SEC No-Action Letter on 15C2-11 Is a Welcome Relief for CREFC Members
November 27, 2024
On November 22, the Securities and Exchange Commission (SEC) issued a new No Action Letter (NAL) that indefinitely extends existing 15c2-11 relief for fixed-income securities.
- CREFC and its members have urged the SEC and Congress to take action to prevent the application of 15c2-11 to fixed-income securities, and this no-action letter is a major win for the industry. Click here for our previous letter to the SEC.
Background: The 15c2-11 rule requires broker dealers to verify that certain issuer information is publicly available prior to quoting a price on over-the-counter (OTC) securities. The 1970s-era rule always had been interpreted to apply only to equities until a 2021 staff NAL stated the rule also included fixed-income securities.
- 144A Exempted: The SEC staff previously tried to apply 15c2-11 to 144A bonds, which do not have public reporting requirements. The SEC issued an exemptive order in October 2023 that clarified broker-dealers did not have to verify public information for 144A bonds. The exempted fixed-income securities include SASB CMBS and CRE CLOs.
- January Deadline: But the exemptive order purposefully did not include public fixed-income bonds, such as CMBS, and a 2022 NAL was set to expire on Jan. 4, 2025. Broker-dealers, therefore, would have to verify certain public issuer information in order to quote bonds.
- Industry groups have sought relief on the 15c2-11 requirements for fixed-income securities, as the SEC has never addressed how key components of the rule applied to the sector. Furthermore, the application of 15c2-11 to fixed-income securities did not go through an official rulemaking process and did not benefit from industry feedback.
What they're saying: Earlier this month, SEC Commissioner Hester Peirce was asked about 15c2-11 at CREFC’s D.C. Symposium. In her response, which she prefaced by saying she was speaking for herself and not the SEC, she “was hopeful we can extend [the no-action relief]” and that in the future an appropriate rulemaking process would be undertaken.
Why it matters: The application of 15c2-11 to public fixed-income securities could have impacted liquidity in the CRE finance market.
Please contact David McCarthy (Dmccarthy@crefc.org) with questions.