SEC Chairman Jay Clayton. (Photo: New York Law Journal)

The Securities and Exchange Commission on Monday adopted a new rule, 30e-3, which creates an optional “notice and access” method for electronic delivery of shareholder reports. The agency is also seeking comment on improving fund disclosure as well as feedback on the fees that intermediaries like broker-dealers charge for delivering fund reports.

“These actions are an important part of the Commission’s effort to better serve Main Street investors in our ever changing marketplace,” SEC Chairman Jay Clayton said in a statement.

The new rule, Clayton said, “significantly modernizes delivery options for fund information while preserving the right of fund investors to receive information in paper form as they do today.”

Clayton said he looked forward to public feedback “on next steps,” and encouraged those with an interest in fund disclosure, especially Main Street investors, “to give us their ideas on how to improve the design, delivery and content of fund disclosures.”

Rule 30e-3 requires that shareholder reports and other specified documents be available to investors on a publicly available website, allowing improved search functions, the ability to hyperlink and move quickly within a document, and the option to more conveniently save a document for future reference.

Clayton stated that “this is only the beginning of the Commission exploring the ways that electronic documents can be more interactive and ultimately useful for investors.”

The rule, he said, “also will help funds save on printing and mailing costs, which are ultimately borne by fund investors.”

The new rule also includes modifications to improve investor protection, including an extended transition period and important protections for investors who wish to receive their shareholder reports in paper.

The SEC notes that it’s important that investors receive “advance notice of the coming change and ample opportunity to let funds and intermediaries know how they would like to receive their reports.”

The SEC’s recommendation provides an extended transition period, stating that the earliest a fund could begin to rely on the rule would be Jan. 1, 2021, and then only if the fund has included prominent statements on each prospectus, summary prospectus and annual and semi-annual report sent to investors during the prior two-year period.

The securities regulator would also like feedback by Oct. 31 on additional ways to modernize fund information, which will help the agency determine how to modernize the design, delivery and content of fund information, including “how to make better use of 21st century technology to provide more interactive and personalized disclosure.”

Commenters are directed to www.sec.gov/tell-us to provide feedback.

The agency also wants input on a framework for certain processing fees that broker-dealers and other intermediaries charge funds for delivering fund shareholder reports and other materials to investors.

Industry Groups Weigh In

While Investment Company Institute President Paul Schott Stevens applauded the SEC’s adoption of Rule 30e-3, stating that it represents “a long-sought victory for fund shareholders,” and that once implemented it “will create substantial savings, for the benefit of fund shareholders” and also allow shareholders to receive information “in line with their preferences,” the Consumer Federation of America had a different view.

The SEC, it said, “voted behind closed doors yesterday to make it more difficult for mutual fund investors who prefer paper documents to get fund disclosures delivered in their preferred format.”

The Commission “voted to erect new barriers for investors who prefer to have their disclosure documents delivered to them in paper through the mail,” said Barbara Roper, the consumer group’s director of investor protection.

The SEC “adopted this anti-investor proposal without providing any evidence that investors who prefer electronic delivery face any difficulties in exercising that choice, without taking into account extensive evidence that the change is likely to reduce investor readership of key disclosures, and despite the fact that promised cost savings, to the extent they exist at all, are likely to amount to pocket change for typical investors,” Roper added.

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