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Advertising Restrictions Apply to Commodity Pools

Posted in Rule 506 Rulemaking

In prior posts, we have noted that the relaxation of the ban on general solicitation in no way relieves certain registered entities of their obligations to comply with regulations related to advertising or promotional materials.  In fact, relying on general solicitation will create new compliance hurdles for registered entities.  For example, registered broker-dealers must comply with all applicable FINRA regulations regarding the content of their communications and the review, filing and recordkeeping requirements of FINRA’s advertising rules.  Commodity pools (entities that engage in trading of swaps) and their advisers also are subject to regulations on advertising.  The CFTC regulations, including Rule 4.41, have as their objective ensuring that communications by a CPO are fair and balanced and do not “employ any device, scheme, or artifice to defraud” investors.  In addition, CPOs (and their principals and advisers) must ensure that their communications do not violate any of the specific content requirements applicable to them, which include, for example, restrictions relating to the use of testimonials and restrictions relating to the use of hypothetical performance data.  The NFA rules, including Rule 2-29, also impose certain standards for communications.  Like broker-dealers, CPOs also are subject to recordkeeping requirements with respect to advertising or promotional materials.  As a result, a CPO that proposes to use general solicitation or general advertising once the new rules become effective should implement policies and procedures that are designed to ensure compliance with applicable CFTC and NFA rules and regulations.  Advisers to CPOs often are dual registered and may be registered investment advisers.  Registered investment advisers also are subject to regulations related to advertising and promotional materials.  Compliance policies should be designed to ensure that standards will satisfy the frameworks applicable to both commodity trading advisers and registered investment advisers.