SEC Comment on Tailored Reports

The Index Industry Association (IIA), an independent, not-for-profit organization composed of leading global independent index administrators, has commented on the Securities and Exchange Commission’s (SEC) proposed rule regarding Tailored Shareholder Reports.

In the response, the full text of which can be found here, the IIA supports the SEC Proposed Rule which requires funds to disclose a comparison of their performance against a broad-based market index in fund reporting materials. The IIA believes this rule is consistent with its Best Practice Guidelines, designed to ensure the highest quality and integrity of indexes globally. The IIA goes on to confirm its support for the International Organization of Securities Commissions’ (IOSCO) Principles for Financial Benchmarks and existing SEC rules as a thoughtful framework to ensure due diligence standards for indexes are being fully met.

The IIA goes on to address the SEC’s concern around potential costs associated with using more specific, tailored indexes to compare the performance of more specific investment mandates to ensure an apples-to-apples comparison. The IIA does not believe using these more tailored index comparisons in fund reporting will result in any meaningfully increased costs to the end investor. The IIA concludes by reinforcing the strong governance structure in place for index-based investment products, reinforced by the IIA’s Best Practice Guidelines and IOSCO Principles framework and underscored by the SEC’s effective rules and guidance, ensure that registered funds, their boards of directors and investment advisers conduct due diligence and monitor their service providers. As an example, the IIA shares that through the teeth of a global pandemic and unprecedented market volatility in 2020, index-based investors were well served by the effective combination of IIA Best Practices, IOSCO Principles and the SEC rules.

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