Rule 15c2-11 under the Securities Exchange Act of 1934 (Exchange Act) governs when dealers can publish quotations for securities. In September 2020, the U.S. Securities and Exchange Commission (SEC) amended the rule prohibiting them from publishing quotes when current information about the issuer isn’t publicly available. In 2021, the Staff in the Division of Trading and Markets issued a no-action letter (the No-Action Letter) that clarified its position that Rule 15c2-11 applies to all securities, including fixed-income securities as well as equity securities, but provided limited-time relief for fixed income securities that were offered under Rule 144A. This limited relief will expire on January 3, 2023, which means market practice for private Rule 144A issuers will be significantly impacted.

In response to these developments, on November 28, 2022, the Federal Regulation of Securities Committee (the Committee) of the Business Law Section of the American Bar Association (the ABA) submitted a letter to the SEC relating to the application of Rule 15c2-11 to fixed income securities.  The Committee includes a wide range of practitioners whose areas of interest and expertise include securities laws and the regulation of the U.S. capital markets.  The Committee states that the purpose of the letter is to request that the SEC extend the no-action relief until the SEC has had sufficient time to evaluate an economic analysis by the Division of Economic and Risk Analysis and the costs and benefits of applying Rule 15c2-11 to fixed income securities to determine the appropriate exemptive relief, if any, for fixed income securities, or whether additional rule-making is advisable.  In particular, the Committee notes the following:

1. The potential harm to capital-raising and liquidity for investors.
2. Applying the rule to fixed-income securities (e.g., Rule 144A securities) that retail investors cannot purchase will not provide any additional protection to investors that would justify the significant adverse consequences.
3. Private and Rule 144A markets already operate fairly and efficiently.

The Committee’s letter observes other commentators asking for similar relief, include the Asset Management Group of the Securities Industry and Financial Markets Association (SIFMA), the Structured Finance Association (SFA), the Investment Company Institute (ICI), the Loan Syndications and Trading Association (LSTA), the Bond Dealers’ Association (BDA), the Managed Funds Association (MFA), and the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC).

Absent some action being taken by the SEC, the public disclosure requirement for fixed income securities will come into effect on January 4, 2023.  We are hopeful the SEC takes action in December to avoid the potential negative consequences as outlined in the Committee’s letter.