The Securities and Exchange Commission announced that it has proposed amendments that would narrow the scope of Exchange Act Rule 15c2-11.
The rule sets out certain information gathering and review requirements for broker-dealers that publish quotations for, or maintain a continuous quoted market in, securities in the over-the-counter (OTC) market.
Adopted in 1971, Rule 15c2-11’s focus has been on preventing certain manipulative and fraudulent trading schemes in the OTC equity markets involving securities issued by companies with infrequently traded securities, primarily in what is known as the “penny stock” market.
The proposed amendments would limit the rule’s applicability to quotations in OTC equity securities by replacing the term “security” with “equity security” without altering the rule’s substantive requirements.
“Regulations should be appropriately tailored to fit the asset class to which they apply,” said SEC Chairman Paul S. Atkins. “This proposal would clarify regulatory obligations when publishing quotations and affirm what was always understood: Rule 15c2-11 applies to equity securities.”
Under the proposed amendments, broker-dealers still will be obligated to gather and review certain information about issuers before quoting OTC equity securities. However, those requirements would no longer apply to fixed-income and other nonequity securities.
The SEC noted that in 2020, Rule 15c2-11 was amended to require that specified information be current and publicly available for brokers and dealers to publish a quotation for, or maintain a continuous quoted market in, a security in a quotation medium.
“Following the adoption of the 2020 amendments to Rule 15c2-11, numerous industry participants stated that they never understood Rule 15c2-11 to apply to non-equity securities and expressed concerns with the potential burdens of applying the amended rule to fixed-income securities,” the SEC said in a fact sheet. “After industry participants shared their concerns regarding Rule 15c2-11’s application, the
Commission provided exemptive relief and the staff issued a no-action letter addressing the vast majority of fixed-income securities.”
The proposed amendments replacing the term “security” with “equity security,” were published on SEC.gov and in the Federal Register. The comment period will remain open for 60 days after the date of publication of the proposing release in the Federal Register.
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