NASD Approves Interactive Analysis Tool

November 26, 2002 (PLANSPONSOR.com) - National Association of Securities Dealers (NASD) member firms may soon be allowed to provide customers with interactive "investment analysis tools," that could give investors more insight on how a particular investment strategy might perform.

The NASD Board of Governors has approved proposals for member firms to provide customers with interactive tools that can show, in quantitative terms, the likelihood of a specific event occurring. Member firms will also be allowed to provide written reports based on individual results.

Interactive tools will be subject to guidelines, including:

  • A range of probabilities that various investment outcomes might occur is presented, without stating a particular investment outcome will occur
  • A mathematical process that can be audited and reviewed is used
  • Criteria and methodology are described, including limitations and key assumptions
  • An explanation stating the results vary with each use over time is provided
  • The universe of investments considered is described, with explanations that other similar investments not described may have the same or better results
  • Any favoring of certain securities is explained

    

Additionally, the NASD must approve any implemented tool prior to use.   The approval process requires that the NASD receive access to any implemented tool and any associated templates used in written reports.  

NASD’s suitability rule would still apply on any recommendations provided toward the purchase or sale of a security. Any predictions as to the outcome of a particular investment strategy will not be allowed.

Before the proposal can be implemented, the Security and Exchange Commission (SEC) must approve its use, following public notice and comment.

«