SEC extends Rule 15c2-11 no-action relief for 144A debt to January 4, 2025

On November 30, 2022, the Division of Trading and Markets of the U.S. Securities and Exchange Commission (the “SEC”) extended its no-action relief with respect to Rule 15c2-11 under the Securities Exchange Act of 1934 (the “Exchange Act”) to January 4, 2025. Without the relief, beginning on January 4, 2023, broker-dealers would have been unable to provide quotes for fixed-income (“FI”) securities, including FI securities offered and sold pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”), unless certain specified information about the issuer was made publicly available. 

What is Rule 15c2-11? 

Rule 15c2-11 governs the publication or quotation of securities in a medium other than a national securities exchange (e.g., over-the-counter, or “OTC” securities). A broker-dealer may not quote a price for a security unless it has determined that certain specified information about the issuer (as described in more detail below) is current and publicly available, and the broker-dealer has a reasonable basis for believing that the information is accurate and from reliable sources.

Historically, the rule has focused on “retail investors” and has been enforced only in the equity markets. In 1999, the SEC proposed to expressly exclude certain FI securities from Rule 15c2-11 but ultimately did not adopt the proposed amendments. In 2020, the SEC adopted amendments to the rule that addressed disclosures in the OTC markets and imposed requirements upon broker-dealers publishing quotations in these markets. The 2020 amendments did not distinguish between types of securities other than municipal securities (which Rule 15c2-11 expressly excludes) and did not address the proposed 1999 amendments to exclude FI securities.

In a September 2021 no-action letter, the SEC staff made clear its position that Rule 15c2-11 applies to FI securities. Following requests by market participants, the SEC staff issued another no-action letter in December 2021 (the “December 2021 letter”) that provided phased timelines for compliance with Rule 15c2-11 as applied to FI securities. Most significantly for the Rule 144A FI securities market, the December 2021 letter exempted – through January 3, 2023 –corporate FI securities or asset-backed securities offered and sold under Rule 144A for which the broker-dealer reasonably believes that the issuer would provide the information required by Rule 144A(d)(4) upon request. 

What relief is provided by the new no-action letter? 

The December 2021 letter provided for phased compliance with Rule 15c2-11, depending on the type of security or issuer. The new no-action letter (the “November 2022 letter”) withdraws the December 2021 letter while providing similar relief to that provided under “Phase 1” of the December 2021 letter, but expiring on January 4, 2025 instead of January 3, 2023. The November 2022 letter does not provide any further compliance phases but instead provides no-action relief, with no end date, for any FI security if the broker or dealer reasonably has determined that the FI security is foreign sovereign debt or a debt security guaranteed by a foreign government.

In sum, the new no-action relief allows brokers or dealers to publish or submit quotations (including continuous quotations, in a quotation medium) for FI securities, if the broker or dealer has determined that there is current and publicly available financial information (consistent with Rule 15c2-11(b)) about the issuer, or that the FI security or its issuer meets one of the following criteria: 

• The securities are corporate FI securities or asset-backed securities offered under Rule 144A, and the broker-dealer reasonably believes that the issuer will provide the Rule 144A(d)(4) information upon request; 
• The issuer is listed on a U.S. exchange, or is subject to Exchange Act reporting and has filed all required reports during the preceding 12 months; 
• The issuer is exempt from registration under Exchange Act Rule 12g3-2(b) (i.e., it is a foreign private issuer that maintains a listing of equity securities in its primary trading market outside the United States and makes its local disclosure documents available electronically to the public in English); 
• There is current and publicly available information consistent with Rule 15c2-11(b) about the issuer of the subject security; 
• The issuer is a bank as defined in Section 3(a)(6) of the Exchange Act, 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; or
• The security is issued by an issuer where a qualified interdealer quotation system makes a publicly available determination (in accordance with the requirements in Rule 15c2-11(a)(3)) that there is current and publicly available information about the issuer for any class of security of the issuer that is eligible for an exception in paragraphs (f)(2)(iii)(B), (f)(3)(ii)(A), or (f)(7) of Rule 15c2-11. 

In addition, like the December 2021 letter, footnote 11 of the November 2022 letter states that the public availability of the information required by Rule 144A(d)(4) would be “consistent with Rule 15c2-11(b).” The November 2022 letter further adds that the SEC staff will not recommend enforcement action with respect to any broker-dealer relying on information that satisfies the requirement in Rule 144A(d)(4) and acting consistently with relevant Division of Corporation Finance no-action letters. 

This means that broker-dealers can continue to quote the Rule 144A FI securities of many issuers listed in non-U.S. jurisdictions even if they are not SEC-reporting or 12g3-2(b)-exempt, because Rule 144A(d)(4) information will be available about the issuer through an electronic information delivery system that is generally available to the public in the issuer’s primary trading market.   

What happens when the no-action relief expires? 

If the SEC takes no further action with respect to Rule 15c2-11, when the current no-action relief expires on January 4, 2025, broker-dealers may not quote Rule 144A FI securities unless they have determined that certain specified information about the issuer is current and publicly available, and they have a reasonable basis for believing that the information is accurate and from reliable sources. 

This could result in a significant reduction in the availability of quotes for the Rule 144A FI securities of certain issuers, such as those that are not listed in any jurisdiction. However, issuers who are already SEC-reporting or exempt under Rule 12g3-2(b) (which includes many UK- and European-listed issuers) should be able to satisfy Rule 15c2-11(b), and thus broker-dealers will be able to continue quoting their Rule 144A FI securities even after the no-action relief expires.

What information does Rule 15c2-11(b) require to be made public? 

Broker-dealers may only publish quotations for securities subject to Rule 15c2-11 if the following information about the issuer of the securities is current and publicly available, and the broker-dealer has a reasonable basis for believing that the information is accurate in all material respects: 

• Prospectus – A prospectus specified by section 10(a) of the Securities Act for an issuer that has filed a Securities Act registration statement (other than Form F-6) that became effective less than 90 calendar days prior to the day on which the broker-dealer publishes or submits the quotation to the quotation medium; 
• Annual report – An annual report filed pursuant to Exchange Act Section 13 or 15(d), together with any Exchange Act periodic and current reports that have been filed thereafter by the issuer (except for current reports filed during the three business days prior to the publication or submission of the quotation), but until the issuer has filed its first such annual report, the broker-dealer must have in its records a copy of the Securities Act registration statement filed by the issuer that became effective within the prior 16 months, or a copy of any Exchange Act Section 12 registration statement filed by the issuer that became effective within the prior 16 months, together with any Exchange Act periodic and current reports filed thereafter;
• Rule 12g3-2(b) information – A copy of the information that, since the first day of its most recently completed fiscal year, the issuer has published as required to establish the exemption under Exchange Act Rule 12g3-2(b) (i.e., its home country disclosure documents in English), which the broker-dealer must make available upon the request of a person expressing an interest in a proposed transaction in the security with the broker-dealer, such as by providing the person with instructions on how to obtain the information electronically; or 

What actions are broker-dealers and issuers taking? 

Where the issuer is not exempt under Rule12g3-2(b) or does not otherwise satisfy Rule 15c2-11, initial purchasers/lead managers in Rule 144A distributions of FI securities have been seeking issuer covenants in both purchase agreements and indentures to make the relevant information public. However, the practical efficacy of a contractual remedy for the broker-dealer should the issuer breach its undertaking is limited, as it is the broker-dealer that would be deemed to violate Rule 15c2-11. 

Issuers have also added risk-factor and other disclosure about the potential lack of secondary market quotations regarding FI securities, which could significantly reduce the liquidity for such securities. 

Will the SEC extend the no-action relief again?

It is difficult to predict what further action the SEC will take on this topic. SIFMA and other industry groups, as well as members of Congress, have in the last year repeatedly asked the SEC to reconsider its interpretation of Rule 15c2-11, make the no-action relief permanent, or at least engage in a rulemaking that provides for a public comment period. This campaign was clearly instrumental in the SEC’s decision to grant the new no-action relief.

The SEC appears disinclined to change its view that Rule 15c2-11 applies to FI securities, repeating its interpretation of Rule 15c2-11 again in the November 2022 letter. The SEC has also not given any indication, at least in its most recently regulatory flexibility agenda, that it will be considering the rulemaking process to amend Rule 15c2-11.

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We will continue to monitor developments in this area and welcome any queries you may have.