[Congressional Record Volume 162, Number 64 (Tuesday, April 26, 2016)]
[House]
[Pages H1950-H1952]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FAIR ACCESS TO INVESTMENT RESEARCH ACT OF 2016
Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 5019) to direct the Securities and Exchange Commission to
provide a safe harbor related to certain investment fund research
reports, and for other purposes.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 5019
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Fair Access to Investment
Research Act of 2016''.
SEC. 2. SAFE HARBOR FOR INVESTMENT FUND RESEARCH.
(a) Expansion of the Safe Harbor.--Not later than the end
of the 45-day period beginning on the date of enactment of
this Act, the Securities and Exchange Commission shall
propose, and not later than the end of the 180-day period
beginning on such date, the Commission shall adopt, upon such
terms, conditions, or requirements as the Commission may
determine necessary or appropriate in the public interest,
for the protection of investors, and for the promotion of
capital formation, revisions to section 230.139 of title 17,
Code of Federal Regulations, to provide that a covered
investment fund research report that is published or
distributed by a broker or dealer--
(1) shall be deemed, for purposes of sections 2(a)(10) and
5(c) of the Securities Act of 1933 (15 U.S.C. 77b(a)(10),
77e(c)), not to constitute an offer for sale or an offer to
sell a security that is the subject of an offering pursuant
to a registration statement that is effective, even if the
broker or dealer is participating or will participate in the
registered offering of the covered investment fund's
securities; and
(2) shall be deemed to satisfy the conditions of subsection
(a)(1) or (a)(2) of section 230.139 of title 17, Code of
Federal Regulations, or any successor provisions, for
purposes of the Commission's rules and regulations under the
Federal securities laws and the rules of any self-regulatory
organization.
(b) Implementation of Safe Harbor.--In implementing the
safe harbor pursuant to subsection (a), the Commission
shall--
(1) not, in the case of a covered investment fund with a
class of securities in substantially continuous distribution,
condition the safe harbor on whether the broker's or dealer's
publication or distribution of a covered investment fund
research report constitutes such broker's or dealer's
initiation or reinitiation of research coverage on such
covered investment fund or its securities;
(2) not--
(A) require the covered investment fund to have been
registered as an investment company under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or subject to
the reporting requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)) for
any period exceeding the period of time referenced under
paragraph (a)(1)(i)(A)(1) of section 230.139 of title 17,
Code of Federal Regulations; or
(B) impose a minimum float provision exceeding that
referenced in paragraph (a)(1)(i)(A)(1)(i) of section 230.139
of title 17, Code of Federal Regulations;
(3) provide that a self-regulatory organization may not
maintain or enforce any rule that would--
(A) prohibit the ability of a member to publish or
distribute a covered investment fund research report solely
because the member is also participating in a registered
offering or other distribution of any securities of such
covered investment fund; or
(B) prohibit the ability of a member to participate in a
registered offering or other distribution of securities of a
covered investment fund solely because the member has
published or distributed a covered investment fund research
report about such covered investment fund or its securities;
and
(4) provide that a covered investment fund research report
shall not be subject to section 24(b) of the Investment
Company Act of 1940 (15 U.S.C. 80a-24(b)) or the rules and
regulations thereunder, except that such report may still be
subject to such section and the rules and regulations
thereunder to the extent that it is otherwise not subject to
the content standards in the rules of any self-regulatory
organization related to research reports, including those
contained in the rules governing communications with the
public regarding investment companies or substantially
similar standards.
(c) Rules of Construction.--Nothing in this Act shall be
construed as in any way limiting--
(1) the applicability of the antifraud or antimanipulation
provisions of the Federal securities laws and rules adopted
thereunder to a covered investment fund research report,
including section 17 of the Securities Act of 1933 (15 U.S.C.
77q), section 34(b) of the Investment Company Act of 1940 (15
U.S.C. 80a-33), and sections 9 and 10 of the Securities
Exchange Act of 1934 (15 U.S.C. 78i, 78j); or
(2) the authority of any self-regulatory organization to
examine or supervise a member's practices in connection with
such member's publication or distribution of a covered
investment fund research report for compliance with
applicable provisions of the Federal securities laws or self-
regulatory organization rules related to research reports,
including those contained in rules governing communications
with the public.
(d) Interim Effectiveness of Safe Harbor.--
(1) In general.--From and after the 180-day period
beginning on the date of enactment of this Act, if the
Commission has not adopted revisions to section 230.139 of
title 17, Code of Federal Regulations, as required by
subsection (a), and until such time as the Commission has
done so, a broker or dealer distributing or publishing a
covered investment fund research report after such date shall
be able to rely on the provisions of section 230.139 of title
17, Code of Federal Regulations, and the broker or dealer's
publication of such report shall be deemed to satisfy the
conditions of subsection (a)(1) or (a)(2) of section 230.139
of title 17, Code of Federal Regulations, if the covered
investment fund that is the subject of such report satisfies
the reporting history requirements (without regard to Form S-
3 or Form F-3 eligibility) and minimum float provisions of
such subsections for purposes of the Commission's rules and
regulations under the Federal securities laws and the rules
of any self-regulatory organization, as if revised and
implemented in accordance with subsections (a) and (b).
(2) Status of covered investment fund.--After such period
and until the Commission has adopted revisions to section
230.139 and FINRA has revised rule 2210, for purposes of
subsection (c)(7)(O) of such rule, a covered investment fund
shall be deemed to be a security that is listed on a national
securities exchange and that is not subject to section 24(b)
of the Investment Company Act of 1940 (15 U.S.C. 80a-24(b)).
Communications concerning only covered investment funds that
fall within the scope of such section shall not be required
to be filed with FINRA.
(e) Definitions.--For purposes of this Act:
(1) The term ``covered investment fund research report''
means a research report published or distributed by a broker
or dealer about a covered investment fund or any securities
issued by the covered investment fund, but not including a
research report to the extent that it is published or
distributed by the covered investment fund or any affiliate
of the covered investment fund.
(2) The term ``covered investment fund'' means--
(A) an investment company registered under, or that has
filed an election to be treated as a business development
company under, the Investment Company Act of 1940 and that
has filed a registration statement under the Securities Act
of 1933 for the public offering of a class of its securities,
which registration statement has been declared effective by
the Commission; and
(B) a trust or other person--
(i) issuing securities in an offering registered under the
Securities Act of 1933 and which class of securities is
listed for trading on a national securities exchange;
(ii) the assets of which consist primarily of commodities,
currencies, or derivative instruments that reference
commodities or currencies, or interests in the foregoing; and
(iii) that provides in its registration statement under the
Securities Act of 1933 that a class of its securities are
purchased or redeemed, subject to conditions or limitations,
for a ratable share of its assets.
(3) The term ``FINRA'' means the Financial Industry
Regulatory Authority.
(4) The term ``research report'' has the meaning given that
term under section 2(a)(3) of the Securities Act of 1933 (15
U.S.C. 77b(a)(3)), except that such term shall not include an
oral communication.
(5) The term ``self-regulatory organization'' has the
meaning given to that term under section 3(a)(26) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(26)).
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New
Jersey (Mr. Garrett) and the gentleman from Massachusetts (Mr. Capuano)
each will control 20 minutes.
The Chair recognizes the gentleman from New Jersey.
General Leave
Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members
have 5 legislative days in which to revise and extend their remarks and
include any other extraneous material on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from New Jersey?
There was no objection.
Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of H.R. 5019, the Fair Access to
Investment Research Act of 2016. I want to thank the gentleman from
Arkansas (Mr. Hill), who will be speaking in a little bit, for his
diligent work on this piece of legislation, as well as for his valued
work and his input that he has brought all
[[Page H1951]]
year long to the Subcommittee on Capital Markets and Government
Sponsored Enterprises.
Mr. Speaker, one of the most positive developments in our economy
over the last several decades is what has been dubbed the
``democratization'' of our capital markets. Because of the advances in
technology and market competition, more Americans than ever have the
ability to take control of their own investments and have access to
products that used to be reserved for the rich and the professionals.
The $200 trade has now become the $7 trade, and many investment funds
have become more cost-effective over the years as well. One of these
products is the exchange-traded fund or the ETF.
What are ETFs?
Well, ETFs are securities made up of a basket of stocks or bonds and
which trade over an exchange like an individual stock. Because of their
diversity and cost-effectiveness, they have become increasingly popular
with investors. In fact, ETFs now hold roughly $2 trillion in assets,
and some 5.7 million households hold ETFs as part of their investment
portfolio.
That being said, unfortunately, due to a longstanding technicality in
securities law, there is a dearth of research on ETFs' availability to
investors, depriving them of valuable information they need to make
their informed decisions. The SEC, in the past, has provided safe
harbors under securities law for brokers that provide research reports
for listed stocks or corporate debt.
Despite this and despite broad public support, the SEC has not
provided a similar safe harbor for ETF research reports. Because of
this, brokers are hesitant to publish reports out of fear for legal
action either from the SEC or another private party.
So we have this today, the Fair Access to Investment Research Act,
which would correct this anomaly by providing a safe harbor for ETFs
similar to the ones that currently exist for equities or corporate
debt. This is a simple, yet much-needed, piece of legislation to help
investors, particularly your mom-and-pop type investors, to understand
more about the products that they are putting their hard-earned money
into.
Again, I thank Mr. Hill not only for his work on this legislation
but, truly, for all the expertise and advice that he has brought to the
committee this session.
Mr. Speaker, I reserve the balance of my time.
Mr. CAPUANO. Mr. Speaker, I yield such time as he may consume to the
gentleman from Delaware (Mr. Carney), the primary Democratic sponsor of
this bill.
Mr. CARNEY. Mr. Speaker, first I want to thank the gentleman from
Massachusetts (Mr. Capuano) for yielding me this time. I would also
like to thank all those who have worked hard to improve this bill. I
would like to recognize and thank the gentleman from Arkansas (Mr.
Hill) for introducing this legislation. I appreciate his continued
willingness to work with me on this important issue and to fine-tune
this bill to address concerns that we have heard, particularly from
Members on this side of the aisle.
The FAIR Act has a very simple purpose, to provide investors better
access to research on exchange-traded funds and other similar products.
ETFs are one of the fastest-growing investment vehicles in the market.
Net assets in ETFs have grown from $102 billion in 2002 to $1.8
trillion in 2014. The number of ETFs on the market has increased 23
percent over the same period of time, but compared to other asset
classes, there is limited research about them available. As interest in
ETFs continues to grow, we need to make sure that investors have access
to reliable information on these funds and on their underlying
investments.
The SEC has been looking at expanding a safe harbor for ETF research
for over 15 years, and every time this issue has come up before the
SEC, it has received favorable feedback. In fact, during the
Subcommittee on Capital Markets and Government Sponsored Enterprises
hearing, there was unanimous agreement among the witnesses--which is
not easy to come by in our subcommittee--that the SEC should promulgate
a rule providing a safe harbor for ETF research.
Since this legislation was originally introduced, a lot has gone into
improving it. We have worked very closely with Ranking Member Waters,
the SEC, and FINRA to ensure this legislation does what it is intended
to do. We have taken their suggestions to improve numerous provisions
of the bill, and I want to thank Mr. Hill again for his flexibility in
doing that.
This new version reflects a year of collaboration among Democrats,
Republicans, and the regulators. The finished product is a clarified,
more effective version of the original bill. I am proud to say I
believe that we have arrived at an agreement that works for everyone.
Again, I would like to thank Mr. Hill for his leadership on this
issue. I urge all my colleagues to vote ``yes'' on this legislation.
Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the
gentleman from Arkansas (Mr. Hill), the sponsor of this legislation.
Mr. HILL. Mr. Speaker, I thank the gentleman from New Jersey for his
leadership of the Subcommittee on Capital Markets and Government
Sponsored Enterprises. I appreciate greatly the kind comments,
sponsorship, and good work of my friend, the gentleman from Delaware
(Mr. Carney).
Mr. Speaker, today I rise in support of H.R. 5019, the FAIR Act, Fair
Access to Investment Research Act. This bill is similar to a bill that
I introduced with Mr. Carney that passed the House as a part of H.R.
1675 and passed our committee by a strong bipartisan vote.
{time} 1515
As my friend from Delaware said, we have worked diligently to improve
this legislation and we have worked carefully with our colleagues in
the minority to make sure that this bill fully represents the
bipartisan consensus on the intent of the FAIR Act.
This bill is very simple: it allows broker-dealers involved in a
distribution to issue research reports on the rapidly growing medium of
the exchange-traded funds, or the ETF, market.
Since I started my most recent investment firm in the late 1990s, I
have personally seen the ETF market grow from about 100 funds and $100
billion in assets to over 1,400 funds and nearly $2 trillion in assets.
And some reports predict an additional $1 trillion might shift into
ETFs should the Department of Labor's recent fiduciary rule actually go
into effect.
Further, today's ETFs frequently are more complicated and require
more analysis on the part of investors. Yet despite their rapid
appreciation and growth in popularity and increasing importance to
retail investors, most broker-dealers do not publish research on ETFs
due to anomalies in the securities laws and regulations that Mr.
Garrett so ably discussed.
Throughout this process, there has been essentially universal support
for increasing investor knowledge and access to information on ETFs--
that a safe harbor in this regard simply makes good sense.
As Mr. Carney said, this issue is not unfamiliar to the Commission,
as it has been raised both to the SEC and by the SEC several times over
the past 17 years, most recently in 2004.
As a part of its Securities Offering Reform proposal, the Commission
requested comment on whether ``reliance on proposed rule 139 should be
permitted if the issuer is an open-end management investment company or
other investment company.'' The comments were universally supported,
but the rule was never adopted.
Given the importance of ETFs to today's market, steps to facilitate
research and allow investors access to this useful information is long
overdue.
The FAIR Act directs the SEC to provide a safe harbor for research
reports that cover ETFs so that these reports are not considered
``offers'' under section 5 of the Securities Act of 1933. This mirrors
other research safe harbors implemented by the SEC for other
categories.
The bill also helps the SEC organize, in my view, its ``50 front
burners'' and holds it accountable to follow Congress' direction by
requiring the Commission to finalize rules within 180 days or an
interim safe harbor will take effect until the rule is proposed and
finalized. With close to 6 million U.S. households holding ETFs,
investors need access to this research to be
[[Page H1952]]
better informed and make better long-term investment decisions.
Again, I would like to thank the chairman, Mr. Carney; Mrs. Maloney,
the ranking member; and all of the staff on both the majority and
minority side for working to develop this commonsense proposal to
provide more information to American investors. I encourage all of my
colleagues to support this commonsense bill.
Mr. CAPUANO. Mr. Speaker, I yield back the balance of my time.
Mr. GARRETT. Mr. Speaker, having no further speakers at this time and
appreciating the fact that this prioritizes the 50 front burners at the
SEC, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from New Jersey (Mr. Garrett) that the House suspend the
rules and pass the bill, H.R. 5019.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. GARRETT. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this motion will be postponed.
____________________