Key Points
- Federal regulators proposed narrowing Rule 15c2-11 to apply exclusively to equity securities traded over-the-counter.
- This initiative would undo the 2021 expansion that brought fixed-income securities under the rule’s umbrella.
- A 60-day window for public commentary has been established to collect stakeholder perspectives on the proposed changes.
- According to Commissioner Hester Peirce, temporary relief measures previously issued generated market confusion.
- The Commission specifically asks whether digital assets should be classified as equity securities under this framework.
The US Securities and Exchange Commission (SEC) has taken steps to modify a contentious regulation governing broker-dealer disclosure obligations. Officials announced their intention to restrict Rule 15c2-11’s application to equity securities while simultaneously soliciting stakeholder perspectives regarding cryptocurrency classification. This initiative addresses widespread market confusion stemming from a 2021 regulatory interpretation that expanded coverage to fixed-income instruments.
Regulatory Body Proposes Scope Reduction for Trading Rule
Commission officials released a formal proposal to modify Rule 15c2-11, specifically targeting a reduction in its regulatory reach to cover only equity securities. According to the agency’s statement, this amendment would effectively nullify the 2021 interpretation that brought fixed-income instruments within the rule’s jurisdiction.
Originally established in 1971, this regulation mandates that broker-dealers maintain accessible, up-to-date public information before providing quotes on OTC securities. The framework was specifically crafted to combat fraudulent activities within penny stock trading and safeguard overall market stability.
During 2021, regulatory officials expanded the rule’s interpretation to encompass fixed-income instruments, including both government-issued and corporate bonds. Industry stakeholders voiced significant objections, arguing that this broader interpretation created substantial operational disruptions across bond trading platforms.
The current proposal seeks to establish clear boundaries, specifying that the rule governs only equity securities. Agency officials have characterized equity securities as shares or other instruments conveying ownership stakes in corporate entities.
Following the proposal’s release, officials established a 60-day window for receiving public input. Representatives indicated their particular interest in obtaining perspectives regarding how the regulation should treat cryptocurrency assets and similar digital instruments.
Digital Asset Classification and Cross-Agency Collaboration
Hester Peirce, who serves as SEC commissioner and leads the agency’s cryptocurrency task force, expressed support for the proposed modification. She characterized the 2020 amendment, which became effective in 2021, as having created prolonged regulatory ambiguity across multiple market years.
“The literal language of Rule 15c2-11 has always encompassed quotations for any ‘security,'” Peirce explained. However, she acknowledged that most market observers historically interpreted the rule as governing exclusively OTC equity instruments.
Peirce said that leadership should have provided extended no-action relief during the period of reviewing fixed-income applications. She criticized the practice of issuing temporary relief measures, which sometimes extended for merely three months, characterizing this approach as generating unnecessary market instability.
Additionally, she specifically invited commentary addressing whether the equity security classification could potentially encompass certain cryptocurrency assets. “Feedback regarding the ‘equity security’ definitional questions particularly interests me,” she stated.
Regulatory officials have not reached a determination regarding whether cryptocurrencies qualify under the equity security classification. Consequently, the agency has requested stakeholder guidance on appropriate next steps and whether establishing a specialized expert market would be beneficial.
Concurrently, the SEC and the Commodity Futures Trading Commission formalized a memorandum establishing coordinated oversight protocols for financial markets, including cryptocurrency sectors. Both agencies characterized this agreement as resolving longstanding jurisdictional conflicts spanning multiple decades.
Under present leadership, both regulatory bodies continue advancing efforts to establish comprehensive regulatory frameworks for cryptocurrency markets. The Commission will accept public submissions throughout the 60-day period before determining subsequent regulatory actions.
