SEC Proposes to Narrow Exchange Act Rule 15c2-11 to Equity Securities Only

April 17, 2026

SEC Proposes to Narrow Exchange Act Rule 15c2-11 to Equity Securities Only

Naim Culhaci, Connor Jobes, Stephen Wink Latham & Watkins LLP + Follow Contact LinkedIn Facebook X ;) Embed

[co-author: Haoyu Gu]

The proposed amendments would codify what most market participants always understood, that Rule 15c2-11 applies to equity securities, not fixed-income instruments.

Key Points:

• The Proposal resolves longstanding tension between Rule 15c2-11’s text and its application by formally narrowing the rule’s scope to apply only to equity securities.
• Designed to prevent fraud, Rule 15c2-11 requires brokers and dealers to publish certain information for OTC equity markets, and market participants have historically understood the rule didn’t apply to fixed-income securities.
• The SEC is seeking feedback from market participants on aspects of the Proposal, including the potential re-proposal of an exemption to allow the creation of an “expert market” for grey market securities. On March 16, 2026, the Securities and Exchange Commission (SEC) proposed amendments to 17 CFR 240.15c2-11 (Rule 15c2-11) under the Securities Exchange Act of 1934 (the Exchange Act) that would replace the term “security” with “equity security” (the Proposal). 1

The Proposal follows years of industry concern and uncertainty stemming from the prior SEC administration’s broad interpretation of the rule to encompass fixed-income securities, an interpretation that was at odds with historical understanding and market practice. The proposed amendments would not change the substantive information-gathering and review requirements that apply to equity securities under existing Rule 15c2-11.

The Origins and Purpose of Rule 15c2-11

Rule 15c2-11 is intended to prevent manipulative and fraudulent trading schemes involving securities issued by companies with infrequently traded securities, primarily in what is known as the “penny stock” market. Adopted in 1971, the rule was designed to prevent brokers and dealers from initiating market-making activities critical to such schemes, with a particular focus on the over-the-counter (OTC) equity markets. 2

In practice, Rule 15c2-11 requires that, subject to certain exceptions, a broker or dealer must gather specified information regarding a security and its issuer before initiating or resuming any quotation for that security in a quotation medium other than a national securities exchange. Based upon a review of such information, along with certain supplemental information, the broker or dealer must have a reasonable basis for believing that the information is accurate and from a reliable source. The rule also includes several conditional exceptions and certain record-preservation requirements.

By its terms, the text of Rule 15c2-11 has always applied to quotations of a “security.” However, market participants and other observers “understood the rule to apply only to quotations of [OTC] equity securities.” 3 The Financial Industry Regulatory Authority (FINRA) has always structured its own rule implementing Rule 15c2-11 to apply only to equity securities that are not traded on a national securities exchange. 4

Moreover, the SEC itself explored on multiple prior occasions whether to explicitly exempt non-equity securities from the rule. 5 In 1999, the SEC stated that the type of issuer information required by Rule 15c2-11 was “much less relevant to the pricing and trading of fixed-income securities” and that “fraud and manipulation in microcap securities has not been evident in the fixed-income market.” Many commenters at the time concurred and asked that the rule be crafted to cover only those equity securities most likely to be prone to abusive activities. 6

The SEC’s Prior Broad Interpretation

In 2020, the SEC under the prior Trump administration amended Rule 15c2-11 to require, among other things, that specified information be current and publicly available for brokers and dealers to publish a quotation for, or maintain a continuous quoted market in, a security in a quotation medium (see this Latham blog post). 7 Following the adoption of these amendments, however, the SEC under the Biden administration began signaling that it viewed Rule 15c2-11 to also apply to fixed-income securities. 8

Given market participants’ historical understanding that Rule 15c2-11 is meant to apply to the equity markets, and given that the 2020 amendments relied entirely on OTC equity data and did not mention the terms “fixed income” or “debt” at any point, this development caught market participants by surprise and caused industry organizations to publicly oppose the SEC’s new interpretation. 9

The operational challenges were considerable. Unlike in the equity markets, there is no infrastructure in the fixed-income markets where Rule 15c2-11’s required current information is consolidated and publicly available. 10 Many of the exceptions available to equity securities traded on OTC markets were not typically available to non-equity securities because few fixed-income securities are listed on a national securities exchange, accurate volume data is often not available, and such securities can be infrequently traded or quoted. 11

Attempted, and Insufficient, Relief

The SEC addressed the issue through piecemeal exemptive actions. In 2023, the SEC issued exemptive relief from Rule 15c2-11 for fixed-income securities sold in compliance with the safe harbor in 17 CFR 230.144A (Rule 144A) under the Securities Act of 1933 (Securities Act). 12 The rationale was that issuers of Rule 144A securities must provide information to qualified institutional buyers upon request, enabling better-informed investment decisions. 13

In 2024, the SEC Division of Trading and Markets issued an additional no-action letter addressing numerous other categories of fixed-income securities. 14 Similar to the Rule 144A exemption, investors in these securities were often sophisticated or qualified investors.

Although the exemptive relief and no-action letter addressed the vast majority of fixed-income securities, they did not encompass all non-equity securities. As the Proposal acknowledges, there remained categories of non-equity securities that fell outside the scope of the SEC’s attempted relief, leaving broker-dealers in a state of continued uncertainty regarding their obligations under Rule 15c2-11 when publishing quotations for those instruments. 15

Several structural features of Rule 15c2-11 compounded the problem. First, the information requirements of Rule 15c2-11(b) are keyed to regulatory frameworks that apply to equity securities but generally not to non-equity securities. 16 There is no comparable provision that mandates registration of a class of non-exchange-traded non-equity securities under the Exchange Act. 17 Second, market participants expressed concerns that, with respect to issuers of fixed-income or other non-equity securities that have not incurred a reporting obligation under the Exchange Act and have not filed a registration or offering statement, the “catch-all” information specified in Rule 15c2-11(b)(5) often was not current or publicly available. 18 Third, certain broker-dealers that quoted OTC non-equity securities not covered by the exemptive relief or no-action letter may have had different understandings of the scope of Rule 15c2-11, leading to inconsistent compliance practices across the market.

The New SEC Approach and Policy Rationale

On March 16, 2026, the SEC proposed amendments to Rule 15c2-11 that would resolve the longstanding tension between the rule’s text and its application by formally narrowing the rule’s scope to equity securities only. SEC Chairman Paul S. Atkins stated, “Regulations should be appropriately tailored to fit the asset class to which they apply,” adding that the Proposal “would clarify regulatory obligations when publishing quotations and affirm what was always understood: Rule 15c2-11 applies to equity securities.” 19

According to the Proposal, the amendments are consistent with the SEC’s prior exemptive relief and its historical view that non-equity securities do not require Rule 15c2-11’s protections. The SEC acknowledges that few, if any, industry participants historically understood the rule to apply to non-equity OTC securities.

SEC Commissioner Hester Peirce expressed her support for the Proposal, stating that she was “pleased to support these amendments” but regretted “the protracted and unnecessarily burdensome process that led us here,” characterizing the Proposal as a corrective action to ensure that the scope of Rule 15c2-11’s application is crystal clear. 20

Overview of the Proposal and Request for Comment

The Proposal would replace the terms “security” and “securities” in Rule 15c2-11 with “equity security” and “equity securities,” as defined in 17 CFR 240.3a11-1 (Rule 3a11-1). The proposed amendments would not otherwise change the substantive information-gathering and review requirements under existing Rule 15c2-11(a).

• Defining “equity securities” with Rule 3a11‑1: Rule 3a11-1’s definition of equity security, which would be cross-referenced in the amended Rule 15c2-11, includes a broad range of equity interests and provides more specificity than the statutory definition in Exchange Act Section 3(a)(11). 21 The SEC selected this definition because it asserts that leveraging Rule 3a11-1 should provide more clarity to market participants as to which securities are subject to the rule than referencing the statutory definition. The SEC seeks comment on whether incorporating the Rule 3a11‑1 equity security definition adequately delineates Rule 15c2‑11’s scope, whether an alternative definition would provide greater clarity, and whether certain types of equity securities that are currently listed under Rule 3a11-1 (such as security futures, puts, calls, options, or privileges) should be excluded from such definition.
• Cryptoassets subject to Rule 15c2-11 if equity securities: Notably, the Proposal clarifies that, to the extent a cryptoasset is an equity security as defined in Rule 3a11-1, Rule 15c2-11 would continue to apply. The SEC requests comment on whether an exception for cryptoassets should be included and whether information requirements should be tailored for such assets. 22
• Potential re-proposal of “expert market” exemption: While the proposed amendments do not themselves address this, the SEC is using the Proposal as an opportunity to solicit public input on whether it should re-propose a conditional exemption from Rule 15c2-11 that was initially proposed in 2020 (the 2020 Conditional Exemption Proposal) to facilitate the formation of an “expert market” for sophisticated or professional investors in grey market securities (i.e., securities that trade OTC but for which no quoted prices are published or submitted in a quotation medium for buyers and sellers to access). 23 The SEC is now asking commenters whether it should re-propose the 2020 Conditional Exemption Proposal, what purpose such a market would serve if Rule 15c2-11 is narrowed to cover only equity securities, and whether additional safeguards (such as requirements that all quotations be priced, include both a bid and an offer, or meet minimum size thresholds) should be imposed as conditions, as well as any other conditions that could ensure participation is limited to sophisticated or professional investors. The SEC also seeks comments on whether, rather than re-proposing the 2020 Conditional Exemption Proposal, it should instead add a new exception directly within paragraph (f) of Rule 15c2-11 to facilitate the formation of any expert market and what conditions should be included to promote investor protection, fair and orderly markets, and capital formation. The SEC made clear that, by proposing to revise Rule 15c2-11 to refer to only equity securities, it does not intend to excuse brokers and dealers from their duty to comply with applicable registration and anti-fraud provisions of the federal securities laws, including their duty to make reasonable inquiry with respect to non-equity securities.

The SEC proposed a compliance date that is the same as the effective date, 60 days after publication in the Federal Register.

This effort is a welcome return to the rational application of Rule 15c2-11. By formally limiting the scope of Rule 15c2-11 to equity securities, the SEC is addressing years of regulatory uncertainty and providing an opportunity for market participants to have a greater say in the regulatory process.

1. Publication or Submission of Quotations Without Specified Information, Release No. 34-105004 (Mar. 16, 2026).
2. See Initiation or Resumption of Quotations by a Broker or Dealer Who Lacks Certain Information, Exchange Act Release No. 9310 (Sept. 13, 1971) (“the rule was designed to prevent brokers and dealers from initiating market-making activities that were critical to the success of certain manipulative and fraudulent trading schemes, with a focus on the OTC equity markets”).
3. Commissioner Hester M. Peirce, Traveling Back from the Road Wrongly Taken: Statement on the Proposed Amendments to Exchange Act Rule 15c2-11, Securities and Exchange Commission (Mar. 16, 2026), sec.gov/newsroom/speeches-statements/peirce-statement-exchange-act-rule-15c2-11-031626.
4. FINRA has consistently implemented its Rule 15c2‑11-related rulemaking through FINRA Rule 6432, which is codified within the FINRA Rule 6400 Series governing “Quoting and Trading in OTC Equity Securities.”
5. See, e.g.,Publication or Submission of Quotations Without Specified Information, Exchange Act Release No. 39670 (Feb. 17, 1998); Publication or Submission of Quotations Without Specified Information, Exchange Act Release No. 41110 (Feb. 25, 1999); Publication or Submission of Quotations Without Specified Information, Exchange Act Release No. 87115 (Sept. 25, 2019).
6. See Publication or Submission of Quotations Without Specified Information, Exchange Act Release No. 41110 (Feb. 25, 1999); see, e.g. , Letter from Securities Industry Association (April 28, 1998) (“a balance has to be carefully reached between the need to extend broker-dealer self-policing obligations in corners of the capital markets that have been vulnerable to abuse, and the need not to discourage broker-dealers from making markets”).
7. Exchange Act Release No. 89891 (Sept. 16, 2020).
8. See SEC No-Action Letter, Amended Rule 15c2-11 in relation to Fixed Income Securities (Dec. 16, 2021).
9. See Letter from Asset Management Group of the Securities Industry and Financial Markets Association, the Investment Company Institute, the Investment Adviser Association, the Managed Funds Association, and the U.S. Chamber’s Center for Capital Markets Competitiveness (Sept. 23, 2021); see also Letter from Kristi Leo, President, Structured Finance Assoc. (Dec. 9, 2021); see also Letter from Christopher B. Killian, Managing Director, SIFMA and Michael Decker, Senior Vice President, Bond Dealers of America (Aug. 26, 2021).
10. See Proposal at 12.
11. See Letter from Christopher B. Killian, Managing Director, Securities Industry and Financial Markets Assoc. (“SIFMA”) and Lindsey Weber Keljo, Managing Director, Securities Industry and Financial Markets Assoc. – Asset Management Group (“SIFMA AMG”) (Mar. 2, 2026).
12. 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, Exchange Act Release No. 98819 (Oct. 30, 2023).
13. 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, Exchange Act Release No. 98819 (Oct. 30, 2023).
14. Letter from Josephine J. Tao, Assistant Director, Division of Trading and Markets, SEC, to Racquel Russell, Senior Vice President and Director of Capital Markets Policy, Office of the General Counsel, FINRA (Nov. 22, 2024).
15. See Proposal at 32 (“certain broker-dealers that quote OTC non-equity securities that are not covered by the 144A Exemptive Release and 2024 No-Action Letter may have different understandings of the scope of Rule 15c2-11 and may currently be applying Rule 15c2-11 to non-equity securities”).
16. See Proposal at 15 (“[this] information is more likely to be readily available to brokers and dealers with respect to equity securities than it is for non-equity securities, given the affirmative registration requirements imposed on certain issuers of equity securities, but not non-equity securities, by section 12(g)”).
17. Section 12(g) does not apply to non-equity securities and there is no comparable provision that mandates registration of a class of non-exchange traded non-equity securities under the Exchange Act.
18. See Letter from Paul Cellupica, General Counsel, Investment Company Institute (ICI) and Lindsey Weber Keljo, Managing Director, SIFMA AMG (Nov. 21, 2024).
19. SEC Proposes Amendments to Exchange Act Rule 15c2-11, Press Release, Securities and Exchange Commission (Mar. 16, 2026), sec.gov/newsroom/press-releases/2026-28-sec-proposes-amendments-exchange-act-rule-15c2-11.
20. Commissioner Hester M. Peirce, Traveling Back from the Road Wrongly Taken: Statement on the Proposed Amendments to Exchange Act Rule 15c2-11, Securities and Exchange Commission (Mar. 16, 2026), sec.gov/newsroom/speeches-statements/peirce-statement-exchange-act-rule-15c2-11-031626.
21. Rule 3a11-1 defines “equity security” as “any stock or similar security, certificate of interest or participation in any profit sharing agreement, preorganization certificate or subscription, transferable share, voting trust certificate or certificate of deposit for an equity security, limited partnership interest, interest in a joint venture, or certificate of interest in a business trust; any security future on any such security; or any security convertible, with or without consideration into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right; or any put, call, straddle, or other option or privilege of buying such a security from or selling such a security to another without being bound to do so.”
22. See Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Exchange Act Release Nos. 33-11412; 34-105020 (Mar. 23, 2026) (stating that the interests or participation in a profit-sharing arrangement does not have a meaning broader than that of “investment contract” under Howey. A financial instrument that is not an investment contract cannot be a certificate of interest or participation in any profit-sharing agreement).
23. See Notice of Proposed Conditional Exemptive Order Granting a Conditional Exemption From the Information Review Requirement and the Recordkeeping Requirement Under the Securities Exchange Act of 1934 for Certain Publications or Submissions of Broker-Dealer Quotations on an Expert Market, Exchange Act Release No. 90769 (Dec. 22, 2020). ;) ;) Report ### Latest Posts

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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