The U.S. Securities and Exchange Commission has put forward a proposal that SEC Commissioner Hester Peirce said could help clear up years of confusion over how a key broker-dealer rule applies in the markets.
Summary
- The SEC proposed limiting Rule 15c2-11 to equity securities, reversing its broader 2021 interpretation that raised questions for crypto assets.
- A 60-day public comment period has been opened as regulators seek feedback on how the rule should apply and whether crypto falls outside its scope.
On Monday, the SEC proposed an amendment to Rule 15c2-11 that would limit reporting requirements for broker-dealers in the over-the-counter market to equity securities only, reversing the broader interpretation introduced in 2021.
SEC Rule 15c2-11 was first introduced in 1971 to ensure that broker-dealers maintain issuer information before they can publish over-the-counter quotes.
By requiring companies to review and maintain up-to-date information about an issuer, the rule was designed to reduce risks in thinly traded markets, particularly penny stocks.
Without this information, a broker is not authorized to initiate or resume quotations of a security on the OTC markets.
However, the rule was reinterpreted in 2021 to extend beyond stocks to other asset classes and, as a result, questions have arisen as to whether it can apply to crypto assets if they are classified as securities.
The SEC’s proposal would limit the rule’s scope to equity securities.
As such, broker-dealers will not be required to apply these reporting requirements to crypto assets, even in cases where questions regarding their classification as securities remain unresolved.
This could make it easier for brokers to support crypto trading and listing digital assets without having to rely on disclosure standards that are inconsistent with how those assets operate.
A public comment period has been opened during which the commission is seeking comments on whether the definition of equity securities should extend to crypto assets and how the rule should apply in the future.
According to Commissioner Peirce, who also leads the agency’s crypto task force, the proposal could help clear up confusion created by the previous interpretation.
“By its terms, the text of Rule 15c2-11 has always applied to quotations of a “security”. Market participants and other observers, including myself, understood, however, that the rule applied only to over-the-counter (“OTC”) quotations of equity securities.
However, it should be noted that there is still no definitive ruling on whether “equity securities” could include crypto assets.
Peirce said she would closely monitor “issues regarding the definition of ‘equity security,’ the application of the rule to crypto assets, and appropriate next steps with respect to the formation of an ‘expert market’.”
