FINRA RESTATES AND UPDATES GUIDANCE AS TO PRE-INCEPTION INDEX PERFORMANCE DATA -

In a January 2019 interpretative letter, the Financial Industry Authority (FINRA) provided guidance to a registered broker-dealer as to the use of pre-inception index performance (PIP) data relating to a proprietary index. The broker-dealer sought to use the information in communications about open-end investment companies, which would be distributed solely to “institutional investors.”

The letter restates and updates FINRA’s prior guidance as to the use of back-tested index information, including its historic position that the use of this type of information would be inappropriate in communications provided to retail investors. FINRA’s previous advice was set forth in a 2013 letter to ALPS Distributors. The guidance in the letter is useful to some extent to issuers of structured notes and structured CDs that are linked to new or proprietary indices.