MFA supports SEC proposal to keep broker quoting rule focused on equity markets

Limiting the rule's scope to OTC equities protects fixed income market liquidity, transparency, and investor outcomes.

Washington, D.C. - MFA supported the Securities and Exchange Commission's (SEC) proposal to clarify that Rule 15c2-11 applies only to over-the counter (OTC) equity securities, not fixed income markets, in a comment letter submitted today. The rule requires broker-dealers to verify certain issuer information before publishing quotations and has historically applied to OTC equity markets. The SEC proposal would ensure the rule cannot be extended beyond its intended purpose without adequate cost-benefit analysis or public comment-an initiative attempted under the prior administration.

"The SEC's proposal is a common-sense measure that keeps the OTC quoting rule focused on equity markets," said Jennifer Han, MFA Chief Legal Officer. "Fixed income markets operate differently from equity markets, and applying this framework to bonds would reduce liquidity, weaken price transparency, and increase costs for investors. The proposal will preserve deep, efficient fixed income markets that enable investors to deploy capital to businesses that need funds to hire and grow."

MFA explained that the rule was originally designed to address fraud in retail OTC equity markets, especially microcap "penny stock" schemes. Fixed income markets are fundamentally different. Many bonds trade bilaterally through dealers and do not have the type of continuous public issuer disclosure required by the rule. Applying the rule to fixed income markets would create compliance uncertainty and discourage dealers from providing quotations, reducing liquidity and, in some cases, preventing trading.

Read the full letter here.

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