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Wednesday, January 27, 2010

FINRA's guidance on social networking

The Financial Industry Regulatory Authority (FINRA) has issued a regulatory notice that provides its guidance on how registered representatives should use, and how their firms should manage, postings on social networking sites and blogs. Here are some highlights:

  • Firms must preserve the communications sent through social networking sites relevant to broker-dealers' business dealings. SEC Rules 17a-3 and 17a-4 and NASD Rule 3110 apply to these communications.
  • A securities recommendation made through social networking tools must be "suitable for every investor to whom it is made". NASD Rule 2310 applies here.
  • Firms must supervise relevant employees' electronic communications, including those posted to blogs and social networking sites. NASD Rules 2711(b)(3)(A), 3110(j) and 3070(c), and NYSE Rules 472(b)(3), 410 and 401A may apply here, depending on the type of communication involved.
  • "Firms must adopt policies and procedures reasonably designed to ensure that their associated persons who participate in social media sites for business purposes are appropriately supervised, have the necessary training and background to engage in such activities, and do not present undue risks to investors."
The bottom line in this notice is that social networking tools - Twitter, Facebook, blogs, etc. - are fundamentally no different than the other types of electronic communication tools on which FINRA and the SEC have previously imposed requirements. Communication using newer tools must be supervised, managed and archived just like email and instant messages have been for years.

You can read the notice here.


Anonymous Nick Mehta said...

Thanks Mike.

I was impressed with the level of detail in the bulletin. It obviously didn't get into technical implementation, but FINRA clearly has a strong stance on this.

January 28, 2010 7:51 AM


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