[Congressional Record Volume 163, Number 155 (Wednesday, September 27, 2017)]
[House]
[Pages H7547-H7549]
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
(S. 327) 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:
S. 327
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, other than a broker or
dealer that is an investment adviser to the fund or an
affiliated person of the investment adviser to the fund--
(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 paragraph
(1) or (2) of section 230.139(a) 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
section 230.139(a)(1)(i)(A)(1) of title 17, Code of Federal
Regulations; or
(B) impose a minimum float provision exceeding that
referenced in section 230.139(a)(1)(i)(A)(1)(i) of title 17,
Code of Federal Regulations;
(3) provide that a self-regulatory organization may not
maintain or enforce any rule that would--
[[Page H7548]]
(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(b)), 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.--
(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 paragraph (1) or (2) of section 230.139(a) 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 of title 17, Code of Federal Regulations, 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) Exception.--The safe harbor under subsection (a) shall
not apply to the publication or distribution by a broker or a
dealer of a covered investment fund research report, the
subject of which is a business development company or a
registered closed-end investment company, during the time
period described in section 230.139(a)(1)(i)(A)(1) of title
17, Code of Federal Regulations, except where expressly
permitted by the rules and regulations of the Securities and
Exchange Commission under the Federal securities laws.
(f) Definitions.--For purposes of this Act:
(1) The term ``affiliated person'' has the meaning given
the term in section 2(a) of the Investment Company Act of
1940 (15 U.S.C. 80a-2(a)).
(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 (15 U.S.C.
80a-1 et seq.) and that has filed a registration statement
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) 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 (15 U.S.C. 77a et seq.) 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 (15 U.S.C. 77a et seq.) 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 ``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 does not include a
research report to the extent that the research report is
published or distributed by the covered investment fund or
any affiliate of the covered investment fund, or any research
report published or distributed by any broker or dealer that
is an investment adviser (or an affiliated person of an
investment adviser) for the covered investment fund.
(4) The term ``FINRA'' means the Financial Industry
Regulatory Authority.
(5) The term ``investment adviser'' has the meaning given
the term in section 2(a) of the Investment Company Act of
1940 (15 U.S.C. 80a-2(a)).
(6) 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.
(7) The term ``self-regulatory organization'' has the
meaning given 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 the 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.
Mr. Speaker, I am pleased that the House is considering S. 327 today,
the Fair Access to Investment Research Act.
This is the Senate companion to my bill, H.R. 910, that I had the
pleasure of working on with my friend from Illinois (Mr. Foster) in
this Congress and our colleague in the last Congress, now Governor
Carney of Delaware.
Mr. Speaker, occasionally on this floor, we don't compliment our
colleagues in the upper Chamber at the other end of the building, but
we have to say today ``thank you'' to Senator Crapo and Senator Brown
for advancing a number of securities-related bills in the last few days
which we appreciate seeing coming back to the House, including S. 327.
{time} 1630
This bill contains the same language as H.R. 910, which passed the
House in May with overwhelming bipartisan support by a vote of 405-2.
S. 327 also includes some Senate amendments that add some additional
clarifications to the bill:
First, it clarifies the conflict of interest provision by precluding
dealers from issuing research on affiliated exchange-traded funds.
Second, it carves out closed-end funds, including business
development companies.
Finally, it includes a specific definition of ``affiliated person,''
which matches the definition of an ``affiliated person'' in section
2(a) of the Investment Company Act of 1940.
Since starting an investment firm back in the late 1990s, I have
watched exchange-traded funds grow amazingly. ETFs have grown from
about 100 funds, in the late 1990s, with over $100 billion in assets,
to now over 1,700 funds with over $3 trillion in assets. Exchange-
traded funds can average 30 percent of the trading volumes by value on
any given day on our markets.
Yet, despite their growing popularity and increasing importance to
retail investors, most broker-dealers do not
[[Page H7549]]
publish research on ETFs. This is due to anomalies in our securities
laws and regulations. S. 327 tackles those anomalies.
Given the importance of ETFs to investors, and particularly retail
investors, steps to facilitate research on exchange-traded funds are
long overdue.
The Fair Access to Investment Research Act is simple. It 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 allows ETF research to be issued just like
stock research on a corporate issuer.
This commonsense proposal, which mirrors other research safe harbors
implemented by the SEC, would clarify the law and allow broker-dealers
to publish exchange-traded fund research, thereby allowing investors to
access that very useful and needed information in this rapidly growing
and occasionally complex market of choices.
This bill also holds the SEC accountable to follow Congress'
direction. The bill requires the SEC to finalize the rules within 270
days, and if the deadline is not met, an interim safe harbor rule will
take effect until the SEC's rule is finalized.
Mr. Speaker, this issue is not unfamiliar to the Commission, as this
proposal has been raised both by the Commission and by industry many
times over the last two decades. With close to 6 million U.S.
households holding ETFs, investors need access to this important
research.
Having worked in the banking and investment industry for the past
three decades, I appreciate Chairman Hensarling and the Congress'
efforts to promote capital formation, reduce unnecessary burdens, and
grow jobs and the economy. S. 327 is another step in that process.
I also want to thank my friend, Mr. Foster of Illinois, for working
on this legislation, and our colleague in the Senate, Senator Heller of
Nevada, for working with me on this bipartisan, commonsense fix that we
worked on together for over 2 years.
Mr. Speaker, I urge my colleagues to support this bill, and I reserve
the balance of my time.
Mr. FOSTER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I thank my colleague from Arkansas (Mr. Hill) for his
years of bipartisan work that went into this bill.
I am proud to support this bill today because I believe that it will
strengthen the ability of investors to make informed decisions.
Exchange-traded funds are valuable and popular tools for investors to
diversify risks and returns through a single security at low cost. This
bill will help investors understand the various ETF choices on the
market.
I was proud that the House passed our bill, H.R. 910, earlier this
Congress by a vote of 405-2. This bill is essentially the same bill and
incorporates, among other things, an amendment by Senator Elizabeth
Warren to reiterate that the safe harbor will not be available to
affiliates of the ETF, including the fund's registered investment
adviser. I am really proud of the bipartisanship that went into this
bill.
Mr. Speaker, I urge my colleagues to support this bill, and I reserve
the balance of my time.
Mr. HILL. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I thank the gentleman for his comments, and I do
appreciate the work in the Senate that improved this bill.
I think it is important to note that this will make this research
flow, and in no way will it, I think, confuse investors; in fact, it
enhances their investment.
Mr. Speaker, I reserve the balance of my time.
Mr. FOSTER. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, I, again, thank my colleague from Arkansas (Mr. Hill)
for working with us on this bill over the past years and look forward
to it now being sent to the President's desk and signed into law.
Mr. Speaker, I yield back the balance of my time.
Mr. HILL. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Arkansas (Mr. Hill) that the House suspend the rules and
pass the bill, S. 327.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill was passed.
A motion to reconsider was laid on the table.
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