On October 30, 2023, after continued pressure from legislators and industry participants—and a recent lawsuit—the SEC issued an order providing relief for fixed-income securities sold pursuant to Rule 144A from the public disclosure requirements of Rule 15c2-11.

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In 2021, the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) took the position that fixed income securities (including asset-backed securities) fall within the scope of Rule 15c2-11 under the Exchange Act¹ (the “Rule”), which was previously thought to be applicable only to equity securities.² The effect of that interpretation would have been to prohibit broker-dealers from quoting fixed-income securities in any quotation medium without determining that the issuer has made certain information about those securities publicly available. The Staff extended the compliance deadline several times in response to concerns raised by trade groups, law firms and other industry participants, but was silent on whether any permanent relief would be forthcoming. Then, on October 30, 2023, after continued pressure from legislators and industry participants—and a recent lawsuit³—the SEC issued an order⁴ (the “Exemptive Order”) providing relief for fixed-income securities sold pursuant to Rule 144A of the Securities Act.⁵ In this OnPoint, we provide some information regarding the publication of the Exemptive Order, and note some areas where further relief from the SEC may be appropriate.

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In 2022, the National Association of Manufacturers and the Kentucky Association of Manufacturers (collectively, “Manufacturers”) submitted a petition (the “Manufacturers’ Petition”) to the SEC, requesting that the SEC institute a rulemaking process to amend the Rule to expressly exempt fixed-income securities sold pursuant to Rule 144A.⁶ In September 2023, Manufacturers filed a federal lawsuit against the SEC in the Eastern District of Kentucky seeking various forms of relief, including a declaratory judgment that the Rule does not apply to Rule 144A fixed-income securities, an order enjoining the SEC from enforcing the amendments to the Rule with respect to Rule 144A fixed-income securities, and an order compelling the SEC to respond to the Manufacturers’ Petition.

The SEC did not initiate a rulemaking process, but instead exercised its exemptive authority to provide relief. The SEC has authority pursuant to both the Exchange Act⁷ and the Rule itself⁸ to exempt persons, securities or transactions, or any class or classes of persons, securities or transactions, from certain securities laws to the extent that such exemption would be necessary or appropriate in the public interest, and is consistent with the SEC’s investor-protective mission. On that basis, the SEC issued the Exemptive Order to the effect that “a broker or dealer is exempt from the requirements of [the Rule] with respect to a fixed-income security to be sold in compliance with the safe harbor in Rule 144A . . . .”⁹

The Exemptive Order will provide welcome relief to market participants. But it is important to note that there are a few things the Exemptive Order does not do.

First, the Exemptive Order does not apply to fixed-income securities sold pursuant to an exemption from registration other than Rule 144A—such as Regulation S, Section 4(a)(2), Section 4(a)(1½) or Regulation D. The Exemptive Order noted that Rule 144A includes unique informational requirements¹⁰ which the SEC found “serve[] the same purpose of investor protection” as the informational provision requirements contained in the Rule.¹¹ Regulation S, Section 4(a)(2), Section 4(a)(1½), Regulation D and numerous other registration exemptions do not contain similar informational requirements. Presumably, fixed-income securities sold pursuant to an exemption from registration other than Rule 144A will remain subject to the Rule and the related no-action guidance currently in effect, and separate relief would be required for any such securities.

Second, the Exemptive Order provides relief only for “fixed-income securit[ies],” which the Exemptive Order defines as “any note, bond, debenture, certificate of deposit for a security, certificate of deposit, or asset-backed security.”¹² In a separate footnote, the SEC indicates that the Exemptive Order “does not address equity securities sold in compliance with the safe harbor in Rule 144A,” as the Manufacturers’ Petition “was limited to Rule 144A fixed-income securities and expressly excluded equity securities sold in compliance with the safe harbor in Rule 144A.”¹³

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The Exemptive Order provides some relief for the industry, but questions remain.

1. Securities Exchange Act of 1934, as amended.
2. Letter from Josephine Tao, Assistant Director, Office of Trading Practices, Division of Trading and Markets to Racquel Russell, Senior Vice President and Director of Capital Markets Policy, Office of the General Counsel, FINRA, Amended Rule 15c2-11 in relation to Fixed Income Securities (Sept. 24, 2021). For additional information regarding the 2021 Staff interpretation, we refer you to Happy Holidays: SEC Provides Temporary Rule 15c2-11 Reprieve, the Dechert OnPoint published on the subject in December 2022.
3. See Complaint, National Association of Manufacturers and Kentucky Association of Manufacturers v. U.S. Securities and Exchange Commission and Gary Gensler, No. 3:23-cv-00058-GFVT (E.D. Ky. Sept. 12, 2023).
4. Order Granting Broker-Dealers Exemptive Relief, Pursuant to Section 36(a) and Rule 15c2-11(g) under the Securities Exchange Act of 1934, from Rule 15c2-11 for Fixed-Income Securities Sold in Compliance with the Safe Harbor of Rule 144A under the Securities Act of 1933, SEC Release No. 34-98819 (Oct. 30, 2023).
5. Securities Act of 1933, as amended.
6. Letter from Mayer Brown LLP to SEC, Petition for Rulemaking and Application for Exemption With Respect to Rule 15c2-11 (Nov. 22, 2022).
7. 15 U.S.C. § 78mm(a).
8. 17 C.F.R. § 240.15c2-11(g).
9. Exemptive Order at 3.
10. One of the conditions to satisfy the Rule 144A exemption from registration is that investors and prospective investors have the right to obtain certain reasonably current information upon request. For most Rule 144A securities, this information consists of “a very brief statement of the nature of the business of the issuer and the products and services it offers,” together with the issuer’s most recent balance sheet, profit and loss and retained earnings statements, and similar financial statements. 17 C.F.R. § 230.144A(d)(4)(i). For issuers of mortgage-backed securities and other asset-backed securities, the SEC advised that it would interpret this information requirement to require the provision of “basic, material information concerning the structure of the securities and distributions thereon, the nature, performance and servicing of the assets supporting the securities, and any credit enhancement mechanism associated with the securities.” Resale of Restricted Securities; Changes to Method of Determining Holding Period of Restricted Securities Under Rules 144 and 145, SEC Release Nos. 33-6862, 34-27928, 55 Fed. Reg. 17933, 17939 (Apr. 30, 1990) (adopting Rule 144A); see also Exemptive Order at 5, n.20.
11. Exemptive Order at 5. In no-action letters issued by the Staff in 2021 and 2022, the Staff indicated that, for purposes of those no-action letters, the Staff would interpret the information required to be provided pursuant to Rule 144A to be consistent with the information required to be provided by Rule 15c2-11(b). See Letter from Josephine Tao, Assistant Director, Office of Trading Practices, Division of Trading and Markets to Racquel Russell, Senior Vice President and Director of Capital Markets Policy, Office of the General Counsel, FINRA, Amended Rule 15c2-11 in Relation to Fixed Income Securities (Dec. 16, 2021), at 5, n.11 and 6, n.12; Letter from Josephine Tao, Assistant Director, Office of Trading Practices, Division of Trading and Markets to Racquel Russell, Senior Vice President and Director of Capital Markets Policy, Office of the General Counsel, FINRA, Amended Rule 15c2-11 in Relation to Fixed Income Securities (Nov. 30, 2022), at 4, n.11. However, in the Exemptive Order, the SEC noted that “the Rule 144A information that is required to be provided to qualified institutional buyers upon request is not the current publicly available information defined in paragraph (b) of Rule 15c2-11.” Exemptive Order, at 5.
12. Exemptive Order at 1, n.3.
13. Exemptive Order at 4, n.15.