[Congressional Record (Bound Edition), Volume 162 (2016), Part 4]
[House]
[Pages 5076-5079]
[From the U.S. 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''.

[[Page 5077]]



     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 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.

[[Page 5078]]

  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 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

[[Page 5079]]

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.

                          ____________________