The following summarizes recent legal developments of note affecting the mutual fund/investment management industry.

SEC Staff Publishes FAQs on Tailored Shareholder Reports

On January 19, 2024, the SEC staff published a set of FAQs concerning the tailored shareholder reports as required by the amendments set forth in a 2022 adopting release (described in a Ropes & Gray Alert). For funds registered on Form N-1A, all shareholder reports that are transmitted to shareholders on or after July 24, 2024 must comply with the amendments. Among other topics in the FAQs, the SEC staff responded to questions concerning the "appropriate broad-based securities market index"1 required in a fund's performance line graph and table:

  1. May a fund that invests primarily in tax-exempt municipal securities, including a fund that invests primarily in the municipal securities of a single state, use an index that reflects the national municipal securities market as its appropriate broad-based securities market index?
  1. Yes. Municipal securities present unique circumstances. In the Adopting Release, the Commission provided examples of indexes that would not qualify as appropriate broad-based securities market indexes, including the example of a fund that invests primarily in the equity securities of healthcare companies presenting its performance against a benchmark consisting of only healthcare companies (i.e., a subset of the overall U.S. equity market). The Commission also stated that it does not believe that indexes that include characteristics such as "growth," "value," "ESG," or "small- or mid-cap" represent the overall market. In the staff's view, these examples can be distinguished from an index representing the national municipal securities market.

    In the staff's view, because income from municipal bonds is generally free from federal income tax (and, in some cases, free from state and local income tax), tax-exempt municipal bonds are distinct from other types of fixed income securities. On account of this distinction, the national municipal securities market may be understood as a stand-alone overall market as opposed to a subset of the fixed income market more broadly. An index representing the national municipal securities market therefore would, in the staff's view, represent the overall market for these securities.
  1. Would a fixed-income or equity index that pertains to a group of countries (such as Europe or Asia), a group of countries excluding a specific country or countries (such as Asia excluding Japan), or a group of markets with shared characteristics (such as emerging markets or developed markets) qualify as an appropriate broad-based securities market index?
  1. As the Commission stated in the Adopting Release, for a fund that invests primarily in the equity securities of a non-U.S. country, an index representing the overall equity market of the non-U.S. country would qualify as an appropriate broad-based securities market index. Consistent with this guidance, the staff believes that an index that pertains to the equity or fixed income market of a group of countries, a group of countries excluding a specific country or countries, or a group of countries with shared characteristics such as emerging markets or developed markets, could qualify as an appropriate broad-based securities market index provided that the index represents the overall applicable international equity or debt market relative to the fund's investments.

In additional FAQs, the SEC staff responded to questions that it grouped under these headings:

  • Form N-CSR and Website Availability Requirements;
  • Binding Individual Shareholder Reports of Multiple Funds;
  • Electronically Provided Shareholder Reports; and
  • Compliance Date and Inline XBRL Issues.

Federal Court Rejects Motion to Dismiss SIFMA's Allegations that Missouri Anti-ESG Statute Is Unlawful

In our prior Investment Management Update, we described a lawsuit by the Securities Industry and Financial Markets Association ("SIFMA") in the U.S. District Court for the Western District of Missouri. SIFMA's complaint seeks declaratory and injunctive relief regarding two Missouri Securities Division rules (the "Investment Adviser Rule" and the "Broker-Dealer Rule" and, together, the "Rules") that went into effect on July 30, 2023.

  • The Rules make it a dishonest or unethical business practice in Missouri for firms, before providing investment advice to any client, to fail to disclose to the client that the firm "incorporates a social objective or other nonfinancial objective" into the investment advice it provides.
  • The Rules additionally require a broker-dealer or investment adviser to obtain from each client (i) a written consent to the broker-dealer or investment adviser incorporating a social objective or other nonfinancial objective into any discretionary investment decision and (ii) a written acknowledgement that incorporating a social objective or other nonfinancial objective into investment decisions means that the decision is not solely focused on maximizing a financial return.

On October 2, 2023, the defendants – the State of Missouri and its Attorney General – filed a motion to dismiss SIFMA's claims. On January 5, 2024, the court issued an order rejecting the defendants' motion.2

NSMIA Preemption. The court held that SIFMA had adequately alleged that, while the National Securities Markets Improvement Act of 1996 ("NSMIA") allows states to "license, register, or otherwise qualify any investment adviser representative," the Investment Adviser Rule goes beyond the permitted scope. More specifically, the court held that SIFMA adequately alleged that the Investment Adviser Rule regulates what investment adviser representatives must disclose to their clients, which is distinct from NSMIA-permitted licensing, registering, or qualifying of investment adviser representatives.

NSMIA also mandates that no state law or regulation may require, among other things, a broker-dealer's "making and keeping [of] records" "that differ from, or are in addition to" the federal requirements. The Broker-Dealer Rule, the court noted, requires a broker-dealer to "obtain written acknowledgement and consent from the customer." Accordingly, the court held that SIFMA had adequately alleged that the Broker-Dealer Rule was preempted by NSMIA.

The court also rejected the defendants' assertion that NSMIA preemption did not apply "because the Rules regulate firms and people, not covered securities." NSMIA provides that, "[e]xcept as otherwise provided in this section, no state law or regulation . . . shall . . . impose conditions, based on the merits of such offering or issuer, upon the offer or sale of any [covered security]." The court rejected the defendants' assertion, holding that SIFMA had adequately alleged that the Rules are preempted by NSMIA because they "indirectly impose merit-based conditions on the sale of securities" and "impose an extra hurdle before certain covered securities can be offered to Missouri investors, based on the substantive characteristics of those securities."

ERISA Preemption. ERISA provides that its provisions "shall supersede any and all State laws insofar as they may now or hereafter relate to any [ERISA] employee benefit plan." The court observed that the U.S. Supreme Court held that "even a state law that can arguably be characterized as regulating securities will be pre-empted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA's remedial scheme."

SIFMA asserted that the Rules (i) regulate broker-dealers and investment advisers who are otherwise regulated by ERISA when managing employee retirement funds and (ii) will impact the administration of ERISA plans by requiring advisers to obtain and preserve consent forms otherwise not required by ERISA (by imposing conditions on ERISA fiduciaries' authority under federal law to recommend or select investments for social or nonfinancial reasons).

The court held that SIFMA had adequately alleged that the Rules "relate to" ERISA to support a preemption claim. Moreover, the court held, even assuming the Rules regulate securities, SIFMA had adequately alleged that the Rules interfere with ERISA's "comprehensive remedial scheme," because the Rules provide separate relief for alleged breaches of ERISA's fiduciary duties, including accusations that an ERISA fiduciary gave an ERISA plan holder inadequate investment advice.

Constitutional Claims. Invoking the First Amendment, SIFMA asserted that the Rules require firms to secure written consents conforming to the state's specified language concerning a controversial matter of public debate that is not purely factual. Broker-dealer and adviser firms are required to describe common investment strategies and many federal covered securities as not solely focused on maximizing a financial return, even in situations where the firm does not believe that statement to be accurate. Therefore, SIFMA maintained, the Rules violate the First Amendment protection against compelled speech by requiring firms to adopt and express the government's position. The Court held that, under the relevant levels of judicial scrutiny, SIFMA had adequately alleged a First Amendment violation at this early stage of the litigation.

In addition, SIFMA asserted that, under Constitutional due process principles limiting state regulation, a state enactment or rule is void for vagueness if its prohibitions are not clearly defined. A state rule is unconstitutionally vague if it fails to "give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly." A nonfinancial objective is defined in the Rules as "to consider criteria in the investment or commitment of customer funds for the purpose of seeking to obtain an effect other than the maximization of financial return to the customer." SIFMA alleged that "consider" could be applied to routine investment advice, and there is no guidance as to how "consider" is defined, or what extent of consideration qualifies under the Rules. The Court agreed and held that SIFMA's claims were sufficient to plead a claim for unconstitutional vagueness.

Tennessee Claims BlackRock Violated State Consumer Protection Act

On December 18, 2023, the State of Tennessee (through its attorney general) filed a complaint with a Tennessee state court in a civil enforcement lawsuit against BlackRock, Inc. ("BlackRock"). The complaint alleges a single count – that BlackRock violated the Tennessee Consumer Protection Act (the "TCPA").3

Notably, the lawsuit is not based on BlackRock's management of state assets, and Tennessee does not assert violations of its recently adopted statute prohibiting the use of "non-financial" factors in managing state funds or of the state's antitrust laws.

The TCPA is a typical state consumer protection statute. Subsection 104(a) of the TCPA broadly declares that "[u]nfair or deceptive acts or practices affecting the conduct of any trade or commerce constitute unlawful acts or practices." Then, subsection 104(b) itemizes a list of specific acts that comprise unfair or deceptive acts, including a catch-all provision that the attorney general invoked in this case: "[e]ngaging in any other act or practice which is deceptive to the consumer or to any other person."4

The complaint presents examples of purportedly deceptive statements and omissions, based on what Tennessee considers to be contradictions between public ESG-related statements and BlackRock's actual commitments and actions. For example, the complaint asserts that:

  • BlackRock has stated that certain of its funds do not "seek to follow a sustainable, impact, or ESG investment strategy" and pursue only financially material climate risks, when in fact "BlackRock remains a member of organizations like CA100+ or NZAM, which demand sweeping ESG commitments." BlackRock nonetheless "has in many instances voted against portfolio company management's recommendation in favor of climate-related shareholder proposals [and] continues to vote its shares to push companies to set emissions targets aligned with . . . a policy of generating no net carbon emission." Moreover, BlackRock representatives have thousands of nonpublic meetings each year with companies wherein BlackRock conveys its views on "climate and natural capital" and uses its complex-wide "leverage . . . to convince hundreds of companies to meet its demands without having to file a single public proxy vote."
  • For its funds that incorporate ESG factors in their decision-making, BlackRock has represented that "considering ESG factors in these funds creates purported financial benefits to investors." However, elsewhere, "BlackRock has admitted that leading ESG considerations do not materially affect funds' financial standing." For these ESG-factor funds, BlackRock has also "misleadingly represented the current level of country support for and the possibility of achieving such climate-change initiatives, thus deceiving consumers about these initiatives' ties to financial performance, rather than ESG aims."

In short, the complaint states that "BlackRock appears to have settled on a strategy of telling both sides what they wanted to hear, in an effort to keep everyone's business." Thus, the complaint asserts, through "material misrepresentations and omissions about its investment strategies and engagement related to ESG, BlackRock has engaged in deceptive trade practices that are prohibited by the TCPA."


The following brief updates exemplify certain trends and areas of current focus of regulatory authorities.

SEC Announces Fall 2023 Regulatory Agenda

On December 6, 2023, the Office of Information and Regulatory Affairs published the semi-annual "Unified Agenda of Regulatory and Deregulatory Actions" of the various federal agencies. The Unified Agenda includes the SEC's Fall 2023 Current Agenda containing the following items from the Division of Investment Management, as well as the SEC's current timing estimates. The Current Agenda reflects only the priorities of SEC Chair Gary Gensler and does not necessarily reflect the views and priorities of any other Commissioner.

Rulemaking Status Timing
Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N–PORT Reporting Proposed. Described in a 2022 Ropes & Gray Alert. By April 1, 2024
Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices Proposed. Described in a Ropes & Gray Alert. By April 1, 2024
Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies Proposed. Described in a Ropes & Gray Alert. By April 1, 2024
Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers Proposed. Described in a Ropes & Gray IM Update. By April 1, 2024
Outsourcing by Investment Advisers Proposed. Described in a Ropes & Gray IM Update. By April 1, 2024
Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information Proposed. Described in a Ropes & Gray Alert. By April 1, 2024
Safeguarding Advisory Client Assets Proposed. Described in a Ropes & Gray Alert. By April 1, 2024
Exemption for Certain Investment Advisers Operating Through the Internet Proposed. Described in a Ropes & Gray IM Update. By April 1, 2024
Fund Fee Disclosure and Reform Not yet proposed. By Oct. 1, 2024
Exchange-Traded Products Not yet proposed. By Oct. 1, 2024

The SEC's timing may be affected by the Congressional Review Act (the "CRA"), which enables Congress to effectively vacate a final rule issued by a federal agency by separate votes in the Senate and the House of Representatives (resulting in a joint resolution of disapproval) that is followed by the president signing the resolution into law. The CRA is particularly relevant after an election if a new president is elected, and the new president's party controls both the Senate and the House of Representatives. While Congress generally has 60 days to review rules, there is a CRA provision that gives an incoming Congress the power to review more than the last 60 calendar days of rules issued during the previous Congress. Specifically, the CRA provides for a lookback period giving an incoming Congress authority to count back to the later of the date representing (i) 60 days of session in the Senate or (ii) 60 legislative days in the House. Because Congress is not in session for extended periods preceding an election, the 60 session or legislative days can extend to agency rules finalized in July or August of 2024 for CRA disapproval. Thus, the SEC will feel pressure to finalize any politically salient rulemakings by the summer of 2024.

SEC Approves Spot Bitcoin ETFs for Listing and Trading

On January 10, 2024, the SEC announced that 11 spot bitcoin ETFs had been approved for listing and trading.5 In the three weeks since spot bitcoin ETFs began trading on January 11, they have seen inflows of over $1.4 billion as an asset class (net of $5.6 billion in redemptions from Grayscale Bitcoin Trust), according to a published report.

Spot bitcoin ETFs differ from other bitcoin products previously available on the market. Unlike bitcoin futures ETFs, which provide indirect exposure to the price of bitcoin, spot bitcoin ETFs hold bitcoin directly. Investors may prefer to purchase shares of spot bitcoin ETFs instead of holding bitcoin themselves because holders of spot bitcoin ETF shares do not need to maintain a bitcoin wallet or incur bitcoin transaction fees.

The first effort to list a spot bitcoin ETF was filed with the SEC in 2013. After several years of comments and modifications, the SEC denied the ETF listing approval due, in part, to concerns about the listing exchange's inability to detect and deter fraud and manipulation in the broader bitcoin market. Thereafter, the SEC rejected multiple attempts to list a spot bitcoin ETF on similar grounds, explaining that the listing exchanges did not have surveillance-sharing agreements with regulated bitcoin markets of significant size. However, the SEC did allow both 1940 Act and non-1940 Act bitcoin futures-based ETFs that invest in CME bitcoin futures to list, and in the latter case, concluded rather circularly that the CME bitcoin futures market is a regulated market of significant size with respect to CME bitcoin futures. When NYSE Arca's proposal to list shares of Grayscale Bitcoin Trust was denied by the SEC in June 2022, Grayscale sued the SEC. Grayscale's lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit was successful, with the Court holding that the SEC's denial of Grayscale's bitcoin ETF listing was "arbitrary and capricious" in light of the SEC's recent approval of bitcoin futures ETFs.

Following the Court's August 29, 2023 decision, the SEC started to engage with Grayscale and other prospective spot bitcoin ETF sponsors on potential listing approvals and related registration statements. After multiple rounds of comments and extensive discussions with the SEC, particularly around cash versus in-kind creations and redemptions, the SEC approved a number of spot bitcoin ETFs that appear to address the SEC's investor protection concerns. For example, all the approved spot bitcoin ETFs disclose their bitcoin safekeeping procedures with their bitcoin custodians, and none of the approved spot bitcoin ETFs currently permit in-kind creations or redemptions. While the approved spot bitcoin ETFs are structured similarly and share many of the same service providers, the spot bitcoin ETFs differ in their sponsor fees: Grayscale Bitcoin Trust charges a 1.50% sponsor fee, while other spot bitcoin ETFs have sponsor fees as low as 0.19% and many have temporarily waived all or a portion of their sponsor fees.

The SEC approvals were each made on a 3-2 vote and occurred notwithstanding the fact that the SEC has persistently expressed skepticism about the bitcoin market and continues to do so despite its approval of spot bitcoin ETFs. In his statement on the SEC's approval of the spot bitcoin ETFs, SEC Chair Gary Gensler called bitcoin "primarily a speculative, volatile asset that's also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing." In addition, it is noteworthy that, in the January 2024 approvals of spot bitcoin ETFs, the SEC continued to assert that the listing exchanges do not have surveillance-sharing arrangements with regulated bitcoin markets of significant size. The SEC instead pinned its approval on an analysis that confirmed that the CME bitcoin futures market (which the SEC previously determined to be a regulated market of significant size with respect to CME bitcoin futures) has been consistently highly correlated with an important subset of the spot bitcoin market.

The SEC's approval is limited to ETFs that hold bitcoin and only bitcoin. Additional proposed bitcoin or other crypto-related products (such as spot bitcoin ETF options and ethereum funds) will have to seek approval through separate processes. The various listing exchanges have already filed for approval to list options on the spot bitcoin ETFs, and several issuers have filed to list spot ethereum ETFs.

SEC Expands Semi-Transparent ETF Exemptive Relief to Include Short Selling

On January 31, 2024, the SEC issued a notice (the "Notice") indicating its intent to approve an amendment of an exemptive order previously granted to Blue Tractor ETF Trust and Blue Tractor Group, LLC (the "Order").6 The Order currently permits the Trust to create and operate actively managed ETFs that are "semi-transparent" and do not disclose their complete portfolio holdings each business day. The Order currently does not permit an ETF to borrow for investment purposes or to hold short positions.

The Notice states that the Blue Tractor applicants seek to amend the Order to permit an ETF to engage in short selling, but only in the same types of instruments that an ETF is permitted to hold as long positions in its actual portfolio (in general, listed securities and instruments that trade contemporaneously with shares of the ETF). The proposed amendments will permit an ETF's portfolio reference basket (i.e., its proxy portfolio) to be constructed in the same manner as described in the Order, except that it will include a first portion corresponding to long positions in the ETF's actual portfolio and a second portion corresponding to short positions in the ETF's actual portfolio. Among other things, the Notice states that the Blue Tractor applicants represent that, while short positions cannot be transferred in kind within the Fund's creation basket, long positions and cash amounts representing the net value of short positions would be included in an ETF's creation basket. The Order, if amended as contemplated in the Notice, will remain subject to all the conditions in the Order.

The Notice indicates that the SEC will issue an order approving the proposed amendments to the Order on or about February 27, 2024. That order would be significant because it would represent the first expansion of investment flexibility for ETFs relying on semi-transparent ETF exemptive relief and the first significant change since the SEC permitted semi-transparent ETFs to use custom baskets in 2021 (see the related exchange listing rule changes described in a Ropes & Gray Investment Management Update).


Asset Management Transatlantic Regulatory Roundup: Rules, Culture, Valuations & ESG
February 6, 2024
Ropes & Gray's asset management partners, Eve Ellis and Joel Wattenbarger, delved into key regulatory issues impacting clients with interests in both the United States and Europe. On this podcast, they explored pertinent topics and developments for private fund managers, such as new rules, firm culture, valuation practices, and the evolving landscape of ESG factors.

Fully Invested: What to Know About Private Equity Operating Companies
February 6, 2024
On this episode of Fully Invested, Ropes & Gray asset management partners Chelsea Childs and Mike Doherty, along with associate Andrew Lawson, discussed regulatory considerations for "private equity operating companies" and other key features of these alternative investment vehicles.

Florida Stepping Up Enforcement of Restrictive Anti-ESG Law; More Legislation Coming
February 5, 2024
In a video posted on X on January 31, 2024, Governor Ron DeSantis announced that Florida will begin enforcing violations of its anti-ESG legislation (House Bill 3, "An Act Relating to Government and Corporate Activism" (HB 3)) that was adopted last year. He asserted there are financial institutions that have signed attestations that say "they are not doing ESG or social credit scores" when in fact "they are doing things outside of what they attested to that would violate Florida law." In his message, the Governor said that he has had discussions with members of the Florida Legislature about what actions can be taken against these institutions and that his administration will enforce the law, and he added that more legislation will be coming although he did not provide details. Following Governor DeSantis's statement, it is important for all investment advisers that currently manage or are seeking to manage Florida public mandates to review their compliance approaches to HB 3.

Private Capital Markets Outlook for 2024
January 31, 2024
The private capital market continues to be a dynamic and ever evolving landscape. Here, the London team at Ropes & Gray shares its insights into the key issues currently facing the private capital market in 2024.

California's Voluntary Carbon Market Disclosures Statute
January 25, 2024
In early October 2023, California governor Newsom signed Assembly Bill 1305 into law. The new statute, titled "Voluntary Carbon Market Disclosures," applies to entities that operate within California and that market or sell carbon offsets, purchase or use carbon offsets, or make certain claims regarding, for example, progress toward carbon reduction goals. Such entities must disclose certain information on their websites, including information regarding how carbon reduction claims were determined to be accurate or actually accomplished.

A Word for Our Sponsors: A Conversation with Vikrant Raina of BV Investment Partners
January 11, 2024
On this episode of Ropes & Gray's podcast series, A Word for Our Sponsors, hosts Paul Van Houten and Deb Lussier, the co-leaders of the sponsor solutions practice, chatted with Vikrant Raina, CEO and managing partner at BV Investment Partners, about BV's successful first continuation fund.

New California Climate Disclosure Requirements and Their Relevance to Asset Managers and Their Portfolio Companies December 19, 2023
On this episode of Ropes & Gray's California Law for Asset Managers podcast series, asset management partner Catherine Skulan, corporate partner and global ESG, CSR & business and human rights practice head Michael Littenberg and counsel Marc Rotter discussed three new climate and greenhouse gas bills recently signed into California law: AB 1305, SB 261 and SB 253. Each law creates new public disclosure requirements about climate-related issues that may impact asset managers and their portfolio companies.

SEC Adopts Rules Requiring Clearing of U.S. Treasury Transactions
December 18, 2023
On December 13, 2023, the U.S. Securities and Exchange Commission (the "Commission") adopted rules that will significantly alter the trading of U.S. Treasury securities and U.S. Treasury repurchase ("repo") transactions. Of particular note for asset managers and institutional investors, beginning on June 30, 2026, all U.S. Treasury repo transactions (with limited exceptions) will be required to be cleared through a covered clearing agency ("CCA"). Currently, the Fixed Income Clearing Corporation ("FICC") is the only CCA that offers Treasury and Treasury repo clearing services. The Commission noted that the rules are designed to protect investors, reduce risk, and increase operational efficiency in the U.S. Treasury securities markets.

Recently Adopted New York Statute Includes Restrictions Applicable to Asset Managers on Access to Some "Off Channel" Employee Communications
December 14, 2023
On September 14, 2023, New York Governor Kathy Hochul signed into law Assembly Bill 836 ("A836") prohibiting employers, in certain circumstances, from requesting or requiring access to employee personal accounts such as email, text and mobile apps like WhatsApp through electronic devices. A836, which goes into effect on March 12, 2024, also prohibits employers from discharging, disciplining, or failing to hire individuals who refuse to provide such access; however, the law is limited in its scope to personal accounts and also contains important exceptions. A836 is incorporated within New York's labor law and applies to New York employees.

Introducing the Ropes & Gray CSRD Transposition Tracker
December 7, 2023
The European Union's Corporate Sustainability Reporting Directive (the "CSRD") will have broad impact. Approximately 50,000 undertakings will be required to report, including thousands of U.S.-based multinationals and their EU subsidiaries. Reporting obligations for these entities will be created under EU member state national legislation adopted pursuant to the CSRD. EU member states have until June 16, 2024 to transpose the CSRD into their national laws.

As a leading global ESG compliance advisor to multinationals and asset managers, Ropes & Gray is a resource for important ESG developments throughout the world that impact our clients. We are pleased to introduce a regularly updated CSRD Transposition Tracker – in conjunction with leading law firms across Europe – that contains CSRD developments across the 27 EU member states and three EEA EFTA countries.

Overview of New California Law Requiring Disclosure on Diversity in VC Investments by "Venture Capital Companies"
December 5, 2023
On this episode of Ropes & Gray's California Law for Asset Managers podcast series, asset management partner Catherine Skulan and counsel Colleen Meyer provided an overview of SB 54, a new California law intended to provide transparency with respect to the diversity of founders in which "venture capital companies" make venture capital investments. The law, while highly relevant for traditional venture capital funds, could implicate traditional private equity and other investment vehicles as well.

FINRA Proposes Rule Change to Permit Projections of Performance in Private Placement Communications with Qualified Purchasers and in Institutional Communications
December 5, 2023
The Financial Industry Regulatory Authority, Inc. ("FINRA") has proposed long-awaited changes to FINRA Rule 2210 (Communications with the Public) that would permit FINRA member broker-dealers to include performance projections and target returns in institutional communications and in communications to qualified purchasers regarding private placements. If approved by the SEC, the proposed changes to FINRA Rule 2210 (the "Proposal") would resolve a significant difference between FINRA's Rule 2210, applicable to FINRA member broker-dealers, and the SEC's marketing rule, applicable to SEC-registered investment advisers (the "Advisers Act Marketing Rule"). The changes would be a particularly welcome development for private fund sponsors that market their funds through placement agents and other registered broker-dealers and for broker-dealers that market private funds.


1 See Instruction 6 to Item 27A(d)(2) of amended Form N-1A (defining "appropriate broad-based securities market index").

2 Securities Industry and Financial Markets Association v. Ashcroft, Case No. 2:23-cv-4154 (W.D. Mo. Jan. 5, 2024).

3 Tenn. Code § 47-18-104.

4 Tenn. Code § 47-18-104(b)(27).

5 The eleven spot bitcoin ETFs are: (i) Grayscale Bitcoin Trust (trading on NYSE Arca under the ticker GBTC), (ii) Bitwise Bitcoin ETF (BITB), (iii) Hashdex Bitcoin ETF (DEFI), (iv) iShares Bitcoin Trust (trading on Nasdaq under the ticker IBIT), (v) Valkyrie Bitcoin Fund (BRRR), (vi) ARK 21Shares Bitcoin ETF (trading on Cboe BZX under the ticker ARKB), (vii) Invesco Galaxy Bitcoin ETF (BTCO), (viii) VanEck Bitcoin Trust (HODL), (ix) WisdomTree Bitcoin Fund (BTCW), (x) Fidelity Wise Origin Bitcoin Fund (FBTC), and (xi) Franklin Bitcoin ETF (EZBC). See SEC Rel. No. 34-99306 (Jan. 10, 2024) (available here).

6 See Blue Tractor ETF Trust and Blue Tractor Group, LLC, Rel. No. IC-34194 (Feb. 10, 2021) (notice) and Rel. No. IC-34221 (Mar. 9, 2021) (order).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.