FINRA Notifies Firms about Commodity-Linked Securities
FINRA has issued a Regulatory Notice detailing a firm’s obligations with respect to commodity-futures linked securities such as exchange-traded funds that invest in commodity futures. FINRA is concerned that firms and investors understand that performance of the security may “deviate significantly” from performance of the referenced commodity because of the deviation between futures prices and spot prices. FINRA reminds firms that reps must understand the products and receive proper training. Also, communications may not mislead investors by overstating the link with the underlying spot price, understating the risks of investing in commodity futures, or over-emphasizing the hedging benefits as compared to traditional investments. FINRA wants firms to adopt specific WSPs with respect to commodity-linked products.