Newly finalized rules by the Securities and Exchange Commission establish a safe harbor for an unaffiliated broker or dealer participating in a securities offering of a covered investment fund to publish or distribute a covered investment fund research report.
Under the rules finalized Nov. 30, publication or distribution of research reports on mutual funds, ETFs, registered closed-end funds, business development companies and similar covered investment funds would be deemed to not be an offer for sale or offer to sell the covered fund’s securities for purposes of sections 2(a)(10) and 5(c) of the Securities Act of 1933 if certain conditions are satisfied.
According to the rule’s preamble, the safe harbor is similar to one that currently exists for research reports about public companies and is intended to reduce obstacles to providing research on investment funds by harmonizing the treatment.
“These rules will promote greater access to research for investors in funds,” SEC Chairman Jay Clayton noted in a release. “Our response to this legislation is crafted to facilitate more informed decision making, which in turn should improve the quality of a market that has become important to our Main Street investors.”
The SEC released a proposed rule in May 2018. The agency explains that it took this action in accordance with the Fair Access to Investment Research Act of 2017 (FAIR Act), which was enacted in October 2017. The FAIR Act directed the SEC to establish a safe harbor for research reports that cover ETFs so that the reports are not considered “offers” under the Securities Act.
The Commission also finalized a new rule 24b-4 under the Investment Company Act to exclude a covered investment fund research report from the coverage of section 24(b), except to the extent the research report is otherwise not subject to the content standards in self-regulatory organization rules, including those governing communications with the public regarding investment companies or similar standards. It also adopted a conforming amendment to rule 101 of Regulation M and a technical amendment to Form 12b-25.
The rule will become effective 30 days after publication in the Federal Register.