ALTERNATIVE INVESTMENTS

DPPs

Direct Participation Program 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 of direct participation program (DPP) and unlisted real estate investment trust (REIT) securities on account statements. Also, the SEC approved amendments to FINRA Rule 2310 (Direct Participation Programs), which provides that a member may not participate in a DPP or REIT offering unless the general partner or sponsor will disclose a per share estimated value in each annual report. 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

 

Advertising Regulation Issues

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

Podcasts

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

• Communications with the Public Consolidated Rule – Part 1
   Listen/Download Now | 6 min. 35 sec.

General

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 more 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


REITS

Direct Participation Program 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 of direct participation program (DPP) and unlisted real estate investment trust (REIT) securities on account statements. Also, the SEC approved amendments to FINRA Rule 2310 (Direct Participation Programs), which provides that a member may not participate in a DPP or REIT offering unless the general partner or sponsor will disclose a per share estimated value in each annual report. 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

Supervision

Supervision of 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. This may include, but is not limited to, products such as structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products, including asset-backed securities. Regulators have expressed concern about complex products because the intricacy of these products may impair the ability of investors to understand how the products will perform over a variety of time periods and in differing market environments, and can lead to inappropriate recommendations and marketing.

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

 

Conflicts of Interest

FINRA published a Report on Conflicts of Interest on conflicts of interest in the broker-dealer industry to highlight effective conflicts management practices that may go beyond current regulatory requirements and identify potential problem areas. To help firms analyze the conflicts they face and implement a conflicts management framework appropriate to the size and scope of their business, the Report includes examples of how some large broker-dealer firms address conflicts. These practices—as well as those that are based on FINRA's experience and analysis—can help firms of all sizes improve their conflicts management practices. Of course, there is no one-size-fits-all framework. Firms need to assess the approach that is most effective for their particular circumstances.

• FINRA Report on Conflicts of Interest (October 2013):  FINRA published a Report on Conflicts of Interest in the broker-dealer industry to highlight effective conflicts management practices

• Finra Topic Page:  Conflicts of Interest

Podcasts

• 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.