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Marketing and Promotional Material | Compliance Reminders from NFA

NFA Members are required to ensure that their customer solicitations and promotional materials are in compliance with NFA Compliance Rule 2-29. Subsection (a) applies to any type of communication with a customer, whether in person, by telephone, or by e-mail. In particular, it prohibits a Member from making any communication related to its commodity interest business that acts as a fraud or deceit, employs a high-pressure sales approach, or makes any statement that commodity interest trading is appropriate for all persons, and thus sets the basic foundation of appropriate communications with customers.

When it comes to standardized promotional material directed to the general public, the possibilities for how information can be presented are wide-ranging, and so NFA’s rules go a bit more in-depth. Subsection (b) sets forth specific prohibitions that may not be included in promotional material. NFA Members cannot misstate a fact or omit a fact if the omission causes the promotional material to be misleading. Additionally, any reference to the potential for profit – whether verbal or visual – must be accompanied by an equally prominent discussion of the risk of loss and any reference to past trading profits must be accompanied by a statement that past results are not necessarily indicative of future results.

NFA Compliance Rule 2-29 also has certain more detailed rules that may come up from time to time. For example, if a Member is using promotional material that includes a reference to any performance that could have been achieved had a particular trading system been employed in the past but that no individual had actually achieved in a live trading account, this would be considered “hypothetical performance.” Hypothetical performance must meet a number of requirements outlined in NFA Compliance Rule 2-29(c) and Interpretive Notice 9025 that Members should familiarize themselves with, but most notably it must include a specific hypothetical disclaimer and include the material assumptions that were made in formulating the performance.

More recently, NFA adopted requirements for Members that are involved in Digital Assets (e.g. Bitcoin, Ethereum). NFA’s Interpretive Notice 9073, outlines the requirements for Members that solicit for these products. For Introducing Brokers, the Notice is broken down into two sections which depend on whether the Member is soliciting for virtual currency derivatives (e.g. Bitcoin Futures) or spot virtual currency (e.g. Bitcoin spot). Members that are engaged in any activities involving digital assets should familiarize themselves with these requirements and, in the case of Members conducting business in the underlying spot virtual currency, should always ensure that they have the required disclaimer visible in any promotional material related to digital assets.

Additionally, one easily overlooked rule is NFA Compliance Rule 2-29(h). NFA Members are increasingly using video sharing sites such as YouTube to provide market commentary and information about their firms, and should be aware that if any video or audio content contains a specific trade recommendation or refers to or describes the extent of any profit obtained in the past or that can be achieved in the future, it must be submitted to NFA for review and approval at least 10 days prior to first use.

Finally, Members must have written supervisory procedures for promotional material produced and used by APs and employees. NFA Compliance Rule 2-9 requires Members and APs with supervisory duties to diligently supervise employees and agents in the conduct of their commodity interest activities for or on behalf of the Member. The rule is broadly written to provide Members with flexibility in developing procedures tailored to meet their particular needs. Supervisory procedures must include the supervision of electronic communications used to conduct commodity interest business. These procedures should be similar to those required for non-electronic communications. Supervisory personnel must document the review and approval of all promotional material before it is used. Members should contact NFA at (312) 781-1300 if they have any additional questions.