The amended safe harbor would not extend to a broker-dealer that is an investment adviser to covered investment funds or an affiliated person of the investment adviser to such funds; however, the safe harbor would extend to broker-dealers participating in a registered offering of the covered investment fund’s securities. The amended Rule 139 is intended to encourage broker-dealers to initiate research coverage on ETFs, ETMFs and other funds that are not “excepted securities” for purposes of Rule 101, and to a more limited extent, business development companies.
Historically, the SEC considered the distribution of “research reports containing information, opinions or recommendations” with respect to a proposed offering, under certain circumstances to be “offers to sell under Section 5(c), particularly when a broker-dealer is a participant in the distribution.”1 The SEC also historically took the position that “research reports disseminated by participating broker-dealers in the waiting or post-effective periods which do not meet Section 10 prospectus requirements or are not accompanied by a Section 10 prospectus may violate Section 5(b)(1).” The amended Rule would address certain liability concerns voiced by industry participants regarding inadvertent violations of Sections 5 and 10 in this context, as well as impermissible solicitations for purposes of Rule 101. Consequently, the amended Rule could lead to greater production and distribution of research reports of covered investment funds that investors may find useful.
The SEC must propose the Rule 139 amendments no later than April 4, 2018, and adopt the final amended Rule 139 by July 3, 2018.
1) Research Reports, Release No. 33-6492 (Oct. 5, 1983)[48 FR 46801]. See Publication of Information and Delivery of Prospectus by Broker Dealers Prior to or After the Filing of a Registration Statement Under the Securities Act of 1933, Release No. 33-5010 (Oct. 7, 1969) [34 FR 18130]; Adoption of Rules Relating to Publication of Information and Delivery of Prospectus by Broker-Dealers Prior to or After the Filing of a Registration Statement under the Securities Act of 1933, Release No. 33-5101 (Nov. 19, 1970) [35 FR 18457]