SEC’s updated shareholder report and delivery rule spark mixed feelings

According to Joseph Urban, managing director of electronic trading at Clear Street, regulatory pressure for increased standardization of shareholder reporting will help ensure the continued success and relevance of exchange-traded funds (ETFs) and mutual funds. placement.

Joseph Urban

Urban said ETFs and mutual funds are widely used by individual investors and are therefore among the most important financial instruments.

“Imposing a structured data format for this crucial information will allow for a more balanced comparison and wider sharing of data,” he told Traders Magazine.

On October 26, the Securities and Exchange Commission (SEC) voted adopt changes to rules and forms to require mutual funds and exchange-traded funds to provide concise and visually appealing shareholder reports and to promote transparent and balanced presentation of fees and expenses in company advertisements of investment.

The rule changes will require funds to provide concise, personalized reports to shareholders that highlight key information, such as expenses, performance and portfolio holdings.

Instructions for redesigned reports will encourage the use of graphical and textual features to make them more effective.

Funds will be required to mark up information in their reports in a structured data format.

In addition, the rule changes require funds to make certain information that may be more relevant to investors and finance professionals who want more detailed information available online and available for free delivery to investors upon request.

This information will no longer appear in the fund’s shareholder reports, but will remain available to investors on a website identified in the shareholder report and will be required to be filed semi-annually with the Commission.

In addition to modernizing reporting to fund shareholders, the Commission adopted changes to investment company advertising rules to require that disclosure of fees and expenses in investment company advertisements and sales literature registered and business development companies is consistent with the relevant presentations of the prospectus fee schedule and is reasonably up-to-date.

The amendments also address representations of fees and expenses that could be materially misleading.

Eric Pan

Investment Company Institute (ICI) President and CEO Eric Pan said the ICI commends the SEC for passing amendments to improve and streamline fund shareholder reporting.

“While we continue to review the rule, we know that presenting key information in an digestible and layered manner will increase investor understanding,” he said.

Pan added, “We are, however, very disappointed that the SEC has moved away from the 30e-3 rule for mutual funds and exchange-traded funds to provide reports to shareholders.”

He said many resorts have devoted significant time and resources to implementing the rule, which only went into effect last year.

“Additionally, we know that the vast majority of shareholders have internet access, which facilitates this more convenient delivery method for disclosures. Eliminating this option for these funds is a step back from a modern way for investors to access the important information they need,” he said.

According to Commissioner Hester M. Peirce, while in general this rule should improve the investor experience, several policy choices run counter to this conclusion.

For example, these changes will allow a shareholder report to cover only the class of a multi-class fund in which the shareholder receiving the report has invested, she said, adding that shareholder reports showing the range of share class options would allow fund investors to see the cheaper class options available to them.

Hester M. Peirce

“In light of the Commission’s recent series of enforcement actions against advisers for failing to place clients in the most appropriate share class, this change from the proposal is particularly difficult to understand,” said she declared.

Another confusing aspect of this regulation, Commissioner Peirce said, is its elimination of electronic delivery under Rule 30e-3, which only came into effect last year.

Rule 30e-3 allows investment companies, instead of sending full reports to shareholders, to provide notice that the reports are available online. Shareholders are still free to choose paper delivery, she said.

“The 30e-3 rule has its flaws, but at the time of its adoption it represented a significant step towards a more streamlined approach to electronic delivery,” she commented.

A spokesperson for T. Rowe Price told Traders Magazine, “Like the ICI, we commend the SEC for passing amendments to improve and modernize shareholder reporting. Like Commissioner Peirce, we are disappointed that the SEC did not adopt the part of the proposal relating to the annual mailing of fund prospectuses, which would have reduced the duplication of information and reduced expenses.

“The industry is ripe for more meaningful moves towards electronic delivery, and the more we can leverage modern technology and digital communications to deliver the required information to shareholders in a cost-effective manner, the better.”

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