President Trump has signed into law the Fair Access to Investment Research (FAIR) Act, which provides a safe harbor for investment fund research reports published by brokers and dealers regarding exchange traded funds. The FAIR Act passed the Senate by unanimous consent and cleared the House by voice vote, and the SEC must now adopt an implementing rule within 270 days of enactment, although the legislation allows broker-dealers to rely on the change during an interim period if the Commission exceeds the allotted time.
Safe harbor. To address the disparate treatment afforded to research on ETFs versus other asset classes, the FAIR Act, S. 327, requires the SEC to revise Securities Act Rule 139 to provide that a covered investment fund research report published or distributed by a broker-dealer (who is not an investment adviser to the fund or an affiliate of the adviser) is not an offer to sell a security pursuant to an effective registration statement. The Commission may not condition the safe harbor on a broker-dealer’s initiation or re-initiation of research coverage where the fund’s securities are in substantially continuous distribution and cannot exceed the registration, reporting, and float limitations already provided in its rules. Further, the SEC must provide that a covered investment fund research report is not subject to Investment Company Act Section 24(b) and related rules except to the extent that the reports are not subject to an self-regulatory organization’s content standards for research reports.
The safe harbor applies even if the broker-dealer will participate in the registered offering of the covered investment fund’s securities but will not protect a broker-dealer’s publication or distribution of reports dealing with business development companies or registered closed-end investment companies, unless otherwise expressly permitted under federal law. Communications regarding covered investment funds covered by Section 24(b) need not be filed with FINRA, except that FINRA may require the filing of public communications if their purpose is not to provide research and analysis of covered investment funds.
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