The U.S. Securities and Exchange Commission is moving to resolve long-standing uncertainty surrounding a key broker-dealer reporting rule that has restricted certain assets from being quoted in the over-the-counter (OTC) market.
Originally adopted in 1971 to curb fraud in the penny stock market, Rule 15c2-11 requires broker-dealers to ensure that current public information about an issuer is available before publishing OTC quotes.
In 2021, regulators expanded the interpretation of the rule to include fixed-income securities, such as government and corporate bonds — a move that drew significant criticism from market participants. The change also raised questions about whether the rule could extend to crypto-related securities.
In a statement released Monday, the SEC proposed an amendment to Rule 15c2-11 that would narrow its scope, limiting reporting requirements for OTC broker-dealers to “equity securities” and effectively reversing the broader 2021 interpretation.
Hester Peirce, an SEC commissioner and head of the agency’s crypto task force, also welcomed the proposal, noting that amendments introduced under previous leadership in 2020 — and implemented in 2021 — had created years of uncertainty.
Peirce explained that while the text of Rule 15c2-11 technically applies to quotations of any “security,” many market participants, including herself, had long interpreted it as applying only to over-the-counter (OTC) equity securities.
“By its terms, the text of Rule 15c2-11 always has applied to quotations of a ‘security.’ Market participants and other observers, including me, however, understood the rule to apply only to quotations of over-the-counter (‘OTC’) equity securities,” she said, adding:
“The Commission should have granted long-term no-action relief while we assessed whether the application of the rule to the fixed income market was appropriate and then amended the rule as necessary. Instead, the Commission… granted several rounds of limited relief, sometimes for as short a period as three months… fostering uncertainty in this market.”
SEC seeks input on crypto’s classification
The U.S. Securities and Exchange Commission defines an equity security as any stock, similar instrument, or convertible security representing ownership in a company.
However, despite the recent proposal, the agency has not yet determined whether crypto assets could fall under the definition of “equity securities.” To address this, the SEC has opened a 60-day public comment period.
Hester Peirce said she is particularly interested in feedback on how “equity security” should be defined, how the rule should apply to crypto assets, and what steps should be taken regarding the creation of an “expert market.”
Meanwhile, both the SEC and the Commodity Futures Trading Commission have intensified efforts to bring greater regulatory clarity to the crypto sector under the current administration.
Last week, the two agencies signed a memorandum of understanding to coordinate oversight of financial markets, including crypto. They said the agreement aims to end decades of “regulatory turf wars” between them.
