The House of Representatives passed the Fair Access to Investment Research Act of 2017 (H.R. 910). The bill is intended to establish a safe harbor that would permit broker-dealers to issue research reports that cover exchange-traded funds (“ETFs”). The bill provides that research reports are not “prospectuses” (and so are not subject to Securities Act requirements that apply to prospectuses).
According to the Congressional Budget Office (“CBO”), the bill would eliminate an existing right of action that “allows public and private investors to pursue damage claims against broker-dealers who issue research reports on exchange-traded funds.” The CBO stated that it has not found any cases to date that established liability for information in research reports on ETFs, nor does it expect to find such cases in the future.
SIFMA issued a statement commending the passage of the bill because it would “reduce obstacles to research on [ETFs] and registered investment companies,” and because its clarifications would “allow broker-dealers to produce more research on ETFs, providing consumers with greater access to information and fueling capital formation and job creation.”
Currently, the bill is being reviewed by the Senate Committee on Banking, Housing and Urban Affairs.
Lofchie Comment: The reason that no claims are made against research on ETFs is that no one publishes such research. The reason no one publishes this research is because, under current law, the research might be deemed a prospectus. The reason this statutory amendment makes sense is that current law discourages the production of research that would be very useful to investors. It makes no sense to implicitly bar the production of research on one of the largest and most important investment tools in the market.