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  • 2210. Communications with the Public

    This rule is no longer applicable. NASD Rule 2210 has been superseded by FINRA Rule 2210.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

    (a) Definitions
    For purposes of this Rule and any interpretation thereof, "communications with the public" consist of:
    (1) "Advertisement." Any material, other than an independently prepared reprint and institutional sales material, that is published, or used in any electronic or other public media, including any Web site, newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or telephone directories (other than routine listings).
    (2) "Sales Literature." Any written or electronic communication, other than an advertisement, independently prepared reprint, institutional sales material and correspondence, that is generally distributed or made generally available to customers or the public, including circulars, research reports, . . . performance reports or summaries, form letters, telemarketing scripts, seminar texts, reprints (that are not independently prepared reprints) or excerpts of any other advertisement, sales literature or published article, and press releases concerning a member's products or services.
    (3) "Correspondence" as defined in Rule 2211(a)(1).
    (4) "Institutional Sales Material" as defined in Rule 2211(a)(2).
    (5) "Public Appearance." Participation in a seminar, forum (including an interactive electronic forum), radio or television interview, or other public appearance or public speaking activity.
    (6) "Independently Prepared Reprint."
    (A) Any reprint or excerpt of any article issued by a publisher, provided that:
    (i) the publisher is not an affiliate of the member using the reprint or any underwriter or issuer of a security mentioned in the reprint or excerpt and that the member is promoting;
    (ii) neither the member using the reprint or excerpt nor any underwriter or issuer of a security mentioned in the reprint or excerpt has commissioned the reprinted or excerpted article; and
    (iii) the member using the reprint or excerpt has not materially altered its contents except as necessary to make the reprint or excerpt consistent with applicable regulatory standards or to correct factual errors;
    (B) Any report concerning an investment company registered under the Investment Company Act of 1940, provided that:
    (i) the report is prepared by an entity that is independent of the investment company, its affiliates, and the member using the report (the "research firm");
    (ii) the report's contents have not been materially altered by the member using the report except as necessary to make the report consistent with applicable regulatory standards or to correct factual errors;
    (iii) the research firm prepares and distributes reports based on similar research with respect to a substantial number of investment companies;
    (iv) the research firm updates and distributes reports based on its research of the investment company with reasonable regularity in the normal course of the research firm's business;
    (v) neither the investment company, its affiliates nor the member using the research report has commissioned the research used by the research firm in preparing the report; and
    (vi) if a customized report was prepared at the request of the investment company, its affiliate or a member, then the report includes only information that the research firm has already compiled and published in another report, and does not omit information in that report necessary to make the customized report fair and balanced.
    Cross Reference—

    Rules Concerning Review and Endorsement of Correspondence are Found in paragraph (d) to Conduct Rule 3010.
    (b) Approval and Recordkeeping
    (1) Registered Principal Approval for Advertisements, Sales Literature and Independently Prepared Reprints
    (A) A registered principal of the member must approve by signature or initial and date each advertisement, item of sales literature and independently prepared reprint before the earlier of its use or filing with NASD's Advertising Regulation Department ("Department").
    (B) With respect to debt and equity securities that are the subject of research reports as that term is defined in Rule 472 of the New York Stock Exchange, the requirements of paragraph (A) may be met by the signature or initial of a supervisory analyst approved pursuant to Rule 344 of the New York Stock Exchange.
    (C) A registered principal qualified to supervise security futures activities must approve by signature or initial and date each advertisement or item of sales literature concerning security futures.
    (D) The requirements of paragraph (A) shall not apply with regard to any advertisement, item of sales literature, or independently prepared reprint if, at the time that a member intends to publish or distribute it:
    (i) another member has filed it with the Department and has received a letter from the Department stating that it appears to be consistent with applicable standards; and
    (ii) the member using it in reliance upon this paragraph has not materially altered it and will not use it in a manner that is inconsistent with the conditions of the Department's letter.
    (2) Record-keeping
    (A) Members must maintain all advertisements, sales literature, and independently prepared reprints in a separate file for a period beginning on the date of first use and ending three years from the date of last use. The file must include:
    (i) a copy of the advertisement, item of sales literature or independently prepared reprint, and the dates of first and (if applicable) last use of such material;
    (ii) the name of the registered principal who approved each advertisement, item of sales literature, and independently prepared reprint and the date that approval was given, unless such approval is not required pursuant to paragraph (b)(1)(D); and
    (iii) for any advertisement, item of sales literature or independently prepared reprint for which principal approval is not required pursuant to paragraph (b)(1)(D), the name of the member that filed the advertisement, sales literature or independently prepared reprint with the Department, and a copy of the corresponding review letter from the Department.
    (B) Members must maintain in a file information concerning the source of any statistical table, chart, graph or other illustration used by the member in communications with the public.
    (c) Filing Requirements and Review Procedures
    (1) Date of First Use and Approval Information
    The member must provide with each filing under this paragraph the actual or anticipated date of first use, the name and title of the registered principal who approved the advertisement or sales literature, and the date that the approval was given.
    (2) Requirement to File Certain Material
    Within 10 business days of first use or publication, a member must file the following communications with the Department:
    (A) Advertisements and sales literature concerning registered investment companies (including mutual funds, variable contracts, continuously offered closed-end funds, and unit investment trusts) not included within the requirements of paragraph (c)(3). The filing of any advertisement or sales literature that includes or incorporates a performance ranking or performance comparison of the investment company with other investment companies must include a copy of the ranking or comparison used in the advertisement or sales literature.
    (B) Advertisements and sales literature concerning public direct participation programs (as defined in Rule 2810).
    (C) Advertisements concerning government securities (as defined in Section 3(a)(42) of the Act).
    (D) any template for written reports produced by, or advertisements and sales literature concerning, an investment analysis tool, as such term is defined in Rule IM-2210-6.
    (3) Sales Literature Containing Bond Fund Volatility Ratings
    Sales literature concerning bond mutual funds that include or incorporate bond mutual fund volatility ratings, as defined in Rule IM-2210-5, shall be filed with the Department for review at least 10 business days prior to use (or such shorter period as the Department may allow in particular circumstances) for approval and, if changed by NASD, shall be withheld from publication or circulation until any changes specified by NASD have been made or, if expressly disapproved, until the sales literature has been refiled for, and has received, NASD approval. Members are not required to file advertising and sales literature which have previously been filed and which are used without change. The member must provide with each filing the actual or anticipated date of first use. Any member filing sales literature pursuant to this paragraph shall provide any supplemental information requested by the Department pertaining to the rating that is possessed by the member.
    (4) Requirement to File Certain Material Prior to Use
    At least 10 business days prior to first use or publication (or such shorter period as the Department may allow), a member must file the following communications with the Department and withhold them from publication or circulation until any changes specified by the Department have been made:
    (A) Advertisements and sales literature concerning registered investment companies (including mutual funds, variable contracts, continuously offered closed-end funds and unit investment trusts) that include or incorporate performance rankings or performance comparisons of the investment company with other investment companies when the ranking or comparison category is not generally published or is the creation, either directly or indirectly, of the investment company, its underwriter or an affiliate. Such filings must include a copy of the data on which the ranking or comparison is based.
    (B) Advertisements concerning collateralized mortgage obligations.
    (C) Advertisements concerning security futures.
    (5) Requirement for Certain Members to File Material Prior to Use
    (A) Each member that has not previously filed advertisements with the Department (or with a registered securities exchange having standards comparable to those contained in this Rule) must file its initial advertisement with the Department at least 10 business days prior to use and shall continue to file its advertisements at least 10 business days prior to use for a period of one year.
    (B) Notwithstanding the foregoing provisions, the Department, upon review of a member's advertising and/or sales literature, and after determining that the member has departed from the standards of this Rule, may require that such member file all advertising and/or sales literature, or the portion of such member's material which is related to any specific types or classes of securities or services, with the Department, at least 10 business days prior to use. The Department will notify the member in writing of the types of material to be filed and the length of time such requirement is to be in effect. Any filing requirement imposed under this paragraph will take effect 21 calendar days after service of the written notice, during which time the member may request a hearing under Rules 9551 and 9559.
    (6) Filing of Television or Video Advertisements
    If a member has filed a draft version or "story board" of a television or video advertisement pursuant to a filing requirement, then the member also must file the final filmed version within 10 business days of first use or broadcast.
    (7) Spot-Check Procedures
    In addition to the foregoing requirements, each member's written and electronic communications with the public may be subject to a spot-check procedure. Upon written request from the Department, each member must submit the material requested in a spot-check procedure within the time frame specified by the Department.
    (8) Exclusions from Filing Requirements
    The following types of material are excluded from the filing requirements and (except for the material in paragraphs (G) through (J)) the foregoing spot-check procedures:
    (A) Advertisements and sales literature that previously have been filed and that are to be used without material change.
    (B) Advertisements and sales literature solely related to recruitment or changes in a member's name, personnel, electronic or postal address, ownership, offices, business structure, officers or partners, telephone or teletype numbers, or concerning a merger with, or acquisition by, another member.
    (C) Advertisements and sales literature that do no more than identify a national securities exchange symbol of the member or identify a security for which the member is a registered market maker.
    (D) Advertisements and sales literature that do no more than identify the member or offer a specific security at a stated price.
    (E) Prospectuses, preliminary prospectuses, fund profiles, offering circulars and similar documents that have been filed with the Securities and Exchange Commission (the "SEC") or any state, or that is exempt from such registration, except that an investment company prospectus published pursuant to SEC Rule 482 under the Securities Act of 1933 will not be considered a prospectus for purposes of this exclusion.
    (F) Advertisements prepared in accordance with Section 2(10)(b) of the Securities Act of 1933, as amended, or any rule thereunder, such as SEC Rule 134, and announcements as a matter of record that a member has participated in a private placement, unless the advertisements are related to direct participation programs or securities issued by registered investment companies.
    (G) Press releases that are made available only to members of the media.
    (H) Independently prepared reprints.
    (I) Correspondence.
    (J) Institutional sales material.
    Although the material described in paragraphs (c)(8)(G) through (J) is excluded from the foregoing filing requirements, investment company communications described in those paragraphs shall be deemed filed with NASD for purposes of Section 24(b) of the Investment Company Act of 1940 and Rule 24b-3 thereunder.
    (9) Material that refers to investment company securities, direct participation programs, or exempted securities (as defined in Section 3(a)(12) of the Act) solely as part of a listing of products or services offered by the member, is excluded from the requirements of paragraphs (c)(2) and (c)(4).
    (10) Pursuant to the Rule 9600 Series, NASD may exempt a member or person associated with a member from the pre-filing requirements of this paragraph (c) for good cause shown.
    (d) Content Standards
    (1) Standards Applicable to All Communications with the Public
    (A) All member communications with the public shall be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service. No member may omit any material fact or qualification if the omission, in the light of the context of the material presented, would cause the communications to be misleading.
    (B) No member may make any false, exaggerated, unwarranted or misleading statement or claim in any communication with the public. No member may publish, circulate or distribute any public communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.
    (C) Information may be placed in a legend or footnote only in the event that such placement would not inhibit an investor's understanding of the communication.
    (D) Communications with the public may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast. A hypothetical illustration of mathematical principles is permitted, provided that it does not predict or project the performance of an investment or investment strategy.
    (E) If any testimonial in a communication with the public concerns a technical aspect of investing, the person making the testimonial must have the knowledge and experience to form a valid opinion.
    (2) Standards Applicable to Advertisements and Sales Literature
    (A) Advertisements or sales literature providing any testimonial concerning the investment advice or investment performance of a member or its products must prominently disclose the following:
    (i) The fact that the testimonial may not be representative of the experience of other clients.
    (ii) The fact that the testimonial is no guarantee of future performance or success.
    (iii) If more than a nominal sum is paid, the fact that it is a paid testimonial.
    (B) Any comparison in advertisements or sales literature between investments or services must disclose all material differences between them, including (as applicable) investment objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features.
    (C) All advertisements and sales literature must:
    (i) prominently disclose the name of the member and may also include a fictional name by which the member is commonly recognized or which is required by any state or jurisdiction;
    (ii) reflect any relationship between the member and any non-member or individual who is also named; and
    (iii) if it includes other names, reflect which products or services are being offered by the member.
    This paragraph (C) does not apply to so-called "blind" advertisements used to recruit personnel.
    (3) Disclosure of Fees, Expenses and Standardized Performance
    (A) Communications with the public, other than institutional sales material and public appearances, that present non-money market fund open-end management investment company performance data as permitted by Rule 482 under the Securities Act of 1933 and Rule 34b-1 under the Investment Company Act of 1940 must disclose:
    (i) the standardized performance information mandated by Rule 482 and Rule 34b-1; and
    (ii) to the extent applicable:
    a. the maximum sales charge imposed on purchases or the maximum deferred sales charge, as stated in the investment company's prospectus current as of the date of submission of an advertisement for publication, or as of the date of distribution of other communications with the public; and
    b. the total annual fund operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fee table of the investment company's prospectus described in paragraph (a).
    (B) All of the information required by paragraph (A) must be set forth prominently, and in any print advertisement, in a prominent text box that contains only the required information and, at the member's option, comparative performance and fee data and disclosures required by Rule 482 and Rule 34b-1.
    (e) Violation of Other Rules
    Any violation by a member of any rule of the SEC, the Securities Investor Protection Corporation or the Municipal Securities Rulemaking Board applicable to member communications with the public will be deemed a violation of this Rule 2210.
    Cross Reference—
    SEC Rules Concerning Investment Company Sales Literature and Advertising (SEC Rules and Regulation T Tab).
    Amended by SR-FINRA-2008-044 eff. Feb. 5, 2009.
    Amended by SR-FINRA-2007-020 eff. March 26, 2008.
    Amended by SR-NASD-2004-043 eff. April 1, 2007.
    Amended by SR-NASD-2006-105 eff. Sept. 7, 2006.
    Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
    Amended by SR-NASD-2003-110 eff. June 28, 2004.
    Amended by SR-NASD-2000-12 and SR-NASD-2003-94 eff. Nov. 3, 2003.
    Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
    Amended by SR-NASD-98-32 eff. April 1, 2000.
    Amended by SR-NASD-98-57 eff. March 26, 1999.
    Amended by SR-NASD-98-29 eff. Nov. 16, 1998.
    Amended by SR-NASD-98-28 eff. July 15, 1998.
    Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
    Amended by SR-NASD-97-33 eff. May 9, 1997.
    Amended by SR-NASD-95-39 eff. Aug. 20, 1996.
    Amended by SR-NASD-95-12 eff. Aug. 9, 1995.
    Amended by SR-NASD-93-66 eff. Mar. 17, 1994.
    Amended by SR-NASD-92-53 eff. July 1, 1993.
    Amended eff. Aug. 2, 1983; June 5, 1987; July 1, 1988; Nov. 28, 1988; June 26, 1990; Mar. 27, 1991; Sept. 13, 1991; Nov. 16, 1992.

    Selected Notices: 98-83, 99-16, 00-15, 00-22, 03-38, 04-36, 06-48, 09-10.

    • IM-2210-1. Guidelines to Ensure That Communications With the Public Are Not Misleading

      This rule is no longer applicable. NASD IM-2210-1 has been superseded by FINRA Rule 2210. Please consult the appropriate FINRA Rule.

      Every member is responsible for determining whether any communication with the public, including material that has been filed with the Department, complies with all applicable standards, including the requirement that the communication not be misleading. In order to meet this responsibility, member communications with the public must conform with the following guidelines. These guidelines do not represent an exclusive list of considerations that a member must make in determining whether a communication with the public complies with all applicable standards.
      (1) Members must ensure that statements are not misleading within the context in which they are made. A statement made in one context may be misleading even though such a statement could be appropriate in another context. An essential test in this regard is the balanced treatment of risks and potential benefits. Member communications should be consistent with the risks of fluctuating prices and the uncertainty of dividends, rates of return and yield inherent to investments.
      (2) Members must consider the nature of the audience to which the communication will be directed. Different levels of explanation or detail may be necessary depending on the audience to which a communication is directed. Members must keep in mind that it is not always possible to restrict the audience that may have access to a particular communication with the public. Additional information or a different presentation of information may be required depending upon the medium used for a particular communication and the possibility that the communication will reach a larger or different audience than the one initially targeted.
      (3) Member communications must be clear. A statement made in an unclear manner can cause a misunderstanding. A complex or overly technical explanation may be more confusing than too little information.
      (4) In communications with the public, income or investment returns may not be characterized as tax-free or exempt from income tax when tax liability is merely postponed or deferred, such as when taxes are payable upon redemption.
      (5) In advertisements and sales literature, references to tax-free or tax-exempt income must indicate which income taxes apply, or which do not, unless income is free from all applicable taxes. For example, if income from an investment company investing in municipal bonds is subject to state or local income taxes, this fact must be stated, or the illustration must otherwise make it clear that income is free only from federal income tax.
      (6) Recommendations
      (A) In making a recommendation in advertisements and sales literature, whether or not labeled as such, a member must have a reasonable basis for the recommendation and must disclose any of the following situations which are applicable:
      (i) that at the time the advertisement or sales literature was published, the member was making a market in the securities being recommended, or in the underlying security if the recommended security is an option or security future, or that the member or associated persons will sell to or buy from customers on a principal basis;
      (ii) that the member and/or its officers or partners have a financial interest in any of the securities of the issuer whose securities are recommended, and the nature of the financial interest (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), unless the extent of the financial interest is nominal;
      (iii) that the member was manager or co-manager of a public offering of any securities of the recommended issuer within the past 12 months.
      (B) The member shall also provide, or offer to furnish upon request, available investment information supporting the recommendation. Recommendations on behalf of corporate equities must provide the price at the time the recommendation is made.
      (C) A member may use material referring to past recommendations if it sets forth all recommendations as to the same type, kind, grade or classification of securities made by a member within the last year. Longer periods of years may be covered if they are consecutive and include the most recent year. Such material must also name each security recommended and give the date and nature of each recommendation (e.g., whether to buy or sell), the price at the time of the recommendation, the price at which or the price range within which the recommendation was to be acted upon, and indicate the general market conditions during the period covered.
      (D) Also permitted is material that does not make any specific recommendation but which offers to furnish a list of all recommendations made by a member within the past year or over longer periods of consecutive years, including the most recent year, if this list contains all the information specified in subparagraph (C). Neither the list of recommendations, nor material offering such list, shall imply comparable future performance. Reference to the results of a previous specific recommendation, including such a reference in a follow-up research report or market letter, is prohibited if the intent or the effect is to show the success of a past recommendation, unless all of the foregoing requirements with respect to past recommendations are met.
      Adopted by SR-NASD-2000-12 eff. Nov. 3, 2003.

      Selected Notice: 03-38.

    • IM-2210-2. Communications with the Public About Variable Life Insurance and Variable Annuities

      This rule is no longer applicable. NASD IM-2210-2 has been superseded by FINRA Rule 2211. Please consult the appropriate FINRA Rule.

      The standards governing communications with the public are set forth in Rule 2210. In addition to those standards, the following guidelines must be considered in preparing advertisements and sales literature about variable life insurance and variable annuities. The guidelines are applicable to advertisements and sales literature as defined in Rule 2210, as well as individualized communications such as personalized letters and computer generated illustrations, whether printed or made available on-screen.
      (a) General Considerations
      (1) Product Identification
      In order to assure that investors understand exactly what security is being discussed, all communications must clearly describe the product as either a variable life insurance policy or a variable annuity, as applicable. Member firms may use proprietary names in addition to this description. In cases where the proprietary name includes a description of the type of security being offered, there is no requirement to include a generalized description. For example, if the material includes a name such as the "XYZ Variable Life Insurance Policy," it is not necessary to include a statement indicating that the security is a variable life insurance policy. Considering the significant differences between mutual funds and variable products, the presentation must not represent or imply that the product being offered or its underlying account is a mutual fund.
      (2) Liquidity
      Considering that variable life insurance and variable annuities frequently involve substantial charges and/or tax penalties for early withdrawals, there must be no representation or implication that these are short-term, liquid investments. Presentations regarding liquidity or ease of access to investment values must be balanced by clear language describing the negative impact of early redemptions. Examples of this negative impact may be the payment of contingent deferred sales loads and tax penalties, and the fact that the investor may receive less than the original invested amount. With respect to variable life insurance, discussions of loans and withdrawals must explain their impact on cash values and death benefits.
      (3) Claims About Guarantees
      Insurance companies issuing variable life insurance and variable annuities provide a number of specific guarantees. For example, an insurance company may guarantee a minimum death benefit for a variable life insurance policy or the company may guarantee a schedule of payments to a variable annuity owner. Variable life insurance policies and variable annuities may also offer a fixed investment account which is guaranteed by the insurance company. The relative safety resulting from such a guarantee must not be overemphasized or exaggerated as it depends on the claims-paying ability of the issuing insurance company. There must be no representation or implication that a guarantee applies to the investment return or principal value of the separate account. Similarly, it must not be represented or implied that an insurance company's financial ratings apply to the separate account.
      (b) Specific Considerations
      (1) Fund Performance Predating Inclusion in the Variable Product
      In order to show how an existing fund would have performed had it been an investment option within a variable life insurance policy or variable annuity, communications may contain the fund's historical performance that predates its inclusion in the policy or annuity. Such performance may only be used provided that no significant changes occurred to the fund at the time or after it became part of the variable product. However, communications may not include the performance of an existing fund for the purposes of promoting investment in a similar, but new, investment option (i.e., clone fund or model fund) available in a variable contract. The presentation of historical performance must conform to applicable NASD and SEC standards. Particular attention must be given to including all elements of return and deducting applicable charges and expenses.
      (2) Product Comparisons
      A comparison of investment products may be used provided the comparison complies with applicable requirements set forth under Rule 2210. Particular attention must be paid to the specific standards regarding "comparisons" set forth in Rule 2210(d)(2)(B).
      (3) Use of Rankings
      A ranking which reflects the relative performance of the separate account or the underlying investment option may be included in advertisements and sales literature provided its use is consistent with the standards contained in IM-2210-3.
      (4) Discussions Regarding Insurance and Investment Features of Variable Life Insurance
      Communications on behalf of single premium variable life insurance may emphasize the investment features of the product provided an adequate explanation of the life insurance features is given. Sales material for other types of variable life insurance must provide a balanced discussion of these features.
      (5) Hypothetical Illustrations of Rates of Return in Variable Life Insurance Sales Literature and Personalized Illustrations
      (A)(i) Hypothetical illustrations using assumed rates of return may be used to demonstrate the way a variable life insurance policy operates. The illustrations show how the performance of the underlying investment accounts could affect the policy cash value and death benefit. These illustrations may not be used to project or predict investment results as such forecasts are strictly prohibited by the Rules. The methodology and format of hypothetical illustrations must be modeled after the required illustrations in the prospectus.
      (ii) An illustration may use any combination of assumed investment returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate. Although the maximum assumed rate of 12% may be acceptable, members are urged to assure that the maximum rate illustrated is reasonable considering market conditions and the available investment options. The purpose of the required 0% rate of return is to demonstrate how a lack of growth in the underlying investment accounts may affect policy values and to reinforce the hypothetical nature of the illustration.
      (iii) The illustrations must reflect the maximum (guaranteed) mortality and expense charges associated with the policy for each assumed rate of return. Current charges may be illustrated in addition to the maximum charges.
      (iv) Preceding any illustration there must be a prominent explanation that the purpose of the illustration is to show how the performance of the underlying investment accounts could affect the policy cash value and death benefit. The explanation must also state that the illustration is hypothetical and may not be used to project or predict investment results.
      (B) In sales literature which includes hypothetical illustrations, member firms may provide a personalized illustration which reflects factors relating to the individual customer's circumstances. A personalized illustration may not contain a rate of return greater than 12% and must follow all of the standards set forth in subparagraph (A), above.
      (C) In general, it is inappropriate to compare a variable life insurance policy with another product based on hypothetical performance as this type of presentation goes beyond the singular purpose of illustrating how the performance of the underlying investment accounts could affect the policy cash value and death benefit. It is permissible, however, to use a hypothetical illustration in order to compare a variable life insurance policy to a term policy with the difference in cost invested in a side product. The sole purpose of this type of illustration would be to demonstrate the concept of tax-deferred growth as a result of investing in the variable product. The following conditions must be met in order to make this type of comparison balanced and complete:
      (i) the comparative illustration must be accompanied by an illustration which reflects the standards outlined in subparagraph (A), above;
      (ii) the rate of return used in the comparative illustration must be no greater than 12%;
      (iii) the rate of return assumed for the side product and the variable life policy must be the same;
      (iv) the same fees deducted from the required prospectus illustration must be deducted from the comparative illustration;
      (v) the side product must be illustrated using gross values which do not reflect the deduction of any fees; and,
      (vi) the side product must not be identified or characterized as any specific investment or investment type.
      Amended by SR-NASD-2004-176 eff. Jan. 1, 2005.
      Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
      Adopted by SR-NASD-94-02 eff. Mar. 21, 1994.

      Selected Notice: 03-38.

    • IM-2210-3. Use of Rankings in Investment Companies Advertisements and Sales Literature

      This rule is no longer applicable. NASD IM-2210-3 has been superseded by FINRA Rule 2212. Please consult the appropriate FINRA Rule.

      (a) Definition of "Ranking Entity"
      For purposes of the following guidelines, the term "Ranking Entity" refers to any entity that provides general information about investment companies to the public, that is independent of the investment company and its affiliates, and whose services are not procured by the investment company or any of its affiliates to assign the investment company a ranking.
      (b) General Prohibition
      Members may not use investment company rankings in any advertisement or item of sales literature other than (1) rankings created and published by Ranking Entities or (2) rankings created by an investment company or an investment company affiliate but based on the performance measurements of a Ranking Entity. Rankings in advertisements and sales literature also must conform to the following requirements.
      (c) Required Disclosures
      (1) Headlines/Prominent Statements
      A headline or other prominent statement must not state or imply that an investment company or investment company family is the best performer in a category unless it is actually ranked first in the category.
      (2) Required Prominent Disclosure
      All advertisements and sales literature containing an investment company ranking must disclose prominently:
      (A) the name of the category (e.g., growth);
      (B) the number of investment companies or, if applicable, investment company families, in the category;
      (C) the name of the Ranking Entity and, if applicable, the fact that the investment company or an affiliate created the category or subcategory;
      (D) the length of the period (or the first day of the period) and its ending date; and
      (E) criteria on which the ranking is based (e.g., total return, risk-adjusted performance).
      (3) Other Required Disclosure
      All advertisements and sales literature containing an investment company ranking also must disclose:
      (A) the fact that past performance is no guarantee of future results;
      (B) for investment companies that assess front-end sales loads, whether the ranking takes those loads into account;
      (C) if the ranking is based on total return or the current SEC standardized yield, and fees have been waived or expenses advanced during the period on which the ranking is based, and the waiver or advancement had a material effect on the total return or yield for that period, a statement to that effect;
      (D) the publisher of the ranking data (e.g., "ABC Magazine, June 2003"); and
      (E) if the ranking consists of a symbol (e.g., a star system) rather than a number, the meaning of the symbol (e.g., a four-star ranking indicates that the fund is in the top 30% of all investment companies).
      (d) Time Periods
      (1) Current Rankings
      Any investment company ranking included in an item of sales literature must be, at a minimum, current to the most recent calendar quarter ended prior to use. Any investment company ranking included in an advertisement must be, at minimum, current to the most recent calendar quarter ended prior to the submission for publication. If no ranking that meets this requirement is available from the Ranking Entity, then a member may only use the most current ranking available from the Ranking Entity unless use of the most current ranking would be misleading, in which case no ranking from the Ranking Entity may be used.
      (2) Rankings Time Periods; Use of Yield Rankings
      Except for money market mutual funds:
      (A) advertisements and sales literature may not present any ranking that covers a period of less than one year, unless the ranking is based on yield;
      (B) an investment company ranking based on total return must be accompanied by rankings based on total return for a one year period for investment companies in existence for at least one year; one and five year periods for investment companies in existence for at least five years; and one, five and ten year periods for investment companies in existence for at least ten years supplied by the same Ranking Entity, relating to the same investment category, and based on the same time period; provided that, if rankings for such one, five and ten year time periods are not published by the Ranking Entity, then rankings representing short, medium and long term performance must be provided in place of rankings for the required time periods; and
      (C) an investment company ranking based on yield may be based only on the current SEC standardized yield and must be accompanied by total return rankings for the time periods specified in paragraph (d)(2)(B).
      (e) Categories
      (1) The choice of category (including a subcategory of a broader category) on which the investment company ranking is based must be one that provides a sound basis for evaluating the performance of the investment company.
      (2) An investment company ranking must be based only on (A) a published category or subcategory created by a Ranking Entity or (B) a category or subcategory created by an investment company or an investment company affiliate, but based on the performance measurements of a Ranking Entity.
      (3) An advertisement or sales literature must not use any category or subcategory that is based upon the asset size of an investment company or investment company family, whether or not it has been created by a Ranking Entity.
      (f) Multiple Class/Two-Tier Funds
      Investment company rankings for more than one class of investment company with the same portfolio must be accompanied by prominent disclosure of the fact that the investment companies or classes have a common portfolio.
      (g) Investment Company Families
      Advertisements and sales literature may contain rankings of investment company families, provided that these rankings comply with the guidelines above, and further provided that no advertisement or sales literature for an individual investment company may provide a ranking of an investment company family unless it also prominently discloses the various rankings for the individual investment company supplied by the same Ranking Entity, as described in paragraph (d)(2)(B). For purposes of this IM-2210-3, the term "investment company family" means any two or more registered investment companies or series thereof that hold themselves out to investors as related companies for purposes of investment and investor services.
      Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
      Amended by SR-NASD-96-39 eff. Mar. 5, 1997.
      Adopted by SR-NASD-93-69 eff. July 12, 1994.

      Selected Notices: 86-41, 92-59, 93-18, 93-73, 93-76, 93-85, 93-87, 94-16, 94-25, 94-36, 94-60, 95-49, 95-74, 95-80.

    • IM-2210-4. Limitations on Use of FINRA's Name and Any Other Corporate Name Owned by FINRA

      This rule is no longer applicable. NASD IM-2210-4 has been superseded by FINRA Rule 2210. Please consult the appropriate FINRA Rule.

      Members may indicate FINRA membership in conformity with Article XV, Section 2 of the FINRA By-Laws in one or more of the following ways:
      (1) in any communication with the public, provided that the communication complies with the applicable standards of Rule 2210 and neither states nor implies that FINRA, or any other corporate name or facility owned by FINRA, or any other regulatory organization endorses, indemnifies, or guarantees the member's business practices, selling methods, the class or type of securities offered, or any specific security;
      (2) in a confirmation statement for an over-the-counter transaction that states: "This transaction has been executed in conformity with the NASD Uniform Practice Code."
      (3) on a member's internet Web site provided that the member provides a hyperlink to FINRA's internet home page, www.finra.org, in close proximity to the member's indication of FINRA membership. A member is not required to provide more than one such hyperlink on its Web site. If the member's Web site contains more than one indication of FINRA membership, the member may elect to provide any one hyperlink in close proximity to any reference reasonably designed to draw the public's attention to FINRA membership. This provision also shall apply to an internet Web site relating to the member's investment banking or securities business maintained by or on behalf of any person associated with a member.
      Amended by SR-FINRA-2007-014 eff. Nov. 17, 2007.
      Amended by SR-NASD-2006-073 eff. July 7, 2007.
      Amended by SR-NASD-2007-042 eff. June 27, 2007 (Implementation date of IM-2210-4 (3) is Oct 31, 2007).
      Amended by SR-NASD-2004-123 eff. Aug. 10, 2004.
      Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
      Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
      Adopted by SR-NASD-97-28 eff. Aug. 7, 1997.

      Selected Notices: 04-64, 07-02, 07-47.

    • 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.

    • IM-2210-6. Requirements for the Use of Investment Analysis Tools

      This rule is no longer applicable. NASD IM-2210-6 has been superseded by FINRA Rule 2214. Please consult the appropriate FINRA Rule.

      (a) General Considerations
      This Interpretive Material provides a limited exception to NASD Rule 2210(d)(1)(D).1 No member may imply that NASD endorses or approves the use of any investment analysis tool or any recommendation based on such a tool. A member that offers or intends to offer an investment analysis tool under this Interpretive Material (whether customers use the member's tool independently or with assistance from the member) must, within 10 days of first use, (1) provide NASD's Advertising Regulation Department (Department) access to the investment analysis tool and, (2) pursuant to Rule 2210(c)(2)(D), file with the Department any template for written reports produced by, or advertisements and sales literature concerning, the tool.2 The member also must provide any supplemental information requested by the Department. The Department may require that the member modify the investment analysis tool, written-report template, advertisement or sales literature. The Department also may require that the member not offer or continue to offer or use the tool, written-report template, advertisement or sales literature until all changes specified by the Department have been made by the member.
      A member that offers an investment analysis tool exclusively to "institutional investors," as defined in Rule 2211(a)(3), is not subject to the post-use access and filing requirement in this paragraph if the communications relating to or produced by the tool meet the criteria for "institutional sales material," as defined in Rule 2211(a)(2). A member that intends to make the tool available to, or that intends to use the tool with, any person other than an institutional investor (such as an employee benefit plan participant or a retail broker-dealer customer) will be subject to the filing and access requirements, however.
      As in all cases, a member's compliance with this Interpretive Material does not mean that the member is acting in conformity with other applicable laws and rules. A member that offers an investment analysis tool under this Interpretive Material (whether customers use the member's tool independently or with assistance from the member) is responsible for ensuring that use of the investment analysis tool and all recommendations based on the investment analysis tool (whether made via the automated tool or a written report) comply, as applicable, with NASD's suitability rule (Rule 2310), the other provisions of Rule 2210 (including, but not limited to, the principles of fair dealing and good faith, the prohibition on exaggerated, unwarranted or misleading statements or claims, and any other applicable filing requirements for advertisements and sales literature), the federal securities laws (including, but not limited to, the antifraud provisions), the Securities and Exchange Commission rules (including, but not limited to, SEC Rule 156 under the Securities Act of 1933) and other NASD rules.
      (b) Definition
      For purposes of this Interpretive Material and any interpretation thereof, an "investment analysis tool" is an interactive technological tool that produces simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices.
      (c) Use of Investment Analysis Tools and Related Written Reports and Sales Material
      A member may provide an investment analysis tool (whether customers use the member's tool independently or with assistance from the member), written reports indicating the results generated by such tool and related advertisements and sales literature3 only if:
      (1) the member describes the criteria and methodology used, including the investment analysis tool's limitations and key assumptions;
      (2) the member explains that results may vary with each use and over time;
      (3) if applicable, the member describes the universe of investments considered in the analysis, explains how the tool determines which securities to select, discloses if the tool favors certain securities and, if so, explains the reason for the selectivity,4 and states that other investments not considered may have characteristics similar or superior to those being analyzed; and
      (4) the member displays the following additional disclosure: "IMPORTANT: The projections or other information generated by [name of investment analysis tool] regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results."
      (d) Disclosures
      The disclosures and other required information discussed in paragraph (c) must be clear and prominent and must be in written or electronic narrative form.

      1 NASD Rule 2210(d)(1)(D) states that "[c]ommunications with the public may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast." This Interpretive Material allows member firms to offer investment analysis tools (whether customers use the member's tool independently or with assistance from the member), written reports indicating the results generated by such tools and related advertisements and sales literature in certain circumstances.

      Rule 2210(d)(1)(D) does not prohibit, and this Interpretive Material does not apply to, hypothetical illustrations of mathematical principles that do not predict or project the performance of an investment or investment strategy.

      2 After the Department has reviewed the investment analysis tool, written-report template, advertisement or sales literature, a member must notify the Department and provide additional access to the tool and re-file any template, advertisement or sales literature if it makes a material change to the presentation of information or disclosures as required by paragraphs (c) and (d).

      3 An advertisement or sales literature that contains only an incidental reference to an investment analysis tool (e.g., a brochure that merely mentions a member's tool as one of the services offered by the member) need not include the disclosures required by this Interpretive Material and would not need to be filed with the Department, unless otherwise required by the other provisions of Rule 2210.

      4 This disclosure must indicate, among other things, whether the investment analysis tool searches, analyzes or in any way favors certain securities within the universe of securities considered based on revenue received by the member in connection with the sale of those securities or based on relationships or understandings between the member and the entity that created the investment analysis tool. The disclosure also must indicate whether the investment analysis tool is limited to searching, analyzing or in any way favoring securities in which the member makes a market or has any other direct or indirect interest. Members are not required to provide a "negative" disclosure (i.e., a disclosure indicating that the tool does not favor certain securities).

      Amended by SR-NASD-2006-105 eff. Sept. 7, 2006.
      Adopted by SR-NASD-2003-13 eff. Feb. 15, 2005.

      Selected Notices: 04-86.

    • IM-2210-7. Guidelines for Communications with the Public Regarding Security Futures

      This rule is no longer applicable. NASD IM-2210-7 has been superseded by FINRA Rule 2215. Please consult the appropriate FINRA Rule.

      (a) NASD Approval Requirements and Review Procedures
      (1) As set forth in paragraph (c)(4) of Rule 2210, all advertisements concerning security futures shall be submitted to the Advertising Regulation Department of NASD at least ten days prior to use for approval and, if changed by NASD, shall be withheld from circulation until any changes specified by NASD have been made or, in the event of disapproval, until the advertisement has been refiled for, and has received, NASD approval.
      (2) The requirements of this paragraph (a) shall not be applicable to:
      (A) advertisements submitted to another self-regulatory organization having comparable standards pertaining to such advertisements, and
      (B) advertisements in which the only reference to security futures is contained in a listing of the services of a member organization.
      (b) Disclosure Statement
      (1) All communications concerning security futures shall be accompanied or preceded by the security futures risk disclosure statement unless they meet the following requirements:
      (A) Such communications shall be limited to general descriptions of the security futures being offered.
      (B) Such communications shall contain contact information for obtaining a copy of the security futures risk disclosure statement.
      (C) Such communications shall not contain recommendations or past or projected performance figures, including annualized rates of return.
      (2) Communications concerning security futures that meet the requirements of subparagraph (1) may have the following characteristics:
      (A) the text of the communication may contain a brief description of security futures, including a statement that identifies registered clearing agencies for security futures. The text may also contain a brief description of the general attributes and method of operation of the security exchange or notice-registered securities exchange on which such security futures are traded, including a discussion of how a security future is priced;
      (B) the communication may include any statement required by any state law or administrative authority; and
      (C) advertising designs and devices, including borders, scrolls, arrows, pointers, multiple and combined logos and unusual type faces and lettering as well as attention-getting headlines and photographs and other graphics may be used, provided such material is not misleading.
      (c) Recordkeeping
      Consistent with paragraph (b)(2) of Rule 2210, a member shall keep a separate file of all advertisements and sales literature concerning security futures, including the name(s) of the person(s) who prepared them and approved their use for a period of three years from the date of each use. In addition, members shall meet the same recordkeeping requirements for all correspondence concerning security futures. In the case of sales literature concerning security futures, a member shall record the source of any recommendation contained therein.
      (d) Specific Standards
      (1) The special risks attendant to security futures transactions and the complexities of certain security futures investment strategies shall be reflected in any communications that discuss the uses or advantages of security futures. Any statement referring to the potential opportunities or advantages presented by security futures shall be balanced by a statement of the corresponding risks. The risk statement shall reflect the same degree of specificity as the statement of opportunities, and broad generalities should be avoided.
      (2) Security futures communications shall include a warning to the effect that security futures are not suitable for all investors and such communications shall not contain suggestions to the contrary.
      (3) Security futures communications shall state that supporting documentation for any claims (including any claims made on behalf of security futures programs or the security futures expertise of sales persons), comparisons, recommendations, statistics or other technical data, will be supplied upon request.
      (4) No cautionary statements or caveats, often called hedge clauses, may be used in communications with the public if they are not legible, are misleading, or are inconsistent with the content of the material.
      (5) Statements suggesting the certain availability of a secondary market for security futures shall not be made.
      (e) Projections
      Notwithstanding the provisions of Rule 2210(d)(1)(D), security futures sales literature and correspondence may contain projected performance figures (including projected annualized rates of return), provided that:
      (1) all such sales literature and correspondence must be accompanied or preceded by the security futures risk disclosure statement;
      (2) no suggestion of certainty of future performance is made;
      (3) parameters relating to such performance figures are clearly established;
      (4) all relevant costs, including commissions, fees, and interest charges (as applicable) are disclosed and reflected in the projections;
      (5) such projections are plausible and are intended as a source of reference or a comparative device to be used in the development of a recommendation;
      (6) all material assumptions made in such calculations are clearly identified;
      (7) the risks involved in the proposed transactions are also disclosed; and
      (8) in communications relating to annualized rates of return, that such returns are not based upon any less than a sixty-day experience; any formulas used in making calculations are clearly displayed; and a statement is included to the effect that the annualized returns cited might be achieved only if the parameters described can be duplicated and that there is no certainty of doing so.
      (f) Historical Performance
      Security futures sales literature and correspondence may feature records and statistics that portray the performance of past recommendations or of actual transactions, provided that:
      (1) all such sales literature and correspondence must be accompanied or preceded by the security futures risk disclosure statement;
      (2) any such portrayal is done in a balanced manner, and consists of records or statistics that are confined to a specific "universe" that can be fully isolated and circumscribed and that covers at least the most recent 12-month period;
      (3) such communications include the date of each initial recommendation or transaction, the price of each such recommendation or transaction as of such date, and the date and price of each recommendation or transaction at the end of the period or when liquidation was suggested or effected, whichever was earlier; provided that if the communications are limited to summarized or averaged records or statistics, in lieu of the complete record there may be included the number of items recommended or transacted, the number that advanced and the number that declined, together with an offer to provide the complete record upon request;
      (4) such communications disclose all relevant costs, including commissions, fees, and daily margin obligations (as applicable);
      (5) whenever such communications contain annualized rates of return, such communications shall disclose all material assumptions used in the process of annualization;
      (6) an indication is provided of the general market conditions during the period(s) covered, and any comparison made between such records and statistics and the overall market (e.g., comparison to an index) is valid;
      (7) such communications state that the results presented should not and cannot be viewed as an indicator of future performance; and
      (8) a principal qualified to supervise security futures activities determines that the records or statistics fairly present the status of the recommendations or transactions reported upon and so initials the report.
      (g) Security Futures Programs
      In communications regarding a security futures program (i.e., an investment plan employing the systematic use of one or more security futures strategies), the cumulative history or unproven nature of the program and its underlying assumptions shall be disclosed.
      (h) Standard Forms of Worksheets
      Such worksheets must be uniform within a member firm. If a member has adopted a standard form of worksheet for a particular security futures strategy, nonstandard worksheets for that strategy may not be used.
      (i) Recordkeeping
      Communications that portray performance of past recommendations or actual transactions and completed worksheets shall be kept at a place easily accessible to the sales office for the accounts or customers involved.
      Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
      Adopted by SR-NASD-2002-40 eff. Oct. 15, 2002.

    • IM-2210-8. Communications with the Public About Collateralized Mortgage Obligations (CMOs)

      This rule is no longer applicable. NASD IM-2210-8 has been superseded by FINRA Rule 2216. Please consult the appropriate FINRA Rule.

      (a) Definition
      For purposes of the following guidelines, the term "collateralized mortgage obligation" (CMO) refers to a multiclass debt instrument backed by a pool of mortgage pass-through securities or mortgage loans, including real estate mortgage investment conduits (REMICs) as defined in the Tax Reform Act of 1986.
      (b) Disclosure Standards and Required Educational Material
      (1) Disclosure Standards
      All advertisements, sales literature and correspondence concerning CMOs:
      (A) must include within the name of the product the term "Collateralized Mortgage Obligation";
      (B) may not compare CMOs to any other investment vehicle, including a bank certificate of deposit;
      (C) must disclose, as applicable, that a government agency backing applies only to the face value of the CMO and not to any premium paid; and
      (D) must disclose that a CMO's yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgages underlying the CMO and changes in current interest rates.
      (2) Required Educational Material
      Before the sale of a CMO to any person other than an institutional investor, a member must offer to the customer educational material that includes the following:
      (A) a discussion of:
      (i) characteristics and risks of CMOs including credit quality, prepayment rates and average lives, interest rates (including their effect on value and prepayment rates), tax considerations, minimum investments, transaction costs and liquidity;
      (ii) the structure of a CMO, including the various types of tranches that may be issued and the rights and risks pertaining to each (including the fact that two CMOs with the same underlying collateral may be prepaid at different rates and may have different price volatility); and
      (iii) the relationship between mortgage loans and mortgage securities;
      (B) questions an investor should ask before investing; and
      (C) a glossary of terms.
      (c) Promotion of Specific CMOs
      In addition to the standards set forth above, advertisements, sales literature and correspondence that promote a specific security or contain yield information must conform to the standards set forth below. An example of a compliant communication appears at the end of this section.
      (1) The advertisement, sales literature or correspondence must present the following disclosure sections with equal prominence. The information in Sections 1 and 2 must be included. The information in Section 3 is optional; therefore, the member may elect to include any, all or none of this information. The information in Section 4 may be tailored to the member's preferred signature.
      Section 1 Title — Collateralized Mortgage Obligations
      Coupon Rate
      Anticipated Yield/Average Life
      Specific Tranche — Number & Class
      Final Maturity Date
      Underlying Collateral
      Section 2 Disclosure Statement:
      "The yield and average life shown above consider prepayment assumptions that may or may not be met. Changes in payments may significantly affect yield and average life. Please contact your representative for information on CMOs and how they react to different market conditions."
      Section 3 Product Features (Optional):
      Minimum Denominations
      Rating Disclosure
      Agency/Government Backing
      Income Payment Structure
      Generic Description of Tranche (e.g., PAC, Companion)
      Yield to Maturity of CMOs Offered at Par
      Section 4 Company Information:
      Name, Memberships
      Address
      Telephone Number
      Representative's Name
      (2) Additional Conditions
      The following conditions must also be met:
      (A) All figures in Section 1 must be in equal type size.
      (B) The disclosure language in Section 2 may not be altered and must be given equal prominence with the information in Section 1.
      (C) The prepayment assumption used to determine the yield and average life must either be obtained from a nationally recognized service or the member firm must be able to justify the assumption used. A copy of either the service's listing for the CMO or the firm's justification must be attached to the copy of the communication that is maintained in the firm's advertising files in order to verify that the prepayment scenario is reasonable.
      (D) Any sales charge that the member intends to impose must be reflected in the anticipated yield.
      (E) The communication must include language stating that the security is "offered subject to prior sale and price change." This language may be included in any one of the four sections.
      (F) If the security is an accrual bond that does not currently distribute principal and interest payments, then Section 1 must include this information.
      (3) Radio/Television Advertisements
      (A) The following oral disclaimer must precede any radio or television advertisement in lieu of the Title information set forth in Section 1:
      "The following is an advertisement for Collateralized Mortgage Obligations. Contact your representative for information on CMOs and how they react to different market conditions."
      (B) Radio or television advertisements must contain the following oral disclosure statement in lieu of the legend set forth in Section 2:
      "The yield and average life reflect prepayment assumptions that may or may not be met. Changes in payments may significantly affect yield and average life."
      (4) Standardized CMO Communication Example
      Collateralized Mortgage Obligations
      7.50% Coupon
      7.75% Anticipated Yield to 22-Year Average Life
      FNMA 9532X, Final Maturity March 2023
      Collateral 100% FNMA 7.50%
      The yield and average life shown above reflect prepayment assumptions that may or may not be met. Changes in payments may significantly affect yield and average life. Please contact your representative for information on CMOs and how they react to different market conditions.
      $5,000 Minimum
      Income Paid Monthly
      Implied Rating/Volatility Rating
      Principal and Interest Payments Backed by FNMA
      PAC Bond
      Offered subject to prior sale and price change.
      Call Mary Representative at (800)555-1234
      Your Company Securities, Inc., Member SIPC
      123 Main Street
      Anytown, State 12121
      Adopted by SR-NASD-2000-12 eff. Nov. 3, 2003.

    • 2211. Institutional Sales Material and Correspondence

      This rule is no longer applicable. NASD Rule 2211 has been superseded by FINRA Rule 2210. Please consult the appropriate FINRA Rule.

      (a) Definitions
      For purposes of Rule 2210, this Rule, and any interpretation thereof:
      (1) "Correspondence" consists of any written letter or electronic mail message and any market letter distributed by a member to:
      (A) one or more of its existing retail customers; and
      (B) fewer than 25 prospective retail customers within any 30 calendar-day period.
      (2) "Institutional Sales Material" consists of any communication that is distributed or made available only to institutional investors.
      (3) "Institutional Investor" means any:
      (A) person described in Rule 3110(c)(4), regardless of whether that person has an account with an NASD member;
      (B) governmental entity or subdivision thereof;
      (C) employee benefit plan that meets the requirements of Section 403(b) or Section 457 of the Internal Revenue Code and has at least 100 participants, but does not include any participant of such a plan;
      (D) qualified plan, as defined in Section 3(a)(12)(C) of the Act, that has at least 100 participants, but does not include any participant of such a plan;
      (E) NASD member or registered associated person of such a member; and
      (F) person acting solely on behalf of any such institutional investor.
      No member may treat a communication as having been distributed to an institutional investor if the member has reason to believe that the communication or any excerpt thereof will be forwarded or made available to any person other than an institutional investor.
      (4) "Existing Retail Customer" means any person for whom the member or a clearing broker or dealer on behalf of the member carries an account, or who has an account with any registered investment company for which the member serves as principal underwriter, and who is not an institutional investor. "Prospective Retail Customer" means any person who has not opened such an account and is not an institutional investor.
      (5) “Market Letter” means any written communication excepted from the definition of “research report” pursuant to Rule 2711(a)(9)(A).
      (b) Approval and Recordkeeping
      (1) Registered Principal Approval
      (A) Correspondence. Correspondence need not be approved by a registered principal prior to use, unless such correspondence is distributed to 25 or more existing retail customers within any 30 calendar-day period and makes any financial or investment recommendation or otherwise promotes a product or service of the member. All correspondence is subject to the supervision and review requirements of Rule 3010(d).
      (B) Institutional Sales Material. Each member shall establish written procedures that are appropriate to its business, size, structure, and customers for the review by a registered principal of institutional sales material used by the member and its registered representatives. Such procedures should be in writing and be designed to reasonably supervise each registered representative. Where such procedures do not require review of all institutional sales material prior to use or distribution, they must include provision for the education and training of associated persons as to the firm's procedures governing institutional sales material, documentation of such education and training, and surveillance and follow-up to ensure that such procedures are implemented and adhered to. Evidence that these supervisory procedures have been implemented and carried out must be maintained and made available to NASD upon request.
      (2) Record-keeping
      (A) Members must maintain all institutional sales material in a file for a period of three years from the date of last use. The file must include the name of the person who prepared each item of institutional sales material.
      (B) Members must maintain in a file information concerning the source of any statistical table, chart, graph or other illustration used by the member in communications with the public.
      (c) Spot-Check Procedures
      Each member's correspondence and institutional sales literature may be subject to a spot-check procedure under Rule 2210. Upon written request from the Advertising Regulation Department (the "Department"), each member must submit the material requested in a spot-check procedure within the time frame specified by the Department.
      (d) Content Standards Applicable to Institutional Sales Material and Correspondence
      (1) All institutional sales material and correspondence are subject to the content standards of Rule 2210(d)(1) and the applicable Interpretive Materials under Rule 2210, and all correspondence is subject to the content standards of Rule 2210(d)(3).
      (2) All correspondence (which for purposes of this provision includes business cards and letterhead) must:
      (A) prominently disclose the name of the member and may also include a fictional name by which the member is commonly recognized or which is required by any state or jurisdiction;
      (B) reflect any relationship between the member and any non-member or individual who is also named; and
      (C) if it includes other names, reflect which products or services are being offered by the member.
      (3) Members may not use investment company rankings in any correspondence other than rankings based on (A) a category or subcategory created and published by a Ranking Entity as defined in IM-2210-3(a) or (B) a category or subcategory created by an investment company or an investment company affiliate but based on the performance measurements of a Ranking Entity.
      (e) Violation of Other Rules
      Any violation by a member of any rule of the SEC, the Securities Investor Protection Corporation or the Municipal Securities Rulemaking Board applicable to institutional sales material or correspondence will be deemed a violation of this Rule and Rule 2210.
      Amended by SR-FINRA-2008-044 eff. Feb. 5, 2009.
      Amended by SR-NASD-2004-043 eff. April 1, 2007.
      Amended by SR-NASD-2006-011 eff. Dec. 1, 2006.
      Adopted by SR-NASD-2000-12 eff. Nov. 3, 2003.

      Selected Notices: 06-45, 06-48, 09-10.

    • 2212. Telemarketing

      This rule is no longer applicable. NASD Rule 2212 has been superseded by FINRA Rule 3230. Please consult the appropriate FINRA Rule.

      (a) General Telemarketing Requirements
      No member or person associated with a member shall initiate any telephone solicitation, as defined in paragraph (g)(2) of this rule, to:
      (1) Time of Day Restriction
      Any residence of a person before the hour of 8 a.m. or after 9 p.m. (local time at the called party's location), unless
      (A) the member has an established business relationship with the person pursuant to paragraph (g)(1)(A)(i),
      (B) the member has received that person's prior express invitation or permission, or
      (C) the person called is a broker or dealer;
      (2) Firm-Specific Do-Not-Call List
      Any person that previously has stated that he or she does not wish to receive an outbound telephone call made by or on behalf of the member; or
      (3) National Do-Not-Call List
      Any person who has registered his or her telephone number on the Federal Trade Commission's national do-not-call registry.
      (b) National Do-Not-Call List Exceptions
      A member making telephone solicitations will not be liable for violating paragraph (a)(3) if:
      (1) Established Business Relationship Exception
      The member has an established business relationship with the recipient of the call. A person's request to be placed on the firm-specific do-not-call list terminates the established business relationship exception to that national do-not-call list provision for that member even if the person continues to do business with the member;
      (2) Prior Express Written Consent Exception
      The member has obtained the person's prior express invitation or permission. Such permission must be evidenced by a signed, written agreement between the person and member which states that the person agrees to be contacted by the member and includes the telephone number to which the calls may be placed; or
      (3) Personal Relationship Exception
      The associated person making the call has a personal relationship with the recipient of the call.
      (c) Safe Harbor Provision
      A member or person associated with a member making telephone solicitations will not be liable for violating paragraph (a)(3) if the member or person associated with a member demonstrates that the violation is the result of an error and that as part of the member's routine business practice, it meets the following standards:
      (1) Written procedures. The member has established and implemented written procedures to comply with the national do-not-call rules;
      (2) Training of personnel. The member has trained its personnel, and any entity assisting in its compliance, in procedures established pursuant to the national do-not-call rules;
      (3) Recording. The member has maintained and recorded a list of telephone numbers that it may not contact; and
      (4) Accessing the national do-not-call database. The member uses a process to prevent telephone solicitations to any telephone number on any list established pursuant to the do-not-call rules, employing a version of the national do-not-call registry obtained from the administrator of the registry no more than thirty-one (31) days prior to the date any call is made, and maintains records documenting this process.
      (d) Procedures
      Prior to engaging in telemarketing, a member must institute procedures to comply with paragraph (a). Such procedures must meet the following minimum standards:
      (1) Written policy. Members must have a written policy for maintaining a do-not-call list.
      (2) Training of personnel engaged in telemarketing. Personnel engaged in any aspect of telemarketing must be informed and trained in the existence and use of the do-not-call list.
      (3) Recording, disclosure of do-not-call requests. If a member receives a request from a person not to receive calls from that member, the member must record the request and place the person's name, if provided, and telephone number on the firm's do-not-call list at the time the request is made. Members must honor a person's do-not-call request within a reasonable time from the date such request is made. This period may not exceed thirty days from the date of such request. If such requests are recorded or maintained by a party other than the member on whose behalf the telemarketing call is made, the member on whose behalf the telemarketing call is made will be liable for any failures to honor the do-not-call request.
      (4) Identification of sellers and telemarketers. A member or person associated with a member making a call for telemarketing purposes must provide the called party with the name of the individual caller, the name of the member, an address or telephone number at which the member may be contacted, and that the purpose of the call is to solicit the purchase of securities or related service. The telephone number provided may not be a 900 number or any other number for which charges exceed local or long distance transmission charges.
      (5) Affiliated persons or entities. In the absence of a specific request by the person to the contrary, a person's do-not-call request shall apply to the member making the call, and will not apply to affiliated entities unless the consumer reasonably would expect them to be included given the identification of the caller and the product being advertised.
      (6) Maintenance of do-not-call lists. A member making calls for telemarketing purposes must maintain a record of a caller's request not to receive further telemarketing calls. A firm-specific do-not-call request must be honored for 5 years from the time the request is made.
      (e) Wireless Communications
      The provisions set forth in this rule are applicable to members telemarketing or making telephone solicitations calls to wireless telephone numbers.
      (f) Outsourcing Telemarketing
      If a member uses another entity to perform telemarketing services on its behalf, the member remains responsible for ensuring compliance with all provisions contained in this rule.
      (g) Definitions
      (1) Established business relationship
      (A) An established business relationship exists between a member and a person if:
      (i) the person has made a financial transaction or has a security position, a money balance, or account activity with the member or at a clearing firm that provides clearing services to such member within the previous 18 months immediately preceding the date of the telemarketing call;
      (ii) the member is the broker/dealer of record for an account of the person within the previous 18 months immediately preceding the date of the telemarketing call; or;
      (iii) the person has contacted the member to inquire about a product or service offered by the member within the previous three months immediately preceding the date of the telemarketing call.
      (B) A person's established business relationship with a member does not extend to the member's affiliated entities unless the person would reasonably expect them to be included. Similarly, a person's established business relationship with a member's affiliate does not extend to the member unless the person would reasonably expect the member to be included.
      (2) The terms telemarketing and telephone solicitation mean the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person.
      (3) The term personal relationship means any family member, friend, or acquaintance of the telemarketer making the call.
      (4) the term "account activity" shall include, but not be limited to, purchases, sales, interest credits or debits, charges or credits, dividend payments, transfer activity, securities receipts or deliveries, and/or journal entries relating to securities or funds in the possession or control of the member.
      (5) the term "broker/dealer of record" refers to the broker/dealer identified on a customer's account application for accounts held directly at a mutual fund or variable insurance product issuer.
      Amended by SR-NASD-2004-174 eff. March 1, 2005.
      Amended by SR-NASD-2003-131 eff. March 31, 2004.
      Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
      Adopted by SR-NASD-96-28 eff. Dec. 2, 1996.

      Selected Notice: 04-15, 05-07.