Legislation would allow B-Ds to publish ETF research without fear of breaking securities laws

Bill proposed by former broker passes key committee, would raise competition with Morningstar.

Legislation approved this week by the House Financial Services Committee would allow broker-dealers to publish ETF research reports without the reports being considered offers to buy shares in the ETF.
The measure was co-authored by Rep. French Hill, R-Ark., and Rep. John Carney, D-Del.
A freshman legislator who came to Capitol Hill after working as a broker , Mr. Hill said most broker-dealers do not publish ETF research for fear of violating securities laws.
“This is a commonsense proposal,” Mr. Hill said at a May 20 committee hearing before the panel passed the bill. “With close to six million U.S. households holding and using ETFs, investors need access to this research.”
DOUBLE-DIGIT GROWTH
The ETF market has experienced double-digit annual growth over the past few years and, as of the end of April, included 1,496 funds with $2.1 trillion in assets, according to figures from Morningstar Inc.
As ETFs occupy a greater share of both retail and institutional investor portfolios, there’s a growing demand for insight about the vehicles, said Ben Johnson, director of global ETF research at Morningstar.
“There is a clear need for more research, more analysis across a very wide swath of the U.S. investor base,” Mr. Johnson said.
He said Mr. Hill’s bill is a good idea because investors would benefit from ETF research in the same way that they now can find research on individual securities and mutual funds.
The Investment Company Institute, the mutual fund industry’s main trade organization, also supports Mr. Hill’s legislation.
“ICI is a leading advocate for expanding investor education and communication,” ICI spokesman Matthew Beck said in a statement. “We hope any resulting research will strengthen public awareness and education about ETFs.”
If brokers issue their own ETF research, it could encroach on Morningstar’s turf. Morningstar can disseminate research through a so-called publisher’s exemption that applies to research organizations that aren’t regulated as securities firms.
“Any time there’s competition in the research space, that’s good for investors,” Mr. Johnson said. “It forces everyone to up their game.”
The measure was one of 13 bills the House Financial Services Committee approved that are designed to ease capital-raising rules for small businesses. They will go to the House floor next for a vote by the full chamber.