SFA Successfully Advocates on SEC Rule 15c2-11
SFA Successfully Advocates on SEC Rule 15c2-11
On October 31, 2023, in line with SFA’s previous advocacy, the Securities and Exchange Commission (SEC) released an order granting exemptive relief from compliance with Rule 15c2-11 for Rule 144A fixed income securities. SFA commends the SEC for its decision to exempt Rule 144A fixed income securities from Rule 15c2-11 disclosure requirements, noting that the application of the Rule to such securities would likely have reduced liquidity in key asset-backed securities (ABS) markets, negatively impacting financial markets and investors.
Background:
On December 9, 2021, SFA submitted a letter to the SEC regarding the potential application of SEC Rule 15c2-11 to ABS. This Rule, initially issued decades ago, regulates the publication of quotations in OTC markets and was amended to require dealers to obtain and review current and publicly available issuer information prior to publishing quotations for their securities. Since its introduction, the SEC has only applied this Rule to equity securities, with no record of application to fixed income or structured products. In its letter, SFA advocated that the information requirements under the Rule are not germane to ABS and called for a carve-out for fixed income securities.
Key Points of SFA’s Advocacy:
- SFA highlighted that the information requirements of Rule 15c2-11 provide no additional material transparency as the limited amount of needed issuer information for an ABS is already available. Further, material collateral information is provided on a frequent basis throughout the life of the securities.
- SFA argued that most ABS would not be able to meet the requirements of the Rule which would result in an effective prohibition of publishing quotations on ABS. SFA explained the knock-on effect of such a limitation, describing the negative implications on ABS market value, reducing investor appetite for the market.
- SFA’s letter outlined the industry’s concern that unintended consequences of SEC Rule 15c2-11 would have a material and likely immediate adverse impact on ABS market liquidity and trading, resulting in direct harm to investors.
- SFA asserted the market impact would extend beyond investors and create negative consequences to everyday consumers whose loans to purchase homes, autos and other credit card goods are financed via the ABS market.