SEC Proposal Would Promote Sharing of Investment Fund Research

The Securities and Exchange Committee released a proposal on May 23 that seeks to reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public entities.

If adopted, the proposal would generally establish a safe harbor for a broker or dealer to publish or distribute research reports on mutual funds, exchange‑traded funds, registered closed-end funds, business development companies and similar covered investment funds.

The SEC explains that it took this action in furtherance of the mandate of the Fair Access to Investment Research Act of 2017 (FAIR Act), which was signed into law in October and directs 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 of 1933.  The SEC further suggests that the proposed safe harbor is similar to a regulatory safe harbor that currently exists for research reports about other public entities.

“The proposed changes are intended to provide investors with greater access to research to aid them in making investment decisions,” SEC Chairman Jay Clayton said in a statement. “This congressional mandate recognizes the critical role that mutual funds and similar investment products play in helping Main Street investors meet their financial goals.”

According to the proposal’s summary, if the conditions for the safe harbor are satisfied, publication or distribution of such research would be deemed not to be an offer for sale or offer to sell the covered investment fund’s securities for purposes of sections 2(a)(10) and 5(c) of the Securities Act of 1933.

In addition, the Commission is also proposing new rule 24b-4 under the Investment Company Act to exclude a covered investment fund research report from the coverage of section 24(b) of the Investment Company Act, 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.

Comments on the proposal will be open for 30 days following publication in the Federal Register.

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