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Exam Alert: FINRA Provides Guidance on Communications

On May 22, 2015, FINRA issued guidance concerning communications with the public. Here are some notable points from the guidance… Continue reading

On May 22, 2015, FINRA issued guidance concerning communications with the public. Here are some notable points from the guidance.

Non-promotional communications (i.e. communications that do not promote or recommend a specific product or service) do not need to be filed with FINRA
Electronic forum posts are considered retail communication, but are specifically excluded from filing requirements
Template updates do not need to be filed with FINRA if all that changed was statistical information
Various non-material changes to previously filed communications do not require refiling the communication
A reprinted article does not need to be filed with FINRA
Promotional items that only have the name of a mutual fund are not considered “advertisements” under Rule 482
If a firm includes mutual fund performance in a retail communication or correspondence, they must also include the fund’s expense ratio
Firm must file retail communications regarding registered business development companies
A Series 26 registration does not permit a principal to approve retail communications concerning a business development company. The principal must have a Series 24, Series 9/10, or Series 39 registration instead.

Sources:
Regulatory Notice 15-17: Guidance on Rules Governing Communications With the Public
FINRA Rule 2210 Questions and Answers

This alert applies to the Series 6, Series 7, Series 9/10, Series 24, Series 26, Series 39, Series 62, Series 82, and Series 99.

Exam Alert: FINRA Excludes Research Reports on Exchange-Listed Securities From Filing Requirement

Effective July 11, 2014, FINRA revised its rules on filing retail communications. The new rules do not require firms to file research reports on securities listed on national exchanges, except for certain research reports on investment companies. Continue reading

Effective July 11, 2014, FINRA revised its rules on filing retail communications. Generally, FINRA requires firms to file retail communications on registered securities within ten business days of first use. The new rules exclude from filing research reports on securities listed on national exchanges. However, firms must still file certain research reports on investment companies. Specifically, research reports on open-end investment companies, unit investment trusts, and face-amount certificate companies must still be filed if they will be distributed to prospective investors.

Additionally, FINRA clarified that free-writing prospectuses that are exempt from the SEC’s filing requirements do not need to be filed with FINRA.

Retail communications are written communications, including electronic communications, that will be distributed or made available to more than 25 retail investors within any 30-calendar-day period. “Retail Investor” is defined as any person other than an institutional investor, regardless of whether the person has an account with the firm.

A research report is a written communication that includes information, analysis, and/or recommendations on a security.

Open-end investment companies, also known as mutual funds, are companies that offer shares of a portfolio of securities in the form of a fund to the public. Every time shares in the fund are purchased, the shares are issued new by the mutual fund company. Additionally, when shareholders wish to sell their shares, they must sell them back to the mutual fund company. The mutual fund company will then “redeem” them and expire the shares.

A unit investment trust (UIT) is an investment company that buys and holds a fixed portfolio of securities that are put into a trust in “units” that are sold to investors (unit holders). UITs have a stated termination date that varies according to the type of investments in the portfolio. A UIT in bonds may have as much as a 30-year life; a UIT in stocks may mature in one year or less. Unit holders receive a share of the principal at termination, and any income earned is distributed to investors in periodic payments of dividends or interest.

A face-amount certificate company is an investment company that issues debt securities called face-amount certificates backed by assets such as real property or other securities. Issuers of face-amount certificates promise to pay a stated amount (face-amount) to the investor at a specified time in the future. In return, investors pay the issuer a fixed amount of money either as a lump sum payment or in periodic installments. The rate of return is calculated by comparing the amount paid into the investment and the face-amount received.

A free-writing prospectus (FWP) is any written offer to sell or a solicitation to buy the securities in an offering, distributed during the cooling-off period, after a registration statement has been filed. It is not required to have the detail or depth of information of the preliminary prospectus.

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 82, and Series 99.

Source: FINRA Regulatory Notice 14-30: SEC Approves Amendments to FINRA Rule 2210 to Exclude Research Reports on Exchange-Listed Securities From Filing Requirements and Clarify the Standards Applicable to Free Writing Prospectuses

Exam Alert: FINRA provides reporting exceptions to avoid duplicative filings, permits online filing

FINRA will let members:
-avoid needing to independently report information that is already contained on Form U4
-avoid needing to independently report actions that FINRA takes against firms and agents
-file required copies of criminal complaints, civil complaints, and arbitration claims online Continue reading

Effective March 4, 2013, FINRA will let members avoid needing to independently report information that is already contained on Form U4. FINRA will also implement an exception for reporting regulatory actions that FINRA takes against firms and associated persons (since FINRA will already have the details of the action on file).

Effective July 1, 2013, FINRA will let firms file required copies of criminal complaints, civil complaints, and arbitration claims online.

Source: FINRA Regulatory Notice 13-08: FINRA Amends Rule 4530 to Eliminate Duplicative Reporting and Provide the Option to File Required Documents Online Using a New Form

This alert applies to the Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99.

Exam Alert: FINRA provides guidance on new communication rules

FINRA has provided guidance on its new communication rules. The guidance addresses various questions and details about the new rules. The rules take effect February 4, 2013. Continue reading

On February 4, 2013, the new communication rules described in this alert will take effect. FINRA has provided guidance on the new rules. This guidance provides that:

-educational material provided to other broker-dealers is considered “institutional communication,” not “internal communication”

-a firm’s one-year period of needing to file all public retail communication in 10 business days in advance now begins when the firm’s FINRA membership becomes active; free writing prospectuses may instead be filed within 10 business days of first use

-retail communications regarding “registered structured products” must be filed within 10 days of first use; examples of “registered structured products” include “exchange-traded notes that are not registered under the Investment Company Act but are registered under the Securities Act, registered reverse convertibles, registered structured notes, registered principal protection notes, and any other registered security that includes embedded derivative-like features”

-disclosure requirements for recommendations do not apply when discussing the past performance of a mutual fund

-a sales script used in a seminar is considered retail communication if the script is used with more than 25 retail investors in a 30-day period – this means that the firm must approve the script before use

-a firm’s name must be disclosed in scripted public appearances (both in the script and on any slide presentations or brochures used)

The guidance also addresses transitional issues for implementing the new rules.

Source: Regulatory Notice 13-03: FINRA Provides Guidance on New Rules Governing Communications With the Public

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99.

Exam Alert: FINRA to implement new electronic filing system for public offerings

Firms that participate in initial public offerings must submit certain information about the offered security to FINRA, including the registration statement/offering circular and the underwriting agreement. FINRA will be shifting from the current system for filing this information to a new system in the near future:
-The last day firms may file using the old system (COBRADesk) is May 31, 2012.
-The firms may first file under the new system (Public Offering System) on June 4, 2012.
-Firms will no longer have access to the old system for data retrieval after June 20, 2012. Continue reading

FINRA will generally not be migrating data from the old system to the new one. However, FINRA will transfer over base prospectuses submitted for shelf offerings.

The new system includes new features. FINRA will be releasing further information on the new system on its website.

Emerging growth companies that choose to file their IPOs confidentially with the SEC must still file information with FINRA (all filings with FINRA under the Corporate Financing Rules are nonpublic).

Firms remain responsible for the accuracy of their filings even if the filing is made by a third party.

Source: FINRA Regulatory Notice 12-22

This exam alert applies to the Series 62, Series 79, Series 24, Series 7, and Series 82.

Exam Alert: SEC approves changes to FINRA’s Code of Procedure

The SEC has approved amendments to FINRA’s Code of Procedure that modify the specifics of how various proceedings are conducted. These changes will be effective on March 30, 2012. The changes are described as “procedural in nature,” and are generally minor changes, though they affect several different rules. Continue reading

A breakdown of the changes is as follows:

-Service of Complaint: A complaint may be served to the counsel representing a party, instead of to the party directly, if the counsel consents to receive it.

-Filing Papers with Adjudicator: Email may be used to file documents with an adjudicator. Footnotes should be single-spaced. The number of copies to be filed has decreased from three to one (unless otherwise ordered).

-Motion to Withdraw by Attorney: If an attorney representing one of the parties seeks to withdraw, he or she must provide contact information for the party no longer being represented.

-Subjects Discussed at Pre-Hearing Conference: During a pre-hearing conference, a hearing office may act upon relevant portions of transcripts from investigative testimony.

-Fees for Copying Costs During Discovery: FINRA staff determine the rates for copying materials.

-Submission of Evidence: Documents submitted prior to a hearing are not automatically entered into record for that hearing (to minimize duplication).

-Hearing Panel and NAC Decisions: Decisions must be independently stated only if they are not already on record.

-Review Proceedings: The Review Subcommittee may review decisions.

-Oral Argument on Appeal: If a respondent appeals a decision and requests an oral argument, but then abandons the request or is unreasonably unavailable, the reviewing committee/subcommittee may cancel the oral argument.

-Failure to Participate in a Disciplinary Proceeding: The reviewing committee/subcommittee must remand a disciplinary proceeding if the appealing party fails to participate and shows good cause.

-Filing Papers in Eligibility Proceedings: Consent from all parties is no longer required for a hearing panel to extend filing deadlines for an eligibility proceeding.

-Procedural Motions in Eligibility or Expedited Proceedings: The National Adjudicatory Council (NAC) may decide any procedural motion made for an eligibility or expedited proceeding.

Source: FINRA Regulatory Notice 12-12

This alert applies to the Series 62, Series 26, Series 24, Series 7, and Series 82.

Exam Alert: Disclosures required by the Department of Labor do not need to be filed with FINRA

On October 20, 2010, the U.S. Department of Labor (DOL) adopted a rule that requires retirement plan administrators to show participants in participant-directed individual account plans (e.g., 401(k) plans) information on alternative investment options. On January 13, 2012, FINRA stated that communications that contain only the information required by the DOL rule do not need to be filed with FINRA. Note that communications that have additional information not required by the DOL rule must be filed with FINRA. Continue reading

Source: FINRA Regulatory Notice 12-02

This alert applies to the Series 62, Series 6, Series 26, Series 24, Series 7, and Series 82.