February 26, 2024


Why it matters: In October 2023, the SEC published an exemption that specifically exempts broker-dealers from Rule 15c2-11 compliance obligations for Rule 144A fixed-income securities. The SEC should exclude all of the fixed-income market, not just 144A, before no-action relief expires on January 4, 2025.

Congress steps in: Rep. Mooney (R-WV) recently introduced legislation — H.R. 7092, the Protecting Private Job Creators Act — that would exempt all fixed-income securities from Rule 15c2-11.

Our take: “The U.S. Chamber of Commerce applauds Rep. Mooney for sponsoring legislation to stop the SEC’s new interpretation of Rule 15c2-11 from affecting fixed-income markets and maintaining their liquidity and transparency for businesses and investors alike.”

How we got here: 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.

Dig deeper: 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.

  • 144A issuers: Rule 144A provides a safe harbor from Securities Act registration for the sale of securities to qualified institutional buyers. Had the SEC not exempted 144A, it would have been more difficult and expensive to raise capital for 144A securities since broker-dealers would have been required to make a company’s sensitive financial information public.
  • Fixed-income markets: The application of Rule 15c2-11 to fixed-income markets would adversely impact market liquidity and efficiency, reduce price transparency, and reduce electronic trading. As a result, retail and institutional investors would face escalated costs. Enforcing Rule 15c2-11 in fixed-income markets poses risks that contradict the SEC’s investor protection objective.

Bottom line: The clock is ticking on no-action relief. While 144A is permanently excluded from Rule 15c2-11, the current no-action relief that applies to the rest of the fixed-income market will expire on January 4, 2025.