On May 23, 2018, the SEC proposed new rules and amendments that would promote research on mutual funds, exchange-traded funds, registered closed-end funds, business development companies, and similar investment funds. These changes would reduce obstacles often encountered in providing research on investment funds by aligning the treatment of such reports with research on other public entities. The Congressional mandate of the Fair Access to Investment Act of 2017 (FAIR ACT) underlies the SEC’s actions in proposing these changes.
If the amendments are adopted, they would generally establish a safe harbor for a broker or dealer to publish and distribute research reports on investment funds. This would be similar to other regulatory safe harbors that exist for other public entities. Access to these research reports can aid investors in making sound investment decisions. A research report would be covered by this safe harbor proposal if it is not published or distributed by an investment advisor or other person affiliated with the fund. These exemptions to the safe harbor serve to reduce the likelihood of individuals circumventing Securities Act prospectus requirements and to mitigate the effect of financial or other conflicts of interest.
Specifically, the SEC is proposing a new Rule 139b, new Rule 24b-4, and a conforming amendment to Rule 101 of Regulation M. Rule 139b , which is modeled after and tracks with existing Rule 139, will explain the definitions concerning how a report can be “covered” by the safe harbor, the affiliation exemption and other exemptions, and what constitutes a “research report”. The proposed rule also outlines reporting requirements, such as any covered investment fund must have first been subject to relevant disclosure requirements under the Investment Company Act and/or Exchange Act to file certain periodic reports before relying on Rule 139b to publish reports under the new safe harbor. This includes timely filings of Forms N-CSR, N-SAR, N-Q, N-PORT, N-MFP, and N-CEN for registered investment companies and Forms 10-k, 10-Q, and 20-F for other companies for at least 12 months prior to the issuance of research reports. In addition, the SEC is proposing that funds covered in such research reports satisfy a minimum public market value threshold and that the reports should be published and distributed as part of the regular “course of business” by brokers, dealers, and other individuals.
The SEC is seeking public comment on these proposed changes. The public comment period will last for 30 days from the proposed amendments’ publication in the Federal Register. The complete set of comment solicitations can be read in the full releases concerning these proposed rules. You can submit comments using the form available on the SEC’s website or by e-mailing rule-comments@sec.gov with the reference number (S7 -11- 18) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number S7 -11- 18.
Sources:
SEC Proposes FAIR Act Rules to Promote Research Reports on Investment Funds (www.sec.gov)
Covered Investment Fund Research Reports (www.sec.gov)
