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SEC Updates
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The U.S. Securities and Exchange Commission has given bond brokers a three-month reprieve from complying with amendments to a 50-year-old rule that are expected to take effect next week, after banks, managers of activists and business lobbies were concerned about the changes. could put an end to trading on large parts of the market.
In recent weeks, bond bankers and trading platforms have struggled to familiarize themselves with the SEC’s 15c2-11 rule, which was first introduced in 1971. The rule was put in place to protect investors. retailing against predatory schemes in penny stocks by requiring dealers to verify that a set of financial information was up to date on each company for which they were quoting stock prices.
The rule has never explicitly exempted bond trading, but in practice has never been applied to the fixed income market. Many traders – and even some SEC commissioners – believed this was only about the stock market.
Last year, the SEC changed the rule to require brokers to make sure the information they verified was also publicly available to investors.
The change under SEC Chairman Jay Clayton prompted questions from lawyers and banking compliance departments about whether the rule applied to fixed income securities like corporate bonds, given the lack of explicit exemption for everything except municipal bonds.
Trade associations said that earlier this year the SEC, under new leadership from Gary Gensler, confirmed the rule would apply to the bond market, setting off a mad race to seek an exemption or, at all. less, more time to comply.
The SEC said Friday night it would begin applying the rule to fixed income markets on January 3, rather than September 28 as originally planned.
Bond traders fear that much of the information that must be disclosed by publicly traded companies may not be available to private companies that only issue bonds.
Fears have grown in recent weeks that, without an exemption or extension, trading in large parts of the bond market – especially lower quality private corporate bonds – could be significantly reduced. Some brokers have questioned whether they should stop posting large-scale quotes on securities trading platforms and instead revert to methods such as telephone brokerage to avoid breaking the rule.
Commissioner Hester Peirce, who joined the SEC in 2018 and was involved in passing the amendment, said the extension of the deadline was “wholly inadequate”, adding that she believed the rule, when it was written, applied only to actions.
“I should have solicited comments on the wider application of the rule,” Peirce said in a statement Friday. “However, my failure to do so, the failure of the commission to highlight this issue for active public scrutiny, and the failure of relevant market players to identify the issue during the process of developing guidelines. rules, are not a reason for us now to robotically move forward and apply the rule to fixed income markets without proper deliberation. ”
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