Investor interest in ETFs has increased significantly in recent years, with 5.7 million U.S. households holding ETF shares in 2013. Yet despite their growing popularity and increasing importance to retail investors, anomalies in the SEC’s safe harbor rules have discouraged most broker-dealers from publishing research regarding ETFs. S. 327 would generally allow broker-dealers to issue research reports on ETFs.
The research reports would need to meet certain requirements to be eligible for this safe harbor. Under current law, such reports would be considered an offering for sale and the broker or dealer would be required to file a registration statement with the SEC for that offering.
S. 327 is similar to a bill H.R. 5019, the Fair Access to Investment Research Act of 2016, which passed the House under suspension of the rules by a vote of 411 to 6 on April 28, 2016.
S. 327 is a companion bill to H.R. 910 the Fair Access to Investment Research Act of 2017, which passed the House under suspension of the rules by a vote of 405 to 2 on May 1, 2017.
The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Oct 7, 2017.
Fair Access to Investment Research Act of 2017
(Sec. 2) This bill directs the Securities and Exchange Commission (SEC) to establish and implement a "safe harbor" for certain investment fund research reports published by brokers and dealers. Such reports shall be deemed not to be "offers" under specified provisions of securities law, even if the broker or dealer participates in the registered offering of the investment fund's securities.
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: (1) publishing or distributing a covered investment fund research report solely because the member is also participating in a registered offering of the fund, or (2) participating in a registered offering of a covered investment fund solely because the member has published a research report about the fund.
The bill restricts the SEC from conditioning the safe harbor upon specified requirements.
The safe harbor shall generally not apply to reports about a business development company or a registered closed-end investment company published by a broker or dealer during a specified time frame.