In an effort to assuage industry concerns about expanding regulatory obligations, the U.S. Securities and Exchange Commission (SEC) is proposing a rule change to clarify that certain requirements for broker-dealers in the over-the-counter (OTC) market only apply to equities.
The SEC published a proposed amendment to clarify that rules that aim to guard against manipulative and fraudulent trading schemes in the OTC markets — by setting requirements for brokers that provide quotes in OTC markets to review certain information about the securities they quote, and the issuers behind those securities — only applies to equities.
The proposed rule change aims to address industry concerns that arose following a 2020 update to the rules, which left firms worried that their requirements would be expanded to include fixed-income securities.
Given these concerns, before the 2020 revisions took effect, the SEC had provided exemptions for most fixed-income securities. Now, it’s seeking to formally restrict the rule’s application to equity securities.
Industry trade group the U.S. Securities Industry and Financial Markets Association (SIFMA) welcomed the SEC’s effort.
“SIFMA believes the proposal … is the right and final step in the years-long process of seeking clarity on the rule’s application,” said Kenneth Bentsen, Jr., president and CEO of SIFMA, in a release.
“As we have long noted, the rule was designed for and has been solely applied to equity markets for over 50 years,” he added. “SIFMA will review the proposal with our members and looks forward to commenting.”
In a statement, SEC commissioner Hester Peirce said that she supported the proposed change, but regretted the “protracted and unnecessarily burdensome process” that “fostered uncertainty in this market and wasted the resources of the industry, and our staff, for multiple years and for no good reason.”
She called for market participants to weigh in on the proposals, saying, “I am particularly interested in commenters’ views as to the questions about the definition of ‘equity security’, the rule’s application to crypto assets, and the appropriate next steps with respect to the formation of an ‘expert market’.”
Following publication in the Federal Register, the proposal is open for a 60-day comment period.