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On January 31, 2019, Financial Industry Regulatory Authority, Inc. (FINRA) released an interpretative letter to Foreside Fund Services, LLC, a registered broker-dealer, permitting the use of pre-inception index performance (PIP) data (often referred to as “hypothetical” or “backtested” index data) in communications concerning passively managed open-end investment companies seeking to generate returns that correspond generally to the applicable index, only if such communications are distributed solely to institutional investors, including intermediaries. In the letter, FINRA reiterated its long-standing position that PIP data cannot be used in communications with retail investors because it does not comply with FINRA Rule 2210(d). FINRA also provided several conditions for using PIP data in fund-related communications to institutions, including:

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In addition to complying with FINRA’s conditions, advisers and broker-dealers who intend to use PIP data in institutional communications must not omit material information, or include false, exaggerated or misleading statements, or misstate material facts. All institutional communications must be presented in a way that is fair and balanced to afford institutional investors the opportunity to make informed investment decisions.

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Andrew J. Davalla 614.469.3353 <a href="mailto:Andrew.Davalla@ThompsonHine.com">Andrew.Davalla@ThompsonHine.com</a>

Ryan Wheeler 513.352.6693 <a href="mailto:Ryan.Wheeler@ThompsonHine.com">Ryan.Wheeler@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions.

Partner

Andrew J. Davalla

Senior Managing Associate

Ryan Wheeler

Securities & Shareholder Litigation

Investment Management

FINRA Guidance Permits Pre-Inception Index Performance Data in Fund Communications with Institutional Investors