Index Provider Transparency and Accountability Act

II 117TH CONGRESS 1ST SESSION S. 1743 To amend the Investment Company Act of 1940 to impose certain requirements relating to the use of market indexes, and for other purposes. IN THE SENATE OF THE UNITED STATES MAY 20, 2021 Mr. RUBIO introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Investment Company Act of 1940 to impose certain requirements relating to the use of market in- dexes, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Index Provider Trans- 4 parency and Accountability Act’’. 5 SEC. 2. MARKET INDEXES. 6 (a) IN GENERAL.—The Investment Company Act of 7 1940 (15 U.S.C. 80a–1 et seq.) is amended— 8 (1) in section 8(b) (15 U.S.C. 80a–8(b))— 9 VerDate Sep 11 2014 03:17 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1743.IS S1743 pbinns on DSKJLVW7X2PROD with BILLS 2 •S 1743 IS (A) in paragraph (4), by striking ‘‘and’’ at 1 the end; 2 (B) in paragraph (5), by striking the pe- 3 riod at the end and inserting ‘‘; and’’; and 4 (C) by adding at the end the following: 5 ‘‘(6) a disclosure of— 6 ‘‘(A) whether the registrant intends to 7 track the returns of, or benchmark against, a 8 specific index of securities; and 9 ‘‘(B) if the registrant intends to track the 10 returns of, or benchmark against, a specific 11 index of securities— 12 ‘‘(i) the identity of the index provider; 13 ‘‘(ii) any involvement of the registrant 14 in designing the index; 15 ‘‘(iii) any ability of the registrant to 16 influence the construction or composition 17 of the index; and 18 ‘‘(iv) any licensing fees paid by the 19 registrant to the index provider.’’; 20 (2) in section 13 (15 U.S.C. 80a–13)— 21 (A) by redesignating subsection (c) as sub- 22 section (d); and 23 (B) by inserting after subsection (b) the 24 following: 25 VerDate Sep 11 2014 03:17 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1743.IS S1743 pbinns on DSKJLVW7X2PROD with BILLS 3 •S 1743 IS ‘‘(c) CHANGE IN INVESTMENT POLICY RELATING TO 1 INDEXING.— 2 ‘‘(1) IN GENERAL.—With respect to a reg- 3 istered investment company that tracks the returns 4 of, or benchmarks against, a specific index of securi- 5 ties, if a deviation with respect to that index occurs 6 such that the deviation would be permitted under 7 subsection (a)(3) if made directly by the investment 8 company only if authorized by the vote of a majority 9 of the outstanding voting securities of the invest- 10 ment company, the investment company may not 11 continue to so track, or benchmark against, the 12 index, unless so authorized by such a vote or by a 13 vote by the board of directors of the investment com- 14 pany. 15 ‘‘(2) RULE OF CONSTRUCTION.—For the pur- 16 poses of paragraph (1), a deviation with respect to 17 an index that requires a vote, as described in that 18 paragraph, includes such a deviation that adds new, 19 or increases the weighting of, securities— 20 ‘‘(A) of issuers that are headquartered or 21 incorporated in the People’s Republic of China; 22 or 23 ‘‘(B) that are listed on exchanges in the 24 People’s Republic of China.’’; and 25 VerDate Sep 11 2014 03:17 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1743.IS S1743 pbinns on DSKJLVW7X2PROD with BILLS 4 •S 1743 IS (3) in section 30 (15 U.S.C. 80a–29)— 1 (A) in subsection (b)(1), by striking ‘‘this 2 title; and’’ and inserting the following: ‘‘this 3 title, which shall include— 4 ‘‘(A) information regarding whether the 5 registered investment company tracks the re- 6 turns of, or benchmarks against (or intends to 7 track, or benchmark against), a specific index 8 of securities; and 9 ‘‘(B) if the registered investment company 10 engages in, or intends to engage in, the action 11 described in subparagraph (A), the information 12 described in section 8(b)(6)(B) with respect to 13 the index described in subparagraph (A) of this 14 paragraph; and’’; and 15 (B) by adding at the end the following: 16 ‘‘(k) ANNUAL DISCLOSURE REGARDING CHINESE 17 SECURITIES.— 18 ‘‘(1) IN GENERAL.—Each registered investment 19 company shall annually transmit to the stockholders 20 of the investment company a report containing infor- 21 mation regarding, with respect to any security 22 owned by the investment company that is issued by 23 an issuer that is headquartered or incorporated in 24 VerDate Sep 11 2014 03:17 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1743.IS S1743 pbinns on DSKJLVW7X2PROD with BILLS 5 •S 1743 IS the People’s Republic of China or listed on an ex- 1 change in the People’s Republic of China— 2 ‘‘(A) the percentage of the securities of 3 that issuer that are owned by governmental en- 4 tities in the People’s Republic of China; 5 ‘‘(B) whether the entities described in sub- 6 paragraph (A) have a controlling financial in- 7 terest with respect to the issuer; 8 ‘‘(C) the name of any official of the Chi- 9 nese Communist Party who is a member of the 10 board of directors of— 11 ‘‘(i) the issuer; or 12 ‘‘(ii) the operating entity with respect 13 to the issuer; 14 ‘‘(D) whether the articles of incorporation 15 of the issuer (or equivalent organizing docu- 16 ment) contains any charter of the Chinese Com- 17 munist Party, including the text of any such 18 charter; and 19 ‘‘(E) whether the investment company was 20 unable to obtain any of the information re- 21 quired under any of subparagraphs (A) through 22 (D). 23 ‘‘(2) INCLUSION PERMITTED.—A report that a 24 registered investment company is required to trans- 25 VerDate Sep 11 2014 03:17 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1743.IS S1743 pbinns on DSKJLVW7X2PROD with BILLS 6 •S 1743 IS mit under paragraph (1) may be included in a report 1 that the investment company is required to transmit 2 under subsection (e).’’. 3 (b) TECHNICAL AND CONFORMING AMENDMENT.— 4 Section 401(a) of the Comprehensive Iran Sanctions, Ac- 5 countability, and Divestment Act of 2010 (22 U.S.C. 6 8551(a)) is amended, in the matter preceding paragraph 7 (1), by striking ‘‘section 13(c)(1)(B)’’ and inserting ‘‘sec- 8 tion 13(d)(1)(B)’’. 9 (c) UPDATES TO RULES.—Not later than 1 year after 10 the date of enactment of this Act, the Securities and Ex- 11 change Commission shall make any updates to the rules 12 of the Commission that are necessary as a result of this 13 section and the amendments made by this section. 14 Æ VerDate Sep 11 2014 03:17 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6301 E:\BILLS\S1743.IS S1743 pbinns on DSKJLVW7X2PROD with BILLS