President Trump signed legislation on Oct 6, 2017, that allows broker-dealers to publish public research reports on exchange-traded funds.
The Fair Access to Investment Research Act of 2017 (S. 327), sponsored by Sen. Dean Heller (R-NV), directs the SEC to establish a safe harbor for research reports that cover ETFs so that the reports are not considered “offers” under section 5 of the Securities Act of 1933, even if the broker or dealer participates in the registered offering of the investment fund’s securities. This will allow ETF research to be issued just like stock research on a corporate issuer.
Previously, securities laws provided legal protections for broker-dealers to provide research reports for several asset classes such as listed stocks and corporate debt, but not for ETFs, according to Heller.
In implementing the safe harbor, the SEC must prohibit a self-regulatory organization from maintaining or enforcing a rule that would prevent a member from:
- publishing or distributing a covered investment fund research report solely because the member is also participating in a registered offering of the fund, or
- participating in a registered offering of a covered investment fund solely because the member has published a research report about the fund.
Prior to final passage, the Senate amended the bill to:
- clarify the conflict of interest provision by precluding dealers from issuing research on affiliated exchange-traded funds;
- carve out closed-end funds, including business development companies; and
- include a specific definition of “affiliated person” to the definition found in section 2(a) of the Investment Company Act of 1940.
“Given the importance of ETFs to investors, and particularly retail investors, steps to facilitate research on exchange-traded funds are long overdue,” said Rep. French Hill (R-AR), who sponsored companion legislation in the House.
The new law directs the SEC to finalize the rules within 270 days, and if the deadline is not met, an interim safe harbor rule will take effect until the SEC’s rule is finalized.
Based on our reader poll in July, it seems that interest in including ETFs in retirement plans still has a ways to go.