U.S. Securities and Exchange Commission proposes narrowing Exchange Act Rule 15c2-11 to equity securities

The U.S. Securities and Exchange Commission has proposed amendments to Exchange Act Rule 15c2-11 that would limit the rule’s quotation-related requirements to equity securities. In a statement supporting the proposal, Commissioner Hester M. Peirce framed the change as a corrective step to align the rule text with how the market historically understood and applied it. Peirce noted that Rule 15c2-11 refers to quotations of a “security,” but market participants generally treated it as an over-the-counter equity rule. She said that tension became acute after the Commission’s 2020 amendments, when the Commission began signaling the rule could encompass fixed-income securities, prompting requests for clarity and warnings that applying equity-focused requirements and exemptions to fixed income could harm markets and investors without a discernible fraud reduction. She also cited the subsequent reliance on multiple rounds of time-limited staff no-action relief, followed later by permanent exemptive relief for some fixed-income securities, including fixed-income securities sold in compliance with the Rule 144A safe harbor, and permanent staff no-action relief for another subset. Peirce encouraged comments on whether limiting the rule to equity securities would resolve the mismatch between the rule’s text and its appropriate market application, and highlighted questions on the definition of “equity security,” the rule’s application to crypto assets, and potential next steps regarding the formation of an “expert market.”