[Federal Register Volume 75, Number 6 (Monday, January 11, 2010)]
[Notices]
[Pages 1426-1428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-222]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61280; File No. SR-NFA-2009-01]
National Futures Association; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Relating to Amendments to
Compliance Rule 2-29(h) and the Adoption of an Interpretive Notice
Regarding the Use of On-Line Social Networking Groups To Communicate
With the Public
January 4, 2010.
Pursuant to Section 19b(7) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given
that on December 4, 2009, National Futures Association (``NFA'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change described in Items I, II, and III below, which
Items have been substantially prepared by the self-regulatory
organization.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons. NFA also
has filed this proposed rule change concurrently with the Commodity
Futures Trading Commission (``CFTC'').
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\1\ 15 U.S.C. 78s(b)(7).
\2\ 17 CFR 240.19b-7.
\3\ NFA filed a letter from the CFTC notifying the NFA that it
had determined not to review the proposed rule change. See note 4.
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On December 4, 2009, the NFA requested that the CFTC make a
determination that review of the proposed rule change of NFA is not
necessary. On December 24, 2009, the CFTC notified the NFA that the
CFTC has determined not to review the proposed rule change.\4\
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\4\ See letter from William Penner, Deputy Director, CFTC, to
Thomas W. Sexton III, Esq., General Counsel, NFA, dated December 24,
2009.
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I. Self-Regulatory Organization's Description and Text of the Proposed
Rule Change
The amendments to Compliance Rule 2-29(h) require that certain
audio and video advertisements that appear on the Internet--like
similar radio and television advertisements--be submitted to NFA in
advance for review and approval. The proposed Interpretive Notice
reminds Members that on-line communications are subject to the same
standards as other types of communications.
The text of the proposed rule change and Interpretive Notice is
available on the NFA's Web site (www.nfa.futures.org), at the NFA's
[[Page 1427]]
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for the Proposed Rule Change
1. Purpose
Section 15A(k) of the Act \5\ makes NFA a national securities
association for the limited purpose of regulating the activities of NFA
Members (``Members'') who are registered as brokers or dealers under
Section 15(b)(11) of the Act.\6\ NFA Compliance Rule 2-29(h) applies to
all Members including those registered under Section 15(b)(11).
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\5\ 15 U.S.C. 78o-3(k).
\6\ 15 U.S.C. 78o(b)(11).
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In December 2008, NFA's FCM, IB, and CPO/CTA Advisory Committees
considered the growing use of social networking groups such as blogs,
chat rooms, and forums to communicate with and solicit customers. As a
result of those discussions, all three committees felt it would be
helpful to issue written guidance reminding Members of their
responsibilities in connection with these on-line communications.
As part of the process, NFA staff reviewed guidance from the
Financial Industry Regulatory Authority (``FINRA'') on the same issue.
FINRA guidance states that blogs and bulletin boards are considered
advertisements and are subject to the same requirements as other
advertisements, while participating in a chat room is a public
appearance subject to FINRA rules. The guidance also states that
``[m]ember firms must supervise the operation of any securities-related
blog, bulletin board or chat room hosted by [a registered
representative] or by the firm itself to ensure compliance with FINRA
Conduct Rules and the Federal securities laws.'' \7\ The FINRA guidance
also reminds FINRA members that their supervisory procedures can
prohibit employees from using electronic media to discuss securities
investments if the firm decides the medium is too hard to supervise.
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\7\ FINRA, ``Guide to the Internet for Registered
Representatives,'' http://www.finra.org/Industry/Issues/Advertising/p006118, accessed July 20, 2009.
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FINRA has also produced several podcasts discussing on-line
communications. In one podcast, FINRA staff suggest limiting posting
access to a firm's blog or bulletin board to the firm's registered
representatives. If the firm opens it up to a wider audience, however,
FINRA staff advise requiring users to register and agree to the firm's
terms of use.\8\ In another podcast, FINRA staff states that publicly
available social networking sites are advertisements and those with
restricted access are sales literature, subject to the same content,
pre-approval, filing, and recordkeeping requirements applicable to
other types of advertisements and sales literature.\9\
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\8\ FINRA February 23, 2009 podcast on ``Electronic
Communications: Blogs, Bulletin Boards and Chat Rooms,'' http://www.finra.org/Industry/Education/OnlineLearning/Podcasts/index.htm,
accessed July 20, 2009.
\9\ FINRA March 10, 2009 podcast on ``Electronic Communications:
Social Networking Sites,'' http://www.finra.org/Industry/Education/OnlineLearning/Podcasts/index.htm, accessed July 20, 2009.
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The proposed Interpretive Notice provides guidance that is similar
to the FINRA guidance. It reminds Members that on-line communications
are subject to the same standards as other types of communications.
NFA has also noticed that profit claims that used to appear on
radio and television are moving to the Internet and showing up on sites
such as YouTube. Therefore, the proposed amendments to Compliance Rule
2-29(h) require that these videos--like similar radio and television
advertisements--be submitted to NFA in advance for review and approval.
Amendments to Compliance Rule 2-29 were previously filed in SR-NFA-
2001-01.
2. Statutory Basis
The rule change is authorized by, and consistent with, Section
15A(k)(2)(B) of the Act.\10\ That section requires NFA to have rules
that are 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, including rules
governing sales practices and advertising of security futures products.
The NFA believes the proposed rule change accomplishes this by
requiring that videos showing profit claims that appear on the
Internet--like similar radio and television advertisements--be
submitted to NFA in advance for review and approval. Additionally, the
NFA believes the proposed Interpretive Notice makes clear that
communications through on-line social networking groups are subject to
the same standards as other types of communications.
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\10\ 15 U.S.C. 78o-3(k)(2)(B).
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This proposal is not designed to regulate, by virtue of any
authority conferred by the Act, matters not related to the purposes of
the Act or the administration of the association. To the extent that
this proposal regulates activities and transactions other than security
futures, the authority for regulating those activities and transactions
comes from the Commodity Exchange Act rather than the federal
securities laws.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will have little or no impact on
competition. The proposed Interpretive Notice does not impose new
requirements on Members, but rather makes clear that existing
requirements regarding communications with the public are the same
regardless of the medium used for such communications. Similarly, the
proposed amendments to Compliance Rule 2-29(h) require that audio or
video advertisements that would have to be submitted to NFA for prior
approval if used on the radio or television must also be submitted to
NFA if they are distributed through publicly accessible media, e.g.,
the Internet. Although there may be some burden on members who have
avoided this requirement by only using the Internet to distribute such
advertisements, it is necessary and appropriate to ensure that
communications by NFA Members are not misleading or otherwise
inappropriate.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
NFA worked with Member Committees in developing the rule change.
NFA did not, however, publish the rule change to the membership for
comment. NFA did not receive comment letters concerning the rule
change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
On December 24, 2009, the CFTC notified the NFA that it had
determined not to review the proposed rule change and, therefore, NFA,
is permitted to make the amendments effective as of
[[Page 1428]]
this date.\11\ At any time within 60 days of the date of effectiveness
of the proposed rule change, the Commission, after consultation with
the CFTC, may summarily abrogate the proposed rule change and require
that the proposed rule change be refiled in accordance with the
provisions of Section 19(b)(1) of the Act.
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\11\ See note 4.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NFA-2009-01.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NFA-2009-01. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of NFA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make publicly available.
All submissions should refer to File Number SR-NFA-2009-01 and
should be submitted on or before February 1, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(73).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-222 Filed 1-8-10; 8:45 am]
BILLING CODE 8011-01-P