SIFMA Backs Bill Narrowing "Quotation Rule"
Commentary by Steven Lofchie
SIFMA praised the introduction of the "Protecting Private Job Creators Act," a bill that would exempt fixed-income securities from disclosure and quotation requirements in secondary markets.
In a public statement, SIFMA Managing Director of Corporate Credit and Securitization Chris Killian commended the bipartisan legislation, arguing that SEA Rule 15c2-11 ("Initiation or resumption of quotations without specific information") was never intended to apply to fixed-income markets. He explained that in 2020 the SEC adopted amendments to Rule 15c2-11, and in 2021 the SEC said that it would interpret the amended rule as applicable to fixed-income markets. (See related coverage.)
Mr. Killian criticized the SEC’s 2021 decision to extend the rule to these securities, stating that it "reversed 50 years of regulatory practice." He argued that the application of the rule caused unnecessary disruption in the fixed-income market and led to only partially effective relief measures. He emphasized that fixed-income and equity markets operate under fundamentally different conditions and warned that future regulatory changes must follow a formal "notice-and-comment process" tailored to fixed-income markets.
Commentary
On the heels of the SEC's recent abandonment of 14 proposed rules issued under the previous administration, the bill to undo the SEC's "interpretation" that made Rule 15c2-11 applicable to debt securities would be another meaningful correction.
By its literal terms, Rule 15c2-11 did potentially apply to debt securities. However, at the time the Rule was adopted (and for a long time thereafter), the Rule would not have applied, simply because debt securities were not traded in the manner described under the Rule. As trading technology developed, the market for debt securities changed; the SEC under Chair Gensler used these developments to declare that Rule 15c2-11 would henceforth apply to debt, as well as to equity. The SEC gave no consideration to the differences between the debt markets and the equity markets. As it became obvious that the rule was simply ill-suited, as literally applied, to the debt market, the SEC delayed the applicability of the Rule to debt, and then gradually granted more and more exemptions until what was left is largely its value as an annoyance or as a trap for the unwary.
If Congress does not take the opportunity to amend Rule 15c2-11 by legislation, the SEC should itself amend the Rule. If it falls to the agency, the SEC should go through ordinary rule making procedures.
Related Articles
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SIFMA commended the SEC for extending no-action relief to brokers or dealers on the application of SEA Rule 15c2-11 ("Initiation or resumption of quotations without specific information") to most fixed income securities.
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SEC staff issued a no-action letter that exempts most traded debt securities from the application of SEA Rule 15c2-11 ("Initiation or resumption of quotations without specific information").
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The SEC extended no-action relief for FINRA members that do not comply with SEA Rules on the initiation or resumption of quotations without specific information on fixed income securities.
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The SEC issued a second no-action letter to FINRA providing relief to member firms that do not comply with Exchange Act Rule 15c2-11 concerning fixed income securities until dates beginning on January 3, 2022, and staggered in three phases.
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The SEC issued a no-action letter to FINRA stating that it will not take enforcement action against member firms that do not comply with quotation rules on fixed income securities until January 3, 2022.
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FINRA updated a FINRA rule on compliance with an SEC rule "setting forth the information review and maintenance requirements for broker-dealers that publish quotations in a quotation medium for securities in the over-the-counter market."
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The SEC adopted rule amendments that impose additional conditions on the ability of a broker-dealer to publish a quotation for securities that are not listed on a national securities exchange.