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SEC Rule 15c2-11

John W. Sellers
Attorney John W. Sellers
SEC Rule 15c2-11 Team Lead
Former DOJ Trial Attorney
envelope iconContact John

SEC Rule 15c2-11 aims to protect investors by prohibiting broker-dealers from publishing quotations concerning securities when the information of the securities’ issuer is not currently available to the public in the over-the-counter securities market, unless exceptions apply. The goal of Rule 15c2-11 is to limit misinformation that could dupe investors – particularly retail investors – and perpetrate securities fraud. However, the disclosure requirements that the Rule imposes on issuers and the scope of its application have proven to be controversial enough for the U.S. Securities and Exchange Commission (SEC) to delay its implementation multiple times.

Oberheiden P.C. is a national securities litigation and SEC compliance law firm. With the legal guidance of our experienced securities attorneys, regulated professionals have been able to prepare for the eventual implementation of SEC Rule 15c2-11 in ways that are streamlined and efficient and that minimize their potential legal exposure.

SEC Rule 15c2-11: An Overview

SEC Rule 15c2-11 is one of the many regulations promulgated by the SEC under the law enforcement powers granted to it through the Securities Act of 1933 (15 U.S.C. § 77a et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.).

The Rule itself is codified at 17 C.F.R. § 240.15c2-11. It recently went through a substantial revision that is still being sorted out.

The basic rule created by revised SEC Rule 15c2-11 is fairly simple: Broker-dealers are not allowed to publish a quotation for a security, or even to submit such a quotation to a publication medium, unless certain requirements are met. These requirements are meant to protect potential investors from misinformation about the security.

There are two requirements under the Rule. Each has multiple factors, but broker-dealers only have to meet one of them in order to publish their quotation.

The first method requires broker-dealers to have records of all of the publicly available information listed in 17 C.F.R. § 240.15c2-11(b), which includes copies of:

  • The prospectus
  • The offering circular
  • Annual reports
  • Details about the issuer of the securities at hand

Furthermore, broker-dealers are required to review all pertinent documentation and have a reasonable basis to believe that the sources are reliable and the information is accurate in material respects. Only if regulated professionals have the information and the basis to believe it can they publish quotations about the security.

The second way to publish a quotation for securities is to submit it to a quotation medium that is qualified as an interdealer quotation system. That medium then performs the requirements of the first method. That medium then has to make a publicly available determination that the first method is satisfied, and the broker-dealer has to publish or submit their quotation within three business days.

Either way, Rule 15c2-11 creates a burdensome disclosure requirement for securities issuers. The information that broker-dealers have to consider all have to be publicly available. This means the issuer must take additional steps to meet their disclosure requirements.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

“Securities” Will Include Fixed Income Securities Like Debt

SEC Rule 15c2-11 has been around since 1971. Since its early days, there was an understanding that the Rule, though it does not explicitly say so, was limited to regulating equity securities, not debt securities or other fixed income securities.

However, in 2020, the SEC heavily revised Rule 15c2-11. Those revisions led to further guidance from the SEC. Among that guidance was the shocking revelation that the new and revised Rule would be applied to both equity and to fixed income securities. While the SEC claimed that it had solicited industry input regarding the change, it admitted that its questions were buried in hundreds of others concerning the revisions to Rule 15c2-11 and did not receive any attention. Importantly, this also implied that there were also no calls by investor advocates to broaden the scope of Rule 15c2-11 to debt-based securities.

Nevertheless, the staff of the SEC adopted the novel interpretation of the Rule, announcing it in a letter on September 24, 2021 and claiming that the Rule had always been interpreted this way, just that it was not enforced on fixed income securities up to that point.

The upshot of the new interpretation of the Rule is that broker-dealers were now also prohibited from quoting securities that were sold under the provisions of SEC Rule 144A.

Continued Delay in Enforcing the New Rule

The uproar that this new interpretation of the scope of Rule 15c2-11 caused has forced the SEC to delay the implementation of the Rule through several no-action letters.

First, on December 16, 2021, the SEC agreed to phase-in the new requirements of Rule 15c2-11 in order to give broker-dealers more time to understand their new obligations under the Rule and come up with ways to comply with them without leaving the market entirely. This approach gave broker-dealers until January 4, 2023 to comply. During that time, the SEC agreed to take no action against quotations for fixed income or asset-backed securities under Rule 144A, so long as:

  • The broker-dealer reasonably believed that the issuer would provide the information required under Rule 144A upon request, or
  • There is current and publicly available information about the issuer.

After vigorous lobbying from both the securities profession and the legal one, the SEC issued another no-action letter on November 30, 2022. This letter kicked back the compliance deadline for quoting fixed income and asset-backed securities to January 4, 2025, subject to the same Rule 144A requirements from the prior letter. However, it warned that this would be the last time that the enforcement of the Rule was to be delayed, absent relief from Congress or the SEC.

Some FAQs About Securities Law, Oberheiden P.C., and SEC Rule 15c2-11

How Does the SEC Have the Legal Authority to Implement or Change Rule 15c2-11?

 

There is a strong separation of powers argument to be made that the SEC does not have the legal authority to implement rules that are as wide-reaching as SEC Rule 15c2-11. However, these arguments have never prevailed in court.

There are three parts to the federal government in America. There is Congress, the legislative branch, which creates laws. There is the executive branch, headed by the President of the United States, which enforces those laws. And there is the judiciary, or the courts, which interprets those laws and applies them to given cases and controversies. When Congress passed the Securities Act and the Securities Exchange Act in 1933 and 1934, respectively, it created the SEC and gave it broad powers to enforce those laws. However, there are strong arguments that the SEC has gone beyond the power delegated to it by Congress nearly 100 years ago in its rulemaking capacity, stretching its regulatory powers into realms that the passing Congress would not have dreamed of.

What Does it Mean to Be a “National” Law Firm?

 

Oberheiden P.C. calls itself a “national” law firm because we have attorneys across the country in law offices located in nearly every major American city. Our senior lawyers all have extensive experience handling securities issues, from defending criminal allegations of securities fraud to facing securities litigation or coming into compliance with SEC regulations. Regardless of where you are, there is a satellite Oberheiden P.C. office nearby with the ability to help you through your legal situation.

Why Should I Hire Oberheiden P.C.?

 

The main reason to hire Oberheiden P.C. for your securities law needs is our copious amounts of experience in the field. All of our lawyers are senior-level attorneys, with a high level of experience in securities litigation, compliance, and defense. Many of our attorneys and investigators came to our firm after spending many more years within the SEC, itself. This has given them a nuanced and intimate understanding of what is likely going on behind the scenes in your case, enhancing the legal advice that they can give you as your case moves forward.

That extensive experience in the securities field has led to a track record of successes both inside the courtroom and outside of it.

Why Doesn’t Oberheiden P.C. Call Itself the Best Securities Defense and Compliance Firm?

 

At Oberheiden P.C., we prefer to let our good work do the talking. However, many of our prior clients have left excellent reviews of our legal services.

SEC Compliance and Securities Litigation Attorneys at Oberheiden P.C.

While the goals of SEC Rule 15c2-11 are admirable and the recent revisions were necessary, given how old the Rule was and how drastically the securities markets had changed, the confusion surrounding its rollout and the potential scope of the new Rule have created lots of uncertainty in the securities industry. Though the SEC had kicked back the deadline for compliance, the extra time has been of little use without additional guidance for regulated professionals and the securities attorneys that represent them.

The SEC compliance and securities litigation lawyers at the national law offices of Oberheiden P.C. continue to monitor the developments surrounding SEC Rule 15c2-11, all while providing ongoing legal advice to their securities clients who need to know how they can continue to do their jobs without running afoul of the law.

Contact us online or call our law firm at (888) 680-1745 if you have questions about this pressing area of securities regulation and need guidance on how to move forward.

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