United States: SEC Adopts Safe Harbor For Broker-Dealers' Research Of Business Development Companies And Other Investment Funds

Last Updated: December 17 2018
Article by Paul D. Tropp

On November 30, 2018, the SEC adopted Rule 139b under the Securities Act of 1933, which establishes a non-exclusive safe harbor for independent broker-dealers participating in securities offerings of business development companies (“BDCs”) and other “covered investment funds” that publish or distribute research reports on these investment funds, without the research reports being deemed offers to sell the investment funds’ securities that otherwise could be in violation of the Securities Act. A discussion of the new rule, which will become effective on January 14, 2019, follows.

Scope of Rule 139b

As directed by the Fair Access to Investment Research Act of 2017, the SEC adopted Rule 139b to extend the current safe harbor available under Rule 139 to a covered investment fund research report. Rule 139 permits the publication or distribution of research reports concerning one or more issuers by a broker-dealer participating in a registered offering of one of the covered issuers’ securities. 

Rule 139b defines covered investment fund to include BDCs as well as registered investment companies and certain commodity- or currency-based trusts or funds. A covered investment fund research report must be published by an independent broker-dealer and, therefore, is defined as a research report published or distributed by a broker-dealer about a BDC (or its securities), excluding a research report published or distributed by (i) the BDC or any affiliated person of the BDC or (ii) a broker-dealer that is the investment adviser, or an affiliated person of the investment adviser, for the BDC. If the conditions of Rule 139b are satisfied, a broker-dealer’s publication or distribution of such a report would be deemed not to constitute an offer for sale or offer to sell the BDC’s securities for purposes of Sections 2(a)(10) and 5(c) of the Securities Act, even if the broker-dealer is participating in a registered offering of the BDC’s securities. 

Rule 139b requires that a covered investment fund research report be either an issuer-specific research report or an industry report.

Issuer-Specific Research Reports

Reporting History and Timeliness Requirements. To be eligible for an issuer-specific research report, the BDC must have been subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act for at least twelve calendar months and filed in a timely manner all required Forms 10-K and 10-Q during the immediately preceding twelve calendar months. In addition, the SEC indicated that a broker-dealer may rely on the lack of a Form 12b-25 (indicating that a filing is late) filing as confirmation that a BDC’s filings are timely unless the broker-dealer is otherwise actually aware that the BDC has not made timely filings.

Market Following Requirement. Rule 139b includes a minimum public float requirement for covered investment funds that is intended to act as a proxy for market following. At the time of the broker’s or dealer’s initial publication or distribution of an issuer-specific research report (or reinitiation thereof), and at least quarterly thereafter, the BDC included in the report must have a public float of at least $75 million.1

Regular-Course-of-Business Requirement. The broker-dealer must publish or distribute research reports in the regular course of its business and, in the case of a research report regarding a BDC that does not have a class of securities in “substantially continuous distribution,”2 the publication or distribution must not be (i) the initiation of publication of research reports about the BDC or its securities or (ii) the reinitiation of publication following discontinuation of publication of such research reports. 

Industry Research Reports

Reporting and Regular-Course-of-Business Requirements. Similar to issuer-specific research reports, an industry research report must, as of the date of reliance on Rule 139b, concern a BDC that is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act. However, unlike for issuer-specific research reports, there is no similar twelve-month reporting history requirement. In addition, a broker-dealer must publish or distribute industry research reports in the regular course of its business. Like the parallel provision in Rule 139, Rule 139b’s regular-course-of-business requirement for industry research reports includes a “similar information” requirement. To satisfy this requirement, at the time a broker-dealer publishes or distributes an industry research report, the broker-dealer must include similar information, in similar reports, about the issuer covered in the industry report (or its securities). However, unlike Rule 139, the “similar information” requirement applies only to circumstances in which a broker-dealer is publishing or distributing a research report regarding a covered investment fund that does not have a class of securities in substantially continuous distribution.

Content Requirements. An industry research report must contain (a) similar information with respect to a substantial number of BDC issuers of the same type or investment focus (the “industry representation requirement”) or (b) a comprehensive list of BDCs currently recommended by the broker-dealer (the “comprehensive list requirement”). These requirements are designed to result in industry research reports that cover a broad range of BDCs. A broker-dealer cannot include, however, any BDC that is an affiliate of the broker-dealer, or for which the broker-dealer serves as an investment adviser (or is an affiliated person of the investment adviser) in a covered investment fund research report, including industry research reports. Broker-dealers may not selectively apply the Rule 139b safe harbor to certain aspects of a research report. As a result, an industry research report that presented a mix of affiliated BDCs and non-affiliated BDCs within the same report would not qualify for the Rule 139b safe harbor.

Presentation Requirements. The industry research report’s analysis of one BDC may not be given materially greater space or prominence than that accorded to any other BDC in the publication. If fund performance information is included in an industry research report, it must be presented in accordance with certain standardized presentation requirements.


The expansion of the Rule 139 safe harbor to covered investment funds is intended to generally lower broker-dealers’ costs of publishing and distributing such research reports, which would, in turn, cause broker-dealers to “increase their supply of covered investment fund research as a result.” While the Rule 139b safe harbor generally excludes issuer-specific research reports about newly public and/or smaller funds, BDCs and other covered investment funds, as well as the retail investors that invest in them, are likely to benefit from greater independent broker-dealer research coverage, particularly in the zone of an offering.

It is also worth noting that Rule 139b is separate from other significant regulatory changes for BDCs that are contemplated by the Small Business Credit Availability Act (“SBCAA”), which was enacted on March 23, 2018. The SBCAA will allow BDCs to increase their debt-to-equity leverage as well as permit BDCs to follow more liberalized offering and proxy communications rules that were previously available only to operating companies. In addition, one provision of the SBCAA directed the SEC to amend Rules 138 and 139 to specifically include a BDC as an issuer to which those rules apply. While Rule 139b is modeled after and generally tracks Rule 139, the rules differ from one another in certain respects, some of which are specifically directed by the FAIR Act and others that are intended to adapt certain conditions to BDCs and other covered investment funds.


1 Unlike for registered open-end funds, BDCs and closed-end funds cannot satisfy the $75 million minimum public float requirement using a net asset value (NAV) calculation.

2 In the adopting release, the SEC stated that determining whether a class of securities is in substantially continuous distribution will be based on an analysis of facts and circumstances. However, the SEC confirmed that “substantially continuous distribution” includes traded BDCs engaged in at-the-market offering programs over consecutive quarters pursuant to Securities Act Rule 415(a)(4) and other types of funds that are engaged in continuous offerings pursuant to Securities Act Rule 415(a)(1)(ix).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions