SEC Carves Out Certain Debt Securities from SEA Rule on Quotations

The first indication that the SEC, under Chair Gensler, was to take an extremely expansive regulatory position (about most everything) was the SEC's declaration that SEA Rule 15c2-11 would apply to debt securities.

For over fifty years the Rule—adopted in 1971—had been only applied to equities. When issuing the new guidance, the SEC gave no consideration to the differences between the equity markets and the debt markets. The SEC largely ignored protestations from issuers, investors and market participants as to its novel position until just before the date it was to be implemented, at which point the SEC issued further guidance and no-action relief that largely pushed off the effective date (although a good portion of the no-action relief was scheduled to expire this coming January).  

This new no-action letter almost entirely undoes that first bit of expansive guidance, leaving a fragment as a trap for the unwary. Hopefully, the incoming SEC Chair will undo even that fragment, at least until the SEC can give consideration as to whether the application of Rule 15c2-11 makes sense.  

Following hard on the heels of judicial rejection of the SEC's dealer rule, and before the judicial rejection of the SEC's private fund rule, the SEC's effective retraction of its Rule 15c2-11 guidance emphasizes how far the SEC departed from sound rulemaking process. No doubt more rejections are on the way as recent rule adoptions are also likely to go down without ever becoming effective. It is easy to feel sympathy for SEC regulatory staff, whose rule making efforts have been largely wasted; as well as for market participants who have spent years trying to simultaneously prepare for and combat rules and guidance that seemed poorly considered and, in quite a number of cases, lacking statutory authority. The current SEC Chair departs the SEC as a cautionary tale on how not to regulate.  

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