SEC Adopts Safe Harbor Rule for Investment Fund Research Reports

Investment Management Update

Date: December 19, 2018

Key Notes:

  • New rule extends safe harbor to a broker-dealer publishing or distributing research reports on covered investment funds
  • Covered investment funds include mutual funds, exchange-traded funds, registered closed end funds and business development companies
  • A broker-dealer may not issue research reports on an affiliated fund but may issue reports on a non?affiliated fund in situations where broker-dealer is participating or may participate in a public offering of the fund’s securities

On November 30, 2018, the Securities and Exchange Commission (SEC) adopted Rule 139b under the Securities Act of 1933 (Securities Act) to provide for a safe harbor for research reports issued by a broker-dealer regarding certain qualifying investment funds. The investment funds covered by the safe harbor include mutual funds, exchange-traded funds, registered closed end funds and business development companies. The safe harbor excludes research reports on such covered funds from being deemed an “offer” under the Securities Act of the covered fund’s securities. Previously, the safe harbor rule only extended to research reports on public companies.

In order to rely on the safe harbor, a broker-dealer may not be affiliated with the covered fund. However, the rule allows a broker-dealer to take advantage of the safe harbor even if the broker-dealer is participating or may participate in a public offering of the fund’s securities. Additionally, covered funds must have been subject to public reporting requirements of the Securities Exchange Act of 1934 for at least 12 months and must have filed their periodic reports with the SEC in a timely manner (e.g., Forms N-CSR, N-CEN, N-PORT).

Under the safe harbor, a broker-dealer’s research report is subject to certain additional content requirements depending on whether it is a fund-specific report or a report covering multiple funds. For fund-specific reports, brokers may only issue reports on funds that have at least $75 million in net asset value or, for other investment funds, at least $75 million in market value (float) in order to qualify as covered funds under the rule. Also, for funds that do not have a continuous distribution of their shares, a broker-dealer may not publish a report that is the initiation of research about the fund or the re-initiation of research following the discontinuation of such research reports. For fund-industry reports, the reports must include either similar information about a substantial number of covered funds of the same type or investment strategy or must contain a list of covered funds currently recommended by the broker-dealer (excluding any affiliated funds). Also, the analysis of a fund must not be given more prominence than other funds in the report. If fund performance is shown in a fund-specific or fund-industry report, it must be presented in accordance with SEC standardized performance standards.

A broker-dealer seeking to rely on the safe harbor is required to issue research reports in the ordinary course of its business and, in the case of a research report regarding a covered fund that does not have securities in substantially continuous distribution, include similar information about the fund or its securities in similar reports.


Rule 139b should promote research on funds and allow broker-dealers to keep investors better informed about fund investment options. Funds will likely also benefit from the greater coverage that will be provided by broker-dealer research reports.


For more information, please contact:

Andrew J. Davalla

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