On April 28, 2016, the U.S. House of Representative passed the Fair Access to Investment Research Act of 2016 (H.R. 5019) by a vote of 411 to 6. This bill directs the SEC to amend its regulations under the Securities Act of 1933 related to research reports to create a safe harbor for investment fund research reports published or distributed by brokers and dealers.
Specifically, the SEC would need to amend 17 C.F.R. § 230.139 to add to the already-existing safe harbor reports concerning “covered investment funds.” The bill defines covered investment funds as either:
(i) investment companies registered under the Investment Company Act of 1940 that have filed a registration statement under the ’33 Act that the SEC has declared effective; or
(ii) trusts or other persons issuing securities in an offering registered under the ’33 Act that is listed on a national securities exchange, the assets of which consist primarily of commodities, currencies, or derivatives of commodities or currencies, and that includes in its registration statement that a class of its securities are purchased or redeemed, subject to conditions or limitation, for a ratable share of its assets.
If this bill become law, it would ensure that reports covering mutual funds and ETFs would not be deemed to constitute offers to purchase or sell securities under the ’33 Act, even if the report’s author (i.e. a broker or dealer) is participating or will participate in the registered offering. This safe harbor, however, explicitly excludes reports authored by the issuer or affiliates of the issuer. Unsurprisingly, this safe harbor does not exempt reporting persons from the antifraud and market manipulations provisions of the federal securities laws.
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