To learn more about Rule 15c2-11, see our other articles on regulation and compliance. Please contact your ACA advisor or contact us if you have any questions about this alert or would like to know how ACA can help you comply with Rule 15c2-11. Therefore, it came as a surprise when SEC staff discovered in September 2021 that the rule applies to bond markets and still applies – with no formal rule-making process and no opportunity for public comment and no adjustments to the actual rule. This interpretation not only surprised the investment industry, but seems to have surprised even SEC commissioners: the above data compares the information on the security level of October 8 with the data on September 27 (the last day of the previous set of rules). [3] www.sec.gov/files/fixed-income-rule-15c2-11-nal-finra-121621.pdf In 2020, amendments were made to modernize Rule 15C2-11 and recognize advances in communication technologies since the last significant amendments to Rule thirty years earlier. Among other things, the amendments added requirements for issuer information to be made available to the public. «The amended rule is another important step in our ongoing and proactive efforts to protect retail investors from microcap fraud,» said Stephanie Avakian, Director of the Enforcement Division. [1] By requiring companies to provide up-to-date information as a precondition for the widespread use of proprietary market maker prices, Rule 15c2-11 facilitates improved information and efficiency in financial markets and reaffirms our commitment to investor protection. It codifies our role as a market operator in raising new securities and monitoring the ongoing disclosure of company information.

The sector shares the Commission`s objectives to promote investor protection and transparency in capital markets. However, we believe that applying this rule to bond markets for the first time will have a negative impact on markets, issuers, investors and capital formation in the short term and outside the normal regulatory process, thereby reducing transparency and pricing. For a matter of this importance, the SEC has a duty to follow a transparent rule-making process that describes the problem it is trying to solve, provides an opportunity for public disclosure and comment, examines the cost of the proposed amendment against the benefits it would bring, and discusses alternatives to the proposed action under the Administrative Procedure Act. Instead, the SEC operated in an opaque manner, which is exactly the opposite of its own goal of bringing additional transparency to the market. Rule 15c2-11 was recently amended by the Securities and Exchange Commission to allow dealers to disclose more to potential investors, and SEC staff has made it clear that they believe Rule 15c2-11 applies to both stocks and fixed income. The SEC`s recent no-action letter regarding Rule 15c2-11 raises potential issues for the securitization market. One effect could, for example, be to reduce the availability of quotes for certain fixed income products, such as securities that are not clearly exempted from the rule, thus reducing these markets to a more bilateral interaction for certain securities. For some products, there is no clear short- or long-term solution, and we expect a dramatic decline in broker activity, which could be interpreted as a quote, making the price transparency required by bond investors less available. 4.

Municipal Security Exception. The amended rule, like the current rule, provides an exemption for registrations in municipal titles. It should be noted that there are no exceptions for other types of bonds, such as corporate bonds (convertible or non-convertible), foreign government bonds, U.S. Treasury or agency securities, asset-backed securities, or bonds offered and sold in accordance with Rule 144A or Regulation S, although the SEC does not appear to have analyzed the applicability of the amended rule to bond price diffusion. On Tuesday, September 28, 2021, amended SEC Rule 15c2-11 became effective. The modernized rule establishes minimum public company disclosure standards for dealer registrations. Its implementation represents a transformative moment for OTC Markets Group as the operator of a qualified interdealer quotation system[1] – in recognition of our critical role[2] and in line with the data-driven disclosure standards we have created as the basis for our OTCQX, OTCQB and Pink markets. According to the U.S.

Securities and Exchange Commission, its Rule 15c2-11 «regulates the publication or filing of quotations by broker-dealers in a listing medium that is not a national stock exchange. Before a dealer can initiate or resume quotations for a security in a listing medium, it must verify important and fundamental information about the issuer of the security. The rule allows any qualified inter-dealer auction system («Qualified IDQS») to also verify the required information. In particular, we note that the 15v2-11 rule – long called the SEC`s penny stock pricing rule – has never been applied to bond markets. While the rule has applied to «securities» since its introduction, it has only been applied to equity securities, and we have not been able to find a history of its application in bond markets. «The application to the bond market, frankly, was not something we had thought about as a commission,» SEC Commissioner Hester Peirce said at SIFMA`s annual C&L seminar in March, «and so I found it hypocritical. We should do that through rule-making, where there are contributions, where people collectively think about these issues and do it publicly. These remarks reinforce previous statements on the subject. [2] SEC Rule 15c2-11, which has been in place for decades, was amended in late 2020, with most of the provisions of the amendment taking effect on September 26, 2021. Rule 15c2-11 applies primarily to broker-dealers who provide prices for securities traded on the OTC market.

It also applies indirectly to companies whose securities are listed for listing on the OTC market. The full text of the amendment is available here. In the first part of this two-part blog series, we offer a history of the 15c2-11 rule, often referred to as the Penny Stock Quote rule, and its intent. In Part II, we discuss how this new interpretation could disrupt the trillion-dollar markets of Rule 144A. The amended rule also defines registration under the current rule as «any offer or bid price at a specified price in respect of a security or any expression of interest by a dealer or dealer to receive offers or offers from others for a security or any indication by a dealer or dealer wishing to promote its public interest in buying or selling a particular security.» Since its introduction in 1971, Rule 15c2-11 has targeted fraud in over-the-counter stock markets where the primary holders of securities are retail investors.