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SEC Adopts Additional Requirements to Publish Quotations on OTC Securities

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

The SEC adopted amendments to Exchange Act Rule 15c2-11 ("Initiation or resumption of quotations without specific information") 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 ("OTC securities").

Rule 15c2-11 had permitted broker-dealers to initiate quotes on OTC securities when (i) there was available specified information as to the issuer that the broker-dealer reviewed, (ii) the broker-dealer could "piggyback" on the fact that other broker-dealers were publishing quotes on the relevant security, or (iii) the broker-dealer was quoting on behalf of a customer.

As previously covered, under the adopted amendments, the piggybacking exemption will be significantly reduced, and will be eliminated in the case of shell companies. It will not be sufficient for the broker-dealer to have the relevant information; the necessary information will have to be current and "publicly available."

In addition, the SEC made a variety of definitional and operational changes to Rule 15c2-11, including changes that will reduce the operational requirements for broker-dealers to publish quotations as to foreign private issuers.

The amendments will become effective 60 days after publication in the Federal Register, but an additional period will be allowed for issuers and broker-dealers to come into compliance with Rule 15c2-11's new requirements.

Commentary

Each of the three Republican commissioners commented favorably on the rule amendments. Commissioner Hester M. Peirce noted that the rule change imposes regulatory costs that must be considered. Neither of the two Democratic commissioners commented, a somewhat notable omission given that the amendment would be one they would likely support.

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