United States: SEC grants time-limited relief to application of rule 15c2-11 to debt securities

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The SEC sent a second no-action letter to FINRA granting relief to member firms that do not comply with SEA Rule 15c2-11 (“Initiating or Resuming Quotes Without Specific Information”) (the “Rule”) relating to fixed income securities until dates beginning January 3, 2022, and phased in three phases. Depending on the relevant title and the information available, the exemption from the rule will extend until January 3, 2022, January 4, 2023 or January 5, 2024. This letter of no action replaces the letter of no action issued by the SEC September 24. , 2021.

As previously stated, the Rule provides that a broker cannot submit quotes for a security on a “quotation medium” other than a national stock exchange unless the broker is able to meet the requirements for information specified as security and its issuer. The Rule has never been applied to debt securities. The SEC said it now intends to interpret the amended rule as applying to debt securities.

In light of industry claims that companies are currently unable to comply with the debt rule, the SEC has established three compliance dates for the application of a somewhat “version” amended ”of SEA rule 15c2-11 concerning debt securities:

  • Phase 1 – From January 3, 2022 to January 3, 2023; applicable if “the fixed income security or its issuer meets one of the criteria in appendix A of the non-intervention letter, or [] there is up-to-date and publicly available financial information (in accordance with Rule 15c2-11 (b)) about the issuer. “
  • Phase 2 – From January 4, 2023 to January 4, 2024; applicable if “the fixed income security or its issuer meets any of the criteria in Annex B, or if there is up-to-date and publicly available financial information (in accordance with Rule 15c2-11 (b)) concerning the issuer ”.
  • Phase 3 – Beginning at the expiration of Phase 2 (on or after January 5, 2024); applicable if “the fixed income security qualifies for Phase 2 and: (1) the fixed income security is foreign sovereign debt or debt obligation guaranteed by a foreign government; or (2) there is a link to a website, on the listing medium on which the security is listed, directly to current and publicly available information about the issuer (in accordance with rule 15c2-11 (b)), provided that the broker or broker has determined at least once a year that the website link and its underlying information is up to date. “

Commentary – Steven Lofchie

Rule 15c2-11 has been around for 50 years and has never been applied to debt securities. Applying a rule that was not meant for debt securities without asking if it’s good policy is a bad process. Delaying the application of the Rule and “modifying” the Rule by adding annexes in a staff no-action letter does not resolve the issue of the regulatory process or the issue of public policy. If the SEC believes that it may be advantageous to apply rule 15c2-11, or a variation thereof, to debt securities, it should propose a rule, obtain public comments and consider those comments beforehand. to impose new requirements.

Primary sources

  1. Rule 15c2-11 Fixed Income (September 24, 2021)
  2. Fixed Income Securities Rule 15c2-11 as amended (December 16, 2021)

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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