The US Securities and Exchange Commission has made a proposal, according to SEC commissioner Hester Peirce, that could help clear up years of confusion about how the key broker rule applies to all markets.
Summary
- The SEC proposed limiting Rule 15c2-11 to equity securities, changing its broad definition in 2021 that raised questions about crypto assets.
- A 60-day public comment period is open as regulators seek feedback on how the rule should apply and whether crypto falls outside its scope
On Monday, the SEC proposed an amendment to Rule 15c2-11 that would limit the reporting requirements for dealers in over-the-counter securities to only equity securities, effectively rolling back a broader interpretation introduced in 2021.
SEC Rule 15c2-11 was first introduced in 1971 to ensure that broker-dealers maintain up-to-date information on issuers before they publish over-the-counter quotes.
By imposing obligations on firms to review and maintain current information about the issuer, the rule was designed to reduce risks in lightly traded markets, particularly in penny stocks.
Without this information, the trader is not allowed to initiate or resume quotations for the security in the OTC markets.
However, the law was reinterpreted in 2021 to go beyond shares to other asset classes, and as a result, there were questions about whether it would apply to crypto assets if they were classified as securities.
The SEC’s proposal would limit the scope of the rule on equity securities.
As such, broker-dealers will not be required to apply these reporting requirements to crypto assets, even in cases where questions regarding their classification as securities remain unresolved.
This would make it easier for brokers to support crypto trading and quote digital assets without relying on disclosure standards that are inconsistent with how these assets operate.
A public comment period has opened with the commission seeking feedback on whether the definition of equity securities should extend to crypto assets and how the law should apply going forward.
According to Commissioner Peirce, who also leads the agency’s crypto task force, this proposal could help address the confusion caused by the previous definition.
“By its terms, the text of Rule 15c2-11 always applies to citations of ‘defense.’ Market participants and other observers including myself, however, have understood the rule to apply only to over-the-counter (‘OTC’) securities quotations.”
However, it should be noted that there is still no final decision on whether “equity securities” can include crypto assets.
Peirce said he will be closely watching “questions about the definition of ‘equity security,’ the application of the law to crypto-assets, and the appropriate next steps regarding the creation of a ‘professional market.’
