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SEC Adopts New Rules Permitting Covered Investment Fund Research Reports

On November 30, 2018, the SEC adopted Rule 139b under the Securities Act of 1933, substantially as proposed, establishing a safe harbor under which unaffiliated broker-dealers may publish and distribute research reports on “covered investment funds”—registered investment companies, BDCs and certain commodity- or currency-based trusts or funds—without such publication or distribution being deemed an offer of securities. Establishing this new safe harbor was mandated by the Fair Access to Investment Research Act of 2017.

Rule 139b permits two types of research reports: (1) issuer-specific research reports and (2) industry reports. Each type of research report must be published or distributed in a broker-dealer’s “regular course of business.” In addition—in a change from the proposal—final Rule 139b requires any performance information included in a research report to be presented in accordance with certain standardized requirements (e.g., mutual fund performance must be presented according to the requirements of Rule 482). For issuer-specific research reports, a fund must have been subject to periodic reporting requirements for at least 12 months and be current in its reporting. Funds included in an industry report must also be subject to periodic reporting requirements but there is no 12-month reporting history requirement.

To help implement Rule 139b, the SEC also adopted Rule 24b-4 under the Investment Company Act of 1940, which frees a Rule 139b research report from SEC filing requirements if it is subject to the content requirements of FINRA or another self-regulatory organization, as well as an amendment to Rule 101 of Regulation M.

The new rules and amendments will be effective 30 days after publication in the Federal Register. The adopting release is available here.

© 2019 Vedder Price


About this Author

Vedder Price P.C. attorneys provide a full range of services to a diverse financial services clientele. Attorneys practicing in the firm’s Investment Services Group are experienced in all aspects of investment company and investment adviser securities regulations, broker-dealer regulatory and compliance matters, derivatives and financial product matters, and ERISA and tax matters. Clients include mutual fund complexes, hedge and other private funds, money managers, broker-dealers, independent directors, and many other types of institutions such as banks, savings and loans,...