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SEC Adopts Rule Allowing BDs to Release Research Reports on Funds, ETFs

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The Securities and Exchange Commission on Friday adopted a final rule and technical amendments to promote research on mutual funds, exchange‑traded funds, registered closed-end funds, business development companies and similar covered investment funds to comply with the mandate set forth in the Fair Access to Investment Research (FAIR) Act of 2017.

The FAIR Act directed the SEC to establish and implement a “safe harbor” for certain investment fund research reports published by brokers and dealers.

The new Rule 139b provides that a research report prepared by a broker-dealer unaffiliated with the mutual fund manager or sponsor will not result in an unregistered offering, and the research report will not constitute a prospectus, explained Cipperman Compliance Services in a note on the new rule.

The rule requires several conditions be met, including: The subject fund must have met all reporting requirements during the prior 12 months, the fund must have a net asset value of at least $75 million, and any performance information must comply with Rule 482, which requires performance information to be presented in a standardized format.

When proposing the rule in May, SEC Chairman Jay Clayton stated that the proposed changes were “intended to provide investors with greater access to research to aid them in making investment decisions.”

The congressional mandate “recognizes the critical role that mutual funds and similar investment products play in helping Main Street investors meet their financial goals.”

Cipperman opined that the “only controversy here is whether performance information should need to comply with Rule 482.”

To keep performance information consistent “probably makes life simpler for investors, broker-dealers and the staff at the SEC and FINRA,” Cipperman states. “Regardless, we still believe that the SEC should take a fresh look at Rule 482 given the proliferation of investment products beyond open-end funds investing in publicly traded securities.”


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