US bond market lobby groups are warning of disruptions if a proposed amendment to the SEC rule 15c2-11 is enforced. The rule essentially “governs the publication or submission of quotations by broker-dealers in a quotation medium other than a national securities exchange.” The new amendments to the rule, which happened in September 2020, was previously amended in a meaningful manner about 30 years ago, calling for enhanced disclosures and investor protection in the OTC markets with improvements in communication technologies by enforcing broker-dealers’ role as professional gatekeepers to the market. The new amendments seek to modernize the rule by:
- Requiring that information about the issuer and its security be current and publicly available before a broker-dealer can begin quoting that security
- Limit broker-dealers’ reliance on certain exceptions to the rule when issuer information is not current and publicly available
- Provide exceptions to reduce unnecessary burdens on broker-dealers to quote certain OTC securities that may be susceptible to fraud and manipulation
Firms must be compliant with the amendment on September 28 and market participants are skeptical of the amendments, citing the lack of detail and clarity which may lead broker-dealers to stop quoting on certain bonds if they feel that they may not be in compliance. SEC Chairman Jay Clayton said, “These retail investor-focused improvements to Rule 15c2-11 are long overdue. The technological advancements that have taken place since the rule was last amended enable us to require that information in the OTC market be more timely, enabling investors to make better informed investment decisions, and reducing fraud in these markets where retail presence is significant and, unfortunately, pump-and-dump and other frauds are too common.”
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