On June 15, 2022, the Securities and Exchange Commission (the “SEC”) issued a request for comment to “help determine which ‘information providers,’ such as index providers, model portfolio providers, and pricing services, might come under the SEC’s definition of an investment adviser.” The request for comment (the “RFC”) discusses the roles played by these entities in, for example, the construction and calculation of indices, and analyzes the factors used to determine whether an entity is providing investment advice within the meaning of the Investment Advisers Act of 1940 (the “Advisers Act”). Among other things, the SEC is concerned about what it terms “significant discretion” in index methodologies.
The RFC is an Advisers Act and Investment Company Act of 1940 (the “1940 Act”) release, and is mainly concerned with Advisers Act issues. However, the potential effect of any rulemaking in response to this RFC will reach beyond Advisers Act issues and, in the context of index providers, affect other securities linked to indices, such as structured notes, as well as derivatives that reference indices. Consequently, this article discusses these potential effects on the broader market and not just in the context of, for example, registered funds or variable annuities.