Notice2023-24245
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
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 2, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 211 (Thursday, November 2, 2023)</title>
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[Federal Register Volume 88, Number 211 (Thursday, November 2, 2023)]
[Notices]
[Pages 75343-75344]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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), <a href="https://www.sec.gov/files/rules/petitions/2022/petamend-rule-15c211-4795.pdf">https://www.sec.gov/files/rules/petitions/2022/petamend-rule-15c211-4795.pdf</a>.
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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\
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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
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