SEC Limits OTC Rule to Equities, Raises Crypto Questions

The U.S. Securities and Exchange Commission has proposed changes to a long-standing rule governing over-the-counter (OTC) markets, a move that could reshape how certain financial instruments are regulated and reignite debate over the treatment of digital assets.

On March 16, the SEC introduced amendments to Exchange Act Rule 15c2-11, seeking to clarify that the rule applies specifically to equity securities, rather than a broader range of asset classes.

Clarifying the Scope of a Legacy Rule

Originally adopted in 1971, Rule 15c2-11 establishes requirements for broker-dealers that publish price quotations for securities traded outside national exchanges. Before quoting a security, firms must review issuer information and ensure that key disclosures are publicly available, a framework intended to reduce fraud and manipulation in less liquid markets.

Over time, the rule has primarily governed trading in microcap and unlisted equities. However, updates introduced in 2020 raised questions about whether its requirements could extend to other instruments, including debt securities and potentially digital assets.

The SEC’s latest proposal aims to remove that ambiguity by limiting the rule’s scope to equities. In its statement, the regulator said the amendments would ensure that Rule 15c2-11 “refers only to equity securities.”

SEC Chair Paul Atkins said the proposal reflects the need for regulatory frameworks that are tailored to the characteristics of different asset classes.

Implications for Crypto and Other Markets

The proposed changes have sparked renewed discussion about how existing securities regulations might apply to digital assets, particularly in cases where tokens could be classified as securities under U.S. law.

SEC Commissioner Hester Peirce noted that market participants have historically interpreted the rule as applying only to equities, despite broader language in the regulation. She also highlighted the need for further clarity on how similar disclosure requirements could or should apply to crypto assets.

The proposal invites public comment on several issues, including the definition of “equity security,” the rule’s potential relevance to digital assets, and the future role of specialized trading venues such as the so-called “expert market.”

Industry Concerns Over Broader Application

Previous discussions about expanding the rule beyond equities have raised concerns among market participants. Applying equity-style disclosure requirements to fixed-income markets, for example, could disrupt liquidity, as those markets operate under different structures and information standards.

Similar concerns may arise in the context of digital assets, where disclosure frameworks are still evolving and may not align neatly with traditional securities rules.

Next Steps

The SEC has opened a 60-day public comment period following publication of the proposal in the Federal Register. During this time, industry participants, legal experts, and market stakeholders are expected to weigh in on how the rule should be defined and applied.

The outcome of this process could influence not only OTC equity markets but also broader regulatory approaches to emerging asset classes, including cryptocurrencies, as policymakers continue to refine oversight of the digital asset sector.