Rule 2210 governs three categories of "communications" by FINRA member firms: institutional communications, retail communications and correspondence. The Rule sets forth requirements relating to approval, review and recordkeeping of communications; filing requirements and review procedures; and content standards.

As discussed below, the Rule's general content standards apply to all communications and are meant to ensure that communications are fair, balanced and not misleading. Retail communications are subject to the highest degree of regulation under the Rule. The Rule focuses mainly on the nature of the addressee of the communication, rather than on the type of instrument described in the communication. A communication made to an investor regarding a security or regarding a product that, in some circumstances, may not be viewed as a security will be covered by the Rule. Consequently, communications to investors regarding registered securities, exempt securities or "non-securities" are subject to the Rule's requirements.

Appendix A of this article contains a summary chart, which includes the applicable definitions, as well as the approval, review and recordkeeping requirements for each type of communication under Rule 2210. Below we highlight the requirements and application of Rule 2210.

Content of Communications

The communications rules include both general and specific content standards. Certain general standards apply to all communications, such as requirements that communications be fair and balanced and provide a sound basis for evaluating the facts with respect to any particular security, industry or service, and prohibitions on omitting material facts the absence of which would make the communication misleading. More particular content standards apply to specific securities.1

Approval, Review and Recordkeeping Requirements

The Rule's approval, review and recordkeeping requirements vary depending on the type of communication. Retail communications are subject to the most stringent requirements. For example, members generally must have a registered principal approve all advertisements, sales literature and independently prepared reprints prior to use. This pre-use approval requirement does not apply to: (1) institutional sales material; (2) public appearances; or (3) correspondence, unless it is sent to 25 or more existing retail customers within a 30-calendar-day period and includes an investment recommendation or promotes a product or service of the firm.

Retail Communications: Approval and Review

A retail communication must be approved before the earlier of its first use or its filing with the FINRA Advertising Regulation Department (the "Department").2 An appropriately qualified registered principal of the firm must approve each retail communication. However, a Series 16 Supervisory Analyst may review the following retail communications:

  • Research reports on debt and equity securities;
  • Retail communications as described in FINRA Rule 2241(a)(11)(A) (list of research-related communications that do not fall within the definition of "research report" under FINRA Rule 2241); and
  • Other research that does not meet the definition of "research report" under FINRA Rule 2241(a)(11),3 provided that the Supervisory Analyst has technical expertise in the particular product area.

A Series 16 Supervisory Analyst may not approve a retail communication that requires a separate registration (such as retail communications concerning options, security futures or municipal securities) unless the supervisory analyst also holds the other registrations.4

If (i) another member has filed the retail communication 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 the previous filing and approval has not materially altered it and will not use it in a manner that is inconsistent with the conditions of the Department's letter, then the retail communication does not have to be pre-approved by a principal.5

The principal pre-use approval requirements do not apply to the following categories of retail communications, provided that the member firm supervises and reviews the communications in the same manner as required under FINRA Rule 3110(b)(4):

  • Any retail communication that is excepted from the definition of "research report" under FINRA Rule 2241(a)(aa)(A), unless the communication makes any financial or investment recommendation;
  • Any retail communication that is posted on an online interactive electronic forum;6 and
  • Any retail communication that does not make any financial or investment recommendation or otherwise promote a product or service of the member.7

An appropriately qualified principal must approve any communication that is filed with the Department, even if a communication otherwise would come under an exception to the principal pre-use approval requirements of FINRA Rule 2210(b)(1)(A).8

A member firm may petition FINRA for an exemption from the principal pre-use approval requirement for good cause shown. In granting an exemption, FINRA will consider whether the exemption is consistent with the purposes of the Rule, investor protection and the public interest. Exemptive relief granted under this provision will apply only to the firms that have applied for such relief.9

Online Interactive Electronic Forums

FINRA considers chat rooms, online seminars, and any portion of a blog or a social networking site such as Facebook, Twitter or LinkedIn that is used to engage in real-time interactive communications to be online interactive electronic forums. The mere updating of a non-interactive blog (or any other firm web page) does not cause it to become an interactive electronic forum, even if the updating occurs frequently.10 A static posting on an interactive electronic forum, such as profile, background or wall information, is deemed to be an advertisement under Rule 2210 and therefore requires prior approval. Interactive content can be copied or forwarded and posted in a static forum, thus rendering it an advertisement. The portion of a website that does not provide for real-time electronic communications does not qualify for any of Rule 2210's exceptions for an online interactive electronic forum.

Institutional Communications: Approval and Review

With respect to institutional communications, the member firm must have written procedures for review by a principal. Those procedures must be reasonably designed to ensure that institutional communications comply with applicable standards. If the procedures do not require review of all institutional communications, they must include provision for the education and training of associated persons regarding these communications. FINRA has the right to request evidence that these supervisory procedures have been implemented and carried out.11

Although internal communications are excepted from the definition of institutional communication, member firms still must supervise these communications, including a firm's internal communications that train or educate registered representatives. In this regard, a firm's supervisory policies and procedures concerning internal training and education materials must be reasonably designed to ensure that such materials are fair, balanced and accurate, and consistent with the applicable offering materials.12

Retail and Institutional Communications: Recordkeeping

Members must retain retail or institutional communications for three years from the date of last use. The records must include:

  • a copy of the communication and the dates of first and (if applicable) last use;
  • the name of any registered principal who approved the communication and the date that approval was given;
  • in the case of a retail communication or institutional communication that is not approved prior to first use by a registered principal, the name of the person who prepared or distributed the communication;
  • information concerning the source of any statistical table, chart, graph or other illustration used in the communication;
  • for retail communications that rely on the exception from pre-approval for retail communications previously filed with, and approved by, the Department,13 the name of the firm that filed the retail communication with the Department and a copy of the Department review letter; and
  • for any retail communication that includes or incorporates a performance ranking or performance comparison of a registered investment company, a copy of the ranking or performance used in the retail communication.14

The recordkeeping requirements only require retention of the records of all communications made or received by a firm or its associated persons on an online interactive electronic forum and that relate to its "business as such," even though third-party posts are not generally treated as the member firm's or its associated persons' communications under Rule 2210 (unless they are covered by the "entanglement" and "adoption" theories discussed below). If a firm's or any of its associated persons' social media posting that is not considered relating to the firm's business as such (i.e., personal) is replied to with a posting that does relate to the firm's business as such, then the firm must retain records of that reply.15

Neither the SEC nor FINRA has specifically defined the term "business as such," although FINRA has said that "[w]hether a particular communication is related to the business of the firm depends upon the facts and circumstances."16

In contrast, a communication by a member firm on its or any other website that is not an online interactive electronic forum would be subject to the recordkeeping requirements, whether or not the communication relates to the firm's business as such.

In Regulatory Notice 17-18, FINRA clarified that its recordkeeping requirements apply to digital communications, including text messaging and chat services, and reminded firms that they must ensure that they can retain any business communications before using those services for business purposes.17

Generally, a third-party post on a social media site established by a firm or any of its personnel would not be considered a communication by the firm or its personnel, to which the supervision, recordkeeping, filing or content requirements would apply. However, under certain circumstances, third-party posts could become attributable to the firm and considered communications with the public subject to the requirements of Rule 2210. For example, if the firm or any of its personnel involved themselves in the preparation of the content of the third-party post, or paid for the post, then the third-party post would be considered to be a communication with the public by the firm or its personnel under an entanglement theory. Or if, for example, after the third-party content was posted, the firm or its personnel explicitly or implicitly endorsed or approved the post, then, under an adoption theory, the post would constitute a communication with the public.18

Generally, if a member firm shares or links to third-party content, that content is deemed to have been adopted by the firm. Notice 17-18 provides some examples:

  • Sharing or linking to specific content posted by independent third parties is an adoption of that content by the member firm; in that case, the member firm must ensure that the adopted content, when read in context with the statements in the originating post, complies with Rule 2210's standards applicable to firm communications;
  • Sharing or linking to content that in turn links to other content, if the member firm has influence or control over that other content, is also an adoption by the member firm of that other content; and
  • Sharing or linking to content that itself is primarily a vehicle for other links, or where the content available through such links forms the entire basis of the article, is an adoption by the member firm of the content accessed through such links.19

However, the simple sharing or linking to content that contains links to other content over which the member firm has no influence or control is not an adoption by the member firm of the content available at those other links. Also, if a member firm includes on its website a link to a section of an independent third-party site, whether or not the member firm has adopted the content of the other site will depend on whether the link is "ongoing" or if the member firm has influence or control over the content of the third-party site. In the latter case, the third-party content will become attributable to the member firm through an entanglement theory. Content at a linked site will not be adopted by the member firm if the link is ongoing, which means that the link is continuously available to investors who visit the member firm's site, investors have access to the linked site whether or not it contains favorable material about the member firm and the linked site could be updated or changed by the independent third party, and investors would still be able to use the link at the member firm's site.

Nonetheless, if the firm has any influence or control over the content of the third-party site, the content of that site will be attributable to the firm through an entanglement theory. Any language used by the member firm to introduce the link must conform to the content standards of Rule 2210(d).20

Correspondence: Recordkeeping, Supervisory and Review

The FINRA rules, the Exchange Act and the applicable Exchange Act rules relating to books and records apply to correspondence. Members must preserve for a period of at least six years any correspondence for which there is no specified period under the FINRA rules or applicable Exchange Act rules. Correspondence must be preserved in a format and media that comply with Rule 17a-4 under the Exchange Act. The names of the persons who prepared outgoing correspondence and who reviewed the correspondence must be ascertainable from the retained records, and these records must be readily available to FINRA upon request.21

All correspondence is subject to the supervision and review requirements of FINRA Rule 3110(b)(4), which provides, in part, that each member must establish procedures for the review and endorsement by a registered principal in writing, on an internal record, of all transactions and for the review by a registered principal of incoming and outgoing correspondence of its registered representatives. These procedures should be in writing and be designed to reasonably supervise each registered representative. The procedures should be designed to, among other things, properly identify and handle customer complaints and to ensure that customer funds and securities are handled in accordance with firm procedures.22

Filing Requirements and Review Procedures

The Rule's filing requirements depend on the type of communication and whether the firm is a new member. The type of communication will affect whether there is a "pre-use" or "concurrent with use" filing requirement.

Only retail communications are subject to the Rule's filing requirements. Correspondence and institutional communications are not subject to any filing requirement with FINRA.

"Pre-Use" Filing Requirements

A new FINRA member firm must file with the Department, at least 10 business days prior to its first use, any retail communication that is published or used in any electronic or other public media, including any generally accessible website, newspaper, magazine or other periodical, radio, television, telephone or audio recording, video display, signs or billboards, motion pictures, or telephone directories (other than routine listings).23 Once 10 business days have passed since the filing, the new member may use the retail communication; the member is not required to wait for approval by the Department after the 10 business day-period has elapsed. The period for which a pre-use filing is required begins on the date when FINRA's Central Registration Depository shows that FINRA membership has become effective and ends one year later.

There are exceptions to the pre-use filing requirement. Any retail communication of a new member firm that is a free writing prospectus ("FWP") that has been filed with the SEC under the Securities Act of 1933 ("Securities Act") Rule 433(d)(1)(ii) may be filed within 10 business days of first use rather than 10 business days prior to first use. Securities Act Rule 433(d)(1)(ii) applies to broker- prepared free writing prospectuses that are used or referred to, and widely disseminated by, an underwriter or dealer.24 A new member firm may also petition FINRA for an exemption from the pre-use filing requirement for good cause shown.25

Although the pre-use filing requirement only applies to retail communications on its face, the Department has the authority to require a new member firm to file other communications prior to their use. If the Department determines that a member has departed from the standards of the Rule, it may require that the member file with the Department all communications (rather than just retail communications), or the portion of the member's communications that is related to any specific types or classes of securities or services, at least 10 business days prior to first use.26

Member firms must also file the following communications with the Department at least 10 business days prior to first use or publication and not publish or circulate them until any changes specified by the Department have been made:

  • Retail communications concerning registered investment companies (including mutual funds, exchange-traded funds, variable insurance products, 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 (together with a copy of the data on which the ranking or comparison is based); and
  • Retail communications concerning security futures, with the exception of (i) retail communications concerning security futures that are submitted to another self-regulatory organization having comparable standards pertaining to those retail communications; and (ii) retail communications in which the only reference to security futures is contained in a listing of the services of a member.27

Concurrent with Use Filing Requirements

The following must be filed with the Department within 10 business days of first use or publication ("concurrent with use"):

  • Retail communications that promote or recommend a specific registered investment company or family of registered investment companies other than those subject to the pre-use filing requirements;
  • Retail communications concerning public direct participation programs;28
  • Any retail communication concerning collateralized mortgage obligations registered under the Securities Act; and
  • Any retail communication concerning any security that is registered under the Securities Act and that is derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance or a foreign currency (that is, "registered structured products"), except (i) retail communications already subject to the pre-use filing requirements or (ii) the retail communications described in the three bullet points above.29

Department approval is not required for any concurrent filings. However, the Department has historically made comments on these documents when it believed that they were not prepared in accordance with FINRA's standards.

A member firm may petition FINRA for an exemption from the concurrent with use filing requirements. In accordance with the FINRA 9600 procedural rules, FINRA may conditionally or unconditionally grant an exemption from the concurrent with use filing rules for good cause shown after taking into consideration all relevant factors, to the extent such exemption is consistent with the purposes of the Rule, the protection of investors and the public interest.30

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Footnotes

 1 FINRA Regulatory Notice 12-29 ("Notice 12-29"), found at https://goo.gl/fDVcCU.

2 Rule 2210(b)(1)(A).

3 FINRA Rule 2241(a)(11) defines a "research report" as any written (including electronic) communication that includes an analysis of equity securities of individual companies or industries (other than an open-end registered investment company that is not listed or traded on an exchange), and that provides information reasonably sufficient upon which to base an investment decision. Among other communications, this term does not include communications that are limited to the following: (i) discussions of broad-based indices; (ii) commentaries on economic, political or market conditions; (iii) technical analyses concerning the demand and supply for a sector, index or industry based on trading volume and price; (iv) statistical summaries of multiple companies' financial data, including listings of current ratings; (v) recommendations regarding increasing or decreasing holdings in particular industries or sectors; or (vi) notices of ratings or price target changes, provided that the member simultaneously directs the readers of the notice to the most recent research report on the subject company that includes all current applicable disclosures required by this rule and that such research report does not contain materially misleading disclosures, including disclosures that are outdated or no longer applicable.

4 Rule 2210(b)(1)(A), (B).

5 Rule 2210(b)(1)(C).

6 See "Online Interactive Electronic Forums," below.

7 Rule 2210(b)(1)(D).

8 Rule 2210(b)(1)(F).

9 Rule 2210(b)(1)(E); Notice 12-29.

10 See FINRA Regulatory Notice 10-06 ("Notice 10-06"), found at https://goo.gl/uHXNS4.

11 Rule 2210(b)(3).

12 Notice 12-29.

13 See discussion above regarding principal pre-use approval requirements for retail communications.

14 Rule 2210(b)(4)(A).

15 FINRA Regulatory Notice 11-39 ("Notice 11-39"), found at: https://goo.gl/VCpz6c; FINRA Regulatory Notice 17-18 (April 2017) ("Notice 17-18"), available at: https://goo.gl/dhfyph; Securities and Exchange Act Rule 17a-4(b).

16 Notice 11-39.

17 Notice 17-18.

18 Notice 10-06.

19 Notice 17-18.

20 Notice 17-18.

21 Rule 2210(b)(4)(B); FINRA Rule 4511; FINRA Rule 3110.09.

22 Rule 2210(b)(2).

23 Rule 2210(c)(1).

24 Rule 2210(c)(1).

25 Rule 2210(c)(9)(A).

26 Rule 2210(c)(9)(B).

27 Rule 2210(c)(2)(A)-(B).

28 FINRA Rule 2310 defines a "direct participation program" as "a program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof. A program may be composed of one or more legal entities or programs but when used herein and in any rules or regulations adopted pursuant hereto the term shall mean each of the separate entities or programs making up the overall program and/or the overall program itself. Excluded from this definition are real estate investment trusts, tax qualified pension and profit sharing plans pursuant to Sections 401 and 403(a) of the Internal Revenue Code and individual retirement plans under Section 408 of that Code, tax sheltered annuities pursuant to the provisions of Section 403(b) of the Internal Revenue Code, and any company including separate accounts, registered pursuant to the Investment Company Act."

29 Rule 2210(c)(3).

30 Rule 2210(c)(9)(B).

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