Document ID: SEC-2010-0057-0001
Agency: sec
Document Type: Notice
Title: National Futures Association; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Amendments to Compliance Rule 2-29(h) andthe Adoption of an Interpretive Notice Regarding the Use of On-Line Social Networking Groups To Communicate With the Public
Posted Date: 2010-01-11T05:00Z

[Federal Register: January 11, 2010 (Volume 75, Number 6)]
[Notices]               
[Page 1426-1428]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11ja10-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61280; File No. SR-NFA-2009-01]

 
National Futures Association; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Relating to Amendments to 
Compliance Rule 2-29(h) and the Adoption of an Interpretive Notice 
Regarding the Use of On-Line Social Networking Groups To Communicate 
With the Public

January 4, 2010.
    Pursuant to Section 19b(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on December 4, 2009, National Futures Association (``NFA'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change described in Items I, II, and III below, which 
Items have been substantially prepared by the self-regulatory 
organization.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons. NFA also 
has filed this proposed rule change concurrently with the Commodity 
Futures Trading Commission (``CFTC'').
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
    \3\ NFA filed a letter from the CFTC notifying the NFA that it 
had determined not to review the proposed rule change. See note 4.
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    On December 4, 2009, the NFA requested that the CFTC make a 
determination that review of the proposed rule change of NFA is not 
necessary. On December 24, 2009, the CFTC notified the NFA that the 
CFTC has determined not to review the proposed rule change.\4\
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    \4\ See letter from William Penner, Deputy Director, CFTC, to 
Thomas W. Sexton III, Esq., General Counsel, NFA, dated December 24, 
2009.
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I. Self-Regulatory Organization's Description and Text of the Proposed 
Rule Change

    The amendments to Compliance Rule 2-29(h) require that certain 
audio and video advertisements that appear on the Internet--like 
similar radio and television advertisements--be submitted to NFA in 
advance for review and approval. The proposed Interpretive Notice 
reminds Members that on-line communications are subject to the same 
standards as other types of communications.
    The text of the proposed rule change and Interpretive Notice is 
available on the NFA's Web site (www.nfa.futures.org), at the NFA's

[[Page 1427]]

principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for the Proposed Rule Change

1. Purpose
    Section 15A(k) of the Act \5\ makes NFA a national securities 
association for the limited purpose of regulating the activities of NFA 
Members (``Members'') who are registered as brokers or dealers under 
Section 15(b)(11) of the Act.\6\ NFA Compliance Rule 2-29(h) applies to 
all Members including those registered under Section 15(b)(11).
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    \5\ 15 U.S.C. 78o-3(k).
    \6\ 15 U.S.C. 78o(b)(11).
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    In December 2008, NFA's FCM, IB, and CPO/CTA Advisory Committees 
considered the growing use of social networking groups such as blogs, 
chat rooms, and forums to communicate with and solicit customers. As a 
result of those discussions, all three committees felt it would be 
helpful to issue written guidance reminding Members of their 
responsibilities in connection with these on-line communications.
    As part of the process, NFA staff reviewed guidance from the 
Financial Industry Regulatory Authority (``FINRA'') on the same issue. 
FINRA guidance states that blogs and bulletin boards are considered 
advertisements and are subject to the same requirements as other 
advertisements, while participating in a chat room is a public 
appearance subject to FINRA rules. The guidance also states that 
``[m]ember firms must supervise the operation of any securities-related 
blog, bulletin board or chat room hosted by [a registered 
representative] or by the firm itself to ensure compliance with FINRA 
Conduct Rules and the Federal securities laws.'' \7\ The FINRA guidance 
also reminds FINRA members that their supervisory procedures can 
prohibit employees from using electronic media to discuss securities 
investments if the firm decides the medium is too hard to supervise.
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    \7\ FINRA, ``Guide to the Internet for Registered 
Representatives,'' http://www.finra.org/Industry/Issues/Advertising/
p006118, accessed July 20, 2009.
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    FINRA has also produced several podcasts discussing on-line 
communications. In one podcast, FINRA staff suggest limiting posting 
access to a firm's blog or bulletin board to the firm's registered 
representatives. If the firm opens it up to a wider audience, however, 
FINRA staff advise requiring users to register and agree to the firm's 
terms of use.\8\ In another podcast, FINRA staff states that publicly 
available social networking sites are advertisements and those with 
restricted access are sales literature, subject to the same content, 
pre-approval, filing, and recordkeeping requirements applicable to 
other types of advertisements and sales literature.\9\
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    \8\ FINRA February 23, 2009 podcast on ``Electronic 
Communications: Blogs, Bulletin Boards and Chat Rooms,'' http://
www.finra.org/Industry/Education/OnlineLearning/Podcasts/index.htm, 
accessed July 20, 2009.
    \9\ FINRA March 10, 2009 podcast on ``Electronic Communications: 
Social Networking Sites,'' http://www.finra.org/Industry/Education/
OnlineLearning/Podcasts/index.htm, accessed July 20, 2009.
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    The proposed Interpretive Notice provides guidance that is similar 
to the FINRA guidance. It reminds Members that on-line communications 
are subject to the same standards as other types of communications.
    NFA has also noticed that profit claims that used to appear on 
radio and television are moving to the Internet and showing up on sites 
such as YouTube. Therefore, the proposed amendments to Compliance Rule 
2-29(h) require that these videos--like similar radio and television 
advertisements--be submitted to NFA in advance for review and approval. 
Amendments to Compliance Rule 2-29 were previously filed in SR-NFA-
2001-01.
2. Statutory Basis
    The rule change is authorized by, and consistent with, Section 
15A(k)(2)(B) of the Act.\10\ That section requires NFA to have rules 
that are 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, including rules 
governing sales practices and advertising of security futures products. 
The NFA believes the proposed rule change accomplishes this by 
requiring that videos showing profit claims that appear on the 
Internet--like similar radio and television advertisements--be 
submitted to NFA in advance for review and approval. Additionally, the 
NFA believes the proposed Interpretive Notice makes clear that 
communications through on-line social networking groups are subject to 
the same standards as other types of communications.
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    \10\ 15 U.S.C. 78o-3(k)(2)(B).
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    This proposal is not designed to regulate, by virtue of any 
authority conferred by the Act, matters not related to the purposes of 
the Act or the administration of the association. To the extent that 
this proposal regulates activities and transactions other than security 
futures, the authority for regulating those activities and transactions 
comes from the Commodity Exchange Act rather than the federal 
securities laws.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will have little or no impact on 
competition. The proposed Interpretive Notice does not impose new 
requirements on Members, but rather makes clear that existing 
requirements regarding communications with the public are the same 
regardless of the medium used for such communications. Similarly, the 
proposed amendments to Compliance Rule 2-29(h) require that audio or 
video advertisements that would have to be submitted to NFA for prior 
approval if used on the radio or television must also be submitted to 
NFA if they are distributed through publicly accessible media, e.g., 
the Internet. Although there may be some burden on members who have 
avoided this requirement by only using the Internet to distribute such 
advertisements, it is necessary and appropriate to ensure that 
communications by NFA Members are not misleading or otherwise 
inappropriate.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    NFA worked with Member Committees in developing the rule change. 
NFA did not, however, publish the rule change to the membership for 
comment. NFA did not receive comment letters concerning the rule 
change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    On December 24, 2009, the CFTC notified the NFA that it had 
determined not to review the proposed rule change and, therefore, NFA, 
is permitted to make the amendments effective as of

[[Page 1428]]

this date.\11\ At any time within 60 days of the date of effectiveness 
of the proposed rule change, the Commission, after consultation with 
the CFTC, may summarily abrogate the proposed rule change and require 
that the proposed rule change be refiled in accordance with the 
provisions of Section 19(b)(1) of the Act.
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    \11\ See note 4.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NFA-2009-01.

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-NFA-2009-01. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying 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 NFA. 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 publicly available.
    All submissions should refer to File Number SR-NFA-2009-01 and 
should be submitted on or before February 1, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(73).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-222 Filed 1-8-10; 8:45 am]
BILLING CODE 8011-01-P