 

comment letters listed above.22 The 

commenters reiterated previously raised 

specific concerns discussed in more 

detail below. FINRA filed Amendment 

No. 3 to address commenter concerns, 


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23See supra footnote 11. 

24See proposed FINRA Rule 2210(a). 

25See TLGI August Letter and SIFMA August 

Letter. 

26See TLGI August Letter. 

27See SIFMA August Letter. 28See October Response Letter. 

29See Fidelity August Letter; SIFMA August 

Letter; FSI August Letter; Wolverine December 

Letter; Fidelity December Letter; SIFMA December 

Letter; and FSI December Letter. 30See Fidelity August Letter. 

and responded to comments in a letter 

dated March 6, 2012.23

The section below includes a detailed 

description of: the comments received 

in response to the Original Proposal, the 

Notice and Proceedings Order and the 

Notice of Amendment No. 2; FINRA’s 

October Response Letter, December 

Response Letter and March Response 

Letter; Amendments Nos. 1, 2 and 3; 

and the Commission’s findings. 

V. Discussion and Commission Findings 

A. Categories of Communications 

The proposed rule change defines 

three categories of communications: 

retail communications, correspondence, 

and institutional communications. 24

1. Retail Communication and 

Correspondence 

FINRA proposed to define ‘‘retail 

communication’’ as ‘‘any written 

(including electronic) communication 

that is distributed or made available to 

more than 25 retail investors within any 

30 calendar-day period’’ and 

‘‘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.’’ 

Two commenters raised concerns 

regarding these definitions.25 The 

comments focused on the scope of the 

definitions of retail communications 

and correspondence and the numerical 

limit on recipients of communications. 

One commenter argued that the 

definition of correspondence is too 

limited, and that the definition of retail 

communication is too broad.26 The 

commenter recommended that FINRA 

instead consider all communications to 

existing retail customers to be 

correspondence, as NASD Rule 

2211(a)(1) currently does. Another 

commenter recommended that the 

definition of correspondence be 

qualified to state that the 25-person 

limit is determined by the number of 

persons to whom a member or 

associated person directly distributes a 

communication (and thus does not 

include persons to whom such 

recipients forward the 

communication).27

FINRA responded to the comments 

and disagreed that the term 

‘‘correspondence’’ should include all 

communications to existing retail 

customers.28 FINRA indicated that the 

definition is intended to allow greater 

supervisory flexibility for 

communications sent to a limited 

number of recipients. For example, 

FINRA proposed to make 

correspondence subject to the content 

standards of proposed FINRA Rule 

2210, but would not require it to be filed 

with FINRA and would not subject it to 

the principal pre-use approval 

requirement. Instead, correspondence 

would be subject to the supervision, 

review and recordkeeping requirements 

under NASD Rules 3010 and 3110. 

FINRA also noted that it included in the 

proposal other exceptions that allow 

firms to supervise certain types of retail 

communications similarly to 

correspondence, such as retail 

communications posted on an online 

interactive electronic forum, and retail 

communications that do not make any 

financial or investment 

recommendation or otherwise promote a 

product or service of the member, 

irrespective of the number of recipients. 

FINRA indicated, however, that retail 

communications to large numbers of 

retail investors (regardless of whether 

they are existing customers) that include 

financial or investment 

recommendations or otherwise promote 

the products or services of the member 

should receive the additional scrutiny 

required through the pre-use principal 

approval and filing requirements. 

Accordingly, FINRA did not expand the 

definition of correspondence as the 

commenter recommended. 

FINRA agreed with commenters that a 

member generally should not be 

responsible for a third party that 

independently forwards a retail 

communication to additional recipients. 

However, FINRA clarified that whether 

a member is responsible for a 

communication that is forwarded by a 

third-party will depend on the facts and 

circumstances surrounding a particular 

communication. 

The Commission believes that FINRA 

has addressed adequately comments 

regarding the definitions of retail 

communication and correspondence by, 

among other things, explaining its 

rationale for including communications 

to large numbers of recipients 

(including a firm’s existing customers) 

in the definition of retail 

communication. 

2. Institutional Communication 

Under the proposal, ‘‘institutional 

communication’’ would include written 

(including electronic) communications 

that are distributed or made available 

only to institutional investors. 

‘‘Institutional investor’’ would include, 

among other persons and entities, any 

employee benefit plan (under Section 

403(b) or Section 457 of the Internal 

Revenue Code) or qualified plan (under 

Section 3(a)(12)(C) of the Exchange Act), 

or multiple such plans offered to 

employees of the same employer, that in 

the aggregate have at least 100 

participants, but would not include any 

participant of such plans. The proposed 

definition also would include a category 

for any other person (whether a natural 

person, corporation, partnership, trust 

or otherwise) with total assets of at least 

$50 million. The proposal states 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’’ (the ‘‘reason to 

believe’’ standard). 

In the Original Proposal, FINRA also 

included Supplementary Material 

2010.01 to clarify that a member’s 

internal written (including electronic) 

communications that are intended to 

educate or train registered persons about 

the products or services offered by a 

member are considered institutional 

communications. Accordingly, those 

internal communications would be 

subject to both the provisions of 

proposed FINRA Rule 2210 and NASD 

Rule 3010(d) (Review of Transactions 

and Correspondence). 

Commenters raised a number of 

concerns regarding the definition of 

‘‘institutional communication’’ 

(focusing on the scope of the category of 

institutional investor and the reason to 

believe standard) and the treatment of 

internal communications.29

a. Scope of the Definition of 

Institutional Investor: Retirement Plans 

One commenter recommended that 

the definition of institutional investor 

be revised to cover any size retirement 

plan (including those with fewer than 

100 participants) and that it cover any 

type of retirement plan, including those 

that do not meet the requirements of 

Sections 403(b) or 457 of the Internal 

Revenue Code and are not qualified 

plans as defined in the Exchange Act.30

The commenter argued that the 100- 

participant minimum is arbitrary 

because there is no correlation between 

plan size and investor sophistication, 

and that the standard is difficult to 


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31See Fidelity December Letter. 

32See October Response Letter. 

33See October Response Letter. 

34See December Response Letter (citing to letter 

from Craig S. Tyle, General Counsel, Investment 

Company Institute, to Joan Conley, NASD 

Regulation, Inc., dated October 29, 1999, citing 

ERISA 103(a)(3)(A) (auditing requirements) and 

104(a)(2)(A) (annual reporting), 29 U.S.C. 

1023(a)(3)(A), 1024(a)(2)(A)). 

35See December Response Letter (citing to 

Securities Exchange Act Release No. 45181, 66 FR 

67586 (December 31, 2001) (Notice of Filing of 

Proposed Rule Change and Amendments No. 1 and 

2 Thereto by the National Association of Securities 

Dealers, Inc. Concerning Amendments to Rules 

Governing Member Communications with the 

Public)). 

36See December Response Letter. 

37See Fidelity August Letter; SIFMA August 

Letter; Fidelity December Letter; Wolverine 

December Letter; and SIFMA December Letter. 

38See Fidelity August Letter; Fidelity December 

Letter; Wolverine December Letter. 

39See 17 CFR 230.501(a). 

40See 15 U.S.C. 78c(a)(54). 

41See 15 U.S.C. 80a–2(a)(51). 

42See Wolverine December Letter. 

43See SIFMA August Letter. 

44See SIFMA December Letter. 

45See December Response Letter. 

administer in practice because it 

requires firms to track the number of 

participants in clients’ retirement plans. 

The commenter further argued that the 

retirement plans’ coverage under the 

Employee Retirement Income Security 

Act of 1974 (‘‘ERISA’’) provides 

sufficient protection to small retirement 

plans without having to treat them as 

retail investors for purposes of FINRA 

communications rules. In a second 

letter, the commenter again 

recommended FINRA eliminate the 

requirement that such plans have at 

least 100 participants.31 The commenter 

further argued that because all 

retirement plan sponsors have fiduciary 

responsibilities under ERISA, they are 

required to have an in-depth 

understanding of investment concepts 

and of the products chosen as 

retirement plan options or they are 

required to use the assistance of others 

who have such knowledge. Accordingly, 

the commenter argued that small 

retirement plans do not require the same 

investor protections as retail investors. 

FINRA responded to the comments 

and declined to broaden the universe of 

retirement plans that are included or to 

eliminate the 100-participant threshold 

for employee benefit plans to be 

considered institutional investors. 

FINRA maintained that while some 

plans with 100 or more participants may 

have no more investment sophistication 

than smaller plans, that does not mean 

that all plans should be treated as 

institutional investors. FINRA believes 

that smaller plans require greater 

protection under the rules governing 

member communications than do larger 

plans because plans with at least 100 

participants are more likely to have 

either the sophistication required to 

scrutinize member sales material 

without the benefit of the filing and 

more prescriptive content standards 

applicable to retail communications, or 

have the resources necessary to hire an 

outside party with this sophistication.32

FINRA also indicated that 

commenters did not identify any 

provision in ERISA or any Department 

of Labor rule under that Act that is 

intended to provide the same 

protections to investors with regard to 

communications with the public as 

those provided to retail investors under 

Rule 2210. FINRA further indicated that 

commenters also did not identify other 

plans that do not meet the requirements 

of Sections 403(b) or 457 of the Internal 

Revenue Code and are not qualified 

plans as defined in the Exchange Act 

that should be included as institutional 

investors.33

FINRA noted that when it first 

adopted the institutional investor 

definition in 2003, it had determined 

that retirement plans with fewer than 

100 participants should receive the 

same investor protections as other retail 

investors. FINRA indicated that the 

Investment Company Institute had, at 

that time, recommended this 100- 

participant threshold as an appropriate 

cut-off point for retirement plans, citing 

the fact that ERISA distinguishes 

qualified plans with at least 100 

participants from smaller plans.34 At 

that time, FINRA agreed that this 

standard was a reasonable way to 

distinguish between large and small 

retirement plans.35 FINRA does not 

believe commenters have provided any 

compelling reason to revise this 

standard.36

The Commission recognizes that the 

number of participants may not in all 

cases be a perfect proxy for investment 

sophistication, but believes that FINRA, 

in its statements summarized above, has 

responded adequately to comments 

regarding the definition of institutional 

investor with respect to retirement plans 

and that FINRA has provided adequate 

justifications for the adoption and 

continuing use of the 100-participant 

threshold. 

b. Scope of the Definition of 

Institutional Investor: Minimum Asset 

Threshold and Inconsistency With 

Other Regulatory Thresholds 

As noted above, the proposed 

definition of ‘‘institutional investor’’ 

would include a category for any other 

person (whether a natural person, 

corporation, partnership, trust or 

otherwise) with total assets of at least 

$50 million. Several commenters argued 

that the $50 million asset threshold is 

too high.37 Two commenters 

recommended that the $50 million asset 

threshold be decreased to $5 million in 

order to make the definition of 

institutional investor more consistent 

with the Commission’s Regulation D 38

which includes a $5 million asset 

threshold within the definition of 

‘‘accredited investor.’’ 39 Alternatively, 

one of the commenters recommended 

that FINRA adopt the ‘‘qualified 

investor’’ definition under the Exchange 

Act,40 or the ‘‘qualified purchaser’’ 

definition under the Investment 

Company Act of 1940,41 as a test of 

investor sophistication in lieu of its 

proposed definition.42 These 

commenters argued that adopting one of 

these alternative tests would create 

greater harmony among various 

securities laws and regulations. 

Another commenter similarly 

recommended that the definition be 

expanded to include unregistered hedge 

funds, money managers and family 

offices, regardless of the assets under 

management.43 Alternatively, the 

commenter recommended that the asset 

threshold be reduced to $10 million. In 

a second letter, this commenter noted 

that while it prefers the expanded 

definition of institutional investor under 

proposed FINRA Rule 2210(a)(4) to the 

definition of ‘‘institutional account’’ 

under FINRA Rule 4512(c), it ‘‘strongly 

urges FINRA to adopt one standard or 

the other.’’ 44 The commenter indicated 

that firms should not be required to 

build systems to comply with 

inconsistent definitions of ‘‘institutional 

investor’’ and ‘‘institutional account,’’ 

and thus FINRA should have a uniform 

standard within the Consolidated 

Rulebook. 

FINRA declined to lower the 

minimum asset threshold from $50 

million to $5 million or $25 million for 

investors that are not included in 

another institutional investor category 

because it believes that the definition of 

institutional investor with its $50 

million threshold has long served as a 

reasonable way to distinguish retail and 

institutional customers.45 FINRA 

pointed to the practical effect of 

designating a communication as retail 

rather than institutional: certain 

additional principal approval, filing and 

content standards apply. FINRA 

believes that these additional 

requirements help ensure that investor 


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46See December Response Letter. 47See December Response Letter (citing examples 

of problematic practices. For example, FINRA notes 

that in one case, a member distributed sales 

literature regarding specific hedge funds to its 

customers that had inadequate risk disclosures 

about the specific risks of investing in these hedge 

funds and made unbalanced presentations that 

failed to provide investors with a sound basis for 

evaluating the facts associated with investments in 

these funds. FINRA states that these materials 

included projections of performance that were 

unwarranted. Id. at footnote 22 and accompanying 

text (citing to Altegris Investments Inc., AWC No. 

CAF030015 (April 15, 2003)). 

FINRA cites another case, in which a member 

distributed sales literature regarding privately 

placed registered investment companies that 

contained inadequate risk disclosures, and that 

stated that the fund was seeking a targeted rate of 

return without providing a substantiated basis for 

the target. Id. at footnote 23 and accompanying text 

(citing to UBS Financial Services Inc., AWC No. 

CAF040051 (June 16, 2004)). In another case 

regarding the advertising of hedge funds, FINRA 

states that sales presentations and prospecting 

letters did not provide a sound basis for investors 

to evaluate the reasonableness of the targeted 

investment returns. For example, FINRA explains 

that some of the sales material included 

hypothetical results that were combined with the 

hedge fund’s actual performance, giving the 

misimpression that the fund had actually achieved 

the combined performance record. Id. at footnote 24 

and accompanying text (citing to Citigroup Global 

Markets, Inc., AWC No. CAF040077 (Oct. 4, 2004)). 

FINRA also provides an example of a recently 

litigated case, in which a member distributed 

emails to investors that qualified as accredited 

investors that contained predictions or projections 

of performance, including claims of returns of up 

to 100 percent annually and ‘‘comfortable’’ returns 

of 25–50 percent. FINRA notes that aside from 

violating FINRA rules prohibiting such projections 

of performance, these claims also lacked any 

historical support, and the emails lacked risk 

disclosures. Id. at footnote 25 and accompanying 

text (citing to Dep’t of Enforcement v. Hedge Fund 

Capital Partners LLC, Complaint No. 

2006004122402 FINRA Discip. LEXIS 20 (Jan. 26, 

2011), appeal docketed, Feb. 7, 2011). 48See 17 CFR 230.144A(a)(1). 

49See December Response Letter at footnote 20 

and accompanying text (citing to, e.g., Manning 

Gilbert Warren III, A Review of Regulation D: The 

Present Exemption Regimen for Limited Offerings 

Under the Securities Act of 1933, 33 a.m. U.L. Rev. 

355, 382 (1984)). 50 Id. at footnote 21 and accompanying text 

(citing, e.g., Stephen Choi, Regulating Investors Not 

Issuers: A Market-Based Proposal, 88 Cal. L. Rev. 

279, 310 (2000)). 51See October Response Letter. 

52See December Response Letter. 

53See December Response Letter. 

54See FSI August Letter. 

communications are fair, balanced and 

accurate.46

FINRA noted that in its experience 

regulating member sales material, even 

where investors may meet an 

‘‘accredited investor’’ or other standard 

under the federal securities laws, it is 

not assured that sales material used 

with such investors will not be 

misleading or fraudulent, nor are such 

investors immune from being deceived 

by such material.47 FINRA indicates 

that, in FINRA’s view, this is 

particularly true for individual investors 

that may have enough wealth to qualify 

for investing in privately placed 

securities, but lack the knowledge and 

understanding necessary to prevent 

investor harm from occurring. 

FINRA stated that there would be no 

more reason to lower the threshold than 

to raise it to a higher one, such as the 

threshold for a ‘‘qualified institutional 

buyer’’ (certain institutions holding 

$100 million in securities) under Rule 

144A of the Securities Act of 1933.48

Similarly, in response to the comments 

suggesting the Regulation D standard as 

an alternative, FINRA pointed to various 

observations about the accredited 

investor standard under Regulation D: 

some have asserted that the net worth, 

income or asset size may not be an 

indication of an investor’s ability to bear 

the risk of loss 49 and that the definition 

may be both under-inclusive (by 

excluding financially sophisticated 

investors who do not meet the 

definition’s wealth tests) and overinclusive (by including wealthy 

financial novices).50 FINRA concludes 

that the same criticisms can be made for 

any test of investor sophistication that is 

based upon measures of wealth, such as 

‘‘qualified investor’’ or ‘‘qualified 

purchaser.’’ 

Moreover, FINRA indicates that it is 

seeking to harmonize, where 

appropriate, the definitions related to 

institutional investors under its rules; 

creating a different asset threshold for 

the definition of institutional investor 

under Rule 2210 would run counter to 

this goal.51 Yet, FINRA acknowledged 

that the definition of institutional 

investor differs from the definition of 

‘‘institutional account’’ under FINRA 

Rule 4512(c), as well as from the 

definitions of other terms such as 

‘‘accredited investor’’ or ‘‘qualified 

purchaser’’ under the federal securities 

laws. 

FINRA recognized that while it could 

narrow the definition of institutional 

investor under proposed FINRA Rule 

2210(a)(4) to match the definition of 

‘‘institutional account’’ under FINRA 

Rule 4512(c), regardless of which 

standard FINRA adopts for the proposed 

rule, the inconsistency with federal 

statutes and rules will remain. FINRA 

believes that the current broader 

definition establishes an appropriate 

standard for institutional 

communications and that narrowing the 

definition for purposes of consistency 

with FINRA Rule 4512(c) could 

adversely impact members that are 

relying on the current definition of 

institutional investor under NASD Rule 

2211(a)(3). Accordingly, FINRA 

declined to revise the definition of 

institutional investor for the purpose of 

making it consistent with FINRA Rule 

4512. 

FINRA asked the Commission to 

consider that, unlike the accredited 

investor definition, the ‘‘institutional 

investor’’ definition does not prevent 

investors from investing in particular 

funds or products. Rather, FINRA 

explains that it simply requires 

members to exercise a greater degree of 

supervision with respect to sales 

material if it intends to distribute the 

material to individuals and certain 

entities that have less than $50 million 

in assets. 

FINRA noted that Section 415 of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (the ‘‘DoddFrank Act’’) instructed the Government 

Accountability Office (‘‘GAO’’) to 

conduct a study on the appropriate 

criteria for determining the financial 

thresholds or other criteria needed to 

qualify for accredited investor status to 

invest in private funds—and to report 

back to Congress within three years after 

the date of enactment of the Dodd-Frank 

Act. In light of the GAO study, FINRA 

stated that in its view it would make 

little sense to adopt a standard that 

Congress has questioned and that 

potentially could become obsolete in a 

few years.52

FINRA noted that regardless of which 

definition FINRA chooses to adopt for 

the communication with the public 

rules, inconsistencies will remain, 

because FINRA cannot alter definitions 

contained in either federal statutes or 

Commission rules.53

The Commission believes that FINRA 

responded adequately to commenter 

concerns by providing, among other 

things, a detailed explanation of its 

reasoning for maintaining a $50 million 

minimum asset threshold, as described 

above. The Commission recognizes that 

the institutional investor standard in the 

proposed rule is not intended to stand 

as a bar to investment activity; it 

determines what types of supervisory, 

filing and content requirements will 

apply to communications. 

c. The Reason To Believe Standard 

A commenter stated that FINRA needs 

to interpret ‘‘the reason to believe’’ 

standard because it is subject to a 

variety of interpretations.54 Another 

commenter recommended that FINRA 

replace this standard with a requirement 

that a member establish policies and 

procedures (such as the use of legends 

that prohibit the forwarding of material 

to retail investors) that are reasonably 

designed to limit the distribution of 


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55See SIFMA August Letter. 

56See October Response Letter. 

57See FSI December Letter. 

58See December Response Letter. 

59See FSI December Letter. 

60See December Response Letter. 

61See ICI January Letter. 

62See March Response Letter. 

63See Fidelity; ICI August Letter; SIFMA August 

Letter; and Vanguard August Letter. 

64See Fidelity December Letter; ICI December 

Letter; SIFMA December Letter; Vanguard 

December Letter; and Schwab December Letter. 

65See Schwab December Letter. 

communications to institutional 

investors.55

In response, FINRA indicated that a 

firm’s policies and procedures are 

among the factors FINRA will consider 

in determining whether a firm has 

reason to believe an institutional 

communication will be forwarded to 

retail investors. However, FINRA 

disagreed that the mere existence of 

policies and procedures designed to 

prevent the forwarding of 

communications to retail investors 

(such as legends placed on 

communications) is sufficient to meet 

the reason to believe standard. For 

example, FINRA indicated that it would 

not consider a firm to have met the 

standard if it merely placed a legend on 

a communication warning the recipient 

not to forward it to retail investors, but 

a registered representative then orally 

told the recipient to distribute the 

communication as he pleased. In 

addition, FINRA indicated that a firm 

should not be able to treat a 

communication as an institutional 

communication in circumstances where, 

notwithstanding policies and 

procedures, the firm becomes aware that 

previous similar communications have 

been routinely redistributed to retail 

investors.56

Following publication of the Notice 

and Proceedings Order, one commenter 

reiterated its concern that the ‘‘reason to 

believe’’ standard creates substantial 

ambiguity, and urged FINRA to provide 

more guidance regarding member 

obligations under this standard.57 In 

particular, the commenter inquired 

whether FINRA expects members to be 

proactive in obtaining information 

regarding the ultimate use of 

communications designed for 

institutional investors or whether 

members may satisfy their obligations 

by relying on assurances provided by 

financial advisors that such 

communications have not been 

forwarded to retail investors. 

In response to the additional request 

for guidance, FINRA reiterated that it 

does not intend to impose an affirmative 

obligation on members to inquire 

whether an institutional communication 

will be forwarded to retail investors 

every time such a communication is 

distributed. Rather, FINRA stated that 

members should have policies and 

procedures in place reasonably designed 

to ensure that institutional 

communications are not forwarded to 

retail investors, and make appropriate 

efforts to implement such policies and 

procedures.58

FINRA further clarified that while the 

use of legends on institutional 

communications that are intended to 

limit a communication’s distribution 

can be part of such policies and 

procedures, the use of legends by 

themselves is not sufficient. For 

example, as one commenter suggested,59

FINRA noted that firms may wish to get 

periodic assurances from institutional 

investors that they will not forward 

institutional communications to retail 

investors. FINRA also clarified that to 

the extent a member or associated 

person becomes aware that an 

institutional investor is forwarding or 

making available institutional 

communications to retail investors, it 

must treat future communications sent 

to such institutional investors as retail 

communications, until it reasonably 

concludes that the improper practice 

has ceased.60

Following the publication of 

Amendment No. 2, an additional 

commenter expressed concern about the 

‘‘reason to believe standard.’’ 61 The 

commenter argued that many funds are 

sold through intermediary broker-dealer 

firms, and an intermediary firm may use 

institutional communications prepared 

by a fund’s underwriter with its 

associated persons. The commenter 

believed that, in these circumstances, it 

would be the recipient broker-dealer 

that would be responsible for assuring 

that its associated persons’ limit use of 

the communication to institutional 

investors. 

FINRA agreed with the commenter 

that the ‘‘reason to believe’’ standard 

does not make the fund underwriter 

responsible for supervising the 

associated persons of recipient brokerdealers (unless the person is also 

associated with the underwriter). 

Accordingly, FINRA noted that the 

recipient broker-dealer is responsible for 

assuring that its associated persons do 

not forward institutional 

communications to retail investors. 

FINRA reiterated that the fund 

underwriter should take appropriate 

steps to ensure that institutional 

communications are appropriately 

labeled so that there is no confusion as 

to their status. FINRA also noted that, if 

red flags indicate that a recipient brokerdealer has used or intends to use an 

institutional communication provided 

by the underwriter with retail investors, 

the underwriter must follow up on those 

red flags and, if it determines that this 

is the case, discontinue distribution of 

the communication to that recipient 

broker-dealer until the underwriter 

reasonably concludes that the brokerdealer has adopted appropriate 

measures to prevent future 

redistribution. FINRA stated that it 

intended to further clarify the issue in 

a Regulatory Notice announcing 

adoption of the rule.62

The Commission believes that FINRA 

has responded adequately to commenter 

concerns regarding the ‘‘reason to 

believe’’ standard by providing the 

guidance and clarifications described 

above. 

d. Internal Communications 

Numerous commenters opposed 

including internal written (including 

electronic) communications that are 

intended to educate or train registered 

persons about the products or services 

offered by a member as types of internal 

communications within the definition 

of ‘‘institutional communication,’’ 

arguing that it would impose new 

compliance and supervisory 

requirements on internal 

communications that do not exist under 

current FINRA rules.63 Following 

publication of the Notice and 

Proceedings Order, the commenters 

reiterated opposition to proposed 

Supplementary Material 2010.01.64

One commenter stated that internal 

education and training materials are not 

sales material created for public 

distribution, and as such, not all of Rule 

2210’s policy concerns apply to such 

materials.65 The commenter 

acknowledged that internal materials 

should be fair, balanced and accurate to 

support appropriate sales practices by 

registered representatives, but stated 

that this goal could be achieved by 

having such communications subject 

only to NASD Rule 3010. In particular, 

the commenter noted that Rule 3010 

‘‘provides a sufficient regulatory basis 

for requiring member firms to develop 

policies, procedures and supervisory 

controls to support the development of 

training materials that are accurate and 

balanced in describing a firm’s products 

and services.’’ 

Three commenters argued that a 

reasonable reading of the definition of 

institutional investor under NASD Rule 

2211 might lead to the conclusion that 

it is intended to include external 


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66See Fidelity December Letter; ICI December 

Letter; and SIFMA December Letter. 

67 Id. See also Vanguard December Letter. 

68See Fidelity August Letter. 

69See December Response Letter (citing, NASD 

Rule 2211(a)(2) and (a)(3)(E)). 

70See December Response Letter (citing, e.g., 

NASD Regulatory & Compliance Alert, ‘‘Ask the 

Analyst’’ (September 1998), available at 

www.finra.org). 

71See December Response Letter (citing, e.g., 

NASD Letter of Acceptance, Waiver and Consent 

No. EAF0401000001 (MML Distributors, LLC) (Oct. 

2005); NASD Letter of Acceptance, Waiver and 

Consent No. EAF0401240001 (AFSG Securities 

Corp.) (Oct. 2005); FINRA Letter of Acceptance, 

Waiver and Consent No. 20080130571 (US Bancorp 

Investments, Inc.) (Feb. 12, 2010); and FINRA Letter 

of Acceptance, Waiver and Consent No. 

2008015443301 (UBS Financial Services, Inc.) 

(April 8, 2011)). 

72See December Response Letter (citing letter 

from Barbara Z. Sweeney, NASD, to Katherine A. 

England, Assistant Director, SEC, dated November 

4, 2002 (re: File No. SR–NASD–00–12)). 

73See December Response Letter (citing 

Securities Exchange Act Release No. 47820 (May 9, 

2003), 68 FR 27116 (May 19, 2003) (Order 

Approving Proposed Rule Change and Notice of 

Filing and Order Granting Accelerated Approval to 

Amendments No. 3 and 4 to the Proposed Rule 

Change by the National Association of Securities 

Dealers, Inc. Concerning Amendments to Rules 

Governing Member Communications With the 

Public (File No. SR–NASD–00–12))). 

74See December Response Letter. 

75See NASD Rule 2310 (Recommendations to 

Customers (Suitability)). Effective July 9, 2012, this 

rule is superceded by new FINRA Rule 2111. See 

FINRA Regulatory Notice 11–25, ‘‘New 

Implementation Date for and Additional Guidance 

on the Consolidated FINRA Rules Governing KnowYour-Customer and Suitability Obligations,’’ May 

2011 available at www.finra.org. 

76See FINRA Rule 2010. 

77See December Response Letter (citing 

Regulatory Notice 07–59 (FINRA Provides Guidance 

Regarding the Review and Supervision of Electronic 

Communications) (December 2007)). FINRA 

explained that Regulatory Notice 07–59 further 

makes clear that a member must have reasonably 

designed procedures for the supervisory review of 

those internal communications that are of a subject 

matter that require review under FINRA rules and 

the federal securities laws. 

78See December Response Letter (citing Exchange 

Act Rule 17a-4(a)(4); FINRA Rule 4511(a)). 

parties, including third-party brokerdealers and their associated persons, but 

not the FINRA member firm or its 

associated persons creating an internal 

communication.66 The commenters 

argued that the term ‘‘institutional sales 

material’’ under NASD Rule 2211 could 

be read to exclude internal 

communications. The commenters also 

argued that the additional costs that 

would be imposed on firms by 

including internal communications 

within the term ‘‘institutional 

communication’’ would far exceed any 

incremental benefits to investors, given 

the protection investors already receive 

under NASD Rule 3010.67 One 

commenter indicated that, should this 

requirement be retained, it should also 

cover internal communications to 

associated persons who are not 

registered persons.68

FINRA disagreed with the 

commenters who suggested that internal 

communications are not included 

within the term ‘‘institutional sales 

material,’’ indicating that the current 

definition of ‘‘institutional sales 

material’’ under NASD Rule 2211 

includes any communication that is 

distributed or made available only to 

any NASD member or registered 

associated person of such a member.69

FINRA noted that the plain language of 

the definition of the term ‘‘institutional 

investor’’ includes any broker-dealer 

and its associated persons and contains 

no express exception for a firm’s 

internal communications to its 

associated persons. FINRA stated that it 

believes that treatment of internal 

educational or training material that 

relate to a member’s products or 

services as institutional 

communications is consistent with 

current FINRA rules and FINRA’s 

current and past interpretations of those 

rules. FINRA indicated that it has 

previously issued public guidance 

making clear that the content standards 

of the rules governing member 

communications with the public apply 

to a member’s internal 

communications.70 FINRA also 

indicated that it settled a number of 

enforcement actions against members 

involving misleading internal 

educational and training materials that 

alleged violations of NASD Rules 2210 

and 2211.71

FINRA further noted that a similar 

comment was raised in response to 

FINRA’s proposed amendments to its 

communications with the public rules 

in 2000. FINRA stated, in response to a 

commenter that asserted that a member 

firm’s internal communications are not 

communications with the public, that 

while Rule 2210 excepts internal-use 

only communications from the filing 

requirements, FINRA had long taken the 

position that broker-dealer-only 

materials must meet the rule’s content 

and record-keeping requirements.72

FINRA further pointed out that, at that 

time, the Commission acknowledged the 

comment and FINRA’s response in 

approving the proposed rule change.73

To address commenters concerns, 

FINRA revised the proposed rule change 

in Amendment No. 2 so that going 

forward, internal communications 

would no longer be governed by 

proposed FINRA Rule 2210, and instead 

would be governed by NASD Rule 3010 

(and any successor FINRA Rule), as well 

as other applicable rules. FINRA 

indicated that it believes these other 

existing rule requirements effectively 

lead to the same review and content 

standards as is set forth in proposed 

Supplementary Material 2210.01. 

Therefore, FINRA determined not to 

include internal educational and 

training materials within the term 

‘‘institutional communication’’ for 

purposes of FINRA Rule 2210, and 

proposed, in Amendment No. 2, to 

delete Supplementary Material 

2210.01.74 FINRA also amended the 

definition of ‘‘institutional 

communication’’ (proposed FINRA Rule 

2210(a)(3)) to specifically exclude a 

member’s internal communications. 

FINRA reiterated that, as the 

commenters noted, NASD Rule 3010 

requires firms to supervise internal 

communications, including internal 

communications that train or educate 

registered representatives. Under NASD 

Rule 3010, firms must establish, 

maintain and enforce written 

procedures to supervise the types of 

business in which they engage and to 

supervise associated persons’ activities 

that are reasonably designed to achieve 

compliance with applicable securities 

laws and regulations and with 

applicable FINRA Rules, including the 

suitability rule 75 and just and equitable 

principles of trade.76 FINRA said that it 

believes, with respect to internal 

communications for training and 

education that a firm’s supervisory 

scheme would be deficient unless its 

policies and procedures are reasonably 

designed to ensure that such 

communications are fair, balanced and 

accurate. 

FINRA further noted that firms also 

must determine the extent to which the 

review of internal communications is 

necessary in accordance with the 

supervision of their business 77 and 

maintain records of all internal 

communications relating to their 

business as a broker-dealer.78

The Commission believes that FINRA 

has responded adequately to comments 

regarding internal communications, 

including by amending the proposal to 

remove Supplementary Material 

2210.01. and revising the definition of 

institutional communication to 

specifically exclude a member’s internal 

communications. The Commission 

notes that FINRA cautioned firms that 

their supervisory policies and 

procedures should be structured to 

ensure that internal communications are 

fair, balanced and accurate. 

B. Approval, Review and Recordkeeping 

Proposed FINRA Rule 2210(b)(1)(A) 

generally requires an appropriately 


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79See Wilmer August Letter. 

80NASD Rule 2711 (Research Analysts and 

Research Reports) is designed to address conflicts 

of interest that are raised when research analysts 

recommend securities in public communications by 

implementing structural reforms designed to 

increase analysts’ independence and further 

manage conflicts of interest, and require increased 

disclosure of conflicts in research reports and 

public appearances. Securities Exchange Act 

Release No. 45908 (May 10, 2002); 67 FR 34968 

(May 16, 2002). 

81See SIFMA August Letter. 

82See Wilmer January Letter. 

83See Wilmer January Letter. 

84See October Response Letter. 

85Proposed FINRA Rule 2210(d)(7) requires retail 

communications that include a recommendation of 

securities to have a reasonable basis for the 

recommendation and to include disclosures 

regarding the member’s market-making activities in 

the security, financial interests in the recommended 

securities by the firm or any associated person that 

is directly and materially involved in the 

preparation of the communication, the member’s 

role as manager or co-manager of a public offering 

of the recommended securities during the past 12 

months. The proposed rule also requires members 

to make information available regarding the 

recommendation and generally prohibits reference 

to past specific recommendations, unless certain 

requirements are met. 

qualified registered principal to approve 

each retail communication before the 

earlier of its use or filing with the 

Department. The rule also includes a 

number of exceptions and modifications 

to this requirement for certain types of 

retail communications. For example, 

proposed FINRA Rule 2210(b)(1)(D)(iii) 

would allow a member to supervise in 

a manner similar to correspondence any 

retail communication that does not 

make any financial or investment 

recommendation or otherwise promote a 

product or service of the member. In 

addition, proposed paragraph (b)(1)(E) 

authorizes FINRA to grant an exemption 

from paragraph (b)(1)(A) for good cause 

shown, to the extent the exemption is 

consistent with the purposes of the 

Rule, the protection of investors, and 

the public interest. 

Commenters raised a number of 

concerns regarding the approval process 

and supervision of retail 

communications. The comments 

focused on who should be a principal 

qualified to approve certain 

communications (the ‘‘qualified 

principal approval standard’’) and 

whether communications that do not 

recommend specific securities should 

be excepted from the principal pre-use 

approval requirements. 

1. Approval 

a. Qualified Principal Approval 

Standard 

Paragraph (b)(1)(B) in the Original 

Proposal would have permitted a 

Supervisory Analyst (as defined in 

NYSE Rule 344) approved pursuant to 

NYSE Rule 344 to approve research 

reports on debt and equity securities. 

One commenter recommended that the 

qualified principal approval standard be 

revised to permit Supervisory Analysts 

to review and approve any 

communication produced by a firm’s 

research department, including 

communications that are not research 

reports on debt or equity securities.79

The commenter gave as examples 

macroeconomic research or research on 

commodities. 

The commenter alternatively argued 

that FINRA should exclude from the 

requirement to obtain pre-use principal 

approval all communications produced 

by a firm’s research department. 

Another commenter recommended that 

FINRA exclude all research reports from 

proposed FINRA Rule 2210, on the 

ground that NASD Rule 2711 80

sufficiently regulates these 

communications.81

In a subsequent letter, one of the 

commenters argued that proposed 

paragraph (b)(1)(B) would have a 

negative effect on the review and 

distribution of materials prepared by 

research department personnel, since it 

would not permit Supervisory Analysts 

to review research notes and other 

materials if those materials do not meet 

the definition of ‘‘research report.’’ 82

Instead, the proposed rule would 

require a registered principal to review 

and approve these materials. The 

commenter expressed the view that 

Supervisory Analysts are more qualified 

to review and approve research 

materials prepared by research 

department personnel than associated 

persons who have only taken a general 

securities principal examination. 

The Commenter argued further that 

requiring registered principals rather 

than Supervisory Analysts to review 

these materials would disrupt wellestablished practices and processes that 

firms have developed for publishing 

content produced by research 

department personnel that does not fall 

within the definition of ‘‘research 

report.’’ Accordingly, the commenter 

urged that ‘‘a Supervisory Analyst 

should be permitted to review materials 

that are not defined as ‘‘research 

reports’’ because they are excepted from 

the definition in NASD Rule 2711(a)(9), 

regardless of whether these materials 

contain a financial or investment 

recommendation.’’ 83

In its October Response Letter, FINRA 

disagreed and declined to revise the 

qualified principal approval standard. 

FINRA noted that proposed paragraph 

(b)(1)(D)(i) already would allow 

members to supervise certain types of 

retail communications in the same 

manner as correspondence and that 

these communications include any 

retail communication that is excepted 

from the definition of ‘‘research report’’ 

pursuant to NASD Rule 2711(a)(9)(A), 

which includes ‘‘commentaries on 

economic, political or market 

conditions.’’ FINRA asserted that to the 

extent a research department produces 

communications concerning other types 

of investments, such as commodities, 

FINRA believed that a principal with 

appropriate expertise, rather than a 

Supervisory Analyst, should review 

such communications. 

FINRA also declined to exclude all 

communications produced by a firm’s 

research department and/or all research 

reports. FINRA noted that the fact that 

a particular department within a firm 

produces a communication generally 

should not alter the manner in which 

the communication is reviewed and 

supervised. FINRA indicated that while 

NASD Rule 2711 does include certain 

required disclosures for research 

reports, it lacks other important content 

standards, such as the requirement that 

a communication be based on principles 

of fair dealing and good faith, and be 

fair and balanced. FINRA further 

indicated that proposed FINRA Rule 

2210 includes important supervisory 

and recordkeeping standards that are 

not found in NASD Rule 2711. FINRA 

also noted that it altered the application 

of proposed FINRA Rule 2210’s content 

standards to research reports where 

appropriate.84 For example, it would 

exclude research reports from the 

disclosure requirements set forth in 

proposed FINRA Rule 2210(d)(7) for 

retail communications that include a 

securities recommendation.85 Thus, 

FINRA stated its belief that the current 

rules and proposal appropriately focus 

on the nature of the communication, not 

its department of origin. 

In Amendment No. 1, FINRA 

proposed one modification to proposed 

FINRA Rule 2210(b)(1)(D)(i), in order to 

clarify that a member would be required 

to have a principal approve a retail 

communication that is excepted from 

the definition of ‘‘research report’’ 

pursuant to NASD Rule 2711(a)(9)(A) if 

the retail communication makes any 

financial or investment 

recommendation. To accommodate 

commenter concerns, in its March 

Response Letter, in addition to 

permitting Supervisory Analysts to 

review and approve research reports on 

debt or equity securities (as provided in 

the Original Proposal), FINRA 

determined that Supervisory Analysts 


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86NASD Rule 2711(a)(9)(A) defines the term 

‘‘Research Report.’’ 

87See TLGI August Letter. 

88See PIABA August Letter. 

89See Wilmer August Letter. 

90See December Response Letter. 

91See October Response Letter. 

92See ICI August Letter and ICI December Letter. 

93See December Response Letter. 

94See ICI August Letter. 

95See October Response Letter. 

96See Exchange Act Rule 19b–4. 

97See letter from Annette L. Nazareth, Director, 

Division of Market Regulation to T. Grant Callery, 

Executive Vice President & General Counsel, 

National Association of Securities Dealers, re: SRO 

Exemption Authority, dated March 27, 2003. A 

could also review and approve retail 

communications that are described in 

NASD Rule 2711(a)(9)(A) 86 and other 

research that does not fall within the 

definition of ‘‘research report’’ under 

NASD Rule 2711(a)(9), provided that 

they have technical expertise in the 

particular product area. FINRA noted, 

however, that this revision is not 

intended to alter current requirements 

that certain types of retail 

communications, such as retail 

communications concerning options, 

municipal securities or security futures, 

be approved by a principal with a 

specific qualification. Accordingly, 

FINRA amended proposed FINRA Rule 

2210(b)(1)(B) as set forth in this Order. 

The Commission believes that FINRA 

has responded adequately to comments 

regarding the principal pre-use approval 

requirement through its statements 

summarized above, and its modification 

of proposed FINRA Rule 2210(b)(1)(B) 

as set forth in this Order. 

b. Supervision of Retail Communication 

Without Financial or Investment 

Recommendation 

One commenter argued that the 

exception from the qualified principal 

pre-use approval standard for retail 

communications that do not make any 

financial or investment 

recommendation or otherwise promote a 

product or service of the member needs 

further clarification.87 In contrast, 

another commenter recommended that 

the exception include only retail 

communications that are solely 

administrative in nature.88 Another 

commenter requested confirmation that 

research-authored educational pieces, 

such as primers on certain asset classes 

that do not recommend specific 

securities, are excepted from the 

principal pre-use approval requirements 

under this provision.89

FINRA declined to revise the 

standard, suggesting that it viewed the 

proposed standard as a clearer 

alternative to the standard FINRA had 

originally proposed to its members in 

Regulatory Notice 09–55 (for retail 

communications that are solely 

administrative in nature). FINRA 

explained that numerous commenters 

had argued that the standard was 

unclear and insufficient, and that in 

response to those comments, FINRA had 

revised the standard to explicitly 

exclude retail communications that do 

not make any financial or investment 

recommendation or otherwise promote a 

product or service of the member.90

FINRA does not agree that so-called 

‘‘educational’’ pieces are or should be 

generally excepted from the principal 

pre-use approval requirements under 

this provision. FINRA indicated that 

while this determination will always 

depend on the facts and circumstances, 

the purpose of such pieces may be to 

draw investor interest to a member’s 

products and services, and accordingly 

would be viewed as promotional in 

nature.91

The Commission believes that FINRA 

has responded adequately to comments 

regarding supervision of retail 

communications without financial or 

investment recommendations by, for 

example, highlighting the changes it had 

made in response to comments on a 

prior version of the standard as 

proposed in Regulatory Notice 09–55. 

c. Other Comments Relating to Principal 

Pre-Use Approval 

One commenter noted that many 

closed-end funds are listed on the New 

York Stock Exchange (‘‘NYSE’’).92

Section 202.06 of the NYSE Listed 

Company Manual encourages listed 

issuers to disseminate ‘‘quickly to the 

public any news or information which 

might reasonably be expected to 

materially affect the market for its 

securities.’’ The commenter maintained 

that, in the case of listed closed-end 

funds, this information would include, 

among other things, dividend 

announcements, and typically would be 

disseminated through press releases. 

The commenter asked that FINRA 

clarify that closed-end funds’ press 

releases issued pursuant to Section 

202.06 of the NYSE Listed Company 

Manual are excluded from the pre-use 

principal approval requirement. The 

commenter also requested that FINRA 

exclude these press releases from the 

filing requirement, as discussed below. 

FINRA responded by pointing to 

proposed FINRA Rule 2210(b)(1)(D)(iii), 

noting that to the extent a member 

distributes or makes available a press 

release about a closed-end fund that 

does not make any financial or 

investment recommendation or 

otherwise promote a product or service 

of the member, the member would not 

be required to have a principal approve 

it prior to use.93 FINRA did not amend 

the proposal to specifically exclude 

these press releases from the pre-use 

principal approval requirement. 

The Commission believes that FINRA 

has responded adequately to these 

comments by identifying the types of 

press releases issued pursuant to 

Section 202.06 of the NYSE Listed 

Company Manual that would be 

excluded from the proposed rule’s preuse principal approval requirements 

(i.e., those that do not make any 

financial or investment 

recommendation or otherwise promote a 

product or service of the member), and 

(as discussed below), by amending the 

proposal to exclude these press releases 

from the filing requirement. 

2. FINRA’s Exemptive Authority 

One commenter recommended that, 

should FINRA grant exemptive relief 

from the principal pre-use approval 

requirements to a member or a small 

number of members pursuant to 

proposed paragraph (b)(1)(E), FINRA 

should announce this relief in a 

Regulatory Notice and simultaneously 

grant this relief to all members.94

FINRA responded that it generally 

does not intend to use this provision to 

grant relief to firms that have not 

applied for such relief. If FINRA 

determines that similar relief is 

appropriate for all members, it generally 

expects to file a proposed rule change 

with the Commission to accomplish 

such result. However, FINRA indicated 

that it will consider the best means to 

publish any relief granted under this 

provision.95

The Commission believes that FINRA, 

in its statements summarized above, has 

responded adequately to this comment. 

The Commission notes that FINRA is 

required, under Exchange Act Section 

19(b) and Rule 19b–4 thereunder to file 

a proposed rule change with the 

Commission if a stated policy, practice, 

or interpretation is not reasonably or 

fairly implied by an existing FINRA rule 

and is not concerned solely with 

FINRA’s administration (subject to 

certain exceptions).96 In a March 2003 

letter to the NASD (as well as all other 

non-clearing agency self-regulatory 

organizations (‘‘SROs’’)), the Division of 

Trading and Markets (formerly known 

as the Division of Market Regulation) 

clarified the process to be used by SROs 

when granting exemptions from SRO 

rules.97 As stated in the letter, the only 


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copy of this letter is available in the Commission’s 

Public Reference Room. 

98 Id. The letter states that ‘‘[t]he broad definition 

of ‘‘proposed rule change’’ in Rule 19b–4 means 

that exemptions of general applicability that impose 

substantive binding requirements should be done 

through the notice-and-comment rulemaking 

process. Similarly relief from the SRO standards or 

obligations made generally applicable to members 

is rulemaking and must be done through the noticeand-comment rulemaking process. 

Determining when an exemption is of general 

applicability is in some cases difficult. It is clear 

that when an exemption on its face is a class 

exemption, or is otherwise generally applicable, the 

notice-and-comment process should apply. What is 

less readily apparent, however, is when the 

exemption is not on its face generally applicable but 

involves factual circumstances that will be 

frequently replicated. In this circumstance, 

adherence to the notice-and-comment process will 

also apply. The fact that the exemption order may 

be unpublished or may state that it is limited to the 

individual firm or person to whom it is granted, 

does not mitigate the need for notice-and-comment 

procedures if the circumstances involved are so 

common that the SRO will in fact be granting the 

same exemption to all other persons similarly 

situated.’’ 

99See letter from Mary L. Schapiro, Chairman, 

Securities and Exchange Commission to Ms. Alicia 

Puente Cackley, Director, Financial Markets and 

Community Investment, GAO, dated July 15, 2011, 

Appendix III, United States Government 

Accountability Office, Report to Congressional 

Committees, ‘‘Mutual Fund Advertising: Improving 

How Regulators Communicate New Rule 

Interpretations to Industry Would Further Protect 

Investors,’’ July 2011, available at http:// 

www.gao.gov/assets/330/321961.pdf (‘‘GAO Mutual 

Fund Advertising Report’’). The Chairman’s letter 

responded to the GAO Mutual Fund Advertising 

Report, which recommended that the SEC should 

take steps to ensure FINRA develops sufficient 

mechanisms to notify all fund companies about 

changes in rule interpretations for fund advertising, 

to help ensure investors are better protected from 

misleading advertisements. In a letter from FINRA 

responding to the GAO, FINRA described certain 

steps that it had already taken to address the issues 

raised in the report: (1) FINRA’s intent to publish, 

through a Notice to firms or by other means, any 

significant new interpretation of the advertising 

rules that affect a broad section of the industry; 

(2) FINRA’s plan to develop one or more 

mechanisms to provide a regular summary of 

advertising issues and its interpretation, such as 

through a regular letter to advertising compliance 

contacts and regularly scheduled webinars; and (3) 

ongoing consideration by FINRA’s Advertising 

Regulation managers of the means of disseminating 

important matters. See letter from Thomas M. 

Selman, Executive Vice President, Regulatory 

Policy, FINRA to Ms. Alicia Puente Cackley, 

Director, Financial Markets and Community 

Investments, GAO, dated July 11, 2011, available at 

Appendix II, GAO Mutual Fund Advertising Report. 

100See Wilmer August Letter. 

101See October Response Letter. 

102See ICI August Letter; Wilmer August Letter; 

TLGI August Letter; SIFMA August Letter; and 

Fidelity August Letter. 

103See TLGI August Letter. 

104See SIFMA August Letter. 

105See October Response Letter. 

106See SIFMA August Letter. 

107See October Response Letter. 

108See Wilmer August Letter. 

circumstance in which exemptive 

authority of SROs should be exercised 

in lieu of employing the notice-andcomment process applicable to 

proposed SRO rule changes under 

Section 19(b) of the Exchange Act is 

‘‘where the circumstances are truly 

unique.’’ 98 The Commission expects 

FINRA to maintain records of any 

exemptions granted. 

Commission Chairman Mary Schapiro 

recently articulated ‘‘that the uniform 

dissemination of regulatory positions 

tends to enhance compliance, thereby 

furthering investor protection.’’ 99 The 

Commission encourages FINRA to 

continue to identify means of improving 

transparency of regulatory 

interpretations and positions. 

3. Recordkeeping 

One Commenter requested 

confirmation that the requirement in 

proposed paragraph (b)(4)(A)(i) to 

maintain the date of last use does not 

apply to research communications.100

FINRA indicated that this requirement 

(if applicable) applies to all 

communications and that there is no 

exception for research.101

The Commission believes that FINRA 

has clarified adequately that there is no 

exception to the requirement to 

maintain (if applicable) a record of the 

date of last use for any communications 

under proposed paragraph (b)(4)(A)(i). 

For a discussion of comments regarding 

recordkeeping requirements for online 

interactive electronic content, see 

Section E. (Other Issues Related to 

Public Appearances and Online 

Interactive Electronic Communications) 

below. 

C. Filing Requirements and Review 

Procedures 

Proposed FINRA Rule 2210(c)(1) 

through (c)(3) would require members to 

file certain retail communications either 

at least 10 business days prior to first 

use or publication, or within 10 

business days of first use or publication, 

depending on the communication. 

Proposed paragraph (c)(7) includes a 

number of exclusions from these filing 

requirements. 

Commenters raised concerns 

regarding the proposed filing 

requirements, focusing on the volume of 

material that would fall under the filing 

requirement and suggesting various 

possible exclusions to decrease the 

filing requirement burden.102

1. General 

One commenter expressed concern 

that the filing requirements of paragraph 

(c)(3) would subject almost all member 

communications to filing with 

FINRA.103 Another commenter argued 

that FINRA staff review of filings on a 

post-use basis does not enhance investor 

protection, since the material has 

already been distributed.104

FINRA disagreed with the first 

concern, indicating that the filing 

requirements under this paragraph 

covers retail communications 

concerning registered investment 

companies, public direct participation 

programs, investment analysis tools, 

collateralized mortgage obligations, and 

retail structured products. FINRA stated 

that the filing requirements would not 

cover correspondence or institutional 

communications and that they also 

would not apply to retail 

communications concerning many other 

types of securities that are not listed in 

paragraph (c)(3).105

FINRA also disagreed with the 

argument that post-use review by 

FINRA staff fails to protect investors. 

FINRA indicated that it allows members 

to file communications on a post-use 

basis to prevent filing requirements 

from serving as an impediment to 

distributing sales material in a timely 

manner. FINRA suggested that the 

commenter’s argument, if extended, 

would require that all retail 

communications be filed prior to use.106

While FINRA would require pre-use 

filing for certain types of retail 

communications that it believes present 

potentially higher risks of being 

misleading to investors, FINRA believes 

that post-use filing is sufficient for many 

other types of retail communications. 

FINRA indicates that the filing 

requirements provide a check on firms 

that may otherwise consider including 

misleading statements in sales material, 

and brings potentially misleading 

material to FINRA’s attention.107

The Commission believes that FINRA 

responded adequately to these 

comments by, among other things, 

clarifying the scope of the filing 

requirement in proposed paragraph 

(c)(3) and by explaining that post-use 

filing permits a firm to distribute sales 

material in a timely manner, while 

bringing potentially misleading material 

to FINRA’s attention. 

2. Communications Concerning 

Government Securities 

A commenter argued that the 

proposed filing requirements for retail 

communications concerning 

government securities, as set forth in the 

Original Proposal, would greatly expand 

the filing obligations with regard to 

many types of research 

communications, with little benefit to 

investors.108 Another commenter argued 


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109See SIFMA August Letter. 

110See Amendment No. 1. 

111See October Response Letter. 

112See Wilmer August Letter. 

113See October Response Letter. 

114See October Response Letter (citing to Office 

of Compliance Inspections and Examinations, U.S. 

Securities and Exchange Commission, ‘‘Staff 

Summary Report on Issues Identified in 

Examinations of Certain Structured Securities 

Products Sold to Retail Investors,’’ (July 27, 2011), 

available at http://www.sec.gov/news/studies/2011/ 

ssp-study.pdf. FINRA noted that the staff found that 

some free-writing prospectuses concerning 

principal protected notes failed to disclose risks 

that investors could receive less than the principal 

investment if these notes were redeemed prior to 

maturity and that there were also problems 

regarding disclosures of fees for some products.). 

115See Fidelity August Letter. 

116See Fidelity December Letter. 

117See SIFMA August Letter and ICI August 

Letter. 

118See ICI December Letter. 

119See October Response Letter. 

120See December Response Letter. 

121See ICI January Letter. 

122See ICI January Letter. 

123FINRA noted that to the extent that such a 

narrative constituted a retail communication that 

would be subject to more flexible supervision and 

review standards, then those standards would 

apply. See, e.g., proposed FINRA Rule 2210(b)(1)(D) 

(allowing certain categories of retail 

communications to be supervised and reviewed in 

the same manner as is required for correspondence). 

124See March Response Letter. 

that FINRA should maintain the current 

filing requirements for government 

securities on the basis that principal 

pre-use approval is sufficient.109

In response to comments, FINRA 

eliminated the proposed filing 

requirement for retail communications 

concerning government securities.110

FINRA indicates that NASD Rule 2210, 

which requires members to file 

advertisements concerning government 

securities, has generated relatively few 

filings over the past few years, and 

FINRA’s staff has found relatively few 

problems with the advertisements that 

have been filed. Given the potential 

burden that an expanded filing 

requirement for retail communications 

concerning government securities may 

impose on members compared to the 

relatively lower risk that such retail 

communications pose, FINRA believes 

that it is not necessary to require 

members to file these communications. 

FINRA clarified that it retains the ability 

to review such communications through 

other means, such as spot checks or 

targeted examinations, and to take 

appropriate actions against members for 

violations of FINRA rules.111

The Commission believes that FINRA 

addressed adequately commenter 

concerns by eliminating the proposed 

filing requirement for communications 

concerning government securities 

contained in the Original Proposal, on 

the basis that (i) FINRA can review 

these communications through other 

means; (ii) such communications pose a 

lower risk for containing misleading 

material, and (iii) the filing requirement 

may be unduly burdensome. 

3. Communications Concerning 

Structured Products 

A commenter similarly argued that 

the proposed filing requirements for 

retail communications concerning 

registered structured products would 

greatly expand the filing obligations 

with regard to research 

communications, with little benefit to 

investors.112

FINRA disagreed with the argument 

that there is no need to file research 

concerning retail structured products.113

FINRA cited a recent report 

summarizing broker-dealer 

examinations by the staff of the 

Commission’s Office of Compliance 

Inspections and Examinations, in which 

the Commission staff identified a 

number of sales-related problems 

concerning structured products sold to 

retail investors.114 FINRA concluded 

that retail communications concerning 

retail structured products should be 

filed for review by FINRA staff to help 

ensure that such communications are 

not misleading. 

The Commission believes that FINRA 

addressed adequately the comment 

regarding registered structured products 

by, among other things, explaining that 

review by FINRA staff may result in 

discovery of sales-related disclosure 

problems, such as failure to disclose 

fees or material facts about redemption. 

4. Templates 

Proposed paragraph (c)(7)(B) would 

exclude from the filing requirements 

retail communications that are based on 

templates that were previously filed 

with the Department, the changes to 

which are limited to updates of more 

recent statistical or other non-narrative 

information. One commenter argued 

that this exclusion be expanded to cover 

updates of narrative information that is 

sourced from either an independent 

data provider or an investment company 

or its affiliate.115 This commenter later 

reiterated the request, suggesting that 

the narrative information could also be 

sourced from publicly available 

documents filed with the SEC.116 Two 

other commenters recommended that 

this filing exclusion be expanded to 

cover updates of narrative factual 

information from an entity that provides 

general information about investment 

companies to the public and is 

independent of the investment company 

and its affiliates.117 One of these 

commenters later argued that this filing 

exclusion would reduce member costs, 

while still allowing FINRA to review 

updated templates through other means, 

such as spot-checks or examinations.118

FINRA declined the commenters’ 

suggestions, indicating that adopting 

such a filing exclusion could potentially 

encompass almost all retail 

communications concerning investment 

companies, as long as a new retail 

communication could be related to a 

previously filed communication. FINRA 

cited concerns about the types of 

narrative information that would be 

updated, such as changes to the 

description of a fund’s investment 

objectives, and concluded that in some 

cases additional review by Department 

staff may be warranted for updates of 

such narrative information.119 FINRA 

also stated that third-party data 

providers often receive their 

information about a fund from an 

affiliate of the fund, and thus, in many 

cases, this information ultimately will 

be generated by either the member firm 

or one of its affiliates.120 FINRA argued 

that such information would not be 

considered to have come from an 

independent source and that filing of 

updated material is the best way to 

ensure that members’ retail 

communications are fair, balanced and 

accurate. 

Following publication of Amendment 

No. 2, one commenter recommended 

that FINRA permit a risk-based 

principal review process for narrative 

updates of templates.121 According to 

the commenter, ‘‘FINRA could require 

firms to develop policies and 

procedures appropriate for their 

business structure,’’ citing proposed 

FINRA Rule 2210(b)(1)(D), which 

permits members to supervise certain 

categories of retail communications in 

the same manner as required for 

supervising and reviewing 

correspondence.122 The commenter 

argued that this approach would 

preserve FINRA’s ability to monitor 

these materials, both through review via 

filing and through spot checks and 

targeted examinations. 

FINRA reiterated that registered 

principal approval of narrative updates 

to templates prior to use helps to ensure 

that the narrative is fair, balanced and 

not misleading, in the same manner as 

prior review by registered principals of 

other types of mutual fund sales 

material.123

FINRA also suggested that the 

commenter’s approach would not be 

workable as proposed.124 FINRA had 

proposed that an appropriately qualified 


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125See proposed FINRA Rule 2210(b)(1)(F). 

126See SIFMA August Letter. 

127See SIFMA December Letter. 

128See October Response Letter. 

129See October Response Letter. 

130See December Response Letter. 

131FINRA notes that SIFMA cited proposed 

FINRA Rule 2210(d)(2) in its comment letter; 

FINRA presumes this citation was a typographical 

error, since paragraph (d)(2) does not impose a 

filing requirement. 

132See December Response Letter (citing to 15 

U.S.C. 77c(a)(14)). 

133See proposed FINRA Rule 2210(c)(1)(A). 

134See Amendment No. 2; proposed FINRA Rule 

2210(c)(1)(A). 

principal approve a communication 

prior to a member filing the 

communication with FINRA.125

Accordingly, FINRA believes that 

review of narrative updates to templates 

in a manner similar to correspondence 

would not be consistent with this filing 

requirement. 

The Commission believes that FINRA 

has responded adequately to comments 

regarding templates. For example, 

FINRA explained, that: (1) Its review of 

updated or new narrative information is 

designed to achieve fair and balanced 

communications that are not 

misleading, (2) that information 

provided by third parties may not be 

truly independent, and (3) that a riskbased principal review process for 

narrative updates of templates would 

not be consistent with the requirement 

to have an appropriately qualified 

principal approve a communication 

prior to a member filing the 

communication with FINRA. 

5. SEC-Filed Documents 

Proposed paragraph (c)(7)(F) would 

exclude from the filing requirements 

prospectuses, preliminary prospectuses, 

fund profiles, offering circulars and 

similar documents that have been filed 

with the Commission or any state, or 

that are exempt from such registration. 

Investment company prospectuses 

published pursuant to Securities Act 

Rule 482 and ‘‘free writing 

prospectuses’’ that have been filed with 

the Commission pursuant to Securities 

Act Rule 433(d)(1)(ii) (prospectuses 

used by or referred to and distributed by 

or on behalf of any offering participant, 

other than the issuer in a manner 

reasonably designed to lead to its broad 

unrestricted dissemination) (referred to 

herein as ‘‘broker-prepared free writing 

prospectuses’’) are not covered by this 

exclusion. 

One commenter argued that the 

exclusion in proposed paragraph 

(c)(7)(F) should cover all free writing 

prospectuses that are widely 

distributed, since they are already filed 

with the Commission.126 The 

commenter later argued that FINRA 

should exclude broker-prepared free 

writing prospectuses from the filing 

requirements on the grounds that the 

Commission staff already reviews such 

prospectuses under its filing 

program.127

FINRA disagreed that the filing 

exclusion under proposed paragraph 

(c)(7)(F) should cover all widely 

distributed free writing prospectuses or 

broker-prepared free writing 

prospectuses that have been filed with 

the Commission and declined to change 

the proposed provision. FINRA made 

clear that the filing requirement only 

applies to widely disseminated free 

writing prospectuses that are prepared 

by or on behalf of a broker-dealer, and 

that it would not apply to free writing 

prospectuses that are not widely 

disseminated, nor would it apply to 

widely disseminated free writing 

prospectuses that are prepared by or on 

behalf of an issuer.128

FINRA also cited, as an example of 

problematic practices, widely 

distributed free writing prospectuses for 

retail structured products that it has 

found to have misleading content that 

merits review by the Department. 

FINRA indicated that the additional 

review of widely distributed free writing 

prospectuses would help protect 

investors from potentially misleading 

sales material.129 FINRA maintains that 

while certain broker-prepared free 

writing prospectuses must be filed with 

the Commission under Securities Act 

Rule 433, this filing requirement does 

not necessarily ensure prompt 

Commission staff review of all such 

prospectuses. Thus, FINRA believes that 

its review will add a layer of investor 

protection that is appropriate under the 

circumstances.130

The commenter also argued that the 

pre-use filing requirements of proposed 

FINRA Rule 2210(c)(2) could delay 

publication of broker-prepared free 

writing prospectuses, which would be 

contrary to the Commission’s goal of 

timely release of information.131 FINRA 

indicated that the concern that proposed 

FINRA Rule 2210(c)(2)’s pre-use filing 

requirements would delay the issuance 

of free writing prospectuses is based on 

a faulty premise. FINRA notes that these 

pre-use filing requirements apply to: (A) 

Retail communications concerning 

registered investment companies that 

include self-created rankings; (B) retail 

communications concerning security 

futures (subject to certain exceptions); 

and (C) retail communications 

concerning bond mutual funds that 

include or incorporate bond mutual 

fund volatility ratings. FINRA stated its 

view that—with regard to (A) and (C) 

above—investment companies are not 

permitted to issue free writing 

prospectuses and—with regard to (B) 

above—security futures generally are 

exempted securities under the 

Securities Act.132 FINRA maintains that 

there is no need for an issuer or brokerdealer to use a free writing prospectus 

to advertise security futures. 

Accordingly, FINRA stated that the preuse filing requirements for retail 

communications concerning investment 

companies or security futures would not 

require a free writing prospectus to be 

filed with FINRA. 

Although the commenter did not 

specifically cite to the proposed prefiling requirement that applies to certain 

types of retail communications 

distributed by a new member during a 

one-year period beginning on the date 

that the member’s FINRA membership 

became effective,133 FINRA recognized 

that free writing prospectuses could 

potentially be subject to pre-filing under 

that new member requirement. To 

address the commenter’s underlying 

concern regarding timely release of 

information, FINRA amended the 

provision governing new member 

communications to allow new members 

to file widely disseminated free writing 

prospectuses prepared by or on behalf of 

a broker-dealer within 10 business days 

of first use, rather than impose a pre-use 

filing requirement on such 

communications.134

The Commission believes that FINRA, 

in its statements summarized above, 

responded adequately to comments 

regarding SEC-filed documents. Among 

other things, FINRA stated its view that 

additional review by FINRA of widely 

distributed free writing prospectuses 

would help protect investors from 

potentially misleading sales material. 

FINRA also responded to the comments 

concerning timely issuance of 

information by modifying the provision 

governing new member 

communications as described above and 

explaining why other provisions 

requiring pre-filing would not apply to 

free writing prospectuses. 

6. Communications With the Media 

Two commenters recommended that 

the exclusion in proposed paragraph 

(c)(7)(H), which would exclude from the 

filing requirements press releases made 

available only to members of the media, 

be expanded to cover all materials that 

are provided to the media, such as white 

papers, research reports, charts, and 


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135See Fidelity August Letter and SIFMA August 

Letter. 

136See ICI August Letter. 

137See ICI August Letter. 

138See SIFMA August Letter and SIFMA 

December Letter. 

139See ICI December Letter. As discussed under 

Section B.1.c. above, the ICI also requested that 

FINRA exclude such press releases from the pre-use 

approval requirements. 

140See Amendment No. 2 Rule 2210(c)(7). 

141See SIFMA August Letter. The commenter also 

stated that ‘‘the better solution’’ would be to revise 

proposed FINRA Rule 2210(f) to specify that online 

postings are a type of public appearance that do not 

constitute retail communications. This comment is 

discussed later in this Order. 

142See October Response Letter. 

educational materials.135 Another 

commenter alternatively argued that the 

proposed rule should treat 

communications provided solely to the 

media as correspondence.136

FINRA declined to expand the filing 

exclusion for press releases made 

available only to members of the media 

to include other types of 

communications. FINRA indicated that 

to the extent a member is using a media 

outlet to distribute retail 

communications other than press 

releases, FINRA believes that such retail 

communications should be filed with 

the Department for review if they are 

subject to a separate filing requirement; 

otherwise, the media could become a 

conduit by which firms could avoid 

those filing requirements. In addition, 

FINRA noted that facts and 

circumstances surrounding a 

communication will determine whether 

that communication to a member of the 

media qualifies as correspondence, a 

retail communication or an institutional 

communication. FINRA does not believe 

it makes sense to characterize all such 

communications as correspondence. 

The Commission believes that FINRA 

has responded adequately to comments 

regarding communications with the 

media, including by explaining why 

providing a communication (other than 

a press release) solely to a member of 

the media would not be a sufficient 

basis to exclude such communication 

from the filing requirements or to 

characterize such communication as 

correspondence. 

7. Lists of Products 

One commenter supported the filing 

exclusion in proposed paragraph 

(c)(7)(L), which would exclude from the 

filing requirements communications 

that refer to types of investments solely 

as part of a listing of products or 

services offered by the member, but 

noted that ‘‘it seemingly would apply to, 

among other documents, a retirement 

plan enrollment guide, which includes 

a listing of a plan’s investment 

options.’’ 137

FINRA indicated that the 

commenters’ understanding was correct 

only to the extent an enrollment guide 

listed the types of investments available 

through the plan. FINRA clarified that 

to the extent an enrollment guide 

mentioned the individual funds or other 

investment options available through a 

plan, the filing exclusion would not be 

available. The Commission believes that 

FINRA has responded adequately to the 

issue raised by the commenter under 

proposed paragraph (c)(7)(L), including 

by providing examples of enrollment 

guides that would not be eligible for the 

filing exclusion. 

8. Communications Concerning ClosedEnd Funds 

One commenter argued that FINRA 

should exclude from the filing 

requirements all retail communications 

concerning closed-end funds.138 The 

commenter argued that such 

communications pose lower risks than 

communications concerning other 

products (such as structured products), 

and that having a principal review such 

retail communications prior to use 

provides sufficient investor protection. 

Another commenter requested that 

FINRA clarify that closed-end funds’ 

press releases issued pursuant to 

Section 202.06 of the NYSE Listed 

Company Manual be excluded from the 

filing requirements.139

FINRA noted that it does not believe 

it should exclude from the filing 

requirements other types of retail 

communications concerning closed-end 

funds, stating that it is not persuaded by 

the fact that a principal must approve 

such communications prior to use. 

FINRA indicated that the same principal 

approval requirement applies to other 

types of retail communications that are 

subject to a filing requirement. In 

addition, FINRA indicated that its staff 

found through filings and investigations 

of closed-end fund communications 

under the current rules that such 

communications frequently require 

changes in order to be consistent with 

applicable advertising rules. For 

example, FINRA indicated that its staff 

has found significant problems with 

retail communications used to promote 

auction-rate securities issued by closedend funds. 

FINRA indicated that proposed 

FINRA Rule 2210(c)(7)(C) would 

exclude from the Rule’s filing 

requirements any retail communication 

that does not make any financial or 

investment recommendation or 

otherwise promote a product or service 

of the member. To the extent a member 

distributes or makes available a press 

release about a closed-end fund that 

does not make any financial or 

investment recommendation or 

otherwise promote a product or service 

of the member, FINRA noted that the 

member would not be required to have 

a principal approve it prior to use. To 

address one of the commenters’ 

concerns, however, FINRA amended 

proposed FINRA Rule 2210(c)(7) to add 

a separate exclusion from the filing 

requirements for press releases 

concerning closed-end investment 

companies listed on the NYSE that are 

issued pursuant to Section 202.06 of the 

NYSE Listed Company Manual (or any 

successor provision).140

The Commission believes that FINRA 

has responded adequately to comments 

about communications concerning 

closed-end funds. For example, FINRA 

explained that it seeks to review such 

communications because it has found 

that some communications produced by 

closed-end funds have been inconsistent 

with current regulations governing 

communications. In addition, in 

response to comments concerning press 

releases issued pursuant to Section 

202.06 of the NYSE Listed Company 

Manual, the Commission believes that 

FINRA appropriately responded to 

comments by amending the proposal by 

adding an exclusion for such press 

releases as described above. 

9. Communications Posted on Online 

Interactive Electronic Forums 

A commenter recommended that 

FINRA add a new filing exclusion for 

retail communications posted on an 

online interactive electronic forum, 

similar to the exception from the 

principal pre-use approval requirements 

under proposed FINRA Rule 

2210(b)(1)(D)(ii).141 FINRA initially 

disagreed that there should be a filing 

exclusion for such retail 

communications and declined to make 

the change.142

As discussed in more detail below, 

commenters raised a number of 

additional concerns regarding the 

treatment of communications on online 

interactive electronic forums. In its 

December Response Letter, FINRA 

recognized that a member may face 

supervisory and operational difficulties 

if it is required to file an online forum 

post given that the member will be 

supervising such communications in the 

same manner as correspondence. 

Accordingly, FINRA amended proposed 

FINRA Rule 2210(c)(7) to add a filing 

exclusion for retail communications that 

are posted on online interactive 


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143See, e.g., 15 U.S.C. 80a–24(b); 17 CFR 230.497. 

144See ICI December Letter and ICI January 

Letter. 

145See March Response Letter. 

146FINRA stated that its Department staff codes 

mutual fund shareholder reports as ‘‘performance 

reports,’’ which includes not only fund shareholder 

reports, but also other periodic performance reports, 

such as quarterly fund reports and other types of 

periodic fund performance updates. The 7.5 percent 

figure reflects comments made on all 

communications coded as performance reports, 

although most performance reports are sales 

material and MDFPs included within mutual fund 

shareholder reports. Id. 

147See December Response Letter. 

148See March Response Letter. 

149See ICI January Letter. 

150See March Response Letter. FINRA noted that 

these 10 largest fund complexes filed approximately 

30 percent of all mutual fund performance reports 

received by FINRA in 2011 (which, as noted above, 

includes shareholder reports)—and of these fund 

complexes, one creates multiple-fund shareholder 

report documents for all of its funds, seven create 

multiple-fund shareholder report documents for at 

least some of their funds, and only two issue a 

separate shareholder report document for each 

fund. 

electronic forums. FINRA cautioned that 

members should be aware that this 

exception does not apply to any filing 

requirement that may arise under either 

federal law or Commission rules.143

The Commission believes that FINRA 

has responded adequately to comments 

by, among other things, amending the 

proposal to add a filing exclusion for 

retail communications that are posted 

on online interactive electronic forums. 

10. Mutual Fund Shareholder Reports 

One commenter argued that FINRA 

should exempt a mutual fund’s 

Management’s Discussion of Fund 

Performance (‘‘MDFP’’) from filing with 

FINRA on the ground that it is already 

filed with the Commission and subject 

to certain control and certification 

requirements under federal law and 

Commission rules.144 The commenter 

also noted that Section 408(c) of the 

Sarbanes-Oxley Act requires the 

Commission staff to review issuers’ 

disclosures, including the MDFP, at 

least once every three years. 

FINRA pointed out that it currently 

requires members to file the MDFP and 

sales material portion of a mutual fund 

annual or semi-annual report if a 

member intends to use the report to 

market the fund to prospective 

investors.145 FINRA explained that the 

existing filing requirement under NASD 

Rule 2210 is limited to those 

shareholders reports that are being 

provided to prospective investors—and 

does not apply to shareholder reports 

provided only to existing shareholders 

for informational purposes. FINRA 

further highlighted that this limitation is 

designed to ensure that a filing 

requirement can achieve its purpose, 

which is to ensure that shareholder 

reports that the fund uses to market its 

shares to retail and other investors are 

reviewed in the same manner as other 

fund marketing material. FINRA stated 

that it does not require firms to file 

financial statements that appear in 

shareholder reports since the filing 

requirement is further tailored to require 

the filing only of the sales material and 

MDFP portions, which are narrative in 

form. 

FINRA stated that a mutual fund’s 

sales material and MDFP typically 

provide content beyond that which the 

Commission requires for a shareholder 

report, noting that the shareholder 

report may contain: an interview with 

the portfolio manager; a performance 

chart, such as a chart depicting how 

much the investor would have earned 

had he invested in the fund many years 

earlier; or the fund’s historical 

performance with a comparison to an 

index. FINRA indicated that the reports 

routinely describe the prospects for the 

fund, opportunities in which the fund is 

investing, and the possible effects of 

market conditions on the fund’s 

performance: all information designed 

to appeal to prospective investors of the 

mutual fund as well as existing 

shareholders. 

FINRA explained that its current 

review program has found problems 

with a significant number of fund 

shareholder reports. Among those that 

were filed with FINRA in 2011, FINRA 

reports that approximately 7.5 percent 

required substantive comments to make 

the shareholder report fair, balanced 

and not misleading.146 For example, 

FINRA stated that it recently 

commented on a shareholder report that 

illustrated a fund’s past performance by 

providing performance concerning other 

accounts of the investment adviser, 

without disclosing the differences 

between those accounts and the 

advertised fund. FINRA cited another 

recently filed report that provided an 

‘‘overall credit rating’’ of ‘‘A-versus 

AA3’’ for a fund, without disclosing 

material information necessary to 

balance this rating, such as the fact that 

it was not provided by a nationally 

recognized statistical rating 

organization. FINRA noted yet another 

recently filed shareholder report that 

provided non-standardized performance 

without providing the standardized one, 

five and ten year performance required 

by Securities Act Rule 482. 

FINRA stated its position that 

although shareholder reports are filed 

with the Commission, they might be 

reviewed by Commission staff only on 

a three-year cycle.147 In contrast, FINRA 

noted that it reviews all shareholder 

report sales material and MDFPs that are 

filed with the Department and that the 

Department’s comprehensive review 

program discourages funds from 

including content that is misleading or 

potentially harmful to investors. 

FINRA emphasized that it is sensitive 

to the costs that the communications 

rules impose upon the industry, and has 

agreed to changes to its existing rules 

and the proposed amendments to 

accommodate these concerns in a 

manner consistent with investor 

protection.148 However, FINRA stated 

that it believed the costs associated with 

the shareholder report filing 

requirement appear to be substantially 

less than the amount estimated by the 

industry. One commenter estimated that 

‘‘a significant number of Institute 

member firms pay more than $20,000 in 

fees annually to file shareholder reports 

with FINRA.’’ 149 FINRA noted the 

commenter’s explanation that this 

estimate was based upon the 

assumption that a fund complex that 

files 100 shareholder reports twice a 

year at FINRA’s minimum filing fee 

would pay $20,000 in filing fees, and 

that 31 firms that are members of the 

commenter have more than 100 funds in 

their complexes. 

FINRA argued that this cost estimate 

appears overstated because many fund 

complexes combine multiple funds’ 

shareholder reports into a single 

document, which they file one time 

with FINRA. FINRA noted that of the 10 

fund complexes that filed the highest 

volume of shareholder reports in 2011, 

only two issue a separate shareholder 

report for each fund.150 For example, 

FINRA indicated that it is not 

uncommon for fund groups to combine 

shareholder reports for multiple target 

date funds, money market funds or 

municipal bond funds in a single 

document. 

In light of the use of mutual fund 

shareholder reports to market the fund, 

and the substantive concerns raised by 

some shareholder reports, FINRA stated 

that it continues to believe that fund 

shareholder report sales material and 

MDFPs that will be used with 

prospective investors should be subject 

to the same filing requirements as other 

mutual fund sales material. 

Consequently, FINRA declined to 

exempt a fund shareholder report sales 

material and MDFP from proposed 

FINRA Rule 2210’s filing requirements. 

The Commission believes that FINRA 

has responded adequately to comments 

regarding the MDFP filing requirement. 

For example, FINRA cited to substantive 


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151See Wilmer August Letter; TLGI August Letter; 

and ICI August Letter. 

152See Wilmer August Letter. 

153See TLGI August Letter. 

154See Amendment No. 1; proposed FINRA Rule 

2010(d)(4)(c)(vii)(d). 

155See ICI August Letter. 

156Proposed FINRA Rule 2210(d)(5) generally 

carries forward the requirements of NASD Rule 

2210(d)(3). 

concerns that it has identified in some 

fund shareholder reports, emphasizing 

that the Department’s review program 

may serve to discourage funds from 

including content that is misleading or 

potentially harmful to investors. 

D. Content Standards 

Proposed paragraph 2210(d) generally 

requires all communications to be based 

on principles of fair dealing and good 

faith, be fair and balanced, and provide 

a sound basis for evaluating the facts in 

regard to any particular security, 

industry or service. The proposed rule 

prohibits the use of false, exaggerated, 

unwarranted, promissory or misleading 

statements or claims in 

communications. Additionally, the 

proposed rule sets forth specific 

requirements that apply to the use of 

comparisons; disclosure of the 

member’s name; tax considerations; 

disclosure of fees, expenses, and 

standardized performance; testimonials; 

and recommendations. 

Commenters raised various concerns 

about FINRA’s proposed content 

standards.151 The comments focused on 

predictions of future performance, the 

detail required of tax consideration 

disclosure, the prominence requirement 

for disclosure of fees and expenses and 

requirements applicable to 

communications concerning 

recommendations of securities. 

1. Projections of Performance 

One commenter requested 

confirmation that proposed paragraph 

(d)(1)(F), which generally would 

prohibit communications from 

predicting or projecting performance, 

implying that past performance will 

recur, or making any exaggerated or 

unwarranted claim, opinion or forecast 

would not apply to communications 

produced by a member’s research 

department.152

FINRA indicated that proposed 

paragraph (d)(1)(F) would apply to all 

communications, including those 

produced by a member’s research 

department. However, FINRA indicated 

that it does not believe that the 

provision’s restrictions would inhibit 

the types of content typically found in 

research communications. FINRA noted 

that the provision includes an exception 

expressly permitting price targets that 

meet the standards of NASD Rule 2711. 

In addition, FINRA noted that it does 

not believe that the type of content 

described by the commenter, such as 

forward-looking statements or earnings 

estimates commonly provided in 

research reports, would be considered 

projections of performance for purposes 

of the provision. FINRA provided 

additional guidance indicating that, in 

general, the provision is intended to 

prohibit specific percentage or dollarbased projections of performance of an 

investment. Nevertheless, FINRA noted 

that proposed paragraph (d)(1)(F) would 

prohibit research communications from 

including any exaggerated or 

unwarranted claim, opinion or forecast. 

The Commission believes that FINRA 

has responded adequately to this 

comment, including by providing 

guidance about the types of content that 

may or may not be prohibited under 

proposed paragraph (d)(1)(F). 

2. Tax Considerations 

One commenter argued that the 

disclosure requirements in proposed 

FINRA Rule 2210(d)(4) impose 

complicated content standards and 

disclosure requirements on certain retail 

communications and correspondence 

that discuss tax considerations of 

investments and investment accounts 

and should be limited instead to a 

requirement to disclose that an investor 

should seek professional tax advice due 

to the complexity and changing nature 

of the tax code.153

FINRA declined to make the change, 

indicating that it believes that the 

disclosures listed in proposed paragraph 

(d)(4) are important to help an investor 

understand the context and limitations 

of communications that discuss tax 

implications of investments and 

investment accounts. Additionally, 

FINRA cautioned against any member 

preparing a communication that it 

believes may be inaccurate in its 

representations of tax considerations 

due to the complexity of tax laws and 

rules. 

In Amendment No. 1, FINRA 

modified proposed paragraph (d)(4) to 

clarify that it intended to require such 

retail communications to disclose that 

ordinary tax rates apply to withdrawals 

from tax-deferred investments in 

illustrations of tax-deferred products or 

accounts to the extent withdrawals are 

subject to ordinary income tax rates.154

The Commission believes that FINRA 

has responded adequately to the 

comment regarding tax disclosure 

requirements under proposed FINRA 

Rule 2210(d)(4) by, among other things, 

emphasizing the importance of the 

proposed disclosures for facilitating 

investor comprehension. 

3. Standardized Performance 

Information 

One commenter opposed a 

requirement in proposed FINRA Rule 

2210(d)(5) that sets forth certain 

disclosure requirements concerning 

investment company fees and expenses 

with respect to retail communications 

and correspondence that advertise a 

fund’s performance.155 The commenter 

suggested that instead of requiring 

certain standardized performance and 

expense information to be included in a 

prominent text box with respect to print 

advertisements that include fund 

performance, FINRA should instead 

revise proposed FINRA Rule 2210 to 

require funds to prominently present 

standardized performance, maximum 

sales charges, and expense ratios. 

FINRA declined this 

recommendation, indicating that prior 

to the adoption of NASD Rule 

2210(d)(3),156 FINRA stated that it had 

found that some mutual fund print 

advertisements placed standardized 

performance information in footnotes 

while placing non-standardized 

performance information in the body of 

a print advertisement, despite equal 

prominence requirements contained in 

Securities Act Rule 482. Additionally, 

FINRA noted that it found that NASD 

Rule 2210(d)(3) helped clarify that 

placing performance information in 

footnotes does not meet the equal 

prominence requirements of Rule 482, 

and made print performance 

advertisements more fair and balanced. 

The Commission believes that FINRA 

has responded adequately to the 

comment opposing the disclosure 

requirements carried forward from 

NASD rule 2210(d)(3) by explaining, 

among other things, why it views the 

proposed requirement as an important 

tool for making print performance 

communications more fair and 

balanced. 

4. Recommendations of Securities 

Proposed FINRA Rules 2210(d)(7) and 

2210(f)(1) would require retail 

communications and public 

appearances that include a 

recommendation of securities to have a 

reasonable basis for the 

recommendation, and to make certain 

disclosures. Among other things, the 

Original Proposal provided that a retail 

communications or a public appearance 

that includes a recommendation of 

securities would have to disclose, if 

applicable, that the member or any 


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157See Fidelity August Letter and SIFMA August 

Letter. 

158See Fidelity August Letter and FSI August 

Letter. 

159See Fidelity August Letter. 

160See FSI August Letter. 

161See SIFMA August Letter. 

162See PIABA August Letter. 

163See Fidelity August Letter and ICI August 

Letter. 

164See ICI August Letter. 

165See Fidelity August Letter. 

166See ICI August Letter. 

167See Fidelity August Letter. 

168See Wilmer August Letter. 

169See October Response Letter. FINRA noted 

that the proposed requirement in paragraph 

(d)(7)(B) to provide the price at the time a 

recommendation is made applies only to a 

recommendation of a corporate equity security, and 

thus does not apply to the recommendation of an 

investment company security or variable insurance 

product. 

170FINRA stated that the disclosure requirements 

do not apply to any communication that 

recommends only registered investment companies 

or variable insurance products. See proposed 

FINRA Rule 2210(d)(7)(D)(ii). 

associated person with the ability to 

influence the content of the 

communication has a financial interest 

in any of the securities of the issuer 

whose securities are recommended, and 

the nature of the financial interest 

(including, without limitation, whether 

it consists of any option, right, warrant, 

future, long or short position), unless 

the extent of the financial interest is 

nominal. FINRA received a number of 

comments concerning these proposed 

requirements. 

Two commenters recommended that 

the disclosure requirements apply only 

to public appearances and retail 

communications that are published or 

used in any electronic or other 

media.157 These commenters noted that 

it is not necessary to mandate extensive 

disclosure requirements for public 

appearances before small groups. 

Two commenters argued that the 

requirement to disclose the financial 

interests of any associated person with 

the ability to influence the content of 

the communication is unclear, too 

broad, and difficult to administer.158

The commenters argued that many 

persons within a firm may be able to 

influence a communication’s content, 

and it would be difficult to track each 

person’s financial interests with respect 

to particular retail communications or 

public appearances. One of the 

commenters also recommended that this 

disclosure requirement be limited to 

associated persons who are ‘‘directly 

and materially involved in the 

preparation of the content.’’ 159 The 

other commenter questioned the need 

for this disclosure at all, which it 

considered to be ‘‘meaningless to the 

majority of retail investors.’’ 160

One commenter recommended that 

the requirement to disclose the financial 

interests of any associated person with 

the ability to influence the content of 

the communication be deleted and 

replaced with a requirement to disclose 

the financial interests of a member’s 

officers or partners, which the 

commenter stated is similar to the 

current disclosure requirements for 

securities recommendations in NASD 

IM–2210–1(6).161 The commenter 

argued that this alternative would 

‘‘provide meaningful disclosures to 

customers, without requiring members 

to implement costly monitoring systems 

and processes.’’ 

By contrast, another commenter urged 

FINRA to broaden the disclosure 

requirements for retail communications 

and public appearances that contain 

securities recommendations. This 

commenter argued that the proposed 

standard (associated persons with the 

ability to influence the content of a 

communication) is too narrow.162

Two commenters focused particular 

attention on the proposed disclosure 

requirements as they would apply to 

public appearances. These commenters 

argued that the proposed standard is 

unworkable in this context, particularly 

where a speaker is answering a question 

about a particular security, and that 

such appearances would be impossible 

to monitor.163 One of those commenters 

also argued that the standard is unfair, 

since it would impose disclosure 

requirements on registered 

representatives who recommend 

securities that are not imposed even on 

research analysts that recommend 

securities in public appearances.164

One commenter suggested as an 

alternative that the disclosure 

requirements of proposed FINRA Rule 

2210(d)(7) apply to public appearances 

only if a member or associated person 

intends to recommend a security.165

Another commenter offered as an 

alternative a more general requirement 

that an associated person making a 

public appearance disclose any actual, 

material conflict of interest related to a 

particular recommendation of which the 

person knows or has reason to know at 

the time of the public appearance.166

The commenter noted that this standard 

is similar to the public appearance 

requirements that apply to research 

analysts under NASD Rule 2711(h). 

One of the commenters recommended 

that FINRA clarify that the disclosure 

requirements in proposed FINRA Rule 

2210(d)(7)(A)(ii) do not apply to indirect 

holdings, such as securities that are held 

by mutual funds or other pooled 

vehicles in which an associated person 

invests.167

One commenter recommended that 

the exception in proposed FINRA Rule 

2210(d)(7)(D)(i), which would except 

from disclosure requirements any 

communication that meets the 

definition of ‘‘research report’’ or is a 

public appearance by a research analyst 

for purposes of NASD Rule 2711 and 

includes all of the applicable 

disclosures required by that Rule, be 

expanded to cover all communications 

created by a firm’s research department, 

including debt research and research 

related communications that are not 

research reports.168

In response to comments, FINRA has 

amended the disclosure requirements 

for both retail communications and 

public appearances that include 

securities recommendations. As 

suggested by several commenters, in 

Amendment No. 1, FINRA narrowed the 

scope of the persons whose financial 

interests would have to be disclosed to 

those involved in the preparation of a 

communication. As revised, a retail 

communication that includes a 

securities recommendation would have 

to disclose if the member or any 

associated person that is directly and 

materially involved in the preparation 

of the content of the communication has 

a financial interest in any of the 

securities of the issuer whose securities 

are recommended, and the nature of the 

financial interest, unless the extent of 

the financial interest is nominal. 

FINRA also modified paragraph 

(d)(7)(D) to clarify that the disclosure 

requirements in paragraph (d)(7)(A) and 

the provisions regarding past specific 

recommendations in paragraph (d)(7)(C) 

do not apply to a retail communication 

that recommends only registered 

investment companies or variable 

insurance products; however, such 

communications still must have a 

reasonable basis for the 

recommendation. In addition FINRA 

noted that pursuant to proposed 

paragraph (d)(7)(B), a member must 

provide, or offer to furnish upon 

request, available investment 

information supporting the 

recommendation in those 

communications.169

FINRA clarified that the disclosure 

requirements in proposed FINRA Rule 

2210(d)(7)(A)(ii), do not apply to the 

portfolio investments of an investment 

company or other fund owned by the 

member or such associated person.170

FINRA indicated that the revised 

standard provides sufficient information 

to investors reading a retail 


emcdonald on DSK29S0YB1PROD with NOTICES
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171See NASD Rule 2210. 172See ICI August Letter. 173See NASD Rule 3010(b)(1). 174See, e.g., FINRA Rule 2330(d) (supervisory 

procedures regarding the purchase or exchange of 

deferred variable annuities). 

175See Fidelity August Letter and SIFMA August 

Letter. 

176See proposed FINRA Rule 2210(b)(1)(D)(ii). 

177See October Response Letter (citing Regulatory 

Notice 10–06 (Guidance on Blogs and Social 

Networking Web sites) (January 2010) and 

Regulatory Notice 11–39 (Guidance on Social 

Networking Web sites and Business 

Communications) (August 2011)). 

178See Fidelity December Letter and SIFMA 

December Letter. 

179See Fidelity December Letter. 

180See SIFMA December Letter. 

communication to warn them of 

potential conflicts of interest. It also 

reduces the burdens on members with 

regard to tracking financial interests that 

must be disclosed. FINRA also revised 

the disclosure standards for public 

appearances that include securities 

recommendations. As revised, the 

requirements under proposed FINRA 

Rule 2210(f) would apply only to public 

appearances by associated persons 

(since members do not engage in public 

appearances except through their 

associated persons). As amended, an 

associated person making a public 

appearance would have to disclose, as 

applicable, his or her own financial 

interests in any of the securities of the 

issuer of the recommended security, and 

the nature of the financial interest, 

unless the extent of the financial 

interest is nominal. Additionally, the 

associated person would have to 

disclose any actual, material conflict of 

interest of the associated person or 

member of which the associated person 

knows or has reason to know at the time 

of the public appearance. FINRA noted 

that these disclosure requirements 

would not apply to any public 

appearance by a research analyst for 

purposes of NASD Rule 2711 that 

includes all of the applicable 

disclosures required by that Rule. 

FINRA further noted that the disclosure 

requirements also would not apply to a 

recommendation of investment 

company securities or variable 

insurance products; provided, however, 

that the associated person must have a 

reasonable basis for the 

recommendation. FINRA stated that it 

believes that this standard will still 

provide important information 

regarding potential conflicts to 

investors, while reducing the 

compliance burden to firms in 

administering this standard. 

The Commission believes that FINRA 

addressed adequately comments 

regarding the disclosure requirements 

for both retail communications and 

public appearances that include 

securities recommendations. FINRA has 

amended these provisions in several 

respects to address commenter 

concerns. For example, FINRA has 

narrowed the scope of persons whose 

financial interests must be disclosed to 

capture the member or any associated 

person that is directly and materially 

involved in the preparation of the 

content of the communication. FINRA 

also revised the disclosure standards for 

public appearances that include 

securities recommendations for 

purposes of providing important 

information regarding potential conflicts 

to investors without unduly burdening 

firms. Additionally, FINRA explained 

why it would not be necessary to 

expressly exclude indirect holdings 

from the disclosure requirements in 

proposed FINRA Rule 2210(d)(7)(A)(ii). 

E. Other Issues Related to Public 

Appearances and Online Interactive 

Electronic Communications 

Currently, the term ‘‘public 

appearance’’ is included as a category 

within the broader term 

‘‘communications with the public,’’ and 

includes participation in an online 

interactive electronic forum.171 Under 

proposed FINRA Rule 2210, public 

appearances would no longer be a 

separate category of the term 

‘‘communications,’’ and instead would 

be governed by FINRA Rule 2210(f). 

Proposed paragraph 2210(f) sets forth 

certain content, supervisory and other 

requirements that apply to public 

appearances. The term also would not 

include posts on online interactive 

electronic forums, which would be 

considered retail communications. 

Under proposed FINRA Rule 

2210(b)(1)(D)(ii), members would be 

permitted to supervise and review retail 

communications that are posted on an 

online interactive electronic forum in 

the same manner as required for 

supervising and reviewing 

correspondence under NASD Rule 

3010(d). Thus, members would not have 

to approve each such retail 

communication prior to use, and would 

have flexibility regarding how they 

establish their supervisory systems. 

One commenter opposed proposed 

FINRA Rule 2210(f)(2), which would 

require each member to establish 

written procedures that are appropriate 

to its business, size, structure and 

customers to supervise its associated 

persons’ public appearances, arguing 

that it is duplicative of supervisory 

requirements that already exist under 

NASD Rule 3010.172 FINRA disagreed 

with this objection. FINRA maintains 

that while NASD Rule 3010 already 

generally requires a member to establish 

and maintain written procedures to 

supervise its associated persons’ 

activities,173 FINRA rules also include 

provisions regarding the supervision of 

particular activities where 

appropriate.174 In this case, FINRA 

believes that proposed FINRA Rule 

2210(f)(2) provides additional 

information regarding the type of 

supervision it expects members to 

maintain in connection with public 

appearances, and thus is appropriate. 

Two commenters opposed the 

elimination of the term ‘‘public 

appearance’’ as a communication 

category, particularly with respect to 

online interactive electronic 

communications.175 These commenters 

argued that posts on online interactive 

electronic forums are more analogous to 

‘‘physical public appearances.’’ They 

also argued that recordkeeping 

requirements would be less burdensome 

if posts on social media Web sites were 

considered public appearances. 

FINRA disagreed that it is necessary 

to continue to treat posts on online 

interactive electronic forums as public 

appearances. FINRA noted that it has 

created an exception from the pre-use 

principal approval requirements for 

such posts, permitting members to 

supervise and review such posts in the 

same manner permitted for 

correspondence.176 Moreover, FINRA 

notes that this proposed standard would 

codify guidance already provided 

regarding supervision of posts on social 

media Web sites.177

Following publication of the Notice 

and Proceedings Order, the commenters 

reiterated that FINRA should maintain 

its current definition of ‘‘public 

appearance’’ under NASD Rule 2210 

and include online interactive 

electronic communications within this 

framework, ‘‘recognizing that these 

communications are more analogous to 

physical public appearances.’’ 178 One 

commenter expressed concern that 

otherwise, online interactive electronic 

communications may fall into the 

definitions of correspondence, 

institutional communications or retail 

communications, which would 

complicate how the rules apply to such 

communications.179 The other 

commenter recommended that FINRA 

exclude content that is interactive rather 

than static from the filing requirements 

under proposed FINRA Rule 2210(c), 

arguing that the burden of filing 

interactive online postings would far 

outweigh any potential benefits.180

In response to comments reiterating 

concerns about online interactive 


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Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices 20469 

181See December Response Letter (citing to 

Regulatory Notice 10–06 (Guidance on Blogs and 

Social Networking Web Sites) (January 2010); 

Regulatory Notice 07–59 (FINRA Provides Guidance 

Regarding the Review and Supervision of Electronic 

Communications) (December 2007)). 

182See Fidelity August Letter; ICI August Letter; 

and Vanguard August Letter. 183See ICI August Letter and Vanguard August 

Letter. 184See Fidelity August Letter. 185See FSI August Letter. 

186See TLGI August Letter. 

187See SIFMA August Letter. 

188See Letter from Philip A. Shaikun, FINRA, to 

Elizabeth M. Murhpy, Secretary, SEC, dated 

November 2, 2011 available at www.sec.gov. 

electronic communications, FINRA 

disagreed that participation on an 

online interactive electronic forum is 

more analogous to a physical public 

appearance than other electronic 

communications. FINRA noted that an 

online interactive electronic forum post 

generally remains available to the public 

for an extended period of time. FINRA 

noted that unless an interview or other 

public speaking activity is recorded and 

made available afterwards through some 

other medium, it no longer is available 

to the public after the interview or 

speech is completed. Thus, FINRA 

believes it is more appropriate to 

classify online interactive electronic 

forum posts generally as retail 

communications rather than public 

appearances. 

FINRA recognized that participation 

on online electronic forums often occurs 

on a real-time basis and does not lend 

itself easily to pre-use principal 

approval. Accordingly, FINRA proposed 

to allow firms the flexibility to 

supervise participation on online 

electronic forums in the same manner as 

they supervise correspondence, which 

can include post-use review.181 FINRA 

believes the concerns expressed by a 

commenter regarding whether an online 

forum post is correspondence, an 

institutional communication or a retail 

communication are overstated because 

FINRA believes that as a general matter, 

under the rule proposal, the supervisory 

requirements will be the same in each 

case. 

As discussed above, FINRA 

recognized the potential difficulties 

associated with filing an online forum 

post, and accordingly amended 

proposed FINRA Rule 2210(c)(7) in 

Amendment No. 2, to add a filing 

exclusion for retail communications that 

are posted on online interactive 

electronic forums. 

The Commission believes that FINRA 

has responded adequately to these 

comments. For example, FINRA 

responded to the comment suggesting 

that the proposed rule contains 

requirements duplicative of NASD Rule 

3010 by clarifying that the proposed 

rule sets forth more specific information 

regarding the type of supervision it 

expects members to maintain in 

connection with public appearances. 

FINRA responded to comments 

regarding the treatment of online 

interactive electronic communications 

by noting that (1) the proposed rule 

permits members to supervise and 

review such communications in the 

same manner permitted for 

correspondence, (2) online interactive 

electronic forum posts generally remain 

available to the public for extended 

periods of time—which suggests they 

are more appropriately classified as 

retail communication than public 

appearance, and (3) as noted above, 

FINRA amended the proposal to add a 

filing exclusion for such 

communications in light of potential 

difficulties associated with filing. 

F. Social Media 

Three commenters expressed concern 

with the amount of content and data 

related to social media that must be 

stored under Commission recordkeeping 

rules.182 These commenters 

recommended that the Commission, 

FINRA and the securities industry work 

together to create a new paradigm for 

electronic recordkeeping. Two 

commenters also urged FINRA to take a 

longer-term, comprehensive approach to 

the regulation of social media taking 

into consideration evolving media and 

technology, as well as the costs and 

benefits of regulation.183 One of those 

commenters recommended that FINRA 

use its Social Media Task Force or 

another committee to consider how the 

communications rules should apply to 

mobile devices and provide guidance or 

new rules that are tailored to these 

technologies.184 Another commenter 

recommended that FINRA codify in its 

communications rules the guidance that 

it provided in Regulatory Notices 10–06 

and 11–39.185

FINRA noted that the commenters’ 

concerns regarding the Commission’s 

recordkeeping rules are outside the 

scope of the proposed rule change. 

FINRA indicated that it will continue to 

work with the industry going forward to 

address issues raised under FINRA 

rules, and may issue more guidance or 

propose new rules regarding these 

issues in the future as appropriate. 

The Commission believes that FINRA 

responded adequately to these 

comments by indicating that it will 

continue to monitor and address issues 

that arise under FINRA rules in the 

social media landscape, whether 

through its Social Media Task Force or 

other means it deems suitable. The 

Commission also believes that 

Commission recordkeeping rules are 

outside the scope of the proposed rule 

change. Under Exchange Act Rule 17a– 

4, a broker-dealer is required to 

maintain originals of all 

communications received and copies of 

all communications sent relating to its 

‘‘business as such’’ including all 

communications which are subject to 

the rules of a self regulatory 

organization regarding communications 

with the public. 

G. Other General Comments 

One commenter indicated that the 

proposed rule change will not improve 

the flow of communications, which in 

turn will compromise investor 

protection.186 FINRA disagreed, 

indicating that the proposed rule change 

seeks to balance the need for members 

to communicate with their customers 

and the need for such communications 

to be fair and balanced. FINRA believes 

that members still will be able to 

communicate with their customers 

through a number of channels, and that 

the proposed rules will enhance rather 

than compromise investor protection. 

One commenter noted that it is 

difficult to follow the proposed rules in 

the form presented in the Proposing 

Release and urged FINRA to simplify 

that presentation.187 FINRA noted that it 

presents the proposed rule text in the 

format required by SEC Form 19b–4 

under the Exchange Act. 

The Commission believes that FINRA 

has responded adequately to comments 

regarding the flow of communications 

and the complexity of the proposed rule 

by, among other things, emphasizing 

that the proposed rule is designed to 

enhance investor protection, while still 

providing members a number of 

channels for communicating with 

customers. 

As FINRA noted in response to 

comments the presentation of the 

proposed rule is consistent with the 

requirements of SEC Form 19b–4. The 

Commission also notes that in an effort 

to assist commenters in reviewing 

proposed Amendment No. 1, FINRA 

submitted as a comment letter an 

alternative version of Exhibit 4 showing 

the full proposal marked with the 

changes in Amendment No. 1.188

Additionally, FINRA has revised its rule 

text to seek to provide clarity where 

commenters have pointed out 

ambiguities. 

H. Implementation Timeframe 

One commenter recommended that 

FINRA allow at least six months after 


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20470 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices 

189See Fidelity August Letter and Fidelity 

December Letter. 190See ICI August Letter. 191See FSI December Letter. 192See October Response Letter and December 

Response Letter. 

193 15 U.S.C. 78o–3(b)(6). 

194See 15 U.S.C. 78c(f). 

Commission approval of the proposed 

rule change before these changes 

become effective.189 Another 

commenter recommended that the 

compliance date be 10 business days 

after the second calendar quarter end 

following Commission approval.190

These commenters also recommended 

that if FINRA subjects internal training 

and education materials to proposed 

FINRA Rule 2210, FINRA should permit 

a compliance time period of nine 

months after Commission approval. 

Another commenter requested that 

FINRA provide, at a minimum, 12 

months for members to adapt to the 

changes.191

FINRA stated that it recognizes that 

members will need time to alter their 

internal policies and procedures in 

response to new requirements imposed 

by the proposed rule change. FINRA 

indicated on multiple occasions that it 

plans to publish a Regulatory Notice no 

later than 90 days following 

Commission approval of the rule 

changes.192 FINRA has stated that the 

implementation date will be no later 

than 365 days following Commission 

approval. In establishing this schedule, 

FINRA agreed to consider members’ 

need to adopt and implement policies 

and procedures necessary to comply 

with the new rules. 

FINRA has clarified that it will take 

into account members’ comments in 

establishing the implementation 

timeframe for members to adapt to 

changes. Therefore, the Commission 

believes that FINRA has responded 

adequately to the comments regarding 

the implementation timeframe of the 

proposed rule. 

I. FINRA’s General Comments 

Regarding the Proposal 

FINRA believes that the proposed rule 

change, as amended, satisfies the 

statutory standard for Commission 

approval. FINRA indicated that the 

proposed rule change is primarily 

intended to simplify FINRA’s 

advertising rules by reducing the 

number of communications categories, 

codifying long-standing interpretations 

of the rules, and clarifying certain 

provisions. FINRA also stated that the 

industry supports most of these 

amendments, which it believes should 

simplify application of the rules by 

compliance professionals and other 

broker-dealer personnel. FINRA also 

believes that the proposed rule change 

would continue to ensure that FINRA’s 

rules protect investors from false and 

misleading communications. 

FINRA noted that it has been 

responsive to industry and Commission 

staff comments. The industry and other 

members of the public have had four 

formal opportunities (one provided by 

FINRA and three by the Commission) to 

comment on iterations of the proposal. 

Throughout the comment process 

FINRA believes that it has responded to 

commenters’ concerns. FINRA noted 

that many of the comments concerned 

provisions of existing NASD Rules 2210 

and 2211 that FINRA had not originally 

proposed to amend. 

Among the changes that FINRA has 

proposed in response to comments are 

the following: 

• Eliminating the existing 

requirement that internal training 

material is subject to NASD Rule 2211; 

• Explicitly excluding retail 

communications that are posted on 

online interactive electronic forums 

from the filing requirement; 

• Expanding a Supervisory Analyst’s 

authority to approve retail 

communications; 

• Eliminating the current filing 

requirement for advertisements 

concerning government securities; 

• Providing a new exception from the 

filing and principal pre-use approval 

requirements for those retail 

communications that do not make a 

financial or investment 

recommendation or otherwise promote a 

product or service of the member; 

• Permitting firms to combine 

multiple retirement plans offered by the 

same employer for purposes of 

determining whether there are 100 

participants, thereby making it easier for 

such an employer to qualify as an 

institution for purposes of the rule; 

• Permitting retail communications 

concerning collateralized mortgage 

obligations (CMOs) to be filed within 10 

days of first use, rather than 10 days 

prior to use as required by the existing 

rule; and 

• Authorizing FINRA to grant 

exemptions from both the filing and 

principal pre-use approval requirements 

for good cause shown. 

FINRA believes that these changes to 

the existing rules would address 

concerns raised by the industry in the 

comment process while maintaining 

rigorous investor protections. 

J. General Commission Findings 

The Commission has carefully 

reviewed the proposed rule change, the 

comments received, and FINRA’s 

response to the comments, and finds 

that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities association. In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

15A(b)(6) of the Act,193 which, among 

other things, requires that FINRA rules 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, and, in general, to protect 

investors and the public interest. In 

approving this proposed rule change, 

the Commission has considered the 

proposed rule’s impact on efficiency, 

competition, and capital formation.194

As discussed above, the Commission 

believes that FINRA addressed 

adequately concerns regarding pre-filing 

and supervision requirements that could 

impact efficiency; and notes that the 

proposed rule’s overarching goal of 

simplifying the regulatory framework 

enhances efficiency. As FINRA noted in 

the March Response Letter, the intent of 

the proposed rule is to simplify 

communications rules by decreasing the 

number of communications categories, 

codifying long-standing interpretations 

of the rules, and clarifying certain 

provisions. The Commission believes 

that the proposed rule simplifies the 

framework under which broker-dealers 

are required to supervise 

communications, disclose information 

to investors and file information with 

regulators. 

The Commission also believes that 

FINRA has addressed adequately 

competition concerns that could arise 

from differing treatment of certain 

products or categories of 

communications. The Commission 

believes that the proposed requirements 

for enhanced supervision and review of 

communications to retail investors by 

new members, containing certain 

rankings or ratings and/or concerning 

more complex products is designed to 

prevent misleading communications 

and to protect investors. 

The Commission has reviewed the 

record for the proposed rule change and 

notes that the record does not contain 

any information to indicate that the 

proposed rule would have a significant 

effect on capital formation. The 

Commission believes that the intent of 

the proposed rule is beneficial and that 

the changes will enhance consumer 

confidence by promoting fair and 

balanced communications from brokerdealers to the investing public. 

As noted in each category above, the 

Commission believes that FINRA has 


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Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices 20471 

195 15 U.S.C. 78s(b)(2). 

196See Regulatory Notice 09–55. 

197 15 U.S.C. 78s(b)(2). 

198 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 In an AIM auction, described here generally, a 

Participant submits into the mechanism an order 

that it represents as agent (‘‘Agency Order’’) along 

with a contra-side order at a specified price (which 

must comply with parameters set forth in Rule 6.51) 

and for the same size that either represents 

principal interest of the Participant or is a solicited 

order. Certain Participants, as set forth in Rule 6.51, 

then can compete with the contra-side order by 

submitting bids (offers) to execute against the 

Agency Order. After better-priced orders are filled 

and public customers competing at the best price 

receive their allocations, the Participant is granted 

priority ahead of other participants to execute 

against 40% (in some circumstances 50%) of the 

original size of the Agency Order. Under the 

proposed rule change, the initiating Participant will 

be able to elect to have last priority. 

4See Securities Exchange Act Release No. 66384 

(February 13, 2012), 77 FR 9717. 

5 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

6 15 U.S.C. 78f(b)(5). 

considered carefully and responded 

adequately to comments and concerns 

raised about previous versions of the 

proposed rule. As evidence of FINRA’s 

commitment to drafting a narrowly 

tailored rule while maintaining 

comprehensive investor protection 

standards, the Commission points to the 

discussion above which highlights the 

many revisions FINRA made to the 

proposal to address comments and 

concerns raised through four separate 

opportunities for comment. 

VI. Accelerated Approval 

The Commission finds goods cause, 

pursuant to Section 19(b)(2) of the 

Exchange Act,195 for approving the 

proposed rule change, as modified by 

Amendments Nos. 1, 2, and 3 thereto, 

prior to the 30th day after publication of 

notice of the filing of Amendment No. 

3 in the Federal Register. The proposed 

rule change was informed by FINRA’s 

consideration of, and the incorporation 

of many suggestions made in comments 

on a 2009 proposal to members to 

harmonize and modernize the 

communications with the public 

rules,196 the Original Proposal, the 

Notice and Proceedings Order, and 

Amendment No. 2. Amendment No. 3 

reflects FINRA’s efforts to further 

address commenter concerns and 

minimize burdens resulting from the 

proposed rule’s requirements. 

Accordingly, the Commission finds 

that good cause exists to approve the 

proposal, as modified by Amendment 

Nos. 1, 2 and 3 on an accelerated basis. 

VII. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether Amendment No. 3 to 

the proposed rule change is consistent 

with the Act. Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rulecomments@sec.gov. Please include File 

Number SR–FINRA–2011–035 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2011–035. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2011–035 and 

should be submitted on or before April 

25, 2012. 

VIII. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,197 that the 

proposed rule change (SR–FINRA– 

2011–035), as modified by Amendments 

Nos. 1, 2 and 3, be, and hereby is, 

approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.198

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8043 Filed 4–3–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66677; File No. SR–C2– 

2012–006] 

Self-Regulatory Organizations; C2 

Options Exchange, Incorporated; 

Order Approving Proposed Rule 

Change Relating to Its Automated 

Improvement Mechanism 

March 29, 2012. 

On January 31, 2012, the C2 Options 

Exchange, Incorporated (‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend C2 Rule 6.51, which 

relates to the Exchange’s Automated 

Improvement Mechanism (‘‘AIM’’). The 

proposal would permit a participant 

(‘‘Participant’’), when submitting an 

agency order to AIM to initiate an 

auction against a single price 

submission, to elect to have last priority 

in the AIM auction’s order allocation.3

The proposed rule change was 

published for comment in the Federal 

Register on February 17, 2012.4 The 

Commission received no comments on 

the proposal. 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange 5 and, in particular, 

the requirements of Section 6(b)(5) of 

the Act,6 in that it is designed to provide 

additional flexibility for Participants to 

obtain executions on behalf of their 

customers through AIM because the 

initiating Participants may elect to have 


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