ICI Urges NASD to Narrow Scope of Fund Advertisements Requiring Review

Washington, DC, May 20, 2005 - The Institute continues to support NASD review of fund advertisements, but in a recent comment letter, urges NASD to target only those advertisements that warrant pre-use review.

Background
NASD recently issued a notice to members seeking comment on a proposal that would amend NASD Rule 2210 to require pre-use filing of an initial advertisement or piece of sales literature concerning a type of security that the member has not previously offered. The proposal also would require pre-use filing of all television, video, radio, or similar broadcasts of 15 seconds or longer.

The NASD currently requires pre-use filing of new member advertisements, advertisements or sales literature that contain fund-created rankings, and sales literature containing bond fund volatility ratings. The proposal would expand the pre-use filing requirement to include advertisements and sales literature for a "type of security that the member has not previously offered."

The proposal also would require members to file all television, video (including Web site video), radio, or similar broadcasts of 15 seconds or longer at least 10 business days prior to the date of the first use or broadcast. NASD explains that in the past some members used broadcast advertisements that raised regulatory issues. The proposed requirement would permit the NASD to resolve these concerns before these advertisements are broadcast to retail investors.

ICI Position
In its comment letter, ICI expresses concern that the breadth of the proposal will lead to significant delays in the dissemination of fund advertisements without providing corresponding benefit to fund investors, and recommends that NASD modify the proposal to target those advertisements that may warrant pre-use review.

ICI also recommends modifying the proposal as it applies to television and radio advertisements in two respects. First, NASD should narrow the scope of the proposed pre-filing requirements to exclude any radio or television advertisement that does not contain performance information. Second, ICI recommends that NASD revise the proposal to provide that any radio or television advertisement required to be pre-filed may be used within a reasonable period of time after filing. The letter states that this change will address concerns about undue delays if advertisements cannot be used until any changes specified by the NASD have been made.

The letter also supports not requiring pre-use filing of sales material for products that an NASD member has previously offered but now is offering to a new class of investors.

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