SIFMA Urges SEC to Carve Out Exceptions from Amendments to Quotation Rule

SIFMA urged the SEC to carve out exceptions for convertible debt, listed options, OTC and other bilateral derivatives, and TRACE-reportable securities from proposed amendments to the "Quotation Rule." (See prior coverage.) 

In a comment letter, SIFMA and SIFMA AMG ("SIFMA") requested the carve-outs from the proposed changes to the scope of the definition of equity under Rule 15c2-11 ("Initiation or resumption of quotations without specific information,") and to grant a 12-month transitional exemption for equity securities issued in court-approved bankruptcy reorganizations. SIFMA recommended the targeted exclusions to align the rule with the SEC's historical OTC equity focus.

SIFMA argued that securities for which secondary-market transactions must be reported to FINRA's Trade Reporting and Compliance Engine should be excluded, citing the existing FINRA treatment of unlisted depositary shares, non-convertible preferred, and capital trust or trust-preferred securities with a $1,000 or more liquidation preference. Convertible debt should fall outside the rule until conversion. Listed options should be excluded because they are issued by the Options Clearing Corporation and valued from public information about the underlying. OTC options and other bilateral derivatives under ISDA documentation between institutional counterparties should also be excluded.

SIFMA also asked for a narrow exclusion for the brief period between registration effectiveness and the start of exchange trading, said that the rule should remain technology neutral so tokenization alone does not change a security's status. SIFMA urged the SEC to re-propose an expert market framework with quotations visible only to broker-dealers, institutional investors, and accredited investors. SIFMA supported aligning the effective and compliance dates as burden-relieving but asked the SEC to state in the adopting release that the alignment is not a precedent.