SEC Proposes Limiting Rule 15c2-11 to Equity Securities

The U.S. Securities and Exchange Commission announced a proposal on Monday to amend Rule 15c2-11, limiting its requirements to equity securities in over-the-counter markets and excluding fixed-income instruments and cryptocurrencies from its scope. The change aims to resolve longstanding uncertainties that emerged after a 2021 reinterpretation expanded the rule's application beyond its original focus on equities.

Rule 15c2-11, adopted in 1971, mandates that broker-dealers review and maintain current public information about an issuer, such as financial statements and corporate details, before publishing or submitting quotations for securities in the OTC market. The regulation was designed to curb fraud in thinly traded assets, including penny stocks, by preventing broker-dealers from quoting securities without adequate disclosures. Without compliance, firms cannot initiate or resume trading activity for those assets.

The 2021 staff interpretation broadened the rule to encompass non-equity securities, prompting questions about its reach into fixed-income markets, such as bonds and asset-backed securities, as well as digital assets potentially classified as securities. This shift...