SEC Adopts Amendments to Rule 15c2-11, Most Provisions Effective September 26, 2021

Capital Markets

SEC Rule 15c2-11, which has been in existence for decades, was amended in late 2020, with an effective date of September 26, 2021 for most provisions of the amendment.  Rule 15c2-11 applies primarily to broker-dealers that provide quotations for securities that trade on the over-the-counter (OTC) market.  It also applies, indirectly, to companies with securities listed for quotation on the OTC market. The full text of the amendment is available here.

Per the SEC press release announcing the most recent amendment, “the amendments are designed to modernize the rule, which was last substantively amended nearly thirty years ago, including to recognize advances in communications technologies.  The amended rule enhances disclosure and investor protection in the OTC market by ensuring that broker-dealers, in their role as professional gatekeepers to this market, do not publish quotations for an issuer’s security when current issuer information is not publicly available, subject to certain exceptions.”  Rule 15c2-11 requires that broker-dealers review certain basic information about the issuer of a security before providing price quotations for that security.  It also alters certain other compliance requirements and exceptions that apply to broker-dealer quotations of OTC-traded securities.

The practical takeaway of these amendments for OTC-traded issuers is that, by September of 2021, they will need to ensure that they have publicly posted or otherwise made publicly available (potentially though a qualified interdealer quotation system):

• The name of the issuer and any predecessors during the past five years;
• The address(es) of the issuer’s principal executive office and of its principal place of business;
• The state of incorporation or registration of the issuer and of each of its predecessors (if any) during the past five years;
• The title, class, and ticker symbol (if assigned) of the OTC-traded security;
• The par value or stated value of the OTC-traded security;
• The number of shares or total amount of the securities outstanding as of the end of the issuer’s most recent fiscal year;
• The name and address of the transfer agent for the OTC-traded security;
• A description of the issuer’s business;
• A description of products or services offered by the issuer;
• A description and extent of the issuer’s facilities;
• The name and title of all company insiders (defined as any officer, director, or person performing similar functions of the company, or any person/entity who is, directly or indirectly, the beneficial owner of more than 10% of the outstanding shares of any class of the company’s equity securities);
• The issuer’s most recent balance sheet (as of a date less than 16 months before the publication or submission of the quotation) and profit and loss and retained earnings statements (for the 12 months preceding the date of the most recent balance sheet);
• Similar financial information for such part of the two preceding fiscal years during which the issuer or any predecessor has been in existence;
• Whether the broker or dealer or any associated person of the broker or dealer is affiliated, directly or indirectly, with the issuer;
• Whether the quotation is being published or submitted on behalf of any other broker or dealer and, if so, the name of such broker or dealer;
• Whether the quotation is being submitted or published, directly or indirectly, by or on behalf of the issuer or a company insider and, if so, the name of such person and the basis for any exemption under the federal securities laws for any sales of such securities on behalf of such person; and
• Depending on circumstances, potentially a recent prospectus or offering circular.

Much of this information may already be publicly posted by OTC-traded issuers as part of a compliance strategy for SEC Rule 144, but a review of the company’s compliance strategy prior to September 2021 may be warranted.

Todd Eveson and Jonathan Greene are members of the Capital Markets practice group of Wyrick Robbins, which represents clients across a broad range of industries in connection with their significant financing transactions and ongoing SEC reporting requirements.  The Capital Markets group publishes Client Alerts periodically as a service to clients and friends.  The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.