Interpretive Letter to Eileen Ryan, Esq., Securities Industry Association, and Sarah Starkweather, Esq., The Bond Market Association
Free writing prospectuses are not subject to Rules 2210 and 2211 or the filing requirements of Rules 2710 and 2720
August 1, 2006
Eileen Ryan, Esq.
Vice President and Associate General Counsel
Securities Industry Association
120 Broadway
New York, NY 10271
Sarah Starkweather, Esq.
Regulatory Counsel
The Bond Market Association
360 Madison Avenue
New York, NY 10017
Re: Free Writing Prospectus Interpretation
Dear Ms. Ryan and Ms. Starkweather:
This responds to your letter to Joseph Price dated April 28, 2006, which seeks interpretive guidance regarding free writing prospectuses. Specifically, your letter asks for confirmation of NASD's position that free writing prospectuses are not subject to the provisions of NASD Rules 2210 and 2211 or the filing requirements of NASD Rules 2710 and 2720.
Free Writing Prospectuses
The SEC's Securities Offering Reform adopted rules permitting the use of free writing prospectuses in connection with registered offerings.1 As defined in Securities Act Rule 405, free writing prospectuses are written communications, including electronic communications, that constitute an offer to sell or solicitation to buy securities in a registered offering by means other than the statutory prospectus. The free writing prospectus may include information that is not included in the registration statement, but it cannot conflict with information in the filed registration statement, including any prospectus and any Exchange Act reports incorporated by reference.2 A free writing prospectus must contain a legend advising investors, inter alia, that (i) the issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which the communication relates, (ii) the registration statement can be obtained through the SEC's website or from the issuer, and (iii) the free writing prospectus relates to a registered public offering.3
Issuer-created free writing prospectuses generally must be filed with the SEC.4 In addition, the issuer must file with the SEC any "issuer information,"5 including final terms of the offering, contained in a free writing prospectus6 that is prepared by an offering participant other than the issuer, if such information is not contained in the prospectus or a filed free writing prospectus. Generally, underwriters and dealers are not required to file with the SEC free writing prospectuses that they prepare, except where the underwriter or dealer distributes a free writing prospectus in a manner reasonably designed to lead to its broad and unrestricted dissemination.7
Rules 2210 and 2211
This will confirm that NASD interprets free writing prospectuses to be excluded from the provisions of Rule 2210 (Communications with the Public) and Rule 2211 (Institutional Sales Material and Correspondence).
Rule 2210(c) requires members to file advertisements and sales literature with NASD's Advertising Regulation Department and Rule 2210(d) sets forth the content requirements for advertisements and sales literature. Under Rule 2211(d), institutional sales material is subject to the content standards of Rule 2210(d)(1) and applicable Interpretive Material. The definitions of "Sales Literature" under Rule 2210(a)(2) and "Institutional Sales Material" under Rule 2211(a)(2) do not expressly exclude issuer-created offering materials, such as prospectuses and private placement memoranda. However, as a matter of practice, NASD's Advertising Regulation Department does not apply any of the provisions of Rules 2210, including the content requirements, to issuer-created materials, such as prospectuses.
Similarly, NASD excludes all free writing prospectuses - whether created by the issuer or another offering participant - from the provisions of Rules 2210 and 2211.
Rules 2710 and 2720
This will confirm that NASD interprets free writing prospectuses to be excluded from the filing requirements of Rule 2710 (Corporate Financing Rule - Underwriting Terms and Arrangements) and Rule 2720 (Distribution of Securities of Members and Affiliates - Conflicts of Interest).
Rule 2710(b)(4) and (5) requires that unless filed by the issuer, underwriting manager or another member, members must file copies of the registration statement, offering circular and offering memorandum, among other documents, with NASD's Corporate Financing Department. Rule 2720(m)(3) provides that offerings included within the scope of the Rule are subject to the provisions of Rule 2710 and must be filed accordingly.
NASD does not interpret Rules 2710 and 2720 to require members to file free writing prospectuses - whether created by the issuer or another offering participant - with NASD's Corporate Financing Department. The Corporate Financing Department obtains relevant information that it needs to conduct its review under Rule 2710 via COBRADesk8 and the statutory registration statement filed with the SEC through its Electronic Data Gathering and Retrieval System (EDGAR).9 To the extent that a free writing prospectus conflicts with any of this information, the COBRADesk and EDGAR filings would need to be amended. Thus, it is not necessary for members to also submit the free writing prospectus to NASD.
Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the NASD Board of Governors. This letter responds only to the issues you have raised based on the facts as you have described them and does not address any other rule or interpretation of NASD, or all the possible regulatory and legal issues involved. Sincerely,
Lisa C. Horrigan
Assistant General Counsel
cc: Gary L. Goldsholle
Joseph E. Price
1Securities Offering Reform, SEC Release Nos. 33-8591; 34-52056; IC-26993; FR-75, International Series Release No. 1294 and File No. S7-38-04 (July 19, 2005), 70 FR 44722 (August 3, 2005) (Final rule).
2 Id., Securities Act Rule 433(c)(1).
3Id., Securities Act Rule 433(c)(2).
4 Securities Act Rule 433(d)(1).
5 "Issuer information" is any material information about the issuer or its securities that has been provided by or on behalf of the issuer. See Securities Offering Reform.
6Id.
7Id.
8 The Corporate Offerings Business Regulatory Analysis system (COBRA) is the external system used by filers to make electronic filings of public offerings with the Department over the Internet.
9 Rule 2710(b)(5)(B) provides that all documents that are filed with the SEC through EDGAR will be treated as filed with NASD.