SEC Exempts Rule 144A Fixed-Income Securities from Rule 15c2-11

After several years of uncertainty and significant industry pushback, the U.S. Securities and Exchange Commission (the “SEC”) has finally granted exemptive relief from Rule 15c2-11 under the Securities Exchange Act of 1934 (the “Exchange Act”) for fixed-income securities sold in compliance with Rule 144A. The relief, which is effective immediately, means that broker-dealers do not have to comply with Rule 15c2-11’s information review and recordkeeping requirements in order to quote Rule 144A fixed-income securities. 

Rule 15c2-11 governs the publication or quotation of securities in a medium other than a national securities exchange. In 2020, the SEC amended the rule, and in subsequent guidance, the SEC staff asserted its position that Rule 15c2-11 applies to fixed-income securities, against which the rule had historically not been enforced. This view was contrary to the securities industry’s understanding and practice, and imposed burdensome obligations on secondary trading in Rule 144A fixed-income securities by requiring broker-dealers to determine that certain information about the issuer was current and publicly available, and that they had a reasonable basis for believing that the information was accurate and reliable. 

Following requests by the industry and market participants, the SEC staff issued several no-action letters providing phased timelines for compliance with Rule 15c2-11 as applied to fixed-income securities. The latest no-action letter extends the relief from Rule 15c2-11 for Rule 144A fixed-income securities to January 4, 2025. In September 2023, the National Association of Manufacturers sued the SEC in federal court over the application of Rule 15c2-11 to Rule 144A fixed-income securities. 

In granting the new exemptive relief, the SEC states that given the requirements of Rule 144A, investors in Rule 144A fixed-income securities “can be conclusively assumed to be sophisticated” and experienced investors, and moreover that Rule 144A provides the right to obtain certain reasonably current financial information, which “serves the same purpose of investor protection” as Rule 15c2-11’s requirements.  The new exemptive relief is effective immediately and has no specific expiration date, although it is subject to modification or revocation at any time by the SEC.  We will continue to monitor developments in this area and welcome any queries you may have.