Broker-Dealer Communication with the Public

Broker-Dealer Communication with the Public

August, 2012
by William E. Donnelly, Erica S. Palim

On March 29, 2012, the SEC approved FINRA’s new proposed rules regarding broker-dealers’ communications with the public, which will become eff ective no later than a year from the date of approval. According to FINRA, the new rules will simplify the current regulatory framework, codify certain interpretations, and clarify their practical application. The stated overall purpose of these new rules is to ensure member firms’ communications with the public are “fair and balanced.” However, FINRA may have missed an opportunity to create a new paradigm that would have better addressed electronic communication, despite the increase in communication made on personal mobile devices and through social media websites.

The current definitions of broker-dealer communications are generally based on the nature of the material being communicated (i.e., advertisements, sales literature, correspondence, institutional sales material, and independently prepared reprints).  However, the new rules define broker-dealer communication not according to the nature of the material being communicated, but according to the nature of the audience to whom the material is being communicated. Correspondence is defined as communication to a small group of retail customers, retail communication is defined as communication to a broad group of retail customers, and institutional communication is defined as communication to any number of institutional customers.

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