Document ID: SEC-2023-1246-0001
Agency: sec
Document Type: Notice
Title: Order Granting Broker-Dealers Exemptive Relief
Posted Date: 2023-11-02T04:00Z

[Federal Register Volume 88, Number 211 (Thursday, November 2, 2023)]
[Notices]
[Pages 75343-75344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24245]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98819; File No. 4-795]

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

October 30, 2023.

I. Introduction

    The Securities and Exchange Commission (``Commission'') adopted 17 
CFR 240.15c2-11 (``Rule 15c2-11'') under the Securities Exchange Act of 
1934 (``Exchange Act'') in 1971.\1\ In September 2020, the Commission 
adopted amendments to Rule 15c2-11 to, among other things, provide 
greater transparency to investors and other market participants by 
requiring brokers or dealers to have in their records specified 
information about the issuer and its security that is current and 
publicly available before a broker-dealer can begin quoting that 
security.\2\ Rule 15c2-11 governs the publication of quotations for 
securities \3\ in a quotation medium other than a national securities 
exchange, i.e., over-the-counter (``OTC'') securities, other than 
exempted securities \4\ and municipal securities.\5\ Rule 15c2-11 sets 
forth certain information review and recordkeeping requirements for 
brokers and dealers to initiate or resume quotations for securities in 
the OTC market. Under 17 CFR 240.15c2-11(a)(1)(i), a broker or dealer, 
before it may publish any quotation for a security or, directly or 
indirectly, submit any such quotation for publication, in a quotation 
medium other than a national securities exchange, must obtain, have in 
its records, and review key, basic information regarding the subject 
security and its issuer, as specified in 17 CFR 240.15c2-11(b) 
(``paragraph (b) information''), that is ``current'' and ``publicly 
available.'' \6\ In addition, based upon a review of the applicable 
paragraph (b) information, together with any other supplemental 
documents and information specified in 17 CFR 240.15c2-11(c), the 
broker or dealer must have a reasonable basis under the circumstances 
for believing that the paragraph (b) information is accurate in all 
material respects and is from a reliable source.\7\ Further, the 
reviewing broker or dealer must also preserve documents and information 
that are required to be obtained under the applicable paragraphs (a), 
(b), and (c) of Rule 15c2-11.\8\
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    \1\ Initiation or Resumption of Quotations by a Broker or Dealer 
Who Lacks Certain Information, Release No. 34-9310 (Sept. 13, 1971), 
36 FR 18641 (Sept. 18, 1971).
    \2\ See Publication or Submission of Quotations Without 
Specified Information, Release No. 34-89891 (Sept. 16, 2020), 85 FR 
68124, 68125 (Oct. 27, 2020) (``2020 Rule 15c2-11 Release'').
    \3\ The term ``security'' is defined under section 3(a)(10) of 
the Exchange Act and specifically includes, among others, notes, 
bonds, debentures, and certificates of deposit, which are commonly 
known as fixed-income securities. 15 U.S.C. 78c(a)(10), (79). For 
purposes of this order, the term ``fixed-income security'' shall 
mean any note, bond, debenture, certificate of deposit for a 
security, certificate of deposit, or asset-backed security. See id.
    \4\ See 15 U.S.C. 78o(c)(2)(A). The term ``exempted security'' 
includes, among others, certain government securities, such as 
securities which are direct obligations of, or obligations 
guaranteed as to principal or interest by, the United States. See 15 
U.S.C. 78c(a)(12), (42).
    \5\ 17 CFR 240.15c2-11(f)(4). The term ``municipal security'' 
includes, among others, securities which are direct obligations of, 
or obligations guaranteed as to principal or interest by, a State or 
any political subdivision thereof, or any agency or instrumentality 
of a State or any political subdivision thereof, or any municipal 
corporate instrumentality of one or more States. See 15 U.S.C. 
78c(a)(29).
    \6\ See 17 CFR 240.15c2-11(a)(1)(i)(A), (B). The terms 
``current'' and ``publicly available'' are defined in paragraphs 
(e)(2) and (e)(5) of Rule 15c2-11, respectively, and have the same 
meaning in this order.
    \7\ See 17 CFR 240.15c2-11(a)(1)(i)(C). See also 2020 Rule 15c2-
11 Release, 85 FR at 68125. These rule amendments, among other 
things, expanded the scope of Rule 15c2-11's requirements for 
obtaining and reviewing specified information. Broker-dealers may 
publish initial quotations in reliance on the publicly available 
determination of a ``qualified interdealer quotation system'' that 
it complied with the information review requirement set forth in 
Rule 15c2-11(a)(2)(i) through (iii). See 17 CFR 15c2-11(a)(1)(ii).
    \8\ See 17 CFR 240.15c2-11(d)(1)(i)(A). See also 2020 Rule 15c2-
11 Release, 85 FR at 68131, 68162.
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    Following the Commission's 2020 adoption of amendments to Rule 
15c2-11, certain market participants stated that Rule 15c2-11's 
information review and recordkeeping requirements should not apply with 
regard to quotations for fixed-income securities that are sold in 
compliance with the safe harbor in 17 CFR 230.144A (``Rule 144A'') \9\ 
under the Securities Act of 1933 \10\ (``Rule 144A fixed-income 
securities''). In particular, on November 22, 2022, the National 
Association of Manufacturers and the Kentucky Association of 
Manufacturers submitted a petition to the Commission pursuant to 17 CFR 
201.192(a) of the Commission's Rules of Practice \11\ for a rulemaking 
to amend Rule 15c2-11, to expressly exempt from Rule 15c2-11 Rule 144A 
fixed-income securities (``Petition''). The Petition also requested, in 
the alternative, that the Commission expressly exempt Rule 144A fixed-
income securities from Rule 15c2-11 pursuant to the exemptive authority 
set forth in 17 CFR 240.15c2-11(g).\12\
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    \9\ 17 CFR 230.144A. See also No. 33-6862 (Apr. 23, 1990), 55 FR 
17933, 17939 n.55 (Apr. 30, 1990) (``Rule 144A Adopting Release'') 
(noting the applicability of Rule 15c2-11 to Rule 144A offerings).
    \10\ 15 U.S.C. 77a.
    \11\ 17 CFR 201.192(a).
    \12\ See, e.g., Letter from Andrew Pincus to Vanessa Countryman, 
Petition for Rulewriting and Application for Exemption from Rule 
15c2-11 (Nov. 22, 2022), https://www.sec.gov/files/rules/petitions/2022/petamend-rule-15c211-4795.pdf.
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    For the reasons discussed below, this Order exempts Rule 144A 
fixed-income securities from Rule 15c2-11, thus effectively granting 
the alternative relief sought in the Petition.

II. Discussion of Exemptive Relief

    Section 36 of the Exchange Act authorizes the Commission to, 
conditionally or unconditionally, exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of the Exchange Act, or 
of any rule or regulation thereunder, to the extent that such exemption 
is necessary or appropriate in the public interest, and is consistent 
with the protection of investors.\13\ Paragraph (g) of Rule 15c2-11 
under the Exchange Act similarly provides that the Commission may, 
conditionally or unconditionally, exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of Rule 15c2-11 to the 
extent that such exemption is necessary or appropriate in the public 
interest, and is consistent with the protection of investors.\14\
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    \13\ 15 U.S.C. 78mm.
    \14\ 17 CFR 240.15c2-11(g).
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    This exemptive relief is limited to Rule 144A fixed-income 
securities.\15\

[[Page 75344]]

Because the exemption applies only to fixed-income securities issued in 
accordance with the requirements of Rule 144A, it is limited to resales 
of securities to an investor base that ``can be conclusively assumed to 
be sophisticated,'' \16\ is able to obtain certain basic financial 
information concerning the issuers' business, and has extensive 
experience in the private resale market for restricted securities.\17\ 
Under the requirements of Rule 144A, securities can be sold only to 
``qualified institutional investors'' (or purchasers that the seller or 
a person acting on its behalf reasonably believes are qualified 
institutional investors), which, with the exception of registered 
dealers, must in the aggregate own and invest on a discretionary basis 
at least $100 million in securities of issuers that are not affiliated 
with such a qualified institutional buyer.\18\ Furthermore, in the case 
of issuers that do not file periodic reports under the Exchange Act or 
furnish home country information to the Commission pursuant to 17 CFR 
240 12g3-2(b), Rule 144A requires that any prospective purchaser of 
Rule 144A fixed-income securities has the right to obtain from the 
issuer reasonably current financial information (``Rule 144A 
information''): \19\
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    \15\ The Petition was limited to Rule 144A fixed-income 
securities and expressly excluded equity securities sold in 
compliance with the safe harbor in Rule 144A. See Petition at n.1. 
Moreover, the amendments to Rule 15c2-11 have applied to Rule 144A 
equity securities since the compliance date of those amendments 
which was September 2021. Accordingly, this exemption does not 
address equity securities sold in compliance with the safe harbor in 
Rule 144A.
    \16\ Accredited Investor Definition, Release No. 33-10824 (Aug. 
26, 2020), 85 FR 64234, 64236 (Oct. 9, 2020) (``Accredited Investor 
Release'') (citing Resale of Restricted Securities; Changes to 
Method of Determining Holding Period of Restricted Securities Under 
Rules 144 and 145, Release No. 33-6806 (Oct. 25, 1988), 53 FR 44016 
(Nov. 1, 1988)) (``1988 Rule 144A Proposing Release'').
    \17\ 1988 Rule 144A Proposing Release, 53 FR at 44028.
    \18\ 17 CFR 230.144A(a)(1) (definition of ``qualified 
institutional buyer'').
    \19\ 17 CFR 230.144A(d)(4).

    [A] very brief statement of the nature of the business of the 
issuer and the products and services it offers; and the issuer's 
most recent balance sheet and profit and loss and retained earnings 
statements, and similar financial statements for such part of the 
two preceding fiscal years as the issuer has been in operation (the 
financial information should be audited to the extent possible).\20\
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    \20\ Id. With respect to asset-backed securities, the Commission 
has interpreted the information requirement to mandate 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.'' See Rule 
144A Adopting Release, 55 FR at 17939.

    The availability of the Rule 144A information can be used by 
prospective qualified institutional buyers to make better informed 
investment decisions and assess potential risks in investing in the 
security. While 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, the Rule 144A information serves the same purpose of investor 
protection.
    The Commission finds it is appropriate in the public interest, and 
consistent with the protection of investors, to exempt brokers and 
dealers from the requirements of Rule 15c2-11, with respect to Rule 
144A fixed-income securities.

III. Conclusion

    Accordingly, it is hereby ordered, pursuant to section 36(a) of the 
Exchange Act \21\ and Rule 15c2-11(g) under the Exchange Act,\22\ that 
a broker or dealer is exempt from the requirements of Rule 15c2-11 with 
respect to a fixed-income security to be sold in compliance with the 
safe harbor in Rule 144A \23\ under the Securities Act of 1933.\24\
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    \21\ 15 U.S.C.78mm(a).
    \22\ 17 CFR 240.15c2-11(g).
    \23\ 17 CFR 230.144A.
    \24\ 15 U.S.C. 77a et seq.
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    This exemptive relief is subject to modification or revocation at 
any time by the Commission but will be in effect unless and until the 
Commission determines that modification or revocation is necessary or 
appropriate in furtherance of the purposes of the Exchange Act, or the 
relief is otherwise superseded by future Commission action such as a 
rulemaking addressing the Rule 144A safe harbor or issues pertaining to 
the fixed income markets more generally.
    Persons relying on this exemption are directed to the anti-fraud 
and anti-manipulation provisions of the Exchange Act, particularly 
sections 9(a) and 10(b), and 17 CFR 240.10b-5 thereunder.\25\ 
Responsibility for compliance with these and any other applicable 
provisions of the Federal securities laws must rest with the persons 
relying on this exemption. This order should not be considered a view 
with respect to any other question that the proposed transactions or 
quotations may raise, including, but not limited to the adequacy of the 
disclosure concerning, and the applicability of other Federal or State 
laws to, the proposed transactions or quotations.
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    \25\ 15 U.S.C. 78i(a), 78j(b); 17 CFR 240.10b-5.

    By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-24245 Filed 11-1-23; 8:45 am]
BILLING CODE 8011-01-P