The SEC proposed amendments to SEA rules that would tighten the requirements that broker-dealers must meet before being permitted to post public quotations on OTC securities.
Currently, in order to post such quotations, a broker-dealer must either (i) have access to specified information regarding the issuer or (ii) be able to rely on the fact that at least one other broker-dealer has been posting quotations (the "piggybacking exemption").
Under the Rule 15c2-11 (Initiation or resumption of quotations without specific information) amendments, the piggybacking exemption would be significantly reduced, and would be eliminated in the case of shell companies. It would not be sufficient for the broker-dealer to have the relevant information; the necessary information would have to be current and "publicly available." The SEC said it had found widespread fraud in connection with the sale of securities and that issuers were delinquent in their public filings; i.e., the relevant information was not current.
The proposing release poses additional questions as to how the SEC should regulate the OTC market. Comments on the proposal must be submitted within 60 days of its publication in the Federal Register.
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