Monday, February 13, 2017

House reintroduces bill to increase ETF research availability

By Amy Leisinger, J.D.

Rep. French Hill (R-Ariz) and Co-sponsor: Bill Foster (D-Ill) have reintroduced legislation designed to increase the availability of research and information on exchange traded funds to aid investors in informed decision-making. The Fair Access to Investment Research Act of 2017, H.R. 910, would provide a safe harbor for brokers and dealers to publish research reports on ETFs in a manner similar to the protections available for other asset classes without those reports being considered an offering of ETF shares. Hill introduced the same bill in the previous Congress, and it passed by a vote of 411-6.

Senators Dean Heller (R-Nev) and Gary Peters (D-Mich) also reintroduced a companion bill in the Senate, and similar provisions also appear in in Subtitle E of the Financial CHOICE Act, the plan set forth by Republicans last year to replace the Dodd-Frank Act.

“This legislation would create transparency in financial markets that will ultimately benefit consumers,” Rep. Foster said.

Provision highlights. Under existing law, issuers are prohibited from offering securities for sale without filing a registration statement with the SEC. Under Securities Act Section 5, investment research reports technically can be considered an “offer,” and the SEC has created safe harbors for research reports covering many asset classes, but not for ETFs. With ETFs becoming one of the fastest-growing investment products, legislators determined that parity between products is necessary.

The bill directs the SEC to revise its rules to provide that a covered investment fund research report published or distributed by a broker or dealer will not be deemed an offer for sale of a security. To be eligible for the safe harbor, the research report must relate to an ETF that is either an open-end company or a trust whose assets consist primarily of interests in commodities, currencies, or derivative instruments referencing commodities or currencies. In implementing the safe harbor, the SEC must not condition its application on whether the distribution of a report constitutes its initiation or re-initiation of research coverage and is also prevented from exceeding the registration, reporting, and float limitations already provided in its rules. The Commission must also provide that a self-regulatory organization may not prohibit the ability of a member to publish or distribute a report solely because the member is participating in a registered offering or other distribution of the covered investment fund’s securities or prohibit such participation because the member has published or distributed a report.

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