The Securities and Exchange Commission has pushed back the implementation of its amendments to Rule 15c2-11, which will add certain necessary disclosures in connection with quotations made by broker-dealers, to 2025 as the market scrambles to nail down how exactly this applied to all facets of fixed income markets.
The rule was originally adopted in 1971 and was intended to apply to all securities including fixed income, but has certain exceptions for treasuries and since 1976, municipal securities. The rule doesn't apply to munis but will apply to nonprofit corporations who issue both municipal securities through state or local conduits and corporate bonds issued directly. Their conduit issuance is thus not subject to the rule but their direct issuance would be.
The amended Rule went into effect on Sept. 16, 2020, its first amendment effort in nearly thirty years and "enhances disclosure and investor protection in the over-the-counter market by ensuring that broker-dealers, in their role as professional gatekeepers to this market, do not publish quotations for an issuers security when current information is not publicly available, subject to certain exceptions," the Commission said.
On Dec. 16, 2021, the SEC issued a no-action letter stating that staff would not recommend enforcement until January 2023. This updated no-action letter now moves that deadline two years to Jan. 4, 2025.
"In response to indications from industry representatives that they need additional time to complete the operational and systems changes necessary to comply with the Amended Rule for fixed income securities, the Division will not recommend enforcement action to the Commission under the Amended Rule for brokers or dealers that publish or submit quotations, including continuous quotations, in a quotation medium, for fixed income securities if the broker or dealer has determined that the fixed income security or its issuer meets one of the criteria in Appendix A or that there is current and publicly available information (consistent with Rule 15c2-11(b)) about the issuer," the SEC said.
Groups representing broker-dealers welcomed the move and looks forward to engaging in more discussion with the Commission.
"Today's release is definitely welcome. There remains a lot of confusion about how the Rule applies to fixed income quotations, and the additional two years will give firms time to sort it all out," said Michael Decker, senior vice president for research and public policy at the Bond Dealers of America.
"We are pleased the SEC has recognized the potential harm that applying the public disclosure requirements of Rule 15c2-11 to the 144A market would have caused to companies and investors," said Kenneth Bentsen, president and chief executive officer of the Securities Industry Financial Markets Association. "The 144A market is currently relied upon by thousands of corporate and asset-backed securities issuers to raise capital and fund consumer lending, and previous staff guidance from the SEC would have compromised the ability of many issuers to access this market beginning in January 2023."
"We note that the relief is not permanent," Bentsen said. "We continue to believe that if the SEC wishes to apply this rule, which was designed for equity markets, to the fixed income markets, it should do so through a public and deliberative proceeding via Commission rulemaking, with an opportunity for public comment and a comprehensive cost benefit analysis."
