FINRA Releases Guidance Concerning the US Treasury’s Temporary Money Market Fund Guarantee Program
The Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 08-58 (“Guidance”) on October 17, 2008 providing guidance concerning the disclosure of the U.S. Department of the Treasury (“Treasury”) Temporary Money Market Fund Guarantee Program (“Program”).1 Briefly, the Guidance directs FINRA members (“Member Firms”) that refer to the Program in communications with the public to accurately describe the scope and limitations of the Program and to inform customerswhotransferbrokerageaccounts while the Program is in effect of the possibility that they might lose coverage under the Program if they were invested in participating money market funds (“Participating Funds”).
The key point of the Guidance is that FINRA expects all Member Firms—those that offer Participating Funds and those that do not—to communicate about Participating Funds andthe Program in a fair, balanced, and accurate manner .
Member Firm Public Communications
Member Firms generally are not required to mention the Program in their public communications,2 but FINRA expects communications that do mention the Program to provide “in substance” the following information:
- the Program’s guarantee to Participating Funds is based on the number of shares held in a Participating Fund as of the close of business on September 19, 2008;
- any increase in the number of shares held in Participating Funds after the close of business on September 19, 2008 will not be guaranteed;
- future investments in a Participating Fund will not be guaranteed if a customer closes his or her account with a Participating Fund or broker- dealer;
- customers invested in a Participating Fund are covered for the lesser of (i) the number of shares held as of the close of business on September 19, 2008 or (ii) the current amount, regardless of any interim fluctuations in the number of shares; and
- the Program expires on December 18, 2008, unless extended by Treasury.3
Disclosures During the Account Transfer Process
In addition to the expectations described above concerning all communications, FINRA expects member firms to which customers transfer brokerage accounts (“Receiving Firms”) to inform those customers that they could lose the benefit of the guarantee upon the closure of their current brokerage accounts. The Guidance makes clear that FINRA does not expect Receiving Firms to ascertain which transferring customers held shares in Participating Funds covered under the Program to carry out this responsibility, but suggests that the Receiving Firms “can provide general disclosure to customers regarding this issue at the time an account is transferred, perhaps on [the] Transfer Initiation Form (TIF) that is submitted to initiate the transfer process.”4
This disclosure could refer to the Program, convey the information about the Program identified above, inform customers that if they own shares in Participating Funds they could lose the benefit of the guarantee upon the closure of their accounts with their current broker-dealer or upon the transfer of shares to the Receiving Firm, and recommend that, before closing the account, customers contact their current broker-dealer regarding questions about potential loss of coverage.
The Guidance is useful in ascertaining FINRA’s expectations of Member Firms about their communications with customers concerning the Program and additional disclosures during a brokerage account transfer process. Additional interpretative issues may arise, however, which may require the assistance of counsel or warrant subsequent guidance from Treasury, FINRA, or the Securities and Exchange Commission.
1) FINRA Notice 08-58, Guidance on Disclosure Concerning the U.S. Treasury Department's Temporary Guarantee Program for Money Market Mutual Funds (Oct. 17, 2008); Treasury’s Program was announced on September 19, 2008 and expires on December 18, 2008, unless extended.
2) This Guidance is applicable to communications governed by NASD Rule 2210 (Communications with the Public).
3) Guidance at 3.