[Congressional Record Volume 163, Number 74 (Monday, May 1, 2017)]
[House]
[Pages H2978-H2980]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FAIR ACCESS TO INVESTMENT RESEARCH ACT OF 2017
Mr. HILL. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 910) to direct the Securities and Exchange Commission to provide
a safe harbor related to certain investment fund research reports, and
for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 910
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 2017''.
SEC. 2. SAFE HARBOR FOR INVESTMENT FUND RESEARCH.
(a) Expansion of the Safe Harbor.--Not later than the end
of the 180-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 270-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, or to require the filing of communications
with the public the purpose of which is not to provide
research and analysis of covered investment funds.
(d) Interim Effectiveness of Safe Harbor.--
[[Page H2979]]
(1) In general.--From and after the 270-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)).
(3) Covered investment funds communications.--
(A) In general.--Except as provided in subparagraph (B),
communications that concern only covered investment funds
that fall within the scope of section 24(b) of the Investment
Company Act of 1940 (15 U.S.C. 80a-24(b)) shall not be
required to be filed with FINRA.
(B) Exception.--FINRA may require the filing of
communications with the public if the purpose of those
communications is not to provide research and analysis of
covered investment funds.
(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
Arkansas (Mr. Hill) and the gentleman from Illinois (Mr. Foster) each
will control 20 minutes.
The Chair recognizes the gentleman from Arkansas.
General Leave
Mr. HILL. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days in which to revise and extend their remarks and
include extraneous material on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Arkansas?
There was no objection.
Mr. HILL. Mr. Speaker, I yield myself such time as I may consume.
Today I rise in support of H.R. 910, the Fair Access to Investment
Research Act, which I have had the pleasure of working on with my
friend from Illinois (Mr. Foster) in this Congress and now-Governor
Carney in the last Congress.
Mr. Foster, I had the pleasure to speak with Governor Carney this
weekend and tell him of our great collaboration in this Congress, and
he sends his warmest regards for the process.
This bill, Mr. Speaker, is a commonsense, bipartisan, bicameral
effort to increase access to research and information on exchange-
traded funds, or ETFs, an important and rapidly growing investment
vehicle in the United States and around the world.
Before coming to Congress, I worked in the banking and investment
industry for nearly three decades, and I have witnessed firsthand the
explosive growth in the ETF industry. Since I started my latest firm in
the late 1990s, I have seen the exchange-traded fund selection grow
from about 100 funds with about $100 billion in total assets to today's
2,000 funds with about $2.4 trillion in investment assets.
However, despite this rapid growth in the popularity in the ETF
market and their increasing importance to retail investors, most
broker-dealers do not publish research on ETFs due to anomalies in our
securities laws and regulations.
The SEC has implemented safe harbors for research in support of
various asset classes, including listed stocks, corporate debt, and
closed-ended funds, and Congress has provided explicit safe harbors for
research related to the offerings of emerging growth company
securities. However, despite their similarities to those asset classes,
ETFs do not benefit from similar safe harbors.
An ETF safe harbor is also not a novel concept to the Commission, and
there is bipartisan consensus that this is something that the SEC
should have done years ago. In addition to providing feedback on this
bill for the past 3 years, the SEC, itself, has looked at granting a
safe harbor for ETF research on multiple occasions but never quite got
around to it.
The Fair Access to Investment Research Act simply directs the SEC to
provide a safe harbor for research reports that cover ETFs so that
these reports are not considered offers under the Federal securities
laws. Because ETFs are continuously brought to the market, a safe
harbor is necessary for broker-dealers to publish this research.
It also holds the SEC accountable to Congress by providing an interim
safe harbor if the SEC does not act within a 270-day period, which
would be effective until the Commission finalizes its rules in this
area.
Providing this safe harbor will increase access to investment
information for consumers and improve the efficiency of our capital
markets. Given the importance of ETFs to the market and to the 6
million or so U.S. households that hold ETFs, steps to facilitate
research and allow investors access to this useful information are long
overdue.
Mr. Speaker, we want more information for our consumers about how
their investments work, how an ETF fits into their investment
portfolio, how it is consistent with their time horizon and their
goals, and what the transaction costs are. What are the unique
strategies around that ETF? Does it, in fact, use leverage or not? All
these kinds of details will help our consumers know more about these
products.
As our Capital Markets Subcommittee ranking member, Mrs. Maloney,
stated so eloquently at our markup earlier this year: It makes sense to
get more research out there on ETFs. After all, if you are concerned
with the growth of ETFs, then the last thing you want is less research.
True it is.
This bill in no way undermines or eliminates any investor protections
in the Federal securities laws or the SEC's ability to oversee the
registration and sale of ETF securities explicitly, containing a rule
of construction that the applicability of the antifraud and
antimanipulation provisions of the Federal securities laws are in no
way limited by this legislation.
This safe harbor would also only apply to bona fide research and in
no way limits FINRA, the Federal securities regulators, and the SEC's
ability to regulate sales and marketing literature that is used for
ETFs.
I would like to thank, again, my colleagues, Mr. Foster and Governor
Carney, Senators Heller and Peters for their work in the United States
Senate, my chairman, the ranking member, and Mrs. Maloney and the staff
on both sides of the aisle for their hard work on this pro-consumer,
commonsense proposal to make more information available to America's
investing households.
In March, H.R. 910 passed the House Financial Services Committee by
an overwhelmingly bipartisan vote of 56-2,
[[Page H2980]]
and a similar version of this legislation passed the House in the last
Congress by a vote of 411-6.
I urge all my colleagues to support this bill today, and I reserve
the balance of my time.
Mr. FOSTER. Mr. Speaker, I yield myself such time as I may consume.
I thank my colleague from Arkansas (Mr. Hill) for his years of hard
bipartisan work that went into this bill.
I am proud to support this bill today because I believe that it will
strengthen the abilities of investors to make informed decisions. This
legislation would add transparency in the financial markets that will
ultimately benefit consumers.
Exchange-traded funds are valuable and popular tools for investors to
get exposure to diversified risk through a single security with low
costs. My wife and I use them ourselves. They are, however, like the
iPhone, very simple on the outside but incredibly complicated products
on the inside. They often can be thoroughly understood only by those
with the background and the time to analyze the way the ETF is
constructed, as well as each of the underlying securities and the
sectors they are targeting.
Retail investors and retirement savers often do not have this time
and often do not have the expertise in the markets. High-quality
research can help them make informed decisions about which ETFs to
invest in, equipping them to make decisions on how to diversify across
different sectors and indices.
ETFs are continuously issued, so they present unique potential risks
to underwriting broker-dealers under the Federal securities laws.
Generally, the Federal securities laws prohibit a broker-dealer from
participating in a securities offering from publishing research 15 days
before or 30 days after the issuance for very good reason. This is to
prevent research that could hype the security ahead of the offering or
try to puff its price afterwards.
ETF pricing, however, reflects a wide variety of data across many
issuers and classes of securities. Because they are continuously
brought to market, it is necessary to provide a clarification in the
law that research is permitted to be published continuously, because
they are also continually traded on the exchanges. The antifraud
provisions of the securities laws will still apply.
To be clear, this bill does not vitiate any rights of investors or
responsibilities of broker dealers with respect to the accuracy and
truthfulness of statements. Specifically, section 2(c)(1) provides that
the antifraud and antimanipulation provisions of the securities laws
are not limited by anything in this bill. Moreover, this applies only
to bona fide research, and FINRA can require sales materials to be
posted to the public.
Section 2(c)(2) preserves the powers of the SROs to oversee all of
the practices of broker-dealers, including the publication of these
reports.
Lastly, the bill provides for a statutory safe harbor should the
Commission not be able to promulgate a rule in the 270-day period
established by the bill. This statutory safe harbor is only available
to research on funds that have been reported to the SEC for the last
year, ensuring that it is true to the purpose of the bill to provide
research to be used by investors for existing securities.
Statutory safe harbors exist elsewhere in the Federal securities
laws, most notably section 4(a)(2) of the 1933 Act. A statutory private
offering exemption can be perfected without relying on regulation D. In
practice, though, that does not happen, and I trust that the SEC will
prescribe an appropriate set of rules consistent with section 2(a) of
this bill so that the regulatory safe harbor will be effective.
I urge my colleagues to support this bill, and I reserve the balance
of my time.
Mr. HILL. Mr. Speaker, I thank my friend from Illinois for his
comments and his constructive help on designing and completing the
legislative process on this bill.
Mr. Speaker, an integral process of getting this bill completed was
certainly by our staff, and I want to pay particular attention to Holli
Heiles of my personal staff, who, this day, leaves the world of the
personal staff and moves to the Subcommittee on Capital Markets,
Securities, and Investments of the House Financial Services Committee.
I want to thank Holli Heiles for her outstanding work on this bill and
for her outstanding work on behalf of the people of the Second
Congressional District of Arkansas, as well as to congratulate her on
her move to the committee.
Mr. Speaker, I reserve the balance of my time.
Mr. FOSTER. Mr. Speaker, I again thank my colleague from Arkansas
(Mr. Hill) and now-Governor Carney, as well, for working on this bill
over the past years. I look forward to it being signed into law.
Mr. Speaker, I yield back the balance of my time.
Mr. HILL. Mr. Speaker, I appreciate the work done together on this
bill. I don't have any other speakers on this particular bill.
I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Bacon). The question is on the motion
offered by the gentleman from Arkansas (Mr. Hill) that the House
suspend the rules and pass the bill, H.R. 910, as amended.
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. HILL. 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.
____________________