The SEC issued a second no-action letter to FINRA providing relief to member firms that do not comply with SEA Rule 15c2-11 ("Initiation or resumption of quotations without specific information") (the "Rule") concerning fixed income securities until dates beginning on January 3, 2022, and staggered in three phases. Depending upon the relevant security and available information, relief from the Rule will extend until January 3, 2022, January 4, 2023, or January 5, 2024. This no-action letter replaces the no-action letter issued by the SEC on September 24, 2021.
As previously covered, the Rule provides that a broker-dealer may not submit quotations for a security in a "quotation medium" other than a national securities exchange unless the broker-dealer is able to satisfy specified information requirements as the security and its issuer. The Rule has never been applied to debt securities. The SEC has stated that it now intends to interpret the Amended Rule as applying to debt securities.
In light of industry statements that firms are not currently able to comply with the Rule as to debt securities, the SEC has established three compliance dates for the application of a somewhat "amended" version of SEA Rule 15c2-11 as to debt securities:
- Phase 1 - Beginning January 3, 2022, through January 3, 2023; applicable if "the fixed income security or its issuer meets one of the criteria in Appendix A of the no-action letter, or [] there is current and publicly available financial information (consistent with Rule 15c2-11(b)) about the issuer."
- Phase 2 - Beginning January 4, 2023, through January 4, 2024; applicable if "the fixed income security or its issuer meets one of the criteria in Appendix B, or there is current and publicly available financial information (consistent with Rule 15c2-11(b)) about the issuer."
- Phase 3 - Commencing at the expiration of Phase 2 (on or after January 5, 2024); applicable if "the fixed income security qualifies for Phase 2 and: (1) the fixed income security is foreign sovereign debt or a debt security guaranteed by a foreign government; or (2) there is a website link, on the quotation medium on which the security is being quoted, directly to the current and publicly available information about the issuer (consistent with Rule 15c2-11(b)), provided that the broker or dealer has determined at least on an annual basis that the website link and its underlying information is current."
Commentary - Steven Lofchie
Rule 15c2-11 has been in existence for 50 years and never applied to debt securities. Applying a rule that was not intended for debt securities without any consideration of whether that is good policy is bad process. Delaying the application of the Rule, and "amending" the Rule by adding Annexes in a staff no-action letter, does not address the regulatory process issue or the public policy issue. If the SEC believes that it may be beneficial to apply Rule 15c2-11, or some variant thereof, to debt securities, it ought to propose a rule, take public comment, and consider that public comment before imposing new requirements.
Primary Sources
- Rule 15c2-11 Fixed Income (September 24, 2021)
- Amended Rule 15c2-11 in Relation to Fixed Income Securities (December 16, 2021)
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