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Compliance Q&A

Question: I recently heard that firms are now required to submit radio and television advertisements for pre-review if they contain specific trade recommendations. What information would a recommendation need to contain in order for it to be considered "specific"?

Answer: NFA's Compliance Rule 2-29(h) indicates that no Member shall use or directly benefit from a radio or television advertisement that makes any specific trading recommendation or refers to or describes the extent of any profit obtained in the past or that can be achieved in the future unless the Member submits the advertisement to NFA's Advertising Regulatory Team for its review and approval at least 10 days prior to first use. Since this rule was put in place, there have been some questions from Members regarding what constitutes a specific trading recommendation.

The framers of this rule intended for it to have a broad application. In order to be required to be submitted pursuant to 2-29(h), an advertisement does not need to solicit for or recommend an exact trade (i.e., identify buy or sell, the commodity future or option and the specific entry and/or exit prices). Rather, an advertisement that solicits for a particular commodity future or option for investors to trade and invites potential investors to find out more information would most likely be required to be submitted for pre-approval pursuant to 2-29(h).

NFA's Advertising Regulatory Team has identified certain characteristics of advertisements containing "specific trade recommendations" that would require them to be submitted. They include:

  • The advertisement highlights particular markets more than others.

  • The advertisement provides an opinion regarding the anticipated direction the prices of a particular market will go.

  • The advertisement represents that a potential opportunity exists in a particular market. This is true regardless of whether the potential opportunity is purely subjective or based upon factual data.

  • The potential for opportunity may be represented through the use of terms that describe a particular market as "hot" or "explosive".

Advertisements which are not considered to provide specific trade recommendations include those which:

  • Provide a general listing of services provided or markets traded

  • Provide factual data regarding the markets without highlighting future potential opportunity (i.e., historical price data)

These lists are not intended to be exhaustive. Advertisements will continue to be looked at on a case by case basis. It is foreseeable that an advertisement may have none of the characteristics listed above but may have others that will require that it be submitted. On the other hand, it might have some of the above characteristics but not be required to be submitted. If you have questions regarding a particular advertisement, contact NFA's Advertising Regulatory Team for assistance by e-mail at art@nfa.futures.org or by telephone at (800) 621-3570.

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