(New) Cryptocurrencies and ICOs


FINRA issued an alert to warn investors to be cautious when considering the purchase of shares of companies that tout the potential of high returns associated with cryptocurrency-related activities without the business fundamentals and transparent financial reporting to back up such claims. According to the SEC, there is substantially less investor protection in cryptocurrency markets than in traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.

NASAA Reminds Investors to Approach Cryptocurrencies, Initial Coin Offerings and Other Cryptocurrency-Related Investment Products with Caution (January 4, 2018)
FINRA Investor Alert December 21, 2017: Don’t Fall for Cryptocurrency-Related Stock Scams
SEC Public Statement (December 11, 2017): Statement on Cryptocurrencies and Initial Coin Offerings by SEC Chairman Jay Clayton

DPPs and REITs

DPP and Unlisted REIT Securities

The SEC approved amendments to NASD Rule 2340 (Customer Account Statements) to modify the requirements relating to the inclusion of per share estimated values for direct participation program (DPP) and unlisted real estate investment trust (REIT) securities on account statements, and to FINRA
Rule 2310 (Direct Partipation Programs) to make corresponding changes to the requirements applicable to members’ participation in public offerings of DPP or REIT securities. The amendments became effective on April 11, 2016.

FINRA Regulatory Notice 15-02 (January 2015):  SEC Approves Amendments to FINRA Rule 2310 and NASD Rule 2340 to Address Values of Direct Participation Program and Unlisted Real Estate Investment Trust Securities


Communications with the Public

FINRA issued guidance on communications with the public concerning unlisted real estate investment programs, including unlisted REITs and unlisted DPPs that invest in real estate.

• FINRA Regulatory Notice 13-18 (May 2013):  FINRA Provides Guidance on Communications With the Public Concerning Unlisted Real Estate Investment Programs


• Communications with the Public: Real Estate Investment Programs
   Listen/Download Now | 11 min. 8 sec.


SEC Investor Bulletin:  Alternative Mutual Funds (February 3, 2017)

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to inform you about features, and some potential risks, of alternative mutual funds.


Alternative Mutual Funds

FINRA issued an Investor Alert on alternative funds to inform investors of the characteristics and risks of these investments. Alternative mutual funds are SEC-registered funds that may hold non-traditional investments and employ more complex strategies than traditional mutual funds. Alternative funds might invest in assets such as global real estate, commodities, derivatives, leveraged loans, start-up companies and unlisted securities that offer exposure beyond traditional stocks, bonds and cash. In addition to the usual market and investment specific risks of traditional mutual funds, alternative funds may carry additional risks from the strategies they use. These strategies may target specific returns or benchmarks, and seek to mitigate or provide exposure to asset classes and risks.

• FINRA Investor Alert (June 2013):  Alternative Funds Are Not Your Typical Mutual Funds


Volatility-Linked Exchange-Traded Products

Volatility-linked exchange-traded products (ETPs) are designed to track Chicago Board Options Exchange Volatility Index (VIX) futures, rather than the VIX itself. For the reasons explained further below, many volatility-linked ETPs are highly likely to lose value over time. Accordingly, volatility-linked ETPs may be unsuitable for certain retail investors, particularly those who plan to use them as traditional buy-and-hold investments. This Notice reminds firms of their sales practice obligations in connection with volatility-linked ETPs as discussed more generally in Regulatory Notice 12-03, including, without limitation, that recommendations to customers must be based on a full understanding of the terms, features and risks of the product recommended, sales materials must be fair and accurate, and firms must have reasonable supervisory procedures in place to ensure that these obligations are met.

• FINRA Regulatory Notice 17-32 (October, 2017):  FINRA Reminds Firms of Sales Practice Obligations for Volatility-Linked Exchange-Traded Products


Complex Products

FINRA published guidance to firms about supervisory controls for complex products, which may include a security or investment strategy with novel, complicated or intricate derivative-like features, such as structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products, such as asset-backed securities. These features may make it difficult for a retail investor to understand the essential characteristics of the product and its risks.

Regulatory Notice 12-03 identifies characteristics that may render a product “complex” for purposes of determining whether the product should be subject to heightened supervisory and compliance procedures and provides examples of heightened procedures that may be appropriate.

• FINRA Regulatory Notice 12-03 (January 2012):  Heightened Supervision of Complex Products



• Heightened Supervision of Complex Products (Part 1)
   Listen Now/Download | 7 min. 50 sec.

• Heightened Supervision of Complex Products (Part 2)
   Listen Now/Download | 11 min. 15 sec.