FINRA has proposed new rules for governing communications with the public.  In a 396-page filing with the the SEC, FINRA would replace NASD Rules 2210 and 2211 and NASD Interpretive Materials 2210-1 and 2210-3 through 2210-8 with these new rules: 

• FINRA Rule 2210, Communications with the Public.
• FINRA Rule 2212, Use of Investment Companies Rankings in Retail Communications.
• FINRA Rule 2213, Requirements for the Use of Bond Mutual Fund Volatility Ratings.
• FINRA Rule 2214, Requirements for the Use of Investment Analysis Tools.
• FINRA Rule 2215, Communications with the Public Regarding Security Futures.
• FINRA Rule 2216, Communications with the Public About Collateralized Mortgage Obligations (CMOs).

Specifically, ... FINRA Rule 2210 would comprise NASD Rules 2210 and 2211 and NASD Interpretive Materials 2210-1 and 2210-4.  FINRA Rule 2212 would come from NASD Interpretive Material 2210-3.  FINRA Rule 2213 from NASD Interpretive Material 2210-5.  FINRA Rule 2214 from NASD Interpretive Material 2210-6.  FINRA Rule 2215 from NASD Interpretive Material 2210-7.  FINRA Rule 2216 from NASD Interpretive Material 2210-8. 

FINRA would 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.

What Would Change.   As proposed, FINRA would reduce the current number of communication categories from 6 to 3, as follows:

NASD Rule 2210 divides communications into these 6 separate categories: 

1. Advertisement generally includes written (including electronic) retail communications that do not have a limited audience, such as newspaper, magazine, television and radio advertisements, billboards and websites.
2. Sales literature generally includes written (including electronic) retail communications that have a more targeted audience, such as brochures, performance reports, telemarketing scripts, seminar scripts and form letters.
3. Correspondence includes written letters, electronic mail, IM's and market letters sent to: (i) one or more existing retail customers;  and, (ii) fewer than 25 prospective retail customers within a 30 calendar-day period.
4. Institutional sales material includes communications distributed or made available only to institutional investors.  NASD Rule 2211 defines “institutional investor” generally to include RICs, insurance companies, banks, B/D's, RIA's, certain retirement plans, governmental entities, and individual investors and other entities with at least $50mn in assets.
5. Independently prepared reprint includes reprints of articles from independent publications, as well as reports published by independent research firms.
6. Public appearance includes unscripted participation in live events, such as interviews, seminars and call-in television and radio shows.

Proposed FINRA Rule 2210 would create these 3 separate categories:

 

1. Institutional communication would include communications that fall within the current definition of “institutional sales material” under NASD Rule 2211(a)(2) - written (including electronic) communications distributed or made available only to institutional investors. “Institutional investor”generally would have the same definition as under NASD Rule 2211(a)(3).
2. Retail communication would include any written (including electronic) communication distributed or made available to more than 25 retail investors within any 30 calendar-day period. “Retail investor” would include any person other than an institutional investor, regardless of whether the person has an account with the member.
3. Correspondence would include any written (including electronic) communication distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.

Eliminated Definitions.   “advertisement,” “sales literature,” “institutional sales material,” “public appearance” and “independently prepared reprint,” as well as all definitions in NASD Rule 2211.6   Also, “communication,” “advertisement,” “market letter” and “sales literature” in Incorporated NYSE Rule 472.

Required Approvals by Principals.   Currently, NASD Rule 2210(b)(1)(A) requires a registered principal to approve each advertisement, piece of sales literature and independently-prepared reprint before the earlier of its use or filing with FINRA's Advertising Department. 

As proposed, FINRA Rule 2210(b)(1)(A) would require an appropriately qualified registered principal to approve each retail communication before the earlier of its use or filing with FINRA.  The principal registration required to approve particular communications would depend upon the permissible activities for each principal registration category.  The proposed rule change would eliminate Incorporated NYSE Rule 472(a)(1), which requires an “allied member, supervisory analyst, or qualified person” to approve in advance each advertisement, sales literature or other similar type of communication by an NYSE member firm.

NASD Rule 2210(b)(1)(B) permits a Series 16 supervisory analyst approved pursuant to Incorporated NYSE Rule 344 to approve research reports on debt and equity securities.  Proposed FINRA Rule 2210(b)(1)(B) would continue this provision without substantive change.  The new rules address exemptions nad exceptions.

Recordkeeping Requirements.   Currently NASD Rule 2210(b)(2) requires members to maintain all ads, sales literature and independently-prepared reprints in a separate file for a period beginning on the date of first use and ending 3 years from the date of last use.  The file must include: (i) copy of the communication and dates of first and last use;  (ii) name of registered principal who approved the communication and date approval was given, unless such approval was not required pursuant to NASD Rule 2210(b)(1)(D);  and, (iii) for any communication for which principal approval was not required pursuant to NASD Rule 2210(b)(1)(D), name of the member that filed the communication with FINRA and a copy of the corresponding FINRA review letter.  NASD Rule 2211(b)(2) requires members to maintain records of institutional sales material for a period of 3 years from date of last use, including name of person who prepared each such communication.  NASD Rules 3010(d)(3)18 and 3110(a)19 require members to retain correspondence of RR's as prescribed by SEA Rule 17a-4.

As proposed, FINRA Rule 2210(b)(4)(A) would set forth the record-keeping requirements for retail and institutional communications - which generally would mirror current record-keeping requirements.  This provision incorporates by reference the record-keeping format, medium and retention period requirements of SEA Rule 17a-4.

Compliance-Insights has taken you through page 15.  

For further details, go to:   [FINRA Rule Filing 11-35, 7/14/11]