On November 22, 2024, the SEC issued a no-action letter that indefinitely suspends the impending January 2025 compliance deadline for the 2020 final rule, Publication or Submission of Quotations Without Specified Information, for fixed income securities that meet certain criteria.
Background
Rule 15c2-11 (the penny stock rule) was issued in 1971 and governs the publication or submission of quotations for securities in a quotation medium other than on a national securities exchange (NSE). In 2020, the SEC issued a final rule updating Rule 15c2-11 to better reflect technology advancements. The rule also required broker-dealers to ensure that certain issuer documents and information are current and publicly available before initiating or resuming quotation for the issuers’ securities in the over-the-counter market. The effective date was originally December 28, 2020. Rule 15c2-11 had traditionally only applied to equity securities and the SEC had no previous history of enforcement actions related to fixed income securities. However, a September 2021 staff interpretation surprised market participants by indicating that the rule and updates have always applied to fixed income securities. This interpretation was inconsistent with long-standing practice and issued without an opportunity for public comment.
Fixed income products are generally not exchange traded and vastly outnumber equity securities. Even where information is publicly available, such as for registered transactions or publicly traded issuers, there is no existing compliance infrastructure for broker-dealers to rely on.
Market participants requested additional time to complete operational and system changes necessary for fixed income securities and a December 2021 no-action letter extended time frames for limited exceptions from application of the final rule. However, this no-action letter conflicted with Rule 144A, causing confusion for market participants. To remedy this conflict, on November 30, 2022, the SEC issued a no-action letter that withdrew the December 2021 letter and delayed enforcement actions until January 4, 2025 under certain conditions.
November 2024 No-Action Letter
The November 2024 no-action letter carries forward similar criteria as the December 2021 no-action letter but without a fixed deadline. No enforcement actions will be brought to the SEC if a broker or dealer publishing or submitting a quotation including continuous quotations, in a quotation medium, for a fixed income security reasonably has determined that the fixed income security or its issuer meets one of the following criteria:
- The issuer of the fixed income security also has a class of securities that is NSE listed.
- The issuer is subject to the requirement to file reports pursuant to Section 13 or §15(d) and has filed all required periodic reports under §13 or §15(d), as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports).
- The fixed income security issuer has a class of equity securities that is exempt from registration under Rule 12g3-2(b).
- The fixed income security is issued by an issuer where a qualified interdealer quotation system makes a publicly available determination that there is current and publicly available information about the issuer for any class of security of the issuer that is eligible for certain specified exceptions.
- There is current and publicly available information about the security issuer.
- The fixed income security issuer is a bank, a bank holding company, or a credit union regulated by the National Credit Union Association (NCUA) that reports information to the Federal Financial Institutions Examination Council or files call reports with the NCUA.
- The security issuer is an asset-backed issuer covered by the 2011 no-action position from the Division of Corporation Finance.
In addition, no enforcement actions will be brought for brokers or dealers that publish or submit quotations, including continuous quotations, in a quotation medium, for any fixed income security if the broker or dealer reasonably has determined that the fixed income security is foreign sovereign debt or a debt security guaranteed by a foreign government.
Conclusion
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