SEC Proposes Amendment to Broker-Dealer Regulation
The U.S. Securities and Exchange Commission (SEC) has introduced a new proposal that aims to clarify the application of a longstanding broker-dealer regulation. This move, highlighted by Commissioner Hester Peirce, could potentially resolve ongoing uncertainties regarding the rule’s relevance to various market assets.
Details of the Proposed Amendment
On Monday, the SEC suggested an amendment to Rule 15c2-11, which historically enforced reporting obligations for broker-dealers. This amendment seeks to confine these requirements to equity securities traded in the over-the-counter (OTC) market, reversing an expansion that occurred in 2021 which cast a wider net over multiple asset types, including possible implications for cryptocurrencies.
Background of Rule 15c2-11
Originally established in 1971, Rule 15c2-11 was designed to ensure that broker-dealers provide accurate and current information about issuers before they can make quotations in the OTC market. This rule was particularly crucial for reducing risks in less liquid markets, like penny stocks, by mandating that broker-dealers verify information about the securities they trade. Failure to comply with these verification processes bars broker-dealers from starting or resuming the quoting of a security.
Impact on Cryptocurrencies
However, in 2021, the rule’s interpretation was broadened to include different assets, sparking questions about the application of the rule to cryptocurrencies perceived as securities. Under the newly proposed amendment, broker-dealers would be exempt from these reporting duties regarding cryptocurrencies, alleviating some regulatory burdens and enabling them to operate in the crypto space without adhering to standards that might not suit the nature of digital assets.
Public Comment Period and Future Considerations
The SEC has initiated a public comment period to gather insights on whether the category of equity securities should be extended to encompass crypto assets and to discuss the future application of the rule. Commissioner Peirce noted that the proposal aims to clarify previous misunderstandings regarding the original intent of Rule 15c2-11, which she believes has chiefly pertained to equities, rather than an array of securities including cryptocurrencies.
Peirce emphasized her commitment to monitoring the ongoing discussions surrounding the definition of “equity security,” the potential implications for crypto assets, and the necessary subsequent steps towards establishing an informed market for these digital entities.
