FINRA Communication Rules
Recent Developments Affecting Structured Notes

January 17, 2012


In its ongoing effort to revise and consolidate rules governing members’ communications with retail and institutional investors, the Financial Industry Regulatory Authority, Inc. recently filed another round of amended proposed rules, which the Securities and Exchange Commission noticed for comment with a deadline of January 18, 2012.[1]  This Amendment No. 2 to FINRA’s communications rule proposal contains some noteworthy modifications and clarifications, particularly relating to the non-application of the communication rules to certain (i) issuer-prepared materials that are filed with the SEC and (ii) members’ internal communications.  Otherwise, the contours of the amended proposal remain largely unchanged from the version that was proposed in July 2011,[2] including the requirement to file certain retail structured product communications within 10 business days of first use.  

Implementation Timeframe

Within 90 days of the SEC’s approval of the proposed rules, FINRA will publish a Regulatory Notice that establishes an implementation date that is no later than 365 days of the SEC’s approval.  FINRA has acknowledged that members will need time to alter their internal policies and procedures in response to the new requirements in the proposed rule change, and has stated it will take this into consideration in establishing an implementation schedule.   

Key Highlights

  • Application of Content Standards, Filing Requirement and Prior Principal Review Requirement to Broadly Disseminated FWPs Relating to Structured Products.  The amended proposal would add a new section clarifying that prospectuses, preliminary prospectuses, fund profiles and similar documents filed with the SEC are generally not subject to the content standards of FINRA’s communication rules.  However, broadly disseminated free-writing prospectuses filed with the SEC pursuant to Securities Act Rule 433(d)(1)(ii) (“broadly disseminated FWPs”) would be subject to the content requirements in proposed FINRA Rule 2210(d).  In addition:  
    • Broadly disseminated FWPs are currently subject to prior review by a registered principal.  The amended proposal would leave this requirement unchanged.
    • As proposed by FINRA previously, the amended proposal would leave in place the requirement to file broadly disseminated FWPs concerning registered structured products with FINRA’s advertising department within 10 business days of first use.   
  • Internal Written Communications.  The amended proposal would exclude internal communications that are intended to train or educate registered persons from the definition of “institutional communication.”  FINRA notes, however, that such communications would still be subject to NASD Rule 3310(d) (“Review of Correspondence”) and other applicable rules.  FINRA stated in the amended proposal that, due to existing rule requirements, these materials would “effectively [be subject to] the same review and content standards” as they would have been had these communications been considered “institutional communications” under proposed FINRA Rule 2210.
  • Retail Communications Posted on an Online Interactive Electronic Forum.  The amended proposal would add “retail communications that are posted on an online interactive electronic forum” to the list of communications that are excluded from filing requirements.  FINRA cautions members, however, that this exemption would not impact filing requirements that may apply to members under SEC rules or other federal laws.  

[1]  The text of the amended proposal, as well as related prior proposals and filings are available here. The amended proposal would leave unchanged revisions FINRA proposed in October 2011 relating to government securities, conflict disclosures and public appearances, among other changes.  These requirements are not discussed in this client alert because they do not relate specifically to structured notes.  

[2]  Please see our two prior memoranda discussing the July 2011 proposal, one addressing the impact on structured products (available here) and one addressing the impact on broker-dealers more generally (available here).

If you have questions regarding this publication, please contact any of the lawyers listed below or your regular Davis Polk contact.

Gerald Citera 212 450 4881
Robert L.D. Colby 202 962 7121
Courtenay U. Myers212 450
Annette L. Nazareth 202 962 7075
Christopher S. Schell212 450
Lanny A. Schwartz 212 450 4174
Hilary S. Seo 212 450 4178
Vidal Vanhoof 212 450 4237


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