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FINRA Proposes Amendments to Rule Pertaining to Communications with the Public

The Financial Industry Regulatory Authority (FINRA) is seeking comment with respect to proposed amendments (the “Proposed Amendments”) to FINRA Rule 2210 (Communications with the Public). The Proposed Amendments would create an exception to FINRA’s general prohibition on projected performance and would be applicable to all FINRA-member firms. The Proposed Amendments would allow firms to present to prospective and current customers illustrations that show the projected performance of an asset allocation or investment strategy (although it remains impermissible to present the projected performance of individual securities). All illustrations would have to have a “reasonable basis” and be accompanied by prominent disclosures that the illustration is hypothetical and that there is no assurance that the projected performance will actually be achieved. An illustration also must explain any material assumptions or limitations. FINRA explained that a “reasonable basis” for an illustration may be established by reference to, among other things, historical performance or volatility of relevant asset classes, macroeconomic factors, and expected contribution and withdrawal rates of customers. Registered principals would be required to approve the illustrations or approve a template illustration and supervise the production of illustrations from that template.

FINRA noted that while the prohibition on projected performance is generally designed to protect retail investors, the Proposed Amendments could better inform an investor as it relates to the assumptions upon which investment strategy recommendations are based.

Comments on the Proposed Amendments are due March 27. FINRA’s Regulatory Notice is available here.

©2022 Katten Muchin Rosenman LLPNational Law Review, Volume VII, Number 48
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About this Author

Our Financial Services Practice advises a broad spectrum of domestic and international fund managers, trading advisors, banks, brokerages and proprietary trading firms in all aspects of exchange-traded and over-the-counter commodities, securities and derivatives transactions. We help clients find business-based solutions and make business-driven decisions that are in compliance with applicable regulatory requirements. Our lawyers have extensive experience in the financial markets and are fully attuned to the need to provide advice quickly and efficiently in light of the time-sensitive and...

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