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Dec 27 2005 - Feb 3 2013Feb 4 2013 onwards

IM-2210-5. Requirements for the Use of Bond Mutual Fund Volatility Ratings

This rule is no longer applicable. NASD IM-2210-5 has been superseded by FINRA Rule 2213. Please consult the appropriate FINRA Rule.

(a) Definition of Bond Mutual Fund Volatility Ratings
For purposes of this Rule and any interpretation thereof, the term "bond mutual fund volatility rating" is a description issued by an independent third party relating to the sensitivity of the net asset value of a portfolio of an open-end management investment company that invests in debt securities to changes in market conditions and the general economy, and is based on an evaluation of objective factors, including the credit quality of the fund's individual portfolio holdings, the market price volatility of the portfolio, the fund's performance, and specific risks, such as interest rate risk, prepayment risk, and currency risk.
(b) Prohibitions on Use
Members and persons associated with a member may use a bond mutual fund volatility rating only in supplemental sales literature and only when the following requirements are satisfied:
(1) The rating does not identify or describe volatility as a "risk" rating.
(2) The supplemental sales literature incorporates the most recently available rating and reflects information that, at a minimum, is current to the most recently completed calendar quarter ended prior to use.
(3) The criteria and methodology used to determine the rating must be based exclusively on objective, quantifiable factors. The rating and the Disclosure Statement that accompanies the rating must be clear, concise, and understandable.
(4) The supplemental sales literature conforms to the disclosure requirements described in paragraph (c).
(5) The entity that issued the rating provides detailed disclosure on its rating methodology to investors through a toll-free telephone number, a web site, or both.
(c) Disclosure Requirements
(1) Supplemental sales literature containing a bond mutual fund volatility rating shall include a Disclosure Statement containing all the information required by this Rule. The Disclosure Statement may also contain any additional information that is relevant to an investor's understanding of the rating.
(2) Supplemental sales literature containing a bond mutual fund volatility rating shall contain all current bond mutual fund volatility ratings that have been issued with respect to the fund. Information concerning multiple ratings may be combined in the Disclosure Statement, provided that the applicability of the information to each rating is clear.
(3) All bond mutual fund volatility ratings shall be contained within the text of the Disclosure Statement. The following disclosures shall be provided with respect to each such rating:
(A) the name of the entity that issued the rating;
(B) the most current rating and date of the current rating, with an explanation of the reason for any change in the current rating from the most recent prior rating;
(C) a description of the rating in narrative form, containing the following disclosures:
(i) a statement that there is no standard method for assigning ratings;
(ii) a description of the criteria and methodologies used to determine the rating;
(iii) a statement that not all bond funds have volatility ratings;
(iv) whether consideration was paid in connection with obtaining the issuance of the rating;
(v) a description of the types of risks the rating measures (e.g., short-term volatility);
(vi) a statement that the portfolio may have changed since the date of the rating; and
(vii) a statement that there is no guarantee that the fund will continue to have the same rating or perform in the future as rated.
Amended by SR-NASD-2005-117 eff. Dec. 27, 2005.
Amended by SR-NASD-2005-104 eff. Aug. 31, 2005.
Amended by SR-NASD-2003-126 eff. Aug. 31, 2003.
Amended by SR-NASD-2001-49 eff. August 10, 2001.
Adopted by SR-NASD-97-89 eff. Feb. 29, 2000.

Selected Notices: 96-84, 00-17, 00-23.

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