Notice2026-21393
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Amend FINRA Rule 2210 (Communications With the Public)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 20, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 201 (Tuesday, October 20, 2026)</title>
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[Federal Register Volume 91, Number 201 (Tuesday, October 20, 2026)]
[Notices]
[Pages 66371-66383]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-21393]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106675; File No. SR-FINRA-2026-004]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Amend FINRA Rule 2210 (Communications With
the Public)
October 15, 2026.
I. Introduction
On February 10, 2026, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend FINRA Rule 2210
(Communications with the Public) to allow a member broker-dealer
(``member'') to project performance or provide a targeted return with
respect to a security, a securities portfolio, or an asset allocation
or other investment strategy in its communications with the public,
subject to specified conditions.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Act Release No. 104877 (Feb. 20, 2026), 91 FR
9308, 9313 (Feb. 25, 2026) (File No. SR-FINRA-2026-004)
(``Notice''), <a href="https://www.govinfo.gov/content/pkg/FR-2026-02-25/pdf/2026-03705.pdf">https://www.govinfo.gov/content/pkg/FR-2026-02-25/pdf/2026-03705.pdf</a>. FINRA stated that projections of performance
``reflect an estimate of the future performance of an investment or
investment strategy, which is often based on historical data and
assumptions . . . [and] are commonly established through
mathematical modeling,'' and targeted returns ``reflect the
aspirational performance goals for an investment or investment
strategy.'' Id.
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The proposed rule change was published for public comment in the
Federal Register on February 25, 2026.\4\ The comment period closed on
March 18, 2026. The Commission received comment letters in response to
the Notice.\5\ On April 7, 2026, FINRA consented to extend until May
26, 2026, the time period in which the Commission must approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change.\6\ On May 18, 2026, the Commission received a letter from
FINRA stating, among other things, that it anticipated submitting a
response to comments, as well as amendments to the proposed rule
change.\7\ On May 20, 2026, the Commission published an order
instituting proceedings to determine whether to approve or disapprove
the proposed rule change (``OIP'').\8\ The Commission received comment
letters in response to the OIP.\9\ On June 30, 2026, FINRA responded to
the comment letters received in response to the Notice and OIP \10\ and
filed a partial amendment to the proposed rule change
[[Page 66372]]
(``Partial Amendment No. 1'').\11\ The proposed rule change, as
modified by Partial Amendment No. 1 (hereinafter referred to as the
``proposed rule change'' unless otherwise stated), was published for
public comment in the Federal Register on July 7, 2026.\12\ On July 21,
2026, FINRA consented to extend until October 23, 2026, the time period
in which the Commission must approve or disapprove the proposed rule
change.\13\ The Commission received comment letters in response to
Notice II.\14\ On October 14, 2026, FINRA responded to the comment
letters received in response to Notice II.\15\
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\4\ Notice.
\5\ The comment letters received in response to the Notice are
available at <a href="https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-004">https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-004</a>.
\6\ See letter from Joseph Savage, Vice President and Associate
General Counsel, Office of General Counsel, FINRA, dated Apr. 7,
2026, <a href="https://www.finra.org/sites/default/files/2026-04/SR-FINRA-2026-004-Extension-5-26-2026.pdf">https://www.finra.org/sites/default/files/2026-04/SR-FINRA-2026-004-Extension-5-26-2026.pdf</a>.
\7\ Letter from David Driscoll, Associate General Counsel,
Office of General Counsel, FINRA, dated May 18, 2026 (``FINRA
Response I''), <a href="https://www.finra.org/sites/default/files/2026-05/SR-FINRA-2026-004-Response-to-Comments-20260518.pdf">https://www.finra.org/sites/default/files/2026-05/SR-FINRA-2026-004-Response-to-Comments-20260518.pdf</a>.
\8\ See Exchange Act Release No. 105524 (May 20, 2026), 91 FR
30750 (May 26, 2026) (File No. SR-FINRA-2026-004), <a href="https://www.govinfo.gov/content/pkg/FR-2026-05-26/pdf/2026-10365.pdf">https://www.govinfo.gov/content/pkg/FR-2026-05-26/pdf/2026-10365.pdf</a>.
\9\ The comment letters received in response to the OIP are
available at <a href="https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-004">https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-004</a>.
\10\ See letter from Joseph Savage, Vice President and Associate
General Counsel, Office of General Counsel, FINRA, dated Jun. 30,
2026 (``FINRA Response II''), <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-913220-2799313.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-913220-2799313.pdf</a>.
\11\ Partial Amendment No. 1 is available on FINRA's website at
<a href="https://www.finra.org/rules-guidance/rule-filings/sr-finra-2026-004">https://www.finra.org/rules-guidance/rule-filings/sr-finra-2026-004</a>.
\12\ See Exchange Act Release No. 105845 (Jul. 2, 2026), 91 FR
41723 (Jul. 7, 2026) (File No. SR-FINRA 2026-004) (``Notice II''),
<a href="https://www.govinfo.gov/content/pkg/FR-2026-07-07/pdf/2026-13713.pdf">https://www.govinfo.gov/content/pkg/FR-2026-07-07/pdf/2026-13713.pdf</a>.
\13\ Letter from Joseph Savage, Vice President and Associate
General Counsel, Office of General Counsel, FINRA, dated Jul. 21,
2026, <a href="https://www.finra.org/sites/default/files/2026-07/FINRA-2026-004-Extension2-20261023.pdf">https://www.finra.org/sites/default/files/2026-07/FINRA-2026-004-Extension2-20261023.pdf</a>.
\14\ The comment letters received in response to Notice II are
available at <a href="https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-004">https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-004</a>.
\15\ See letter from Joseph Savage, Vice President and Associate
General Counsel, Office of General Counsel, FINRA, dated October 14,
2026 (``FINRA Response III''), <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-1093079-3839368.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-1093079-3839368.pdf</a>.
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This order approves the proposed rule change.
II. Description of the Proposed Rule Change
FINRA Rule 2210 generally prohibits communications with the public
that predict or project performance.\16\ As discussed below, there are
three exceptions to this general prohibition; the proposed rule change
would create a fourth exception in limited circumstances.
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\16\ See FINRA Rule 2210(d)(1)(F). FINRA interprets this
prohibition to cover both projections of performance and targeted
returns. Notice at 9309, 9310 n.29; see also FINRA Rule 2210
Frequently Asked Questions, Question D.7, <a href="https://www.finra.org/rules-guidance/guidance/faqs/advertising-regulation">https://www.finra.org/rules-guidance/guidance/faqs/advertising-regulation</a> (``This
prohibition [under Rule 2210(d)(1)(F)] extends to retail
communications that include target returns to investors.''); FINRA
Regulatory Notice 20-21 at 4 (Jul. 1, 2020), <a href="https://www.finra.org/sites/default/files/2020-06/Regulatory-Notice-20-21.pdf">https://www.finra.org/sites/default/files/2020-06/Regulatory-Notice-20-21.pdf</a> (stating
that retail communications concerning private placements may not
project or predict returns to investors such as yields, income,
dividends, capital appreciation percentages or any other future
investment performance).
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A. FINRA Rule 2210 (Communications With the Public)
Among other things, FINRA Rule 2210 imposes restrictions on the
content of a member's communications with the public. For example,
FINRA Rule 2210(d)(1) (General Standards) (hereinafter the ``general
content standards'') requires, among other things, that: (1) all member
communications be based on principles of fair dealing and good faith,
be fair and balanced, and provide a sound basis for evaluating the
facts in regard to any particular security or type of security,
industry, or service; \17\ and (2) the member: (a) not omit any
material fact or qualification if the omission, in light of the context
of the material presented, would cause the communication to be
misleading; \18\ (b) not make any false, exaggerated, unwarranted,
promissory, or misleading statement or claim in the communication; \19\
and (c) consider the nature of the audience to which the communication
will be directed and provide details and explanations appropriate to
the audience.\20\
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\17\ FINRA Rule 2210(d)(1)(A).
\18\ Id.
\19\ FINRA Rule 2210(d)(1)(B).
\20\ FINRA Rule 2210(d)(1)(E).
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The general content standards also prohibit a communication
prepared by a member from predicting or projecting performance,
implying that past performance will recur, or making any exaggerated or
unwarranted claim, opinion, or forecast.\21\ This general prohibition,
however, does not apply to communications that contain: (1) certain
hypothetical illustrations of mathematical principles; \22\ (2) certain
investment analysis tools or written reports produced by such
investment analysis tools; \23\ and (3) certain price targets contained
in research reports on debt or equity securities.\24\
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\21\ FINRA Rule 2210(d)(1)(F); but see, e.g., FINRA Rule 2215
(Communications with the Public Regarding Security Futures) (stating
that members may include projected performance figures (including
projected annualized rates of return) regarding securities futures
products in communications subject to specified conditions
enumerated in FINRA Rule 2215(b)(3)); FINRA Rule 2220 (Options
Communications) (stating that members may include projected
performance figures (including projected annualized rates of return)
regarding options in communications subject to specified conditions
enumerated in FINRA Rule 2220(d)(3)).
\22\ FINRA Rule 2210(d)(1)(F)(i) (stating that a member may
communicate a hypothetical illustration of mathematical principles,
provided that it does not predict or project the performance of an
investment or investment strategy). FINRA stated that this exception
applies to tools that serve the function of a calculator that
computes the mathematical outcome of certain assumed variables
without predicting the likelihood of either the assumed variables or
the outcome (e.g., a calculator that computes a net amount of
savings that an investor would earn over an assumed period of time
with assumed variables of rates of returns, frequency of
compounding, and tax rates). Notice at 9308.
\23\ FINRA Rule 2210(d)(1)(F)(ii) (stating that a member may
publish an investment analysis tool, or a written report produced by
an investment analysis tool, that includes projections of
performance provided it meets the requirements of FINRA Rule 2214
(Requirements for the Use of Investment Analysis Tools)). 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.'' See FINRA Rule 2214(b).
\24\ FINRA Rule 2210(d)(1)(F)(iii) (stating that a member may
communicate a price target contained in a research report on debt or
equity securities, provided that the price target has a reasonable
basis, the report discloses the valuation methods used to determine
the price target, and the price target is accompanied by disclosure
concerning the risks that may impede achievement of the price
target).
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B. The Proposed Rule Change
The proposed rule change would adopt a fourth exception to FINRA
Rule 2210(d)(1)(F) to permit members' communications to project
performance or provide targeted returns with respect to a security, a
securities portfolio, or an asset allocation or other investment
strategy (hereinafter, ``projected performance or targeted returns''),
subject to the conditions described, in turn, below.\25\
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\25\ Proposed FINRA Rule 2210(d)(1)(F)(iv).
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1. Written Policies and Procedures
The proposed rule change would require any member that communicates
projected performance or targeted returns to adopt and implement
written policies and procedures reasonably designed to ensure that the
communication is relevant to the likely financial situation and
investment objectives of the intended audience of the
communication.\26\ FINRA stated that, under such reasonably designed
policies and procedures, a communication containing projected
performance or targeted returns should only be distributed to investors
whom a member reasonably believes have access to resources to
independently analyze this information and who have the financial
expertise to understand the risks and limitations of these types of
presentations (referred to herein collectively as ``investors who have
the resources and financial expertise'').\27\ FINRA stated that the
proposed rule change generally would not permit the inclusion of
projected performance or targeted returns in communications for
[[Page 66373]]
a mass audience or intended for general circulation, including a
general retail investor audience, as in such mass communications, a
member generally could not form any expectation that the communication
is relevant to the likely financial situation and investment objectives
of the intended audience.\28\ The proposed rule change would not,
however, prescribe the ways in which a member may satisfy the policies
and procedures requirement; rather, it would provide members with
flexibility to develop policies and procedures that best suit their
investor base and business models.\29\ For example, FINRA stated that a
member firm may wish to partly base its policies and procedures on its
past experiences with particular types of investors who seek this
information, group investors into categories or types, or restrict its
intended audience to investors who have expressed interest or actually
invested in particular types of securities.\30\
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\26\ Proposed FINRA Rule 2210(d)(1)(F)(iv)(a).
\27\ FINRA Response II at 10; FINRA Response III at 16; see
Notice at 9310 (stating that a communication that contains
projections of performance or targeted returns should only be
distributed where the member reasonably believes the investors for
whom that communication is intended have the financial expertise and
resources to understand the risks and limitations of such
presentations).
\28\ Notice at 9310-9311.
\29\ Id. at 9310.
\30\ Id. However, FINRA stated that the fact that an investor
would be interested in high returns would not, by itself, mean that
the projected performance or targeted returns are relevant to the
likely financial situation and investment objectives of the intended
audience. Id. at 9310 n.32.
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2. Disclosure Requirements
The proposed rule change would impose two disclosure-related
obligations. Specifically, as originally proposed in the Notice, the
proposal would have required any member that communicates projected
performance or targeted returns to provide sufficient information to
enable the intended audience to understand: (1) the criteria used and
assumptions made in calculating the projected performance or targeted
return, including whether the projected performance or targeted return
is net of anticipated fees and expenses; \31\ and (2) the risks and
limitations of using the projected performance or targeted return in
making investment decisions, including reasons why the projected
performance or targeted return might differ from actual
performance.\32\
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\31\ Notice at 9311-12 (describing then-proposed FINRA Rule
2210(d)(1)(F)(iv)(c)).
\32\ Id.
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FINRA stated that the first prong of the disclosure requirement
would not prescribe the methodology for calculating projected
performance or targeted returns; rather, FINRA would expect that a
member provide a general description of the methodology used sufficient
to enable the intended audience to understand the basis for the
methodology, as well as the assumptions underlying the projection or
targeted return.\33\ FINRA stated that, absent this required
disclosure, it would be more likely that a projection of performance or
targeted return would mislead a potential investor.\34\ FINRA also
stated that the second prong of the proposed disclosure requirement
would help ensure that investors do not unreasonably rely on a
projected performance or targeted return given their uncertainty and
risks.\35\
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\33\ Id. at 9311.
\34\ Id.
\35\ Id. at 9312.
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In response to comments, however, FINRA amended the original
proposal to remove from the first prong the proposed requirement that a
member include in its disclosure whether its calculation of the
projected performance or targeted return is net of anticipated fees and
expenses,\36\ and to remove from the second prong the proposed
requirement that a member include in its disclosure reasons why the
projected performance or targeted return might differ from actual
performance.\37\ FINRA stated that the general content standards,
together with the proposed rule change's remaining disclosure
requirements, would help ensure that investors receive the information
necessary to consider the risks and limitations of such performance
information.\38\
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\36\ FINRA Response II at 14-15; Partial Amendment No. 1.
\37\ FINRA Response II at 14-15; Partial Amendment No. 1.
\38\ FINRA Response II at 15.
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3. Reasonable Basis Requirement; Recordkeeping Requirement
As originally proposed in the Notice, the proposal would have
required any member that communicates projected performance or targeted
returns to have a reasonable basis for the criteria used and
assumptions made in calculating the projected performance or targeted
return, and retain written records supporting the basis for such
criteria and assumptions.\39\ In response to comments, however, FINRA
amended the original proposal to remove these requirements,\40\ and
instead proposed to amend the recordkeeping obligation under FINRA Rule
2210(b)(4)(A)(iv) to include information concerning the source of any
projection of performance or targeted return used in the
communication.\41\ As discussed further below, FINRA stated that an
express reasonable basis requirement is unnecessary because FINRA Rule
2210's existing general content standards would preclude the
communication of unreasonable performance projections or targeted
returns.\42\ FINRA also stated that the proposed recordkeeping
requirement would be consistent with the other types of records
currently required to be maintained pursuant to FINRA Rule 2210(b)(4)
and would help regulators to evaluate members' compliance with the
terms of the proposed rule change.\43\
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\39\ Notice at 9311 (describing then-proposed FINRA Rule
2210(d)(1)(F)(iv)(b)).
\40\ FINRA Response II at 12; Partial Amendment No. 1 at 5-6.
\41\ Proposed FINRA Rule 2210(b)(4)(A)(iv); Partial Amendment
No. 1 at 7.
\42\ FINRA Response II at 12.
\43\ See id. at 13; Partial Amendment No. 1 at 7.
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III. Discussion and Commission Findings
After careful review of the proposed rule change, comment letters
received, and FINRA's response to the comments, the Commission finds
that the proposed rule change is consistent with the requirements of
the Exchange Act and the rules and regulations thereunder that are
applicable to a national securities association.\44\ Specifically, the
Commission finds that the proposed rule change is consistent with
Section 15A(b)(6) of the Exchange Act, which requires, among other
things, that FINRA rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.\45\
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\44\ In approving this rule change, the Commission has
considered the rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\45\ 15 U.S.C. 78o-3(b)(6).
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The proposed rule change would create a new, reasonably tailored
exception from FINRA Rule 2210's general prohibition on communications
that predict or project performance. The proposed rule change would
allow members to communicate projected performance or targeted returns,
subject to requirements reasonably designed to protect investors and
the public interest. In particular, the proposed rule change would,
among other things, require members to: (1) adopt and implement written
policies and procedures reasonably designed to ensure that the
communication is relevant to the likely financial situation and
investment objectives of the intended audience; (2) provide sufficient
information to enable the intended audience to understand: (a) the
criteria used and assumptions made in calculating the projected
performance or targeted return, and (b) the risks and limitations of
using the projected performance or targeted return in
[[Page 66374]]
making investment decisions; and (3) maintain records including
information concerning the source of any projection of performance or
targeted return used in their communications.
As explained in detail below, the proposed conditions would help
ensure that such communications are provided only to an appropriate
audience of investors who have the resources and financial expertise
and that such communications are provided with disclosures designed to
support informed investment decision making. Further, the existing
general content standards--when coupled with the proposed rule change's
conditions--should help ensure that communications including projected
performance and targeted returns are fair, balanced, and not
misleading. Accordingly, and as explained in more detail below, the
Commission finds that the proposed rule change is consistent with
Section 15A(b)(6) of the Exchange Act. The Commission addresses the
proposed rule change's specific provisions, and any related comments,
in turn.
A. Scope of the Proposed Exception to the General Prohibition on
Communications That Predict or Project Performance
As described above, the proposed rule change would permit members
to communicate projected performance or targeted returns under certain
conditions.\46\ FINRA stated that some of its members' customers,
including institutional investors and other sophisticated investors,
request projected performance or targeted returns to help them make
informed investment decisions, but FINRA Rule 2210 currently prohibits
members from providing such information.\47\ FINRA stated that, on the
other hand, investors can obtain such performance information from
other market participants, including registered investment
advisers,\48\ unregistered intermediaries, and issuers.\49\ FINRA
stated that such different regulatory treatment can: (1) incentivize
issuers to avoid offering securities through registered broker-
dealers,\50\ and (2) cause investor confusion because investors may
receive different types of information about the same investments
depending on the financial professional with whom they engage.\51\ For
these reasons, FINRA stated that an additional exception to the general
prohibition on projecting or predicting performance in member
communications is warranted.\52\
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\46\ Proposed FINRA Rule 2210(d)(1)(F)(iv).
\47\ See Notice at 9309.
\48\ Among other things, the Commission's Investment Adviser
Marketing Rule (``IA Marketing Rule'') addresses the use of gross
performance, net performance, related performance, extracted
performance, hypothetical performance, and predecessor performance.
See 17 CFR 275.206(4)-1(d). For purposes of the IA Marketing Rule,
the term ``hypothetical performance'' means ``performance results
that were not actually achieved by any portfolio of the investment
adviser.'' 17 CFR 275.206(4)-l(e)(8). It includes but is not limited
to: (1) performance derived from model portfolios; (2) performance
that is backtested by the application of a strategy to data from
prior time periods when the strategy was not actually used during
those time periods; and (3) targeted or projected performance
returns with respect to any portfolio or to the investment advisory
services with regard to securities offered in the advertisement. 17
CFR 275.206(4)-l(e)(8)(i). FINRA's proposed rule change would cover
a subset of the types of hypothetical performance information
covered by the IA Marketing Rule. Notice at 9313. FINRA stated that
its proposed rule change would treat the communication of projected
performance and targeted returns in a manner generally consistent
with the IA Marketing Rule. Id.
\49\ Id. at 9309, 9314.
\50\ Id. at 9314.
\51\ Id. at 9309.
\52\ Id.
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A number of commenters supported the proposed rule change.\53\
These commenters stated that the proposed rule change would help
investors make more informed investment decisions,\54\ reduce investor
confusion,\55\ remove an incentive for issuers to avoid using broker-
dealers to distribute their offerings,\56\ encourage capital
formation,\57\ and promote regulatory harmonization by aligning more
closely with the IA Marketing Rule.\58\
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\53\ See, e.g., letter from Eversheds Sutherland (US) LLP on
behalf of the Committee of Annuity Insurers, dated Mar. 18, 2026, at
2, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-729427-2273554.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-729427-2273554.pdf</a> (``CAI''); letter from Gail Bernstein, General
Counsel and Head of Public Policy, Investment Adviser Association,
dated Mar. 17, 2026, at 1-2, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-727988-2271277.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-727988-2271277.pdf</a> (``IAA I''); letter from
Bernstein, dated July 28, 2026, at 2, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-978559-3059528.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-978559-3059528.pdf</a> (``IAA II'');
letter from James Dowd, CEO, North Capital Private Securities, dated
Feb. 27, 2026, at 1, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-716827-2243174.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-716827-2243174.pdf</a> (``North Capital I''); letter from
Matthew Thornton (``Thornton''), Deputy General Counsel, Investment
Company Institute, dated Mar. 18, 2026, at 1, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-728827-2272714.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-728827-2272714.pdf</a> (``ICI
I''); letter from Thornton, dated July 28, 2026 at 1-2, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-978400-3059006.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-978400-3059006.pdf</a> (``ICI II''); letter from Anya Coverman, President &
CEO, Institute for Portfolio Alternatives, dated Mar. 18, 2026, at
1-2, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-729209-2273154.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-729209-2273154.pdf</a> (``IPA''); letter from Bernard Canepa
(``Canepa''), Managing Director & Associate General Counsel, SIFMA,
dated Mar. 18, 2026, at 1, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-729367-2273454_0.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-729367-2273454_0.pdf</a> (``SIFMA I''); letter
from Canepa, dated July 27, 2026, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-976199-3052947.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-976199-3052947.pdf</a> (``SIFMA II'');
letter from Simpson Thacher & Bartlett LLP, dated Mar. 18, 2026, at
1, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-728847-2272814.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-728847-2272814.pdf</a> (``Simpson Thacher''); letter from Craig
Pfeiffer, President and CEO, Money Management Institute, dated Mar.
18, 2026, at 1, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-730027-2274754.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-730027-2274754.pdf</a> (``MMI''); letter from Jennifer
Han, Chief Legal officer and Head of Global Regulatory Affairs,
Managed Funds Association, dated Mar. 20, 2026, at 1, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-731447-2276834.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-731447-2276834.pdf</a> (``MFA I''); letter from Han, dated June 16, 2026 at 1-
2, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-831639-2543984.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-831639-2543984.pdf</a> (`MFA II''); letter from Catherine Bowman, Chair
of the Alternative & Direct Investment Securities Association
Legislative and Regulatory Committee, ADISA, dated July 28, 2026 at
1-2, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-979180-3061748.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-979180-3061748.pdf</a> (``ADISA'').
\54\ See, e.g., IPA at 1 (stating that ``[i]nvestors could use
this information to consider alternative investment strategies,
compare that information with projections and targeted returns from
other entities, and make more informed investment decisions.''); CAI
at 2; Simpson Thacher at 1-2; see MMI at 1.
\55\ See, e.g., IPA at 2 (stating that the proposed rule change
would help eliminate investor confusion caused by receiving
different types of performance information on the same investment
from both registered investment advisers and registered broker-
dealers); Simpson Thacher at 1-2; MMI at 1; CAI at 2; IAA I at 2;
IAA II at 2.
\56\ See, e.g., IPA at 2 (stating that the proposed rule change
would remove an incentive for issuers to distribute private
offerings outside of the broker-dealer channel); see also MMI at 1
(stating that the proposed rule change would help address
competitive disparities between investment advisers and broker-
dealers).
\57\ See, e.g., IPA at 2; Simpson Thacher at 1-2.
\58\ See, e.g., IAA I at 2 (alignment will reduce compliance
costs by permitting members to leverage existing compliance
infrastructure developed to satisfy the IA Marketing Rule); IAA II
at 2; MFA I at 1; CAI at 2; ICI I at 6; Simpson Thacher at 1-2; MMI
at 1.
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Other commenters opposed the proposed rule change.\59\ One of these
[[Page 66375]]
commenters stated that the proposed rule change would expose investors
to substantial risk of misleading and unbalanced sales presentations;
\60\ another commenter stated that the proposed rule change would
weaken FINRA Rule 2210 and is not in the public interest.\61\
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\59\ See, e.g., letter from Michael Bixby, President, Public
Investors Advocate Bar Association, dated Jul. 24, 2026, at 1,
<a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-973979-3030989.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-973979-3030989.pdf</a> (``PIABA''); letter from ``Average Civilian,''
dated August 6, 2026, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-994460-3111826_0_1.html">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-994460-3111826_0_1.html</a> (``Average Civilian'');
letter from Marni Rock Gibson, President, NASAA, dated Mar. 18,
2026, at 2, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-728987-2272934.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-728987-2272934.pdf</a> (``NASAA'') (stating that NASAA
cannot support the proposed rule change ``without better investor
protection guardrails incorporated into the text of the rule''). One
commenter stated that FINRA has not created an administrative record
sufficient to support approval of the proposed rule change,
asserting that broker-dealer compliance costs associated with the
proposed rule change would disproportionately impact capital
formation for small issuers. Letter from James Hunter Poole
(``Poole''), Executive Chairman & CEO, Obelisk Tech Systems Inc.,
dated May 27, 2026, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-2395866_0.htm">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-2395866_0.htm</a> (``Obelisk I''); letter from Poole,
dated July 22, 2026, <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-3014166.htm">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-3014166.htm</a> (``Obelisk II''). In response, FINRA
stated that the proposed rule change ``does not impose unreasonable
costs in terms of compliance or operations, including in connection
with small issuer offerings facilitated by broker-dealers.'' FINRA
Response III at 12. The proposed rule change does not impose an
additional mandatory compliance cost on all members; rather, it
permits members--at their discretion--to communicate projected
performance and targeted return information subject to conditions
reasonably designed to protect investors and the public interest.
Moreover, the record for this filing is based, in part, on years of
FINRA engagement with its members, advisory committees, and the
public, and it includes an Economic Impact Assessment addressing
anticipated costs, benefits, and considered alternatives to best
achieve its regulatory objectives. See, e.g., Notice at 9309, 9315-
17. As outlined in this order, and based on the record, FINRA met
its burden to demonstrate the proposed rule change is consistent
with the requirements of the Exchange Act and the rules and
regulations thereunder that are applicable to a national securities
association.
\60\ See, e.g., PIABA at 2 (stating that members' concerns over
a competitive disadvantage with investment advisers must not take
precedence over investor protection).
\61\ See, e.g., letter from Honey J. Music, dated Jul. 28, 2026,
<a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-3060407.htm">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-3060407.htm</a> (``Music''); see Average Civilian.
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Other commenters recommended various modifications to the scope of
information covered by the proposed rule change. Several commenters
requested that FINRA broaden the scope of information excepted.\62\ In
particular, some commenters recommended modifications to further align
the scope of information covered with the IA Marketing Rule.\63\ One of
these commenters recommended that FINRA amend the proposed rule change
to permit the communication of all types of hypothetical
performance.\64\ Alternatively, this commenter recommended that, at a
minimum, FINRA permit members to communicate certain types of
hypothetical performance, including extracts from composites,
composites of extracts, or track records developed based on the
aggregation of actual positions across various accounts and/or
funds.\65\ Commenters similarly recommended that FINRA permit members
to communicate backtested and model performance,\66\ related
performance,\67\ and extracted performance.\68\
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\62\ See, e.g., SIFMA I at 1; Simpson Thacher at 3-4; letter
from Molly Diggins, Partner & General Counsel, Monument Group, Inc.
dated Mar. 18, 2026, at 2-3, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-730507-2275274.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-730507-2275274.pdf</a> (``Monument Group''); IAA
I at 3-5; IAA II at 2-3.
\63\ See, e.g., SIFMA I at 1 (stating that incomplete alignment
between FINRA Rule 2210 and the IA Marketing Rule results in uneven
access to information about the same investment strategies depending
solely on the regulatory channel through which the communication is
delivered); Simpson Thacher at 3-4; Monument Group at 2-3; IAA I at
3-5; IAA II at 2-3.
\64\ See IAA I at 3-5; IAA II at 2-3.
\65\ IAA I at 5-6; IAA II at 3. IAA stated that these forms of
performance are ``derived from actual investment decisions and
outcomes and do not present a meaningful risk of investor
misunderstanding if subject to the same controls and conditions that
FINRA proposes to apply'' to projections of performance and targeted
returns. IAA II at 3. In the context of the IA Marketing Rule, the
Commission has stated that ``performance that is extracted from a
composite from multiple portfolios . . . may not reflect the
holdings of any actual investor. As a result, . . . this performance
information is subject to the additional protections that apply to
advertisements containing hypothetical performance . . . .''
Investment Adviser Marketing, Investment Advisers Act Release No.
5653 (Dec. 22, 2020), 86 FR 13024, 13077 (Mar. 5, 2021) (``IA
Marketing Rule Adopting Release'').
\66\ MFA I at 2; MFA II at 2; IAA I at 3-5; MMI at 2-4; Monument
Group at 2-3; SIFMA I at 3-4 (backtested performance); ICI I at 6;
see letter from Justine Tobin, Executive Representative & Founder,
Tobin & Company Securities, dated Mar. 18, 2026, at 6, <a href="https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-729071-2272956.pdf">https://www.sec.gov/comments/sr-finra-2026-004/srfinra2026004-729071-2272956.pdf</a> (``Tobin'') (the proposed rule change should permit
broker-dealers to ``provide financial projections and models to
investors,'' subject to certain disclosures).
\67\ MFA I at 3-4; MFA II at 3-4; SIFMA I at 3-4; Simpson
Thacher at 3-4; ICI I at 6-7; ICI II at 3.
\68\ IAA I at 5-6; IAA II at 3; MMI at 4; see MFA I at 4; MFA II
at 4.
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One commenter requested that FINRA create a tiered regulatory
framework that covers projected performance and targeted returns as
well as educational, distribution, and cash-flow illustrations and
imposes varying levels of restrictions on each category of
communication.\69\ One commenter recommended that FINRA remove targeted
returns from the proposed rule change, stating that targeted returns
should not have been covered by FINRA Rule 2210's prohibition in the
first place and therefore should not be subject to the proposed rule
change.\70\ Another commenter requested that FINRA create ``a
proportionate framework that recognizes the difference between a
generalized target return and a detailed projection.'' \71\
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\69\ ADISA at 2-3.
\70\ North Capital I at 1-3; letter from James Dowd, Chief
Executive Officer, North Capital Private Securities, dated Jun. 2,
2026, at 1-2 (``North Capital II''), <a href="https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-799019-2416666.pdf">https://www.sec.gov/comments/SR-FINRA-2026-004/srfinra2026004-799019-2416666.pdf</a>.
\71\ MMI at 4-5.
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Commenters also requested that FINRA provide guidance on the
application or impact of the proposed rule change under specific
circumstances, such as the presentation of portfolio or investment
characteristics,\72\ the presentation of gross versus net-of-fees
performance,\73\ and the presentation of internal rates of return.\74\
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\72\ Simpson Thacher at 4.
\73\ Id.
\74\ IAA I at 6-7; IAA II at 3; MMI at 7; MFA I at 6; MFA II at
6; Simpson Thacher at 2-3; Monument Group at 3.
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In response to commenters who opposed the proposed rule change,
FINRA stated that the investor protection requirements specific to the
proposed rule change, including the policies and procedures
requirements and the disclosure obligations, provide appropriate
investor protection.\75\ Because these proposed conditions would
operate alongside the existing general content standards, FINRA stated
that the proposed rule change would not reduce investor protection.\76\
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\75\ FINRA Response III at 19-20.
\76\ See, e.g., id. at 9-10.
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With respect to requests to modify the scope of communications
covered by the proposed rule change, FINRA declined to amend the
proposed rule change. In particular, FINRA declined to remove
``targeted returns'' from its scope or subject projected performance
and targeted returns to different obligations, stating that FINRA
continues to believe that investors may not always understand or
appreciate the distinction between projected performance and targeted
returns, so the same conditions should apply to these communications
under FINRA Rule 2210.\77\ FINRA also stated that it has long taken the
position that Rule 2210(d)(1)(F) prohibits communications that contain
targeted returns.\78\
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\77\ FINRA Response II at 14; see Notice at 9310 n.29.
\78\ FINRA Response III at 13 (citing FINRA Rule 2210 Frequently
Asked Questions, Question D.7, supra n.16).
---------------------------------------------------------------------------
In addition, FINRA declined to modify the proposed rule change to
cover additional types of performance at this time, stating that
requests to do so are beyond the scope of the proposed rule change.\79\
FINRA stated that the proposed rule change represents an incremental
change, declined to address the merits of the requests to broaden the
scope of the information covered, and noted that this does not
foreclose future potential amendments to adopt standards for other
performance categories.\80\
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\79\ FINRA Response II at 6; FINRA Response III at 4; see Notice
at 9315 (stating FINRA believes that the proposed rule change
strikes the right balance between protecting investors and allowing
more information to be communicated to an appropriate audience).
\80\ FINRA Response III at 4.
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FINRA also declined the request to create a tiered regulatory
framework that would also address educational,
[[Page 66376]]
distribution, and cash-flow illustrations.\81\ FINRA stated that such a
framework would require unnecessary categorization, definitional
distinctions, and differing regulatory treatment that would create
burdens and complexity that could frustrate members' understanding of
and compliance with the proposed rule change.\82\ Finally, FINRA
acknowledged commenters' requests for guidance, and stated that, if the
Commission approves the proposed rule change, it will consider
providing additional guidance as appropriate.\83\
---------------------------------------------------------------------------
\81\ Id. at 4-5.
\82\ Id. at 4.
\83\ FINRA Response II at 16; FINRA Response III at 6.
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The proposed rule change reasonably expands the exceptions to
FINRA's prohibition on communications that predict or project
performance to cover projected performance and targeted returns in
certain narrowly defined circumstances and subject to conditions that
are reasonably designed to protect investors. As described in detail
below, the proposed rule change is reasonably designed to help ensure
that such communications are: (1) relevant to the likely financial
situation and investment objectives of the intended audience (i.e.,
investors who have the resources and financial expertise); and (2) made
with disclosures that would equip the intended audience to evaluate the
risks and limitations of such information.\84\ In addition, the
proposed rule change would require members to maintain records
concerning the source of any projection of performance or targeted
return used in the communication.\85\
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\84\ Proposed Rule 2210(d)(1)(F)(iv).
\85\ Proposed Rule 2210(b)(4)(A)(iv).
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Currently, other market participants, including issuers and
investment advisers, can provide projected performance and targeted
returns to investors, subject to certain conditions. Because FINRA Rule
2210 prohibits members from communicating projected performance or
targeted return information, certain investors may be confused by the
different information they may receive about the same investment from
different market participants. The proposed rule change would help to
reduce this confusion--subject to conditions designed to protect
investors, as discussed further below--by permitting investors to
receive additional information and make more informed investment
decisions.
Furthermore, by limiting the exception to projections of
performance and targeted returns (and not expanding to include at this
time additional categories of performance information suggested by
commenters, such as backtested, model, related, and extracted
performance), the proposed rule change incrementally permits members to
disseminate additional categories of performance information, while
allowing FINRA to gain regulatory experience with its members'
provision of projected performance and targeted return information to
investors to evaluate whether future changes, including expansion of
the exception, would be appropriate. FINRA stated that it would not
foreclose the possibility of future amendments to address additional
categories of performance information, and that it would consider
providing additional guidance on the application of the proposed rule
change to certain categories of information, as appropriate, if the
Commission approves the proposed rule change.
It is likewise reasonable to subject projected performance and
targeted returns to the same requirements, as this treatment is
consistent with how FINRA has interpreted the general prohibition on
predicting or projecting performance and recognizes that the
distinction between targeted returns and performance projections is not
always clear to investors.
For these reasons, the proposed rule change is reasonably designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest.
B. Conditions of the Proposed Exception
As described above, the proposed rule change would allow members to
communicate projected performance or targeted returns, subject to
conditions reasonably designed to protect investors and the public
interest. As originally proposed in the Notice, the proposal would have
required members to: (1) adopt and implement written policies and
procedures reasonably designed to ensure that the communication is
relevant to the likely financial situation and investment objectives of
the intended audience of the communication; \86\ (2) provide sufficient
information to enable the intended audience to understand: (a) the
criteria used and assumptions made in calculating the projected
performance or targeted return, including whether the projected
performance or targeted return is net of anticipated fees and expenses;
\87\ and (b) the risks and limitations of using the projected
performance or targeted return in making investment decisions,
including reasons why the projected performance or targeted return
might differ from actual performance; \88\ and (3) have a reasonable
basis for the criteria used and assumptions made in calculating the
projected performance or targeted return, and retain written records
supporting the basis for such criteria and assumptions (``reasonable
basis requirement'').\89\
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\86\ Proposed FINRA Rule 2210(d)(1)(F)(iv)(a).
\87\ Notice at 9311-12.
\88\ Id.
\89\ Id. at 9311.
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As discussed in more detail below, the Commission received comments
on each of these proposed conditions, as well as other comments
suggesting additional conditions or different requirements altogether.
In response, FINRA determined to amend the proposed rule change to
modify the disclosure requirements, remove the reasonable basis
requirement, and impose a modified recordkeeping requirement.\90\
---------------------------------------------------------------------------
\90\ See Partial Amendment No. 1.
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1. Written Policies and Procedures
The proposed rule change would require any member that provides a
communication containing projected performance or targeted returns with
respect to a security, a securities portfolio, or an asset allocation
or other investment strategy to adopt and implement written policies
and procedures reasonably designed to ensure that the communication is
relevant to the likely financial situation and investment objectives of
the intended audience of the communication.\91\ FINRA stated that this
condition is intended to provide members with the flexibility to
develop policies and procedures that best suit their investor base and
the business in which they engage.\92\ Nevertheless, FINRA stated that,
under such reasonably designed policies and procedures, a communication
that contains projected performance or targeted return information
should only be distributed where the member reasonably believes that
the intended audience has the resources and financial expertise.\93\
FINRA also stated that the
[[Page 66377]]
proposed rule change generally would not permit a member to include
projected performance or targeted returns in communications directed to
a mass audience or intended for general circulation, including to a
general retail investor audience, because a member generally could not
form any expectation that the communication is relevant to the likely
financial situation and investment objectives of the intended
audience.\94\
---------------------------------------------------------------------------
\91\ Proposed Rule 2210(d)(1)(F)(iv)(a). FINRA stated that, to
the extent a member makes this determination with respect to a
retail customer and communicates projected performance or targeted
returns with a recommendation of a securities transaction or
investment strategy involving securities, Regulation Best Interest
would apply. Notice at 9311.
\92\ Id. at 9310.
\93\ See id. (discussing the written policies and procedures
requirement); FINRA Response III at 16. As a result, FINRA stated
that, in practice, it ``expects that the proposed rule change will
primarily impact institutional and other sophisticated investors and
those members that serve them.'' Notice at 9316.
\94\ Id. at 9310-9311.
---------------------------------------------------------------------------
One commenter stated that the proposed policies and procedures
requirement and the proposed disclosure requirement, combined with the
existing investor protection obligations in the general content
standards would ensure that investors are adequately informed and
protected.\95\
---------------------------------------------------------------------------
\95\ ICI I at 5-6.
---------------------------------------------------------------------------
Two commenters recommended modifications to the proposed policies
procedures requirement.\96\ One commenter recommended that FINRA amend
proposed FINRA Rule 2210(d)(1)(F)(iv)(a) to expressly require that a
member's written policies and procedures be reasonably designed to
ensure that a communication's intended audience possesses the financial
expertise and resources to understand the risks and limitations of
projected performance or targeted returns.\97\ The commenter stated
that given projected performance or targeted return information could
be provided to retail investors, members should be expressly obligated
to ensure that the intended audience has the resources and expertise to
evaluate the information properly, and this modification would help
ensure that members carefully consider the intended audience and not
engage in direct marketing to certain investors.\98\
---------------------------------------------------------------------------
\96\ NASAA at 2, 4-5; Tobin at 6.
\97\ NASAA at 4-5.
\98\ Id. at 5.
---------------------------------------------------------------------------
By contrast, the other commenter appeared to request the removal of
the policies and procedures requirement, stating that the proposed rule
change's conditions discourage the communication of projected
performance and targeted return information altogether.\99\ This
commenter recommended that FINRA amend the proposed rule change to
permit the communication of such information to any investor ``provided
that the assumptions underlying the projections are disclosed and
appropriate cautionary language explains their limitations.'' \100\
---------------------------------------------------------------------------
\99\ Tobin at 1-2, 6 (stating that the conditions of the
proposed rule change impose a level of supervisory responsibility
that would make members reluctant to rely on it).
\100\ Id. at 6.
---------------------------------------------------------------------------
Several other commenters suggested that FINRA provide additional
guidance regarding the policies and procedures requirement and the
intended audience of the communications.\101\ One commenter requested
that FINRA clarify that the proposed rule change would not require
members to adopt policies and procedures reasonably designed to ensure
that the investors who receive the communication have a mandated level
of financial expertise and resources, as such a requirement would be
``impractical and unwarranted.'' \102\ Another commenter stated that
the proposed policies and procedures requirement would be redundant of
the suitability requirements under FINRA Rule 2111(b) to the extent a
communication is simultaneously subject to those requirements, and that
satisfaction of institutional suitability obligations under FINRA Rule
2111(b) should automatically fulfill the proposed rule change's
policies and procedures requirement.\103\
---------------------------------------------------------------------------
\101\ See, e.g., IPA at 2; Monument Group at 4-5.
\102\ IPA at 2.
\103\ Monument Group at 4-5.
---------------------------------------------------------------------------
In response to the request to modify the rule text to expressly
provide that a member's policies and procedures must be reasonably
designed to ensure the intended audience possesses the financial
expertise and resources to understand the risks and limitations of the
projected performance or targeted return, FINRA stated that the
proposed rule change takes a similar approach to the one the Commission
adopted in the IA Marketing Rule.\104\ Specifically, FINRA observed
that the IA Marketing Rule requires investment advisers communicating
hypothetical performance information in an advertisement to ``[a]dopt[
] and implement[ ] policies and procedures reasonably designed to
ensure that the hypothetical performance is relevant to the likely
financial situation and investment objectives of the intended audience
of the advertisement.'' \105\ FINRA observed that, in the adopting
release for the IA Marketing Rule, the Commission stated that this
policies and procedures requirement was designed to help ensure that an
adviser provides advertisements containing hypothetical performance
information only to those investors who have the resources and
financial expertise to appropriately consider such information, and
that hypothetical performance ``may not be relevant to the likely
financial situation and investment objectives of and may be misleading
for investors that do not have the resources and financial expertise''
and ``could tell [such] an investor little.'' \106\
---------------------------------------------------------------------------
\104\ See FINRA Response II at 8-9; FINRA Response III at 15-17.
\105\ See FINRA Response III at 15 (citing 17 CFR 275.206(4)-
1(d)(6)(i)).
\106\ FINRA Response III at 16-17 (quoting IA Marketing Rule
Adopting Release at 13083).
---------------------------------------------------------------------------
FINRA stated that the proposed policies and procedures requirement
would impose comparable obligations on members that intend to
distribute communications that contain projected performance or
targeted returns by limiting the distribution of such communications to
investors who have the resources and financial expertise.\107\
Providing such information to investors who do not have such resources
and expertise, FINRA stated, ``could be misleading as such persons may
not understand the risks and limitations of relying on such
presentations.'' \108\ Accordingly, FINRA declined to modify as
suggested.\109\
---------------------------------------------------------------------------
\107\ Id. at 17.
\108\ Id.
\109\ FINRA Response II at 8; FINRA Response III at 15-16.
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FINRA also addressed the commenter's assertion that this proposed
requirement would be duplicative of existing obligations under FINRA
Rule 2111(b).\110\ FINRA stated that the proposed rule change would
apply to all communications (not just those made to institutional
customers) and would not be limited to those made in connection with, a
recommendation.\111\ However, to the extent a member wishes to adopt
overlapping policies and procedures for compliance with both FINRA Rule
2111(b) and the proposed rule change, FINRA stated that a member may do
so, as long as such policies and procedures address the requirements of
each rule.\112\
---------------------------------------------------------------------------
\110\ FINRA Response II at 9; FINRA Response III at 17-18.
\111\ See FINRA Response II at 9.
\112\ See FINRA Response III at 18.
---------------------------------------------------------------------------
It is reasonable to require members communicating projected
performance or targeted returns to adopt and implement written policies
and procedures reasonably designed to ensure that such communications
are relevant to the likely financial situation and investment
objectives of the intended audience of the communication.\113\ The
proposed rule
[[Page 66378]]
change provides for flexibility in a member's development of such
policies and procedures, which would allow members to account for their
investor base and business models, while also requiring that the
policies and procedures impose appropriate constraints on the audience
that can receive such communications. Notably, this policies and
procedures requirement generally would not permit the inclusion of
projected performance for a mass audience or general circulation
(including to a general retail audience) and is designed to help ensure
that communications containing projected performance and targeted
return information are only be distributed where the member reasonably
believes that the intended audience has the resources and financial
expertise.\114\ As a result, FINRA expects that such communications
will primarily be distributed to institutional and other sophisticated
investors. Further, this approach, including the related
interpretations, is generally consistent with the Commission's
interpretation of the IA Marketing Rule, thereby fostering greater
regulatory uniformity, as appropriate, between the investor protections
that apply when broker-dealers and investment advisers provide
communications containing projected performance and targeted return
information.
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\113\ The proposed rule change would, as a practical matter, not
permit the inclusion of projected performance or targeted returns in
communications to a mass audience or for general circulation,
including to a general retail investor audience, because a member
generally could not form any expectation that the communication is
relevant to the likely financial situation and investment objectives
of the intended audience in such situations. See Notice at 9310-11.
\114\ See FINRA Response II at 10; FINRA Response III at 16.
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Similarly, while there may be some overlap in the obligations
imposed by the proposed policies and procedures requirement and
existing suitability obligations under FINRA Rule 2111(b), given that
the rules serve different purposes, it is reasonable to maintain the
separate obligations and not expressly provide that satisfaction of
FINRA Rule 2111(b) would satisfy the proposed rule change.
Nevertheless, a member seeking compliance efficiencies could adopt
dual-use policies and procedures that address the requirements of both
the proposed rule change and FINRA Rule 2111(b).
For these reasons, the proposed rule change is reasonably designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest.
2. Disclosure Requirements
As originally proposed in the Notice, the proposal would have
required any member communicating projected performance or targeted
returns with respect to a security, a securities portfolio, or an asset
allocation or other investment strategy to provide sufficient
information to enable the intended audience to understand: (1) the
criteria used and assumptions made in calculating the projected
performance or targeted return, including whether the projected
performance or targeted return is net of anticipated fees and expenses;
and (2) the risks and limitations of using the projected performance or
targeted return in making investment decisions, including reasons why
the projected performance or targeted return might differ from actual
performance.\115\
---------------------------------------------------------------------------
\115\ Notice at 9311-12 (describing then-proposed FINRA Rule
2210(d)(1)(F)(iv)(c)).
---------------------------------------------------------------------------
Two commenters recommended that FINRA modify the proposal as
originally proposed in the Notice to more closely align the proposed
disclosure requirements with those of the IA Marketing Rule.\116\ One
of these commenters recommended that FINRA remove the requirement to
disclose the reasons why the projected performance or targeted return
information may differ from actual performance.\117\ This commenter
stated that the IA Marketing Rule does not impose such a requirement,
so the inclusion of this requirement would disadvantage broker-dealers
by requiring them to provide more disclosures than investment
advisers.\118\ The other commenter requested that FINRA confirm that
members could satisfy the requirement to disclose the reasons why
projected performance or targeted return information may differ from
actual performance by using ``standard or generic risk disclosure
language addressing market risk, model risk, assumption uncertainty,
and the inherent limitations of forward-looking statements.'' \119\
This commenter also requested that FINRA confirm that disclosures
prepared in compliance with the IA Marketing Rule would satisfy the
proposed disclosure requirements of the proposed rule change.\120\
---------------------------------------------------------------------------
\116\ SIFMA I at 3; MMI at 6 (stating that differences in the
disclosure requirements under the proposed rule change and the IA
Marketing Rule would create operational complexity for dual-
registrants and members distributing adviser-prepared materials).
\117\ SIFMA I at 3.
\118\ Id.
\119\ MMI at 6.
\120\ Id.
---------------------------------------------------------------------------
In response, FINRA amended the proposed rule change to remove the
express requirements to disclose ``whether the projected performance or
targeted return is net of anticipated fees and expenses'' and the
``reasons why the projected performance or targeted return might differ
from actual performance.'' \121\ FINRA stated that the general content
standards may, depending on the facts and circumstances, require
members to include the disclosures that were removed from the initially
proposed rule text to ensure that a communication containing a
projection of performance or targeted return is fair, balanced, and not
misleading.\122\ FINRA further stated that the general content
standards, together with the proposed rule change's remaining
disclosure requirements, would help ensure that investors receive the
information necessary to consider the risks and limitations of
performance information.\123\ Separately, FINRA stated that,
notwithstanding similar phrasing in the IA Marketing Rule and the
proposed rule change, the phrasing is not identical and investment
advisers are subject to a separate regulatory regime that may inform
distinct regulatory treatment based on the facts and
circumstances.\124\ For this reason, at this time, FINRA cannot
categorically conclude that disclosures that comply with the IA
Marketing Rule would always satisfy the requirements of FINRA Rule
2210.\125\
---------------------------------------------------------------------------
\121\ FINRA Response II at 15; Partial Amendment No. 1 at 8.
\122\ Partial Amendment No. 1 at 8.
\123\ FINRA Response II at 15.
\124\ FINRA Response III at 13.
\125\ Id.
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Commenters generally supported these amendments.\126\ Other
commenters opposed the elimination of the proposed express requirements
to disclose ``whether the projected performance or targeted return is
net of anticipated fees and expenses'' and the ``reasons why the
projected performance or targeted return might differ from actual
performance.'' \127\ One of these commenters stated that if the general
content standards already require the same disclosures, then an express
requirement would have placed no additional compliance burden on
members; if, however, a situation arises in which making these
disclosures imposes a heavier compliance burden on a member, then the
investors ``absolutely should'' receive such
[[Page 66379]]
disclosures.\128\ Another commenter stated that investors could be
easily misled without disclosures about fees, risks, and why
projections might differ from actual performance.\129\
---------------------------------------------------------------------------
\126\ See, e.g., ADISA at 5-6; IAA II at 2; SIFMA II at 1; ICI
II at 2.
\127\ See, e.g., PIABA at 3; Average Civilian at 1.
\128\ PIABA at 3.
\129\ Average Civilian at 1.
---------------------------------------------------------------------------
In response, FINRA declined to reintroduce these express disclosure
requirements, stating that nothing in the proposed rule change would
deprive investors of material information or reduce investor
protection.\130\ FINRA stated that the general content standards, which
would apply to all communications of projected performance or targeted
return information, already prohibit the omission of any material fact
or qualification if the omission, in light of the context of the
material presented, would cause the communication to be
misleading.\131\ FINRA further explained that whether a communication
that contains a projected performance or targeted return includes
sufficient disclosure to meet the obligations in the proposed rule
change and the general content standards will depend on the facts and
circumstances of the presentation, including the intended audience
receiving the communication.\132\
---------------------------------------------------------------------------
\130\ FINRA Response II at 15; FINRA Response III at 10.
\131\ FINRA Response II at 15 (citing FINRA Rule 2210(d)(1)(A)).
\132\ FINRA Response III at 10.
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Specifically, FINRA stated that while it would generally expect
that, to meet the disclosure requirement regarding the criteria used
and assumptions made, a communication would provide sufficient
information for the investor to determine whether a projected
performance or targeted return is net of anticipated fees and
expenses,\133\ the contours of this disclosure would depend on the
facts and circumstances, including for example, the sophistication of
the intended audience.\134\ Similarly, FINRA stated that, to comply
with the requirement to disclose the risks and limitations, FINRA would
generally expect that a communication that presents a projection of
performance or targeted return to provide sufficient information to
enable the investor to understand the reasons why the projected
performance or targeted return may differ from actual performance.\135\
FINRA noted, however, that these disclosures could be tailored to the
intended audience.\136\ Ultimately, FINRA stated that the amended
disclosure requirements retain the essential elements of the initial
proposed rule change, while also providing appropriate flexibility for
members to tailor their communications based on the specific
communication and its intended audience.\137\
---------------------------------------------------------------------------
\133\ Id.
\134\ Id.
\135\ Id.
\136\ Id. at 10-11.
\137\ FINRA Response III at 10.
---------------------------------------------------------------------------
Accordingly, FINRA concluded that the proposed rule change, in
combination with the general content standards, will ensure that
investors have sufficient information to consider the risks and
limitations of relying on such performance projections.\138\
---------------------------------------------------------------------------
\138\ Id. at 11.
---------------------------------------------------------------------------
The proposed rule change reasonably requires FINRA members
communicating projected performance or targeted returns to provide
sufficient information to enable the intended audience to understand:
(1) the criteria used and assumptions made in calculating the projected
performance or targeted return; and (2) the risks and limitations of
using the projected performance or targeted return in making investment
decisions. Instead of prescribing the specific content of the required
disclosures, the proposed rule change would permit members to tailor
the disclosures to their intended audience, consistent with the
requirements under the proposed rules, the general content standards,
and the federal securities laws. In this way, the proposed rule change
appropriately recognizes that the specific disclosures required for
each communication of projected performance or targeted return
information will depend on, among other things, the projected
performance or targeted return information itself, the audience of the
communication, and the nature of the security, securities portfolio, or
asset allocation or other investment strategy at issue.\139\
Accordingly, while it is expected that a member would need to disclose
whether a projected performance or targeted return is net of
anticipated fees and expenses and/or the reasons why the projected
performance or targeted return might differ from actual performance to
meet the disclosure requirements under the proposed rule, the proposed
rule change would provide members flexibility to tailor such
communications where appropriate depending on the facts and
circumstances, including for example, the particulars of the specific
communication and the intended audience.
---------------------------------------------------------------------------
\139\ For similar reasons, FINRA reasonably declined to opine
that any disclosures that comply with the IA Marketing Rule would
necessarily comply with the disclosure requirements of the proposed
rule change. Id. at 13.
---------------------------------------------------------------------------
Further, these disclosure requirements would supplement FINRA Rule
2210's existing general content standards, which broadly require, among
other things, that member communications, including communications
containing a projection of performance or targeted return, are fair and
balanced, and prohibit the omission of any material fact or
qualification if the omission, in light of the context of the material
presented, would cause the communication to be misleading.\140\ As a
result, the proposed disclosure requirements, together with the general
content standards, should help ensure that investors receive sufficient
information to understand the criteria, assumptions, risks, and
limitations associated with the projected performance or targeted
returns.\141\
---------------------------------------------------------------------------
\140\ FINRA Rule 2210(d)(1).
\141\ Because the proposed rule change would impose upon members
specified disclosure obligations that operate alongside the general
content standards, and these obligations are separate from those
that the IA Marketing Rule imposes upon investment advisers, it is
reasonable that disclosures made in compliance with the IA Marketing
Rule would not automatically satisfy the disclosure requirements of
FINRA Rule 2210.
---------------------------------------------------------------------------
For these reasons, the proposed rule change is reasonably designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest.
3. Reasonable Basis Requirement; Recordkeeping Requirement
As originally proposed in the Notice, the proposal included a
reasonable basis requirement, which would have required any member that
provides a communication containing projected performance or targeted
returns with respect to a security, a securities portfolio, or an asset
allocation or other investment strategy to have ``a reasonable basis
for the criteria used and assumptions made in calculating the projected
performance or targeted return, and retain[] written records supporting
the basis for such criteria and assumptions.'' \142\ In response to
commenters' recommendations to remove, replace, refine, or further
explain this requirement,\143\ FINRA
[[Page 66380]]
amended the proposed rule change to remove it.\144\ Instead, FINRA
proposed to amend FINRA Rule 2210(b)(4) to require that members
maintain records concerning the source of any performance projection or
targeted return used in their communications.\145\
---------------------------------------------------------------------------
\142\ Notice at 9311 (describing then-proposed FINRA Rule
2210(d)(1)(F)(iv)(b)).
\143\ See, e.g., SIFMA I at 2-3 (stating, among other things,
that third-party projections complicate the application of the
reasonable basis requirement and members making recommendations are
already subject to Regulation Best Interest, which requires a
reasonable basis to believe that a recommendation is in the best
interest of a retail customer based on an understanding of the
risks, rewards, and costs associated with the investment); ICI I at
5-6 (stating, among other things, that FINRA Rules 2210(d)(1)(A) and
(B), as well as the proposed ``policies and procedures'' and
``disclosure'' rules, would ensure that investors are adequately
informed and protected); Monument Group at 4 (stating, among other
things, that the reasonable basis requirements would unnecessarily
burden member with onerous and duplicative due diligence and
recordkeeping requirements in connection with marketing private
funds); MFA I at 4-6 (stating that requiring broker-dealers to
independently rederive a third-party adviser's IA Marketing Rule-
compliant targeted returns and projected performance would not
benefit investors); MMI at 5-8 (requesting practical guidance on the
application of the reasonable basis requirement to, among other
things, adviser-prepared materials, including materials prepared in
compliance with the IA Marketing Rule).
\144\ FINRA Response II at 12; Partial Amendment No. 1 at 5-7.
\145\ FINRA Response II at 12-13; Partial Amendment No. 1 at 7.
---------------------------------------------------------------------------
FINRA stated that an express reasonable basis requirement is
unnecessary because FINRA Rule 2210's existing general content
standards would preclude any unreasonable performance projections or
targeted returns.\146\ Specifically, FINRA stated that the general
content standards already require, among other things, that all member
communications be based on principles of fair dealing and good faith;
be fair and balanced; and not make any false, exaggerated, unwarranted,
promissory, or misleading statement, claim, opinion, or forecast.\147\
FINRA stated that under these applicable standards, it has not
identified a set of facts where a projection of performance or targeted
return lacking a reasonable basis could comply with FINRA
requirements.\148\
---------------------------------------------------------------------------
\146\ FINRA Response II at 12.
\147\ Id.
\148\ Id.
---------------------------------------------------------------------------
To the extent a member communicates projected performance or
targeted return information sourced from third parties, FINRA further
stated that it would expect members to continue to meet the
requirements of the general content standards and reminded members that
these standards prohibit them from, for example, publishing or
circulating any communication that the member knows, or has reason to
know, contains any untrue statement of material fact or is otherwise
false or misleading.\149\ FINRA explained that the level of due
diligence necessary to assess presentations of performance calculated
by third parties would depend on the facts and circumstances.\150\
While FINRA would not generally expect a member to independently verify
all of the criteria and assumptions underlying the calculation of a
projection prepared by a third party, it would expect a member to
evaluate the source of such information, assess whether the available
information in the projection is supported, and satisfy itself that the
presentation meets the general content standards of Rule 2210.\151\
Moreover, members would also need to consider the availability of
information from the third party and whether such information would be
necessary for the member to satisfy its obligations under Rule
2210.\152\
---------------------------------------------------------------------------
\149\ Id. at 13.
\150\ Id.
\151\ Id.
\152\ Id.
---------------------------------------------------------------------------
FINRA also stated that amending the proposed rule change to require
members to keep records concerning the source of any projections and
targeted returns will help substantiate the basis for such performance
presentations.\153\
---------------------------------------------------------------------------
\153\ Id. at 12-13.
---------------------------------------------------------------------------
Some commenters supported the removal of the reasonable basis
requirement from the proposed rule change and the addition of the new
recordkeeping requirement.\154\ Two of these commenters stated that
eliminating the reasonable basis requirement would align the proposed
rule change more closely with the IA Marketing Rule, thereby permitting
dual registrants to reduce compliance costs by leveraging existing
compliance infrastructure developed for the IA Marketing Rule.\155\ One
commenter also stated that the general content standards would have
made the reasonable basis requirement unnecessary and duplicative.\156\
One supportive commenter requested that FINRA provide guidance on what
would constitute reasonable assumptions and acceptable methodologies
for the calculation of projected performance or targeted return
information.\157\
---------------------------------------------------------------------------
\154\ See, e.g., SIFMA II at 1; ICI II at 1-2; see also IAA II
at 2.
\155\ IAA II at 2; see ICI II at 2.
\156\ ICI II at 2.
\157\ ADISA at 4-5.
---------------------------------------------------------------------------
One commenter opposed FINRA's removal of the reasonable basis
requirement, stating that FINRA Rule 2210 already imposes an
independent reasonable basis requirement in other contexts
notwithstanding the existence of the general content standards.\158\
This commenter also stated that if the general content standards
effectively impose a reasonable basis requirement on members, an
express requirement would have placed no additional compliance burden
on members.\159\ This commenter further stated that even if a situation
arises in which an express reasonable basis requirement imposes a
heavier compliance burden, then it is precisely the burden the member
should carry for the protection of investors.\160\ This commenter also
opposed the removal of the recordkeeping requirement embedded in the
reasonable basis requirement, stating that it would effectively
preclude regulators and investors from testing the fairness and
reasonableness of such projections.\161\
---------------------------------------------------------------------------
\158\ PIABA at 2 (stating that there is a reasonable basis
requirement for price targets (FINRA Rule 2210(d)(1)(F)),
communications including a recommendation of securities (FINRA Rule
2210(d)(7)), and recommendations in public appearances including a
recommendation of securities (FINRA Rule 2210(f)(2))).
\159\ Id. at 2-3.
\160\ Id. at 3.
\161\ Id.
---------------------------------------------------------------------------
In response, FINRA reiterated that it was unable to identify a set
of facts where a projection of performance or targeted return lacking a
reasonable basis could comply with FINRA Rule 2210's existing general
content standards, and so accordingly, it does not believe that
investor protection is reduced by removing the reasonable basis
requirement.\162\ Moreover, FINRA stated that: (1) the proposed
recordkeeping requirement--coupled with the existing requirement that
member communications provide a sound basis for evaluating the facts in
regard to any particular security or type of security--would require
members to substantiate the basis for such performance presentations in
order to demonstrate compliance with the content standards; \163\ and
(2) in most cases, members would be unable to demonstrate compliance
with the proposed rule change and the general content standards without
records to support the basis for the criteria used and assumptions made
in calculating a projection of performance or targeted return.\164\ For
these reasons, FINRA stated that the proposed recordkeeping requirement
and the general content standards provide robust investor
protection.\165\ Furthermore, FINRA stated that the omission of an
express reasonable basis requirement and the inclusion of other
conditions similar to those in the IA Marketing Rule would reduce
compliance uncertainty for member personnel who act both as
[[Page 66381]]
registered representatives and investment adviser representatives, as
well as for members that are either dually registered as investment
advisers or distribute communications containing projections or
targeted returns that are available to both member customers and
advisory clients.\166\ For these reasons, FINRA declined to reintroduce
the reasonable basis requirement into the proposed rule change.\167\
---------------------------------------------------------------------------
\162\ FINRA Response III at 8.
\163\ Id. at 9 (citing FINRA Rule 2210(d)(1)(A)).
\164\ Id.
\165\ Id.
\166\ Id. at 8.
\167\ Id. at 7-11.
---------------------------------------------------------------------------
With respect to requests for guidance on the reasonableness of
specific assumptions used to calculate projected performance or
targeted returns, FINRA stated that the long-established content
standards in current FINRA Rule 2210 provide sufficient principles for
members to assess the reasonableness of the criteria used and
assumptions made in a projection of performance or targeted
return.\168\ FINRA added that whether a projection of performance or
targeted return is reasonable under these general content standards
will depend on the facts and circumstances of the presentation.\169\
Finally, FINRA indicated that if the Commission approves the proposed
rule change, it will consider what additional guidance may be
warranted.\170\
---------------------------------------------------------------------------
\168\ Id. at 5.
\169\ Id. at 5-6.
\170\ Id. at 6.
---------------------------------------------------------------------------
It is reasonable to remove the reasonable basis requirement from
the proposed rule change and to require members to maintain records
concerning the source of any performance projection or targeted return
used in their communications. The general content standards--combined
with the recordkeeping requirement--effectively require members to
substantiate the basis of any performance projection or targeted return
prior to communicating it to investors, as it would be difficult for a
member to demonstrate compliance with the proposed rule change and the
general content standards without records supporting the basis for the
criteria used and assumptions made in calculating the projected
performance or targeted return information.\171\ Under these
circumstances, an express reasonable basis requirement would be
duplicative of the general content standards.
---------------------------------------------------------------------------
\171\ Id. at 9.
---------------------------------------------------------------------------
For these reasons, the proposed rule change is reasonably designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest.
4. Other Comments
A number of commenters recommended other changes to the proposed
rule change, including additional conditions or alternative approaches
altogether, as well as the inclusion of compliance safe harbors.
With respect to additional conditions, one commenter recommended
that--to the extent a member communicates projected performance or
targeted return information to retail customers--FINRA amend the
proposed rule change to limit such communications to those made in
support of, or in connection with, a recommendation of any securities
transaction or investment strategy involving securities (including
account recommendations) that is subject to Regulation Best
Interest.\172\ FINRA declined to make this change, stating that the
general content standards and the conditions of the proposed rule
change provide appropriate investor protection to retail investors in
the absence of a recommendation covered by Regulation Best
Interest.\173\ FINRA reiterated that under the proposed policies and
procedures requirement, communications containing projected performance
or targeted returns should only be distributed to investors who have
the resources and financial expertise,\174\ and could not be included
in communications directed to a mass audience or for general
circulation, including a general retail investor audience.\175\
---------------------------------------------------------------------------
\172\ NASAA at 5-6.
\173\ FINRA Response III at 19.
\174\ FINRA Response II at 10; FINRA Response III at 16.
\175\ FINRA Response III at 19; see Notice at 9310-11.
---------------------------------------------------------------------------
It is reasonable that the proposed rule change does not limit a
member's ability to communicate projected performance or targeted
returns to retail investors to only those circumstances where the
communications are made in support of, or in connection with, a
recommendation subject to Regulation Best Interest. As discussed above,
the proposed policies and procedures requirement is designed to limit
communications containing projected performance or targeted returns to
investors who have the resources and financial expertise. In addition,
the proposed rule change would impose disclosure obligations that
require FINRA's members to provide sufficient information to enable the
intended audience to understand the criteria, assumptions, risks, and
limitations associated with such information. Taken together with the
general content standards of FINRA Rule 2210, these requirements both
limit the scope of retail investors who would be eligible to receive
these communications to those who are in a position to understand these
communications and their associated limitations and would help ensure
that any retail investor who receives such a communication would have
the information to evaluate it.
With respect to commenters that recommended alternative approaches,
one commenter requested that FINRA subject capital acquisition brokers
(``CABs'') and non-CAB members to the same or similar rules related to
the communication of projected performance and targeted return
information about unregistered securities to institutional
investors.\176\ A second commenter requested that FINRA regulate the
use of registered index-linked annuity (``RILA'') illustrations in a
manner similar to variable annuity communications pursuant to FINRA
Rule 2211 (Communications with the Public About Variable Life Insurance
and Variable Annuities).\177\ In both instances, FINRA declined to do
so. FINRA stated that CABs are subject to a separate rulebook that is
specifically limited to firms that elect to operate as CABs with
specified limitations on their activities.\178\ Accordingly, FINRA
disagreed that the communication standards designed for the limited
activities of a CAB would be appropriate for a non-CAB member under
FINRA Rule 2210.\179\ FINRA also stated that to the extent the
commenter was requesting an amendment to FINRA Rule 2211, such a
request is outside the scope of the proposed rule change.\180\
---------------------------------------------------------------------------
\176\ Monument Group at 5 (stating that if the Commission
approves the proposed rule change, two different standards would
apply even where both types of broker-dealers market only
unregistered securities to institutional investors).
\177\ CAI at 2.
\178\ FINRA Response III at 13.
\179\ See id.
\180\ See FINRA Response II at 17. FINRA also stated that a
member could not generally form an expectation that a communication
to a mass audience is relevant to the likely financial situation and
investment objectives of the intended audience, and whether a RILA
illustration intended for a mass audience contains a performance
projection or targeted return will depend on the facts and
circumstances. Id.
---------------------------------------------------------------------------
It is reasonable to impose different regulatory obligations on CAB
and non-CAB members related to the communication of projected
performance or targeted returns to institutional investors about
unregistered securities. CABs are subject to a separate FINRA rulebook
that imposes more limited regulatory obligations that are commensurate
with
[[Page 66382]]
their limited activities. For that reason, communication rules that are
designed for a CAB's limited business model are inappropriate for non-
CAB members that may engage in more expansive business activities.
Similarly, the imposition of FINRA Rule 2210's additional restrictions
upon CABs would tend to erode the regulatory benefit that the more
limited CAB rulebook was designed to provide to members who limit their
activities and elect CAB status. In addition, it is reasonable not to
amend FINRA Rule 2211 as part of the proposed rule change given it is
outside the scope of the proposal.
Another commenter recommended--based on requirements in the Uniform
Prudent Investor Act (``UPIA'')--that FINRA require the communication
of multiple possible outcomes ``as an array of probability in different
economic conditions'' based on statistical norms instead of a single
performance projection or targeted return.\181\ In response, FINRA
stated that the UPIA is a model law that establishes general standards
for trustee conduct when investing trust property, and therefore FINRA
does not believe that proposed rule change is appropriate for
application of the model law.\182\ FINRA acknowledged that the
provision of multiple possible outcomes may be valuable in some
instances but declined to require in every instance that members
provide projections of performance or targeted returns in a specific
manner or that such presentations be based on specific, differing
market conditions.\183\ FINRA stated that the disclosures required
under the proposed rule change would provide sufficient information to
investors and would also provide members flexibility to tailor their
communications based on the intended audience of the
communication.\184\
---------------------------------------------------------------------------
\181\ Music at 1. Music stated ``that the public is better
served by adopting UPIA use'' by advisers, ``which always requires
modern portfolio theory directly derived from statistical analysis
as a process.'' Id.
\182\ FINRA Response III at 7.
\183\ Id.
\184\ Id.
---------------------------------------------------------------------------
It is reasonable that the proposed rule change does not require the
disclosure of multiple possible outcomes, as recommended by the
commenter. The proposed rule change and the general content standards
impose a principles-based framework for the content of member
communications containing projected performance or targeted return
information. For this reason, it is reasonable to expect that the
members communicating projected performance or targeted return
information will present such information and any corresponding
disclosures in a way that equips the intended audience to meaningfully
understand its risks and limitations. Depending on the facts and
circumstances, a member may wish to simultaneously provide multiple
projections or targets, but FINRA Rule 2210 need not require such
presentations in every circumstance.
Further, a commenter suggested that FINRA provide examples or safe
harbors for the types of recipients to whom a communication of
projected performance or targeted return could be sent under the
proposed rule change, including a safe harbor that expressly permits
dual registrants to use communications prepared in compliance with the
IA Marketing Rule.\185\ FINRA responded that it does not believe that
it is necessary to provide any specific safe harbors or additional
guidance at this time.\186\ With respect to requests for safe harbors
tied to the type of recipient, the methodologies used, or the
disclosures made, FINRA stated that the proposed rule change is
intended to provide members with the flexibility to develop policies
and procedures that best suit their investor base and the business in
which they engage (e.g., policies and procedures based in part on the
member's past experiences with particular types of investors who seek
this information).\187\ For this reason, FINRA stated that whether a
communication containing a projection of performance or a targeted
return complies with FINRA Rule 2210 will depend on the facts and
circumstances.\188\ FINRA stated, however, that if the Commission
approves the proposed rule change, it will consider whether additional
guidance or amendments would be appropriate.\189\
---------------------------------------------------------------------------
\185\ MMI at 6-8 (stating that presumptively permissible
audiences should include: (1) high-net-worth retail clients who have
been individually assessed; (2) retail clients in managed account or
advisory relationships who have completed investment profile
questionnaires indicating a level of sophistication and risk
tolerance; (3) retail clients meeting specified financial
sophistication thresholds; (4) institutional investors; (5)
qualified purchasers; and (6) certain accredited investors in
Investment Company Act 3(c)(1) funds); see ADISA at 5 (requesting
safe harbors ``for firms that utilize standardized methodologies and
prescribed disclosures''). Relatedly, another commenter requested
that FINRA establish a ``formal exemptive relief process'' in which
members can seek guidance on the permissible use of ``different
types of performance presentations and product illustrations.'' CAI
at 2. In response, FINRA stated that it perceives no need for such a
process as part of this proposed rule change, as it would address
types of performance that are beyond the scope of the proposed rule
change. FINRA Response II at 16. It is reasonable to decline to
establish an exemptive relief process, as the comment is outside the
scope of the proposed rule change.
\186\ Id. at 9, 16.
\187\ FINRA Response III at 6.
\188\ Id.
\189\ Id.
---------------------------------------------------------------------------
The proposed rule change reasonably provides a principles-based
approach for members to determine the appropriate audience for these
communications. Eliminating this flexibility in favor of predefined
categories or safe harbors would fail to account for the fact that the
circumstances of each communication--including the nature of the
communication; the security, securities portfolio, or asset allocation
or other investment strategy at issue; and the nature of the intended
audience--will be relevant to whether a particular communication would
comply with this proposed rule change. As such, it is reasonable to
decline to establish specific safe harbors based on categorical, ex
ante classifications of investors eligible to receive projected
performance or targeted return information.\190\ FINRA also stated that
if the Commission approves the proposed rule change, FINRA will
consider whether guidance is needed in the future.\191\
---------------------------------------------------------------------------
\190\ For similar reasons, the proposed rule change reasonably
does not include safe harbors for communications that include
projections of performance or targeted returns that adhere to
specific calculation methodologies or include specific disclosures.
See ADISA at 5 (requesting safe harbors ``for firms that utilize
standardized methodologies and prescribed disclosures'').
\191\ See FINRA Response III at 6.
---------------------------------------------------------------------------
For these reasons, the proposed rule change is reasonably designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest.
IV. Conclusion
For the reasons set forth above, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1, is
consistent with Section 15A(b)(6) of the Exchange Act, which requires,
among other things, that FINRA rules be designed to prevent fraudulent
and manipulative acts and practices, promote just and equitable
principles of trade, and, in general, protect investors and the public
interest.\192\
---------------------------------------------------------------------------
\192\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
It is therefore ordered pursuant to Section 19(b)(2) of the
Exchange Act \193\ that the proposed rule change (SR-
[[Page 66383]]
FINRA-2026-004) be, and hereby is, approved.
---------------------------------------------------------------------------
\193\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\194\
---------------------------------------------------------------------------
\194\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-21393 Filed 10-19-26; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on October 20, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.