This Rule is no longer applicable. Incorporated NYSE Rule Interpretation 472 has been superseded by FINRA Rule 2241. Please consult the appropriate FINRA Rule.
Rule 472.10 Definitions
/01 "Communication"
The term "communication" is defined in Rule 472.10(1) to include, but is not limited to, advertisements, market letters, research reports, sales literature, electronic communications, communications in and with the press and wires and memoranda to branch offices or correspondent firms which are shown or distributed to customers or the public.
/02 Research Reports
The term "research report" is defined as "a written or electronic communication that includes an analysis of equity securities or individual companies or industries, and that provides information reasonably sufficient upon which to base an investment decision.
Research reports must be prepared or approved by a qualified supervisory analyst. (See Rules 344 and 472(a)(2)). Where a supervisory analyst does not have technical expertise in a particular product area, the basic analysis contained in such report may be co-approved by a product specialist designated by the member organization.
If uncertainty exists as to whether a specific document is a market letter, (see 472/04), or research report, the prudent approach is to treat it as a research report and obtain the approval of a supervisory analyst. Many member organizations have found it advantageous to have all investment literature approved by a supervisory analyst to provide uniform control and supervision.
/03 Advertisement
"Advertisement" is defined in Rule 472.10(3) to include, but is not limited to, any communications that is published or designated for use in any print, electronic or other public media such as newspapers, periodicals, magazines, radio, television, telephone recording, web sites, motion pictures, audio or video device, telecommunications device, billboards, or signs.
All advertisements must be approved prior to use by an allied member, supervisory analyst or person designated under the provisions of Rule 342(b)(1), who is other than the preparer. Additionally, member organizations may find it advantageous to clear advertising with their legal counsel, particularly as involving legal or tax questions such as estate planning, trusts and advertisements which may constitute the offering of a "security."
Member organizations are reminded that an advertisement which may be deemed to be the public offering of a "security," must comply with the registration requirements of the Securities Act of 1933 and applicable rules thereunder.
Exchange standards (Rule 472(i) and (j)) apply to all member organizations' advertising, regardless of subject matter. Advertising referring to the market, economic conditions, recruitment, the firm's products, services, or facilities in any area — listed or unlisted stocks, bonds, options (see also Rule 791), commodities, tax shelters, insurance, etc. — is subject to Exchange standards. Member organizations should note that their name must appear on all advertisements except for recruitment ads. The member organization directly bears full responsibility for any publication or broadcast made on its behalf. The member organization should be mindful that before running an ad which has been previously used, re-examination by the firm is necessary in light of continually changing conditions. Ads containing statistics, claims or comparisons with other firms should be carefully reviewed and updated.
/04 Market Letters
Market letters are written comments on market conditions. They can also include "follow-ups" to research reports, and articles prepared by member organizations which appear in newspapers and periodicals. Generally, a market letter consists of items of one page or less. Market letters may recommend specific securities but must closely adhere to the specific standards of Rule 472(j). Since market letters are usually limited in the amount of information provided concerning any recommended securities, supporting information must be offered. A more extensive treatment is usually considered a research report.
Market letters must be approved in advance of distribution. Approval may be given by an allied member, supervisory analyst or person designated under the provisions of Rule 342(b)(1), who is other than the preparer of the letter.
/05 Sales Literature
This term refers to written or electronic material (including, but not limited to, telemarketing scripts) discussing or promoting the products, services and facilities offered by a member organization or its personnel, the role of investment in an individual's overall financial plan, or other literature calling attention to any market letters, research reports, brochures, etc. Sales literature must be approved in advance of distribution. Approval may be given by an allied member, supervisory analyst or person designated under the provisions of Rule 342(b)(1), who is other than its preparer.
/06 Other Communication Activities
Definition of "Public Appearance"
The term "public appearance" as defined in Rule 472.50, is "any participation in a seminar, forum (including an interactive electronic forum), radio or television interview, or other public speaking activity in which a research analyst makes a recommendation or offers an opinion concerning an equity security."
Newspaper or magazine articles, radio/TV appearances, seminars, or interviews in and with the media are examples of other communication activities, which must be approved in advance of publication or broadcast. Approval may be given by an allied member, supervisory analyst, or person designated under the provisions of Rule 342(b)(1). Further, the member organization must establish specific written supervisory procedures applicable to allied members and employees who engage in any of these types of activity.
Electronic communications and memoranda to branch offices or correspondent firms, which are shown or distributed to clients, are also subject to the approval requirements and standards of Rule 472. Member organizations should ensure that those communications distributed to customers or the public are not marked "internal" as such designation may lead the recipient to believe that he or she is receiving special and perhaps "inside" information, when, in fact, he or she is not.
The activities described in /06 and any other similar activities are subject to the general standards set forth in Rule 472(i) and to the specific standards of Rule 472(j) if the activity includes a discussion of specific securities.
/07
Material Externally Prepared
Generally, all communications distributed to or made available to customers or the public must comply with Exchange standards, whether prepared by the member organization or externally. However, consideration will be given to requests for a waiver of this requirement where, among other factors:
• The member organization has no editorial control over the content, subject matter or timing of the material;
• The material is otherwise obtainable and was not prepared at the request of or commissioned by the member organization;
• The member organization and the preparer of the material are unaffiliated;
• The preparer of the material is subject to a parallel and comparable system of regulation; and
• The material is transmitted in its entirety (i.e., in full text) and does not contain any comment thereon by the member organization.
Members are cautioned not to disseminate in its entirety (i.e., in full text) and does not contain any comment thereon by the member.
/08
General StandardsAll member organization communications are subject to the general standards set forth in Rule 472(i).
The general standards prohibit the use of untruthful, misleading or inaccurate statements in any form of communication with the customers or the public, whether written or oral (including radio and television broadcasts, seminars, etc.).
Opinions
Opinions should not be stated as facts and must be reasonable and clearly and distinctly labeled as opinions. Assumptions underlying an opinion should be stated. Substantiation will be required where the material is comparative or where it is otherwise deemed appropriate. Qualifying comparative claims with phrases such as "we believe" or "to the best of our knowledge" will not release the firm from its responsibility of being able to substantiate the underlying claim.
The following are statements which are
not properly labeled as opinions or which require substantiation:
(1) "A better way to accumulate money is through tax deferred annuities."
This would have been acceptable had it been labeled as an opinion.
(2) "We believe our compensation package for registered representatives is unsurpassed."
Although stated as an opinion, substantiation would be required. (See Rule 472(i) — Claims and Comparisons).
Language
Promissory, exaggerated and flamboyant statements and unwarranted superlatives discredit the validity of any communication, reflect poorly on the investment community and are likely to be misleading. Statements which tend to incite an investor to buy or sell on an emotional rather than a reasoned basis are inappropriate in member organization communications with the public.
Here are some examples of statements which are unacceptable:
Promissory —
(1) "Worried about paying too much for a growth stock? Stop worrying. The best is yet to come."
(2) "...commitments may be made at prevailing levels for exceptional capital gains."
(3) "I have seen profits of 50% to 100% taken by people who understand stock movements and adhere to this positive investment program. Any student of the market can apply the basic rules outlined above and improve his market."
Flamboyant and inflammatory —
(1) "Operating in a dynamic growth area with top flight management and strong management and strong finances, the company is an outstanding vehicle for maximum capital appreciation."
(2) "Further projection of sales and earnings is hazardous, but would probably be over-conservative in light of the company's explosive growth potential."
Exaggerated —
(1) "This hotel chain is without peer."
(2) "Admittedly late, but at ten times earnings XYZ Corp. still has a tremendous potential...Fear of buying near all-time highs will lead you away from the strongest stock every time."
(3) In describing opportunities for registered representatives, a firm stated that it had a "complete research service." Investigation revealed that the "service" consisted of one analyst who also handled 45 of his own accounts.
/09
Specific Standards
The specific standards set forth under Rule 472(j) are illustrative of the general standards in Rule 472(i) but are
not exclusive. Compliance with applicable provisions of Rule 472(j) does not necessarily equal compliance with Rule 472(i). For example, disclosures, in a given context, which satisfies Rule 472(i) where additional facts would be material to the customer or reader.
Recommendation [See Rule 472(j)(1)]
For purposes of these standards, the term "recommendation" includes any advice, suggestion or other statement, written or oral, that is intended, or can reasonably be expected, to influence a customer to purchase, sell or hold a security.
When specific securities are recommended in any communication to customers or the public (excluding extemporaneous interviews in and with the media) appropriate disclosures must be made. Disclosures made in written material must be prominent, separate from any general hedge clause and in clear positive language.
a.
Market-making/dealing as principal:
Making a market, acting as a principal or the intention to do so within one month of a recommendation (if such intent is known at the time of the recommendation) must be explicitly disclosed even if the activity is temporary. The following disclosures would meet Exchange requirements:
(h) "This firm makes a market in the above security."
(ii) "This firm will deal as principal in the above security."
The following disclosure would not meet Exchange requirements if an actual market is then being made:
(i) "This firm may from time to time make a market in the above security."
(ii) "This firm usually makes a market in the above security."
An investor should have access to available data in order to make an intelligent investment decision. Therefore, information supporting a recommendation must be provided or offered.
The offer of additional information must be prominently displayed in at least the same type as the body copy of the material or in a smaller type of different color or bolder face. It may not be buried in a hedge clause. A simple statement such as, "Additional information is available upon request" is acceptable.
The current market price of a recommended security must be disclosed in the original report as well as in follow-up reports, whether written or oral.
Disclosures Other than by Research Analysts
a. Positions: Disclosure should be made if the employees involved in the preparation or issuance of the communication may have positions in securities (including significant options holdings) of the recommended issuer.
b. Directorates: If an allied member or employee is a director of a corporation whose security is being recommended, disclosure of this fact must be made.
c. Other: When making investment recommendations, member organizations, allied members, and employees involved in preparation of research should disclose to customers any material conflict of interest relating to them which could reasonably be expected to impair their ability to render unbiased and objective advice.
N.B.: The attention of member organizations and their personnel is directed to the discussion of "Trading Against Firm Recommendations" which appears under NYSE Rule 401/01 (page 4010) of this HANDBOOK.
Past Recommendations [See Rule 472(j)(2)]
Portraying the performance of past recommendations or of actual transactions must be done in a manner which fairly and reasonably presents the record in question. Selecting one or a limited number of past recommendation or illustrating the performance of one or a limited number of customer accounts is inappropriate as it would not constitute an acceptable "universe." Examples of acceptable universes would include firm presentation of a record of all of its past recommendations of at least the most recent 12-month period, or a record of all discretionary accounts under management for at least the most recent 12-month period. Another example of an acceptable universe would include a record of all specific security recommendations within one industry for at least the most recent 12-month period. For example, the firm may publish a monthly market letter or a series of research reports recommending securities within the electric utility industry. If the firm wishes to summarize the performance of the recommendations, it must follow the provisions outlined in Rule 472(j)(2).
When referring to the success of past recommendation, all of the conditions outlined in Rule 472(j)(2) must be met. Member organizations which are registered investment advisers must also comply with SEC Rule 206(4)-1 under the Investment Advisers Act of 1940.
The following examples improperly promote the successful performance of past research recommendations:
(1) "All of the stocks we recommended in last month's market letter are continuing to do well"
(2) "We are dropping BCF (24) from our closely followed list. We had originally recommended this stock at $18, two months ago.
(3) "BPF has risen 50% since our recommendation in October and profits may be taken."
There is no objection to giving the price history of a specific security but it is neither necessary nor proper to mention the fact that the organization recommended the security at a lower price. Instead of the statement made in example (3), one might say "BPF has risen 50% since October and now appears fully priced. Profits may be taken."
Projections and Predictions [See Rule 472(j)(3)]
Past records, charts, tables or other material cannot be used, either explicitly or implicitly, to promise future profits or income from investments. When an advertisement or other communication refers to the yields of particular investments, whether bonds, annuities, GNMAs, etc., the following disclosures may be appropriate:
(1) all fees, expenses or charges that may affect the yield calculation (if yield is not net and if other charges have the economic affect of reducing the effective yield, disclosure is required);
(2) whether the yield is actual or projected;
(3) the basis of the yield; and
(4) any expected conditions or circumstances that are likely to change or affect the yield, such as an early call of the security.
Estimates must clearly be labeled as such. If, for example, the principal or interest of any annuity or other investment instrument is advertised as guaranteed, disclosure should be made concerning:
(1) the identity of the guarantor;
(2) the length of time the guarantee is effective, e.g., "12% current annual interest rate";
(3) whether penalties or fees are involved for premature withdrawal of funds; and
(4) whether any conditions exist which must be satisfied in order for the guarantee to apply.
Forecasts
Past performance is not indicative of the future. Such matters as future earnings, dividends or price action cannot be predicted with certainty. Forecasts not sufficiently qualified can be misleading. Here are some examples of forecasts not properly qualified.
"...The market has bottomed out and will take off to new highs..."
"...1985 will be the eighth consecutive year in which the company will post record sales and earnings..."
"...Company philosophy and a pattern of steady growth assure a vigorous and profitable future..."
"...The company will be able to double their present receivables from $11,000,000 to $22,000,000 in the very near future, which in turn will have a substantial impact on earnings..."
Claims and Comparisons [See Rule 472(j)(4)]
Competitive claims and comparisons may be used, but the member organization must be prepared to completely and meaningfully substantiate them.
Dating [See Rule 472(j)(5)]
This guideline is designed to deter the distribution of outdated information. In general, investment literature recommending specific securities should be dated by day, month and year. On the other hand, industry studies containing no recommendations, quarterly investment reviews or economic research papers may be dated by month or season. Dating by year may be acceptable in some instances for brochures, pamphlets, circulars and other generic sales literature.
Statistics often become outdated rapidly. Especially in industries or companies where new developments are frequent, significant data might well become outdated in a matter of weeks.
Identification of Sources [See Rule 472(j)(6)]
Testimonials [See Rule 472(j)(7)]
In general, advertising or sales literature is considered to be of a testimonial nature and subject to requirements of Rule 472(j)(7) whenever it includes favorable comments concerning the quality of the firm's investment advice made by any person not clearly identified as being in its employ.
However, where it is evident that the comment is made by a non-customer actor, announcer or by way of caricature and where the copy omits any direct or indirect reference to benefits personally gained by the speaker, the comment will not be considered a testimonial.
Hedge Clauses
Statements in a hedge clause should be consistent with statements made in the main body of sales and investment literature. Hedge clauses do not relieve a firm from its obligation to meet Exchange standards. Many hedge clauses contain the following acceptable language:
"The information above has been obtained from sources believed reliable but is not necessarily complete and cannot be guaranteed. Any opinions expressed are subject to change without notice."
A member organization cannot disclaim responsibility for its communications or for opinions expressed by its employees. Hedge clauses must be separate from any disclosures required under Rule 472(j). (Also see: Investment Advisers Act Release No. 58, April 10, 1951).
/10
Guidelines for "Discount" Communications
The following guidelines are designed to assist member organizations prepare and approve communications that offer discount commissions to the public. The guidelines, which include examples of appropriate disclosures, are based on specific requirements of Rule 472(i) and (j) that apply to all communications. The guidelines should help you create effective communications that comply with Exchange rules.
(1) Under some circumstances what is left out may be just as important as what is included. Therefore, any significant conditions or qualifications surrounding discounts must be mentioned. This would include cases where discounts are not available on certain products, such as options, bonds or securities offered by prospectus, or where services offered to discount customers are limited compared to those offered to non-discount customers.
EX.: "Discounts available if you don't want research."
"Discounts apply to cash transactions only."
"Discounts do not apply to options."
"Save commissions on your next stock transactions."
"Prepayment required."
"50% of our usual rates on NYSE orders placed before 9:30 a.m."
"Discounts based on annual volume of trading."
(2) In order to be truthful, as required by Rule 472(i) communications should not be confusing or misleading. Therefore, whenever commission savings are presented in percentage figures:
a) The base from which the figures are derived must be given;
EX.: "Discounts based on rates of full-commission firms."
b) If percentages represent average savings, it should be indicated;
c) Any minimum commission charge should be disclosed.
(3) Rule 472(j)(4) required comparisons of one firm's charges and services with those of other firms to be factually supportable. When discount rates are compared to the rates of other brokers, either through rate charts or percentage comparisons, the advertiser should have documentation to support all figures. The Exchange may ask to see rate schedules or request a breakdown of the number of customers enjoying various discount brackets in order to substantiate the availability of advertised savings.
(4) Likewise, claims comparing one firm to another must be factually supportable. Firms should be able to substantiate these claims to the Exchange upon request. Examples of some comparative claims are:
"We're different from other discounters because we offer discounts and full service too."
"Our registered representatives are more experienced than those at any other discount firm."
(5) Rule 472(j)(5) requires significant information that is not reasonably current (usually not more than six months old — depending on the industry and circumstances) to be noted. Therefore, charts illustrating comparative rate schedules must be current (within the last six months). In many cases it may be appropriate to disclose the source and date of the information. In all cases firms must be prepared to substantiate the source and date as current.
EX.: "All rates based on our [insert appropriate date] telephone survey."
(6) In keeping with the Exchange's traditional standard of truthfulness, examples of savings should be based on typical trades by retail customers, not on large transactions affordable by only a very few customers.
/11 Other Regulations
Communications are also subject to the general anti-fraud provisions of the Federal securities laws. Additionally, member organizations should note Rule 206(4)-1 under the Investment advisers Act of 1940, Section 17(b) of the Securities Act of 1933 and the tombstone rules under that Act, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as State law, as may be applicable.
See also NYSE Rule 791 — Communications Pertaining to Options.
/12 Supervision
Rule 342(b) requires that an appropriate system of supervision be instituted and implemented for the control of member organization communications with the public. (Also see Rule 342. 16/02 of this Handbook).
To achieve effective supervision, many firms delegate responsibility for the review of all communications to their compliance officers after it has been approved by the responsible individual(s) designated in Rule 472.
(k)
(2)
Disclosures Required in Public Appearances
/01 Public Appearances — Print Media
When a research analyst recommends securities in a print or broadcast media interview, newspaper article or other type of public medium all of the disclosures required under Rule 472(k)(2) are required to be provided to the media outlet for inclusion in the published interview, article, broadcast, or other medium.
Whenever a research analyst recommends securities in a print media interview, newspaper article prepared under his or her name, or broadcast, a record of such interview, article or broadcast must be made within forty-eight (48) hours of such interview, article or broadcast. Such record must be prepared by the research analyst, Legal or Compliance personnel or Research Department management.
Such record must include, at a minimum, the name of the research analyst(s), the name of the publication, the date of the interview, article, or broadcast, the name of the interviewer (if applicable), the name(s) of the securities recommended and the specific disclosures provided to the print or broadcast media source and/or interviewer. Such record must be made regardless of whether the media outlet published or broadcast the required disclosures. The research analyst's member organization must retain the record of such interview, article, or broadcast and the disclosures made in a manner consistent with Rule 17a-4 of the Securities Exchange Act of 1934. The record retained must be readily available to the Exchange, upon request.
