SEC Proposes to Clarify that Rule 15c2-11 Applies Only to OTC Equity Quotations

Authors: Andrew B. Barkan, Joshua Wechsler, and Wills Klein

In a long-anticipated development, the Securities and Exchange Commission (the "SEC") has proposed amendments to Rule 15c2-11 (the "Rule") under the Securities Exchange Act of 1934 to clarify that the Rule applies only to equity securities and not to non-equity securities, including debt securities offered pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act").[1]

The proposal would replace references to "security" with "equity security," as defined in Rule 3a11-1,[2] addressing interpretive uncertainty following the SEC's 2020 amendments to the Rule.

Background

The Rule was adopted to regulate when broker-dealers may publish or submit quotations for securities in over-the-counter ("OTC") markets. The Rule's focus has been on preventing certain manipulations and fraudulent trading schemes in the OTC markets.

In 2020, the SEC adopted a series of amendments to the Rule which required that specified issuer information be current and publicly available before a broker-dealer may initiate or resume quotations.[3] Following those amendments, in 2021, the SEC staff took the position that the Rule applies to fixed-income securities as well as equity securities.[4]

In response to concerns raised by market participants, the SEC provided a series of relief measures, initially including temporary no-action relief. In 2023, the SEC issued an exemptive order providing relief from the Rule for debt securities offered pursuant to Rule 144A under the Securities Act.[5] Subsequently, in 2024, the SEC staff issued a no-action letter providing indefinite relief for broker-dealers publishing quotations for a broad range of fixed-income securities, subject to issuer-related conditions.[6] The 2024 no-action letter effectively extended prior temporary relief and preserved existing market practice, under which broker-dealers have continued to publish quotations for fixed-income securities without complying with the issuer information requirements of the Rule.

Proposed Amendments

The SEC's proposal would replace references to "security" with "equity security," as defined in Rule 3a11-1, clarifying that the Rule's quotation information requirements apply only to broker-dealer quotations for equity securities and not to fixed-income securities, most notably debt securities offered pursuant to Rule 144A.

The SEC emphasized that the proposal is intended to clarify the Rule's scope, rather than to modify its substantive requirements. The existing issuer information requirements under the Rule would remain unchanged.

Key Takeaway

If adopted, the proposal would provide greater certainty regarding the scope of the Rule and confirm that broker-dealers quoting fixed-income securities, including debt securities offered pursuant to Rule 144A, are not subject to the Rule's quotation information requirements.

More broadly, the proposal would formalize the current market framework, which has remained uncertain since the SEC's 2020 amendments to the Rule. The framework of the Rule has since been shaped by an exemptive order and related no-action relief. By codifying the Rule's application to solely equity securities, the proposal would provide a reliable and transparent regulatory basis for market participants.

The proposal is subject to a 60-day public comment period giving market participants an opportunity to provide input before the Rule is finalized.

[2] 17 C.F.R. § 240.3a11-1.

[3] SEC Release No. 34-89891, Publication or Submission of Quotations Without Specified Information (Sept. 16, 2020).

[4] SEC No-Action Letter, Amended Rule 15c2-11 in relation to Fixed Income Securities (Dec. 16, 2021).

[5] SEC Release No. 34-98819, Order Granting Broker-Dealers Exemptive Relief, Pursuant to Section 36(a) and Rule 15c2-11(g) under the Securities Exchange Act of 1934, from Rule 15c2-11 for Fixed-Income Securities Sold in Compliance with the Safe Harbor of Rule 144A under the Securities Act of 1933, Exchange Act (Oct. 30, 2023).

[6] SEC No-Action Letter, Amended Rule 15c2-11 in Relation to Fixed Income Securities (Nov. 22, 2024).

This communication is for general information only. It is not intended, nor should it be relied upon, as legal advice. In some jurisdictions, this may be considered attorney advertising. Please refer to the firm's data policy page for further information.