Regulations - Promotional Material
Promotional Material Under NFA Rule 2-29
"NFA Rule 2-29, Communications with the Public and Promotional Material" governs everything an FCM – and the AP representing it – puts in writing or says aloud. Any form of communications must clearly state:
- General Standards
- Promotional materials may not be deceptive or misleading.
- Promotional materials may not use high-pressure sales tactics.
- Promotional materials may not say or imply that futures trading is appropriate for everyone.
- Writers of promotional material must use the same standards of honest communications that they would expect when using such materials to make their own investment decisions. Clarity and transparency are critical.
- Definition of Promotional Material
- Sales or educational literature distributed to the public, whether prepared by the Member, its employees or anyone else
- Seminar presentations and any advertising designed to encourage attendance at such seminars. This would include charts and graphs.
- Advertising in newspapers, magazines, radio, television and direct or electronic mail
- Radio and television interviews. These come within the remit of Rule 2-29 if the member pays for the appearance as they are considered promotional material. So, too, is an interview where the member interviewee gives a performance presentation, offers services or a telephone number.
- Live/recorded presentations. A balanced allocation between gain and loss must accompany any such presentation.
- Infomercials must contain disclaimers and disclosures at the start and conclusion of these. Also to be disclosed is if the member paid to produce the infomercial.
- Standardized telephone solicitations, including "cold calls"
- Newsletters, reports, circulars, etc.
- A prepared sales script, whether actually followed in making sales presentations or developed solely for training purposes
- Material used on the Internet (e-mail, websites, chatroom conversations, social networking sites.
- Factual Statements
- Must be true
- Members must be able to support the accuracy of each statement
- Statements of Opinion
- Must be identifiable as such.
- Must have a reasonable basis in fact.
- Possibility of Profit
- Must be accompanied by (balanced with) an equally prominent statement of the risk of loss. Any material that mentions potential profits numerous times and contains scant mention of risk may well raise regulatory hackles.
- Discussion of leverage must note that leverage potentially magnifies risks as well as returns.
- Options promotions must eschew misrepresentative presentations. Promotions must disclose that not all options strategies have limited risk.
- Must be representative of all reasonably comparable accounts.
- Must prominently state that the testimonial is not indicative of future performance or success.
- Must prominently state, if applicable, that it is a paid testimonial.
- Hypothetical Results
- Cannot be presented for any trading program that has at least three months of actual client or proprietary trading results;
- Must be accompanied by prescribed statements regarding hypothetical or simulated performance results;
- Must include comparable information regarding the past performance of all customer accounts directed by the NFA member firm, pursuant to a power of attorney or letter of direction over the past five years; and
- If the NFA member firm has less than one year of experience directing customer accounts, past performance of the member's proprietary trading for the past five years must be included in the material.
- Actual Past Trading Profits
- Must state that "Past results are not necessarily indicative of future results."
- Past Performance
- Rate of return figures must be calculated in a manner consistent with CFTC regulations;
- Must be representative of the actual performance of all reasonably comparable accounts
- Disclaimers. For certain uses of promotional material, specific disclaimers are required, to wit:
- Material including hypothetical description of portfolio results achievable using certain advisors.
- Whether a member has less than one year of experience evaluating and allocating assets among specific trading advisors.
- Whether a member has less than one year of experience trading proprietary or customer accounts.
- A statement of hypothetical results using a member's particular trading method.
- NFA member firms must have written supervisory procedures for promotional material produced and used by APs and employees.
- If the material specifically refers to security futures products, the review and approval must be done by a designated securities futures principal.
- The main office must approve any and all promotional material before branch offices and guaranteed IB locations may distribute it.
- Only an officer, general partner, branch office manager or anyone acting in a supervisory capacity may and must approve promotional materials. The employee whose creation they are may not approve them.
- Responsibility for the content of promotional materials prepared by an advertising agency or consultancy is imputed to the member who must see that such materials adhere to NFA rules.
- Managed account performance rankings from investor services and futures magazines. These must be described in detail including their limitations. Members must not misrepresent any such results. Such rankings are not official industry documentation. Disclaimers must be included with these rankings.
- Use of article reprints should include disclaimers on the risks as well as returns of futures trading
- Copies of all promotional materials and copies of their review must be maintained from their date of first use for three years.
- The firm's compliance director may require any member to file copies of materials with the NFA.
- Member firms are required to maintain an on-premises advertising file that contains the promotional material as well as documentation of its supervisory review and approval. The firm must maintain these records for three years in a readily accessible location from the date of last use and five years in total.
- Submission of promotional materials to the NFA is voluntary, except when pursuant to a disciplinary action.
Additionally, NFA member firms are required to disclose to a potential customer any costs associated with futures trading.
ProfessionalsFINRA/NASAA Series 26 Section 6 - Standards Applicable to Public Communications, Advertisements and Sales Literature. In this section use of recommendations and communications of variable products ...
ProfessionalsFINRA/NASAA Series 26 Section 6 - FINRA Conduct Rule 2211. In this section institutional sales material and correspondence, approval and recordkeeping and applicable content standards.
ProfessionalsFutures Account Opening Requirements
ProfessionalsBecoming A Member of FINRA FINRA sets strict qualification standards that all perspective members must meet, prior to being granted membership. Each firm will appoint an executive representative ...
ProfessionalsFINRA Series 6 Exam Study Guide - Supervision. This section deals with NASD Rule 3010 which details Supervision requirements.
ProfessionalsSeries 6, Section 8: Conduct Rule 2211. This section discusses FINRA conduct rules definitions, approval, recordkeeping, spot-check procedures and content standards relating to communications ...
ProfessionalsSummary And Review
ProfessionalsThe foundation of a firm’s supervisory system is its written supervisory manual, also known as the firm’s policy and procedures manual. All members are required to have a policy and ...
ProfessionalsMember Responsibility Actions
1.In terms of a career, a promotion refers to the advancement ...
An individual or company that, for a fee, helps raise money for ...
The independent self-regulatory organization for the U.S. futures ...
News released by a company that might affect the value of its ...
A category of stocks that accounts for companies involved with ...
A specified amount of money set aside to promote a business' ...
Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
A company logo change usually constitutes a material disclosable event. Securities law requires that companies disclose all ... Read Answer >>
Discover what items are raw materials, how raw material costs affect businesses, and where these costs are recorded on a ... Read Answer >>
The correct answer is A) All sales literature, specifically including reprints, must be approved by a principal of the firm ... Read Answer >>
Learn how Twitter earns revenue, including the company's use of three targeted advertising streams and data farming and licensing. Read Answer >>
The correct answer is c. The use of magazines, as well as reprints, falls under the NASD rules regarding communications with ... Read Answer >>