The US Securities and Exchange Commission (SEC) has launched a public comment period to reassess and potentially refine Rule 15c2-11, a regulation that has historically governed the quotation of over-the-counter (OTC) securities. This move comes after years of confusion and market disruption, particularly concerning the application of the rule to fixed-income securities and crypto assets.
A Rule with a Complex History
Originally adopted in 1971 to combat fraud in the penny stock market, Rule 15c2-11 requires broker-dealers to maintain up-to-date public information about an issuer before they can publish OTC quotes. However, a 2021 reinterpretation expanded the rule’s scope to include fixed-income securities, sparking significant backlash from the market. The SEC’s recent proposal aims to revert this interpretation, limiting the rule’s application to equity securities.
Reversing the 2021 Interpretation
SEC Commissioner Hester Peirce, a prominent figure in the agency’s crypto task force, has been a vocal critic of the 2021 amendment. She argues that the SEC should have provided long-term no-action relief while assessing the rule’s impact on the fixed-income market. Instead, the SEC granted several rounds of limited relief, fostering uncertainty and market instability.
“The Commission should have granted long-term no-action relief while we assessed whether the application of the rule to the fixed income market was appropriate and then amended the rule as necessary,” Peirce stated.
The Crypto Question
Despite the SEC’s recent proposal, the status of crypto assets under Rule 15c2-11 remains unclear. The SEC has opened a 60-day public comment period to gather input on whether crypto assets should be considered equity securities and how they should be regulated in the OTC market.
“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,’” Peirce added.
Coordinating Regulatory Efforts
The SEC’s move to seek public input on crypto regulation aligns with broader efforts to establish regulatory clarity in the US. Last week, the SEC and the Commodity Futures Trading Commission (CFTC) signed a memorandum of understanding to coordinate oversight of financial markets, including the crypto sector. This agreement is expected to end decades of regulatory turf wars between the two agencies.
Looking Forward
The SEC’s initiative to reassess Rule 15c2-11 and its application to crypto assets is a significant step towards creating a more transparent and stable regulatory environment. As the public comment period unfolds, stakeholders from the crypto community, financial institutions, and regulatory bodies will have the opportunity to shape the future of OTC trading and crypto regulation in the US.
This move could have far-reaching implications for the crypto market, potentially paving the way for clearer guidelines and more inclusive participation in the OTC space.
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