President Trump Signs Bill Directing SEC to Expand Safe Harbor for Certain Investment Fund Research Reports

October 24, 2017

President Trump signed into law on October 6, 2017 the Fair Access to Investment Research Act of 2017. The Act directs the U.S. Securities and Exchange Commission (SEC) to amend Rule 139 under the Securities Act of 1933 (1933 Act) to expand the Rule’s safe harbor to include certain investment fund research reports that are published or distributed by broker-dealers. The amended Rule will expand the safe harbor for research reports that are not deemed to be “offers” for purposes of Section 5 of the 1933 Act, or prohibited activities for purposes of Rule 101 of Regulation M, to include the publication or distribution of research reports relating to “covered investment funds.” Covered investment funds include exchange-traded funds (ETFs), exchange-traded managed funds (ETMFs) and publicly traded commodity pools that invest primarily in commodities, currencies, or derivative instruments that reference commodities or currencies.

The amended safe harbor would not extend to a broker-dealer that is an investment adviser to covered investment funds or an affiliated person of the investment adviser to such funds; however, the safe harbor would extend to broker-dealers participating in a registered offering of the covered investment fund’s securities. The amended Rule 139 is intended to encourage broker-dealers to initiate research coverage on ETFs, ETMFs and other funds that are not “excepted securities” for purposes of Rule 101, and to a more limited extent, business development companies. 

Historically, the SEC considered the distribution of “research reports containing information, opinions or recommendations” with respect to a proposed offering, under certain circumstances to be “offers to sell under Section 5(c), particularly when a broker-dealer is a participant in the distribution.”1 The SEC also historically took the position that “research reports disseminated by participating broker-dealers in the waiting or post-effective periods which do not meet Section 10 prospectus requirements or are not accompanied by a Section 10 prospectus may violate Section 5(b)(1).” The amended Rule would address certain liability concerns voiced by industry participants regarding inadvertent violations of Sections 5 and 10 in this context, as well as impermissible solicitations for purposes of Rule 101. Consequently, the amended Rule could lead to greater production and distribution of research reports of covered investment funds that investors may find useful. 

The SEC must propose the Rule 139 amendments no later than April 4, 2018, and adopt the final amended Rule 139 by July 3, 2018. 


1) Research Reports, Release No. 33-6492 (Oct. 5, 1983)[48 FR 46801]. See Publication of Information and Delivery of Prospectus by Broker Dealers Prior to or After the Filing of a Registration Statement Under the Securities Act of 1933, Release No. 33-5010 (Oct. 7, 1969) [34 FR 18130]; Adoption of Rules Relating to Publication of Information and Delivery of Prospectus by Broker-Dealers Prior to or After the Filing of a Registration Statement under the Securities Act of 1933, Release No. 33-5101 (Nov. 19, 1970) [35 FR 18457]

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