Request for Exemptive Relief for Fixed-Income Securities Pursuant to Rule 15c2-11(g)

Ms. Vanessa Countryman
Secretary
Office of the Secretary
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090

Dear Ms. Countryman:

The ABA Securities Association (ABASA) hereby requests exemptive relief as it applies to fixed-income securities according to the U.S. Securities and Exchange Commission’s (“Commission” or “SEC”) Rule 15c2-11 (“the Rule”), including recent amendments to enhance publicly available information for securities quoted in the over-the-counter (“OTC”) securities markets. The Rule, as currently written, is inclusive of both equity and fixed-income securities, only expressly exempting municipal securities. While the Rule has never been applied to fixed-income securities since its inception in 1971, the Commission’s statements in the amendments to the Rule have made market participants aware that the Rule technically applies to most fixed-income securities and that compliance with the Rule could undermine the dissemination of quotes for bonds. This outcome, which does not appear to have been anticipated when the amendments were written, would have detrimental consequences to the fixed-income markets. As such, we request that the Commission provide express exemptive relief for those fixed-income products or bonds that fall or may fall within the scope of the amended Rule.

Background

Focused primarily OTC equity market fraud, Rule 15c2-11 governs information requirements related to the publication of quotes by broker-dealers, including submission of quotes into qualified interdealer quotation systems. In 2020, the Rule was amended to add publicly available requirements for certain issuer information and modify and reduce reliance upon the “piggyback exception”. The Commission has stated that the amendments are designed to modernize the Rule, promote investor protection, and curb incidents of fraud and manipulation. It is evident that at the time the amendments were adopted, the SEC staff was concentrated on the integrity and availability of OTC equity market quotations:

“These retail investor-focused improvements to Rule 15c2-11 are long overdue. The technological advancements that have taken place since the rule was last amended enable us to require that information in the OTC market be more timely, enabling investors to make better informed investment decisions, and reducing fraud in these markets where retail presence is significant and, unfortunately, pump-and-dump and other frauds are too common.”

Prior to the Commission’s amendments, the Rule required broker-dealers initiating quotations to obtain and review issuer information, with the aim of making the information for issuers available publicly to all market participants. Indeed, over the past several years, fixed-income markets (i.e., Agency Securities, ABS/MBS, Corporate Bonds, and Treasury Bonds) have continued to evolve and become more efficient as electronic trading has provided greater liquidity and transparency. However, it is well established and accepted that, with respect to securities issuance and trading, the fixed-income markets are vastly different and distinct from the equity markets, and to our knowledge never have been, implicated in the concerns expressed by the SEC in promulgating the amendments or the original rule. In particular, there have been no reported instances of fraudulent or deceptive practices involving fixed-income securities in the OTC securities markets. In addition, it is clear from the Commission’s economic analysis of the impact of the Rule, as amended, and the data used by the Commission for that analysis, that the Commission only contemplated the applicability of the Rule to OTC equity securities, not fixed income markets in which the overwhelming majority of securities are not exchanged-listed. Analysis of these markets would have required significantly more (and different) data, notably and deliberately absent from the adopting release for the amendments.

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