House overwhelmingly approves bill to expand distribution of ETF research

Measure would square the safe harbor already provided to mutual funds

Apr 29, 2016 @ 1:49 pm

By Mark Schoeff Jr.

The House of Representatives overwhelmingly approved a bill this week that would allow wider distribution of research reports about exchange-traded funds.

In a 411-6 vote Thursday, the House passed a measure that allows broker-dealers to provide ETF research to clients without the information being considered an unregistered offering.

The practice isn't currently allowed because of a technicality in securities law that doesn't give ETFs the same safe harbor given to other vehicles, such as mutual funds.

The measure is almost identical to one that was approved by the House earlier this year as part of a larger package. Companion stand-alone legislation has not been introduced in the Senate.

Under current rules, most broker-dealers don't publish ETF research.

“ETFs have lived in a never-never land, where broker-dealers couldn't distribute reports on ETFs,” said Dave Nadig, director for ETFs at FactSet Research Systems. “They could write a research report on Apple but not on an ETF that held Apple. It's something that's hindered adoption of ETFs at some broker-dealers.”

One of the bill's authors, Rep. French Hill, R-Ark., a former broker himself, said in a statement that the measure is designed to “promote capital formation, remove unnecessary burdens and improve investor access to information.”

Mr. Hill said the ETF market has grown from about $100 billion in assets in the late 1990s, when he launched an investment advisory firm, to about $2 trillion today.

The Investment Company Institute, a trade association representing the fund industry, backs the bill.

“ICI welcomes this effort to increase the educational resources about ETFs available to investors, and hopes it will lead to greater public knowledge about ETFs and their role in markets,” ICI spokeswoman Rachel McTague said in a statement.

The legislative fix to securities rules that have put a crimp on the distribution of ETF research would make it easier for clients to make informed decisions about buying ETFs, said Brian McCabe, a partner at Ropes & Gray.

“Getting appropriate information out there is good for the markets and good for investors,” Mr. McCabe said.

More research information also means more competition for firms already provided analyses of ETFs, such as Morningstar Inc. and FactSet.

But Mr. Nadig is comfortable having additional players on the field.

“As far as I'm concerned, the more the merrier,” he said. “What's good for the ETF industry is good for all of us and good for investors.”


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