As of February 14, 2005, NASD members will be able to provide investment analysis tools to their customers without running afoul of NASD Conduct Rule 2210(d)(1)(D), which currently prohibits members from making predictions or projections regarding investments or investment services. Under newly SEC-approved NASD Interpretive Material to Conduct Rule 2210 (IM-2210-6), NASD created a limited exception to Conduct Rule 2210 that will allow members to provide investment analysis tools to their customers, subject to certain NASD requirements. An investment analysis tool is defined in IM-2210-6(b) as:

an interactive technological tool that produces simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices.

NASD members will also be allowed to provide written reports of the results generated by the investment analysis tool, and related sales material concerning the member’s investment analysis tool.

NASD has set forth two main requirements under Conduct Rule 2210(d)(1)(D) regarding the use of investment analysis tools. First, members that choose to provide an investment analysis tool must comply with NASD’s disclosure requirements about the investment analysis tool itself. Pursuant to IM-2210-6, members must prominently disclose information about the investment analysis tool to its customers in clear, written or electronic narrative form, any assumptions, limitations and/or preferences in the investment analysis tool, explain that the investment analysis tool results are subject to change, and display an additional disclosure statement that reads:

IMPORTANT: The projections or other information generated by [name of investment analysis tool] regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.

Second, members must ensure that NASD’s advertising department does not object to the investment analysis tools and related reports and advertising. To that end, NASD requires that within ten days after first use, a member must provide NASD’s advertising department with access to the investment analysis tool, and file templates for written reports generated by, and/or related sales material about, the investment analysis tool, for review in large part of whether the disclosures are proper. Members must also comply with this requirement when and if they make material changes in the presentation of any of the investment analysis tool disclosures and/or information.

Some investment analysis tool activities are not subject to IM-2210-6. The NASD advertising department requirement does not apply to institutional investors if the investment analysis tool materials meet the criteria for "institutional sales material" pursuant to Conduct Rule 2211(a)(2); sales materials with only incidental references to, but no descriptions of, an investment analysis tool; or anything not otherwise prohibited by Conduct Rule 2210(d)(1)(D). Finally, members cannot suggest that NASD has endorsed, recommended or otherwise lent its approval to a particular investment analysis tool.

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