SEC has Proposed Narrowing Rule 15c2-11 to Equity Securities Only

The US Securities and Exchange Commission is pushing to clear up years of confusion over a key broker-dealer reporting rule that prevented certain assets from being quoted by broker-dealers on the over-the-counter (OTC) market. 

The SEC Rule 15c2-11 was first adopted in 1971, aimed at reducing fraud in the penny stock market. It requires broker-dealers to maintain up-to-date public information about an issuer before it can publish over-the-counter quotes.

In 2021, the rule was reinterpreted to also include fixed-income securities (such as government or corporate bonds), which saw backlash from the market. There have also been questions about whether it applies to crypto securities.

In a statement on Monday, the SEC proposed an amendment to Rule 15c2-11 that would limit the scope of reporting requirements for over-the-counter broker-dealers to “equity securities,” reversing the interpretation from 2021. 

Hester Peirce, SEC commissioner and leader of the agency’s crypto task force, also welcomed the proposal, explaining that the SEC had created years of uncertainty via an amendment under the previous leadership in 2020, which went into effect in 2021.

“By its terms, the text of Rule 15c2-11 always has applied to quotations of a ‘security.’ Market participants and other observers including me, however, understood the rule to apply only to quotations of over-the-counter (‘OTC’) equity securities,” she said, adding: 

SEC to seek comment about application to crypto

The SEC defines an equity security as any stock, similar security or convertible security that represents an ownership interest in a company. 

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Despite the SEC’s recent proposal, there is no decision yet made on whether “equity securities” could include crypto assets. The SEC has opened a 60-day period for public comment. 

“I am particularly interested in commenters’ views as to the questions about the definition of ‘equity security,’ the rule’s application to crypto assets, and the appropriate next steps with respect to the formation of an ‘expert market,’” she said. 

Both the SEC and Commodity Futures Trading Commission (CFTC) have been pushing hard to establish regulatory clarity for crypto in the US under the current administration. 

Last week, the duo signed a memo agreeing to coordinate oversight of financial markets, including crypto. The agencies said this would put an end to decades of “regulatory turf wars” between them.

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