(Article from Registered Funds Regulatory Update, January 2022)
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SEC Commissioner Peirce released a statement critical of fixed-income disclosure requirements recently adopted by the SEC that significantly impact the fixed-income market place. Exchange Act Rule 15c2-11 was adopted to address fraudulent behavior generally associated with stock trading in the over-the-counter (OTC) market. Under the amendments, broker-dealers may not publish a quotation for an issuer’s security when key information is not current and publicly available. Since the adoption of the amendments to Rule 15c2-11, concerns have been raised regarding the negative impact the amendments have on trading in the fixed-income markets and the inability of market participants to complete the operational and system changes required to comply with the amendments. In response, the Staff issued a No-Action Letter in which it extended the compliance date with the amendments to Rule 15c2-11 from September 28, 2021 to January 3, 2022.
In her statement, Commissioner Peirce argued that the time-limited relief (three months) granted by the Staff to comply with the amendments is “wholly inadequate” to address the need to forestall the effects of the amendments on the fixed-income markets. Instead, she stated that the Staff should issue longer no-action relief and reopen the rulemaking entirely, as little attention was paid to the possible broad application of the amendments on the fixed-income markets. She acknowledged that in her review she only considered the application of amended Rule 15c2-11 in the OTC equity context, not its broader implications. Moreover, she noted that a failure by herself, the SEC and market participants to highlight the issue does mean that Rule 15c2-11 should be applied without “proper deliberation.” As such, Commissioner Peirce stated that the implications of amended Rule 15c2-11 on fixed-income markets “deserves careful consideration and engagement with investors, issuers, broker-dealers, and trading platforms, and the general public, through notice-and-comment rulemaking.”
Following the release of Commissioner Peirce’s statement, the Staff issued a second No-Action Letter extending relief from compliance with the amendments to Rule 15c2-11 from January 3, 2022 to a phase-in schedule depending on the relevant security and information available. Compliance for the first phase will begin on January 3, 2023. Among other things, the No-Action Letter confirms that Rule 15c2-11 encompasses fixed-income securities.
Hester Peirce, SEC Commissioner, Statement on Staff No-Action Letter Regarding Amended Rule 15c2-11 in Relation to Fixed Income Securities (Sept. 24, 2021), available at https://www.sec.gov/news/public-statement/peirce-nal-rule-15c2-11-2021-09-24.
SEC Division of Trading and Markets, No-Action Letter, Amended Rule 15c2-11 in Relation to Fixed Income Securities (Dec. 16, 2021), available at https://www.sec.gov/files/fixed-income-rule-15c2-11-nal-finra-121621.pdf.