The Financial Industry Regulatory Authority has lifted the ban on backtested data on exchange traded funds for institutional use as the fund industry increasingly engineers customized indices without long track records.
According to a public announcement, FINRA permitted the use of “Pre-Inception Index Performance” in communications for certain exchange traded products distributed solely to “institutional investors.”
“For the past 3 years, FINRA did not permit the use of backtested performance information to market newly created index funds and is now allowing this, which is an important development in the ETF market as a number of ETFs are based on newly created indexes,” according to a guidance note.
The old rules that prohibit the dissemination of the PIP data to retail investors still hold as FINRA deemed that institutional investors are sophisticated enough to interpret the data.