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What is happening: The SEC published a new interpretation of Rule 15c2-11 in 2021, indicating it would begin enforcing the rule in debt markets. Rule 15c2-11 prohibits broker-dealers from publishing quotes on securities in the OTC markets unless they collect and review specified issuer information that must be publicly available.
Historic reversal. Originally intended for equity markets, Rule 15c2-11 was implemented in 1971 to reduce fraud in the penny stock market. The new interpretation of Rule 15c2-11 represents a significant change in regulation, as it is the first time in its 50-year history the rule will apply to fixed income markets.
Why it matters to 144A issuers. Rule 144A provides a safe harbor from Securities Act registration for the sale of securities to qualified institutional buyers. However, in conflict with the provisions of Rule 144A, the new interpretation of Rule 15c2-11 will require private issuers of 144A securities to make public their financial statements so broker-dealers can offer to buy and sell their securities.
Consequences to 144A issuers
- Impeding price discovery, making it more difficult and expensive to raise capital.
- Anti-competitive, issuers must make sensitive financial information publicly available.
No-action relief. The SEC issued no-action relief in response to industry concerns. Originally, 144A issuers were required to comply with Rule 15c2-11 starting January 4, 2023. Following our call for an extension, the agency delayed enforcement another two years until January 4, 2025.
What's next: Formal rulemaking is still needed. SEC staff published the new interpretation of Rule 15c2-11 without notice or comment. While an extension in promising, the Chamber still believes any future enforcement should be delayed until a formal rulemaking processes is issued.
Share your concern. Contact Kristen Malinconico at kmalinconico@uschamber.com
