[Federal Register Volume 84, Number 210 (Wednesday, October 30, 2019)]
[Proposed Rules]
[Pages 58206-58266]
[FR Doc No: 2019-21260]

Vol. 84

Wednesday,

No. 210

October 30, 2019

Part II

Securities and Exchange Commission

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17 CFR Parts 230 and 240

Publication or Submission of Quotations Without Specified Information;
Proposed Rule

Federal Register / Vol. 84 , No. 210 / Wednesday, October 30, 2019 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release No. 34-87115; File No. S7-14-19]
RIN 3235-AM54

Publication or Submission of Quotations Without Specified
Information

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule and concept release.

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SUMMARY: The Securities and Exchange Commission (the ``SEC'' or the
``Commission'') is proposing amendments to 17 CFR 240.15c2-11 (the
``Rule'') under the Securities Exchange Act of 1934 (the ``Exchange
Act''). The Rule governs the publication of quotations for securities
in a quotation medium other than a national securities exchange, i.e.,
over-the-counter (``OTC'') securities. The Commission is proposing to
provide greater transparency to investors and other market participants
by requiring that information about the issuer and the security be
current and publicly available; limit certain existing exceptions to
the Rule, including the ``piggyback exception,'' to provide greater
protections to retail investors; reduce regulatory burdens on broker-
dealers for the publication of quotations of certain OTC securities
that may be less susceptible to potential fraud and manipulation, such
as securities of certain issuers with higher capitalization and
securities that were issued in underwritten offerings; and streamline
the Rule, remove obsolete provisions without undermining the important
investor protections of the Rule, and make technical, non-substantive
changes. The Commission is also seeking comment about information
repositories.

DATES: Comments should be received by December 30, 2019.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>
Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-14-19. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549, on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change. Persons submitting
comments are cautioned that the Commission does not redact or edit
personal identifying information from comment submissions. Commenters
should submit only information that they wish to make available
publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: John Guidroz, Branch Chief, Laura
Gold, Special Counsel, Theresa Hajost, Special Counsel, Quinn Kane,
Attorney-Advisor, Sam Litz, Attorney-Advisor, Aaron Washington, Special
Counsel, Elizabeth Sandoe, Senior Special Counsel, Timothy M. Riley,
Branch Chief, Josephine Tao, Assistant Director, Office of Trading
Practices, and Mark Wolfe, Associate Director, Office of Derivatives
Policy and Trading Practices, Division of Trading and Markets,
Securities and Exchange Commission, 100 F St. NE, Washington, DC 20549,
at<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The Commission is proposing for comment
amendments to Rule 15c2-11 [17 CFR 240.15c2-11] under the Securities
Exchange Act of 1934 [15 U.S.C. 78a et seq.]; and a conforming
amendment to 17 CFR 230.144(c)(2) under the Securities Act of 1933 [15
U.S.C. 77a et seq.].

Table of Contents

I. Executive Summary
    A. Introduction
    1. Existing Rule
    2. Overview of Proposed Amendments
    3. Intended Objectives
    B. Summary of Proposed Amendments
II. Background
    A. Regulatory Approaches To Combating Retail Investor Fraud
    B. OTC Market Developments
    C. Prior Rule 15c2-11 Proposals
III. Discussion of Proposed Amendments
    A. Proposed Amendments to the Information Review Requirement
    1. Existing Information Review Requirement
    2. Proposed Amendments to the Information Review Requirement
    (a) Revisions to the Review Requirement
    (b) Require Current and Publicly Available Issuer Information
    (c) Reorganize the Reporting Issuer Information
    (d) Current Reports
    (e) Expand Catch-All Issuer Information
    (f) Modify Requirement To Make Catch-All Issuer Information
Available Upon Request
    (g) Clarify the Application of the Catch-All Issuer Provision
    B. Proposed Amendments to Supplemental Information
    1. Existing Supplemental Information Requirement
    2. Proposed Amendments to Supplemental Information
    (a) Supplemental Information for Qualified IDQSs
    (b) Supplemental Information for Company Insiders' Transactions
    C. Proposed Amendments to the Piggyback Exception
    1. Existing Piggyback Exception and Fraudulent Activity
    2. Proposed Amendments to the Piggyback Exception
    (a) Current and Publicly Available Information for Catch-All
Issuers
    (b) Two-Way Priced Quotations
    (c) After a Trading Suspension
    (d) Shell Companies
    (e) Frequency Requirements for the Piggyback Exception
    (f) General Request for Comment Regarding the Piggyback
Exception
    D. Proposed Amendments to the Unsolicited Quotation Exception
    1. Existing Unsolicited Quotation Exception
    2. Proposed Amendments to the Unsolicited Quotation Exception
    (a) Current and Publicly Available Information
    (b) Company Insiders
    E. Proposed New Exceptions To Reduce Burdens
    1. ADTV and Asset Tests
    (a) ADTV Test
    (b) Asset Test
    2. Underwritten Offerings
    3. Qualified IDQS Complies With the Information Review
Requirement
    F. Proposed New Exception for Relying on Determinations by a
Qualified IDQS or a Registered National Securities Association
    G. Proposed Amendments to the Recordkeeping Requirement
    1. Existing Recordkeeping Requirement
    2. Proposed Amendments to the Recordkeeping Requirement
    (a) Recordkeeping Requirement Upon Publication or Submission of
Quotations

    (b) Recordkeeping Requirement for Relying on an Exception
    H. Proposed Amendments to the Rule's Definitions
    1. Current
    2. Shell Company
    3. Publicly Available
    4. Qualified Interdealer Quotation System
    I. Proposed Amendment to the Nasdaq Security Exception
    J. Proposed Amendments to the Furnishing Requirement and Annual,
Quarterly, and Current Reports of Reporting Issuers
    1. Proposed Amendment To Remove Furnishing Requirement for
Catch-All Issuer Information
    2. Proposed Amendments To Obtain Annual, Quarterly, and Current
Reports Directly From the Issuer
    K. Proposed Amendment to Commission Exemptions From Rule 15c2-11
    L. Proposed Amendment To Remove Preliminary Note
    M. Technical Amendments to Rule Text
IV. Conforming Rule Change and General Request for Comment
    A. Proposed Conforming Amendments to Cross-References in Rule
144(c)(2)
    B. General Request for Comment
V. Proposed Guidance
    A. Source Reliability
    B. Information Review Requirement
VI. Concept Release
    A. Information Repositories
VII. Paperwork Reduction Act Analysis
    A. Background
    B. Respondents Subject to the Rule
    C. Summary of Collections of Information
    1. Burden Associated With the Initial Publication or Submission
of a Quotation in a Quotation Medium
    (a) Proposed Amendments to the Piggyback Exception
    (b) Other Proposed Amendments
    2. Other Burden Hours
    3. Collection of Information Is Mandatory
    4. Confidentiality
    5. Retention Period of Recordkeeping Requirement
    D. Request for Comment
VIII. Economic Analysis
    A. Background
    B. Baseline and Affected Parties
    C. Discussion of Economic Effects
    1. Effects of Rule 15c2-11 Amendments
    (a) Making Proposed Paragraph (b) Information Current and
Publicly Available
    (b) Proposed Amendments to Rule 15c2-11 Exceptions
    (c) Proposed New Exceptions to Rule 15c2-11 To Reduce Burdens
    2. Efficiency, Competition, and Capital Formation
    D. Reasonable Alternatives
    1. Eliminating the Piggyback Exception
    2. Eliminating the Piggyback Exception for Shell Companies After
Reverse Mergers
    3. Alternative Thresholds for Exceptions
    4. Quotations With Either Bid or Ask Prices for Piggyback
Exception
    5. Alternative Disclosure Frequency
    E. Request for Comment
IX. Regulatory Flexibility Act Certification
X. Consideration of Impact on the Economy
XI. Statutory Basis and Text of Proposed Rules
XII. List of Subjects

I. Executive Summary

A. Introduction

    Securities that trade on the OTC market are primarily owned by
retail investors. Many issuers of quoted OTC securities publicly
disclose current information about themselves. However, in other cases,
there is no or limited current public information available about
certain issuers of quoted OTC securities to allow investors or other
market participants to make informed decisions regarding company
fundamentals. The absence of current public information about such
issuers can contribute to incidents of fraud and manipulation. The
existing Rule is designed to ensure that a broker-dealer reviews basic
information about a security and issuer prior to publishing a quotation
in the OTC market. In practice, however, the Rule's exceptions permit
broker-dealers to publish quotations in perpetuity even when there is
no or limited current information about the issuer available to the
public or the broker-dealer, and even when the issuer no longer exists
or has ceased operations. The proposed amendments are intended to
modernize the Rule and in so doing better protect retail investors from
incidents of fraud and manipulation in OTC securities, particularly
securities of issuers for which there is no or limited publicly
available information, and facilitate more efficient trading in certain
more widely followed OTC securities.
1. Existing Rule
    Adopted in 1971 \1\ and last substantively amended in 1991,\2\ Rule
15c2-11 governs the publication and submission of quotations by a
broker-dealer in a quotation medium for securities that are not listed
on a national securities exchange.\3\ In general terms, a quotation
medium is an electronic communications network or other device used by
broker-dealers to indicate interest to others in transacting in a
security.\4\
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    \1\ See Initiation or Resumption of Quotations by a Broker or
Dealer Who Lacks Certain Information, Exchange Act Release No. 9310
(Sept. 13, 1971), 36 FR 18641 (Sept. 18, 1971).
    \2\ See Initiation or Resumption of Quotations Without Specified
Information, Exchange Act Release No. 29094 (Apr. 17, 1991), 56 FR
19148 (Apr. 25, 1991) (``1991 Adopting Release'').
    \3\ A ``national securities exchange'' is a securities exchange
that has registered with the SEC under Section 6 of the Exchange
Act.
    \4\ A ``quotation'' is defined as any bid or offer at a
specified price with respect to a security, or any indication of
interest by a broker or dealer in receiving bids or offers from
others for a security, or any indication by a broker or dealer that
advertises its general interest in buying or selling a particular
security. Exchange Act Rule 15c2-11(e)(3). A ``quotation medium'' is
defined as ``any publication or electronic communications network or
other device that is used by broker-dealers to make known to others
their interest in transactions in any security, including offers to
buy or sell at a stated price or otherwise, or invitations of offers
to buy or sell.'' Exchange Act Rule 15c2-11(e)(1). The OTC market
consists of quotation mediums and interdealer quotation systems
(``IDQSs'') where broker-dealers actively publish quotations. An
IDQS is a type of quotation medium and is defined as ``any system of
general circulation to brokers or dealers which regularly
disseminates quotations of identified brokers or dealers.'' Exchange
Act Rule 15c2-11(e)(2). A quotation medium is an IDQS only if
quotations in its system are attributed to a broker-dealer that is
fully identified in such system.
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    Issuers of quoted OTC securities may range from large foreign
issuers to small domestic companies, and some quoted OTC securities are
thinly traded.\5\ Information about these types of issuers is often
limited, particularly when they are not subject to the Commission's
periodic disclosure requirements.\6\ A lack of current and publicly
available information about an issuer can hinder an investor's ability
to evaluate an issuer's security, thereby potentially preventing the
investor from making an informed investment decision. In addition, an
increased potential for fraud and manipulation exists when securities
trade in the absence of information about the issuer.
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    \5\ See generally Stock Screener, OTC Mkts. Grp. Inc., https://www.otcmarkets.com/research/stock-screener (last visited Aug. 5,
2019) (``OTC Markets Stock Screener'') (providing market activity
data for securities that are quoted on OTC Link ATS).
    \6\ An analysis of quoted OTC securities using Bloomberg's
equity screening tool identified 2,007 securities for which
quotations are published in an IDQS that have a three-month daily
average dollar trading volume of less than $1,000. According to the
OTC Markets Stock Screener, and based on the tier on which they are
quoted in OTC Markets Group's system, such issuers do not provide
current and publicly available information. See id. OTC Markets
Group's ``Pink: No Information'' category contains ``companies that
are not able or willing to provide current disclosure to the public
markets--either to a regulator, an exchange or OTC Markets Group.
This category includes defunct companies that have ceased operations
as well as `dark' companies with questionable management and market
disclosure practices.'' See generally Information for Pink
Companies, OTC Mkts. Grp. Inc., https://www.otcmarkets.com/corporate-services/information-for-pink-companies (last visited July
12, 2019) (describing characteristics and requirements of each
category of Pink companies).
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    Because broker-dealers play an integral role in facilitating
investor access to OTC securities and serve an important gatekeeper
function under Rule 15c2-11, it is important that a broker-dealer
reviews key, basic information about an issuer before initiating a
quoted market to solicit retail investors to purchase and sell a
security in the OTC market. The existing Rule prohibits a broker-dealer
from publishing any quotation for a security in a quotation medium
without first

reviewing certain information about the relevant issuer.\7\ Under the
existing Rule, a broker-dealer must have a reasonable basis for
believing that the information about the issuer that it reviewed is
accurate in all material respects and from a reliable source. The
information review requirement is designed to help ensure that a quoted
market for a security is less susceptible to fraudulent or manipulative
schemes.\8\
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    \7\ Information about the issuer may include a prospectus; an
offering circular; periodic reports; and various financial
information regarding the issuer, such as the issuer's balance
sheet, profit and loss statement, and retained earnings statement.
    \8\ See 1991 Adopting Release at 19152 n.43 (``Rule 15c2-11 was
adopted under Section 15(c)(2) of the Exchange Act, 15 U.S.C.
78o(c)(2), among other sections. Section 15(c)(2) provides the
Commission with broad authority to promulgate rules that prescribe
means reasonably designed to prevent fraudulent, deceptive, or
manipulative acts or practices in the over-the-counter securities
markets.''). For purposes of this release the term ``information
review requirement'' shall refer to the requirement for broker-
dealers and other entities subject to the existing and proposed Rule
to review certain issuer information, as described in the Rule,
before publishing a quotation for a security, when no exception is
available on which a broker-dealer may rely.
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    While existing Rule 15c2-11 contains a requirement to review
certain information, the Rule also provides exceptions from that
requirement. Once a broker-dealer has published a quotation pursuant to
the Rule, under specified exceptions to the Rule, other broker-dealers
may publish quotations for that security (without being subject to the
Rule's information review requirement). The Commission is concerned
that market participants can take advantage of such exceptions from the
information review requirement to the detriment of retail investors.
For example, an active trading market, built upon broker-dealers'
quotations, can give the market for the securities an appearance of
credibility. Such a situation can facilitate the purchase or sale of
securities even when there is no or limited current issuer information
publicly available to investors. Without current public information
about an issuer, it is difficult for an investor or other market
participant to evaluate the issuer and the risks involved in purchasing
or selling its securities.
    When there is little or no current information about an issuer
available to investors, they can fall victim to fraudsters that make
false and misleading statements about an issuer to promote sales of a
security. Without current public information about an issuer, investors
may not have the ability to assess the validity of the claims in a
promotion campaign due to the lack of information against which to
compare the claims. A fraudster's promotional campaign with false
claims and published quotations may generate trading volume for a
thinly-traded security and the security's market price may rise to an
artificially high level (``pumping'' the security). However, when the
fraudster ceases its promotional campaign, the market price of the
security may drop due to the fraudster selling its shares into the
market it created by ``pumping'' the share prices up with false claims
(``dumping'' the security). The remaining investors may be left owning
an essentially worthless security or one for which the price is
artificially inflated.
2. Overview of Proposed Amendments
    The proposed amendments to Rule 15c2-11 are a part of the
Commission's ongoing effort to better address risks to retail investors
and promote market efficiency. The proposed amendments seek to better
protect retail investors from incidents of fraud and manipulation in
OTC securities, by requiring that certain issuer information the
broker-dealer is required to review be current and publicly available,
while modernizing the Rule to be more efficient and effective.
    First, the proposed amendments would provide greater transparency
to the investing public regarding issuers of OTC securities by
requiring that certain information about the issuer and the security be
current and publicly available before a broker-dealer can publish a
quote for the security. This proposed amendment would allow retail
investors to more easily access basic information about an issuer.
Additionally, the proposed amendments would require that information be
current and publicly available before a broker-dealer may rely on
certain exceptions from the review requirement. In the absence of
current and publicly available information, such exceptions would
either be unavailable or more limited.
    Second, the Commission is proposing to modify existing exceptions
and, taking into consideration the evolution of the OTC market over the
past 30 years, add several new exceptions. The Commission is proposing
to limit eligibility for an existing exception, commonly known as the
``piggyback exception,'' which allows broker-dealers to publish
quotations for a security in reliance on the quotations of another
broker-dealer that initially performed the review of the issuer's
information. Under its existing formulation, this exception has been
used by broker-dealers to continuously quote a security over many
years, even when the issuer of the security no longer exists. The
proposed amendments would limit the use of the exception in
circumstances where issuer information is not current and publicly
available.
    The proposal would also limit the use of the existing unsolicited
order exception for quotations on behalf of company insiders if
information about the issuer is not current and publicly available.\9\
This proposed revision is designed to help prevent the use of
unsolicited orders by company insiders to facilitate a scheme that can
harm retail investors, such as a ``pump-and-dump'' scheme.
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    \9\ For purposes of this release, ``company insider'' refers to
any officer or director of the issuer, or persons that perform a
similar function, as well as any person who is, directly or
indirectly, the beneficial owner of more than 10 percent of the
outstanding units or shares of any class of any equity security of
the issuer.
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    The proposal would add an exception to allow broker-dealers to
publish quotations of securities, without being required to conduct the
information review required by the existing Rule, of certain issuers
with significant assets and trading volume. The Commission believes
that these types of issuers tend to be less susceptible to the type of
fraud that the Rule is designed to prevent. The proposal would also add
a new exception to reduce the burdens on broker-dealers that are
quoting securities that were issued in an underwritten offering where
the broker-dealer served as the underwriter. When a broker-dealer
underwrites an offering of securities, it generally conducts a review
of the same information that it must examine under the Rule. Thus, the
Commission believes that continuing to require the broker-dealer to
conduct a review under the Rule in this circumstance is redundant and
unnecessary.
    The Commission is also proposing new exceptions that would provide
relief from the review requirement of the Rule, to permit a regulated
entity, namely a qualified IDQS that meets the definition of an ATS, to
conduct the information review that is currently only permitted to be
conducted by broker-dealers that publish or submit quotations. A
qualified IDQS or a national securities association also would be able
to determine whether certain exceptions for broker-dealers are
available. Finally, the proposed amendments would require that a
broker-dealer, qualified IDQS, or registered national securities
association keep records regarding the basis of its reliance on, or
determination of availability of, any exception to the Rule

to aid in Commission oversight of compliance with the Rule.
    Finally, the Commission is proposing amendments to streamline the
existing Rule, remove obsolete provisions without undermining the
important investor protections of the Rule, and make technical, non-
substantive changes. With respect to streamlining, the proposal would
permit a broker-dealer to provide to an investor that requests issuer
information appropriate instructions regarding how to obtain such
information electronically. Finally, the Commission is proposing to
remove paragraphs that have become obsolete. The proposal would remove
an exception for quotations of Nasdaq securities because Nasdaq is now
registered with the Commission as a national securities exchange. The
Commission also proposes to remove a requirement that a broker-dealer
send information to certain systems that disseminate quotation
information because the Commission understands that such entities no
longer rely on the broker-dealer sending such information. Further, the
proposal would remove a requirement that a broker-dealer make an
arrangement to receive certain issuer information that is now available
on the Commission's Electronic Data Gathering, Analysis and Retrieval
System (``EDGAR'').
3. Intended Objectives
    The proposed amendments are intended to promote investor
protection, preserve the integrity of the OTC market, and promote
capital formation for issuers that provide current and publicly
available information to their investors. First, the proposed
amendments are designed to provide the following benefits to investors,
particularly retail investors. The proposed amendments would promote
the public availability of current information about issuers with
securities that are quoted in the OTC market. This should facilitate an
investor's access to information about an issuer so that an investor is
better able to understand and evaluate the issuer and the issuer's
security prior to making an investment decision. The proposed
amendments should also help promote a more level playing field so that
all investors, not just company insiders and investors with a
relationship with the issuer, have access to current issuer
information. Further, the proposed amendments are intended to reduce
the occurrence of investors making investment decisions based on false
or misleading statements spread by fraudsters.
    Second, the proposed amendments are intended to preserve the
integrity of the OTC market. The proposed amendments would prohibit
broker-dealers from continuing to quote a security in the absence of
current and publicly available information about the issuer, which
could reduce the risk of fraud and manipulation in this market. In
addition, current and publicly available information about issuers
would help to improve pricing efficiency in the OTC market.
    Third, the proposed amendments are designed to promote capital
formation for issuers that provide current and publicly available
information to their investors. A hallmark of public markets in the
United States is disclosure provided by issuers to investors. Investors
that have access to current and publicly available issuer information
are better equipped to make informed decisions about how to allocate
their capital. Additionally, the proposed amendments broaden the type
of entities that are permitted to conduct the information review
required by the Rule while imposing requirements on those entities to
help promote the accuracy of such information as well as help ensure
that it is current. This may make it easier for issuers to identify a
market participant that is willing and able to conduct the review in
order to establish a quoted market for the issuer's securities.
Further, as discussed above, the proposal would add certain specified
exceptions from the requirement to conduct the information review under
the proposed Rule and allow broker-dealers to start a quoted market for
the securities of certain issuers where there is less concern regarding
fraud or manipulation, which could reduce costs for broker-dealers
seeking to establish a quoted market. These new exceptions would
provide investors with more choices in the OTC market.

B. Summary of Proposed Amendments

    The Commission proposes to strengthen the existing Rule as follows:
     Require the documents and information that a broker-dealer
must obtain and review under the Rule to be current and publicly
available; \10\
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    \10\ Currently, this information is required by existing
paragraph (a), but the existing Rule does not require this
information to be made publicly available. Under this proposal, the
required information would be included in proposed paragraph (b) and
would be known as ``proposed paragraph (b) information.'' Throughout
this release, when the Commission references text from existing
provisions of Rule 15c2-11, the Commission will use the terms
``paragraph,'' ``Rule,'' ``existing paragraph,'' or ``existing
Rule.'' When the Commission references rule text that the Commission
is proposing to adopt, the Commission will use the terms ``proposed
Rule'' or ``proposed paragraph.''
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     Amend the ``piggyback exception,'' which is conditioned on
continuous and frequent quotations, to:
    [cir] Require issuer information to be current and publicly
available;
    [cir] Eliminate the ability of a broker-dealer to rely on the
exception unless there are two-sided quotations that are published in
an interdealer quotation system at specified prices;
    [cir] Eliminate the ability of broker-dealers to rely on the
exception during the first 60 calendar days after the termination of a
Commission trading suspension under Section 12(k) of the Exchange Act;
    [cir] Eliminate the ability of broker-dealers to rely on the
exception for securities of ``shell companies;'' \11\ and
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    \11\ When used in this Release, the term ``shell company'' means
an issuer, other than a business combination related shell company,
as defined in Rule 405 of Regulation C, or an asset-backed issuer as
defined in Item 1101(b) of Regulation AB, that has (1) no or nominal
operations and (2) either (i) no or nominal assets, (ii) assets
consisting solely of cash and cash equivalents, or (iii) assets
consisting of any amount of cash and cash equivalents and nominal
other assets. The Commission is proposing to add this definition of
shell company in proposed paragraph (e)(8). See Proposed Rule 15c2-
11(e)(8).
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    [cir] Remove the requirement that a security be quoted for 12
business days during the previous 30 calendar days;
     Require that certain issuer information be current and
publicly available for a broker-dealer to rely on the unsolicited
quotation exception to publish quotations by or on behalf of company
insiders; and
     Require documentation to support a broker-dealer's
reliance on exceptions to the Rule.
    The Commission also is proposing to reduce burdens on broker-
dealers publishing quotations of securities of OTC issuers by providing
new exceptions for broker-dealers to:
     Publish quotations for securities of well-capitalized
issuers with actively traded securities;
     Publish quotations for securities where a qualified
interdealer quotation system (``qualified IDQS''), conducts the
proposed Rule's required review and makes known to others the quotation
of a broker-dealer relying on the exception; \12\
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    \12\ The Commission is proposing to define a qualified IDQS as
any interdealer quotation system that meets the definition of an
alternative trading system under Rule 300(a) of Regulation ATS and
operates pursuant to the exemption from the definition of an
``exchange'' under Rule 3a1-1(a)(2) of the Exchange Act. See
Proposed Rule 15c2-11(e)(5). The Commission believes that the
requirements of Regulation ATS, as applicable to qualified IDQSs,
would provide investor protections through, for example, Commission
oversight. See infra Part III.H.4.

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     Rely on publicly available determinations by a qualified
IDQS or a registered national securities association that the
requirements of certain exceptions have been met; and
     Publish quotations for a security without complying with
the information review requirement if that broker-dealer was named as
an underwriter in the security's registration statement or offering
circular.
    The Commission is proposing amendments to streamline certain
requirements of the existing Rule that would:
     Modify the requirement that a broker-dealer make the
information that it obtained and reviewed ``reasonably available upon
request'' to investors seeking such information to permit the broker-
dealer to direct the investors to the publicly-available information
upon which the broker-dealer relied to comply with the information
review requirement;
     Remove the Nasdaq security exception in light of Nasdaq's
registration as a national securities exchange;
     Provide new definitions and make other technical, non-
substantive changes to the Rule; and
     Remove the paragraphs regarding furnishing information to
an IDQS and how a broker-dealer obtains annual, quarterly, and current
reports filed by an issuer with the Commission.
    Finally, the Commission is seeking comment about information
repositories and a possible regulatory structure for such entities.

II. Background

A. Regulatory Approaches To Combating Retail Investor Fraud

    A core mission of the Commission is protecting investors. This
proposal continues the Commission's focus on protecting retail
investors from fraud and manipulation.\13\ Over the past several years,
the Commission has brought hundreds of enforcement actions involving
OTC securities or their issuers, including for alleged violations of
the antifraud, reporting, and registration provisions of the federal
securities laws. Many of these cases have involved dozens of OTC
securities and tens of millions of dollars in investor harm.
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    \13\ See Speech, Chairman Jay Clayton, Remarks on the
Establishment of the Task Force on Market Integrity and Consumer
Fraud (July 11, 2018), https://www.sec.gov/news/speech/task-force-market-integrity-and-consumer-fraud (``Serving and protecting Main
Street investors is my main priority at the SEC.'').
---------------------------------------------------------------------------

    In addition to enhancing efforts to detect and address fraudulent
conduct that has already occurred, such as through the Commission's
examination and enforcement programs, the Commission has also been
proactive in taking measures that are designed to prevent fraudulent
activity before it occurs. Specifically, the Commission has developed
initiatives that focus on investor education and research tools that
can help investors to make better-informed investment decisions and
avoid investing in fraudulent schemes.
    For example, the Commission launched the ``SEC Action Lookup for
Individuals'' (``SALI''), an online search feature that enables retail
investors to research whether persons trying to sell them investments
have a judgment or order entered against them in an enforcement
action.\14\ SALI is intended to help retail investors avoid financial
fraud. The Commission also participates in a joint agency task force,
spearheaded by the Department of Justice, on market integrity and
consumer fraud,\15\ and the Commission's Division of Enforcement formed
the Retail Strategy Task Force as well. The Retail Strategy Task Force
draws on expertise throughout the Commission to develop strategies and
techniques for addressing the types of activities that harm retail
investors, including microcap pump-and-dump schemes.\16\
---------------------------------------------------------------------------

    \14\ See Press Release, SEC Launches Additional Investor
Protection Search Tool (May 2, 2018), https://www.sec.gov/news/press-release/2018-78.
    \15\ See, e.g., Public Statement, Chairman Jay Clayton, Opening
Remarks at the SEC Staff Roundtable on Regulatory Approaches to
Combating Retail Investor Fraud (Sept. 26, 2018), https://www.sec.gov/news/public-statement/clayton-opening-remarks-investor-fraud-roundtable.
    \16\ See Press Release, SEC Launches Enforcement Initiative to
Combat Cyber-Based Threats and Protect Retail Investors (Sept. 25,
2017), https://www.sec.gov/news/press-release/2017-176.
---------------------------------------------------------------------------

    Last year, the Commission's Division of Trading and Markets hosted
a roundtable on ``Regulatory Approaches to Combating Retail Fraud''
(the ``Roundtable'').\17\ The Roundtable featured panel discussions
about schemes that target retail investors and possible approaches to
combat retail investor fraud.\18\ The effectiveness of Rule 15c2-11 was
a topic of discussion at one panel where panelists stated that the
current operation of the Rule in certain circumstances may result in
retail investors having little or no information about a company.\19\
This lack of current and publicly available information about a company
particularly disadvantages retail investors in comparison to other
market participants.\20\
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    \17\ See, e.g., Press Release, SEC Staff to Host Roundtable on
Regulatory Approaches to Combating Retail Investor Fraud (Sept. 18,
2018), https://www.sec.gov/news/press-release/2018-200.
    \18\ See, e.g., Transcript of Roundtable on Regulatory
Approaches to Combatting Retail Fraud (Sept. 26, 2018), https://www.sec.gov/spotlight/equity-market-structure-roundtables/retail-fraud-round-roundtable-092618-transcript.pdf (``Roundtable
Transcript'').
    \19\ See id; see also Speech, Chairman Jay Clayton & Dir. Brett
Redfearn, Equity Market Structure 2019: Looking Back & Moving
Forward, Remarks at Gabelli School of Business, Fordham University,
n.16 (Mar. 8, 2019) (``Equity Market Structure Speech'') https://www.sec.gov/news/speech/clayton-redfearn-equity-market-structure-2019.
    \20\ See Equity Market Structure Speech, supra note 19.
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    Indeed, as the Chairman has stated, the lack of publicly available
information about certain issuers ``can be fertile ground for fraud.''
\21\ Studies have noted instances of fraud and manipulation in cases
involving OTC securities.\22\ A majority of the enforcement cases
involving OTC securities has involved delinquent filings, which result
in a lack of current, accurate, or adequate information about an
issuer.\23\ In fact, during the last four years, the SEC has issued
orders suspending or revoking the registrations of over 1,100 issuers
pursuant to its authority under Section 12(j) of the Exchange Act for
issuers with delinquent filings.\24\ The Commission has temporarily
suspended trading in the securities of over 900 issuers under

Section 12(k) of the Exchange Act because of potentially manipulative
or deceptive activity or questions about the accuracy and adequacy of
publicly disseminated information.\25\
---------------------------------------------------------------------------

    \21\ Id.
    \22\ For example, one study analyzed 142 stock manipulation
cases, including pump-and-dump cases, in SEC litigation releases
from 1990 to 2001 and found that 48 percent involved OTC securities,
while 17 percent involved securities listed on national exchanges.
See Rajesh Aggarwal & Guojun Wu, Stock market manipulations, 79 J.
Bus. 1915 (2006). A more recent study looked at 150 pump-and-dump
manipulation cases between 2002 and 2015 and found that 86 percent
of these cases involved OTC securities. See Thomas Renault, Market
manipulation and suspicious stock recommendations on social media,
Universit[eacute] Paris I Panth[eacute]on-Sorbonne--Centre
d'Economie de la Sorbonne, Working Paper (2018), available at
https://ssrn.com/abstract=3010850.
    \23\ For instance, one study looked at a broad sample of
securities cases between January 2005 and June 2011 and identified
1,880 cases involving OTC securities and 1,157 cases involving
securities listed on exchanges in the United States. Of the OTC
securities cases, the majority--1,148 cases, or 61 percent--were
related to delinquent filings, 151 (eight percent) were related to a
pump-and-dump scheme, 159 (eight percent) were related to financial
fraud, 12 (one percent) were related to insider trading, and 212 (11
percent) were related to other fraudulent misrepresentation or
disclosure. See Douglas J. Cumming & Sofia Johan, Listing standards
and fraud, 34 Managerial & Decision Econ. 451-70 (2013).
    \24\ Administrative Proceedings (2019), https://www.sec.gov/litigation/admin.shtml; Annual Report, SEC, Div. Enforcement, 20
(2018), https://www.sec.gov/files/enforcement-annual-report-2018.pdf; Addendum to Annual Report, SEC, Div. Enforcement, 3
(2017), https://www.sec.gov/files/enforcement-annual-report-2017-addendum-061918.pdf; Select SEC and Market Data Fiscal 2016, 3
(2016), https://www.sec.gov/files/2017-03/secstats2016.pdf.
    \25\ See Trading Suspensions (2019), https://www.sec.gov/litigation/suspensions.shtml; Annual Report, SEC, Div. Enforcement,
5 (2018), https://www.sec.gov/files/enforcement-annual-report-2018.pdf; Addendum to Annual Report, SEC, Div. Enforcement, 2
(2017), https://www.sec.gov/files/enforcement-annual-report-2017-addendum-061918.pdf; Select SEC and Market Data Fiscal 2016, 2
(2016), https://www.sec.gov/files/2017-03/secstats2016.pdf.
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B. OTC Market Developments

    The OTC market provides numerous benefits for investors. For
instance, some highly capitalized foreign securities are quoted on this
market. Other foreign companies are also quoted on this market in the
form of American Depository Receipts, providing investors with easy
access to such foreign securities. The OTC market also can provide
opportunities for retail investors to find securities of domestic
issuers with future growth potential. Additionally, some larger U.S.
companies may trade on the OTC market for various reasons.\26\ Further,
this market can offer a starting point for smaller issuers, as it may
be difficult for a company just starting out to meet exchange listing
requirements or pay listing fees. However, because stocks quoted on
this market can be less liquid, have lower capitalization, and provide
less transparency than exchange-listed securities, it can be easier for
unscrupulous persons to find ways to abuse such securities.
---------------------------------------------------------------------------

    \26\ See, e.g., Peter Leeds, Famous Companies Traded as Penny
Stocks, The Balance (June 25, 2019), https://www.thebalance.com/famous-companies-traded-as-penny-stocks-2637058.
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    When a broker-dealer publishes or submits a quotation for a
security in a quotation medium, the broker-dealer may facilitate the
creation or appearance of a market for the security, thereby increasing
the security's availability and accessibility to investors. A broker-
dealer's quotations could create the false appearance of an active
market, including affecting the pricing, rather than an actual market
that is based on independent forces of supply and demand. Thus, to help
prevent fraud and manipulation,\27\ existing Rule 15c2-11 prohibits
broker-dealers from publishing or submitting quotations in OTC
securities in the absence of accurate information about the issuers of
such securities, unless an exception applies.\28\
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    \27\ See Initiation or Resumption of Quotations Without
Specified Information, Exchange Act Release No. 21470 (Nov. 8,
1984), 49 FR 45117 (Nov. 15, 1984) (``1984 Adopting Release''); see
also Publication or Submission of Quotations Without Specified
Information, Exchange Act Release No. 41110 (Feb. 25, 1999), 64 FR
11126 (Mar. 8, 1999) (``1999 Reproposing Release'') (``Rule 15c2-11
is intended to prevent broker-dealers from becoming involved in the
fraudulent manipulation of OTC securities. However, even if a
broker-dealer technically complies with the Rule's requirements, it
could be subject to liability under other antifraud provisions of
the securities laws, such as Rule 10b-5, if it publishes quotations
as part of a fraudulent or manipulative scheme.'').
    \28\ See 1991 Adopting Release at 19149-52.
---------------------------------------------------------------------------

    Under existing Rule 15c2-11, a broker-dealer seeking to publish or
submit a quotation in any quotation medium, including in an IDQS, must
comply with the existing Rule's information review requirement for each
quotation, unless it qualifies for an exception. Thus, generally, a
broker-dealer must obtain and review information about the issuer
enumerated in paragraph (a) of the existing Rule, such as basic
financial information, and maintain records of the information that it
reviewed. Certain exceptions to the Rule permit broker-dealers to
publish or submit quotations without complying with the information
review requirement. For instance, once a security has become eligible
for the piggyback exception, any broker-dealer can quote the security
without complying with the information review requirement so long as
the requirements of the exception are met.\29\
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    \29\ The piggyback exception presumes that regular and frequent
quotations for a security generally (1) reflect market supply and
demand and the available information about the security and its
issuer and (2) are based on independent, informed pricing decisions.
See 1984 Adopting Release at 45121; see also 1999 Reproposing
Release at 11126.
---------------------------------------------------------------------------

    The OTC market has changed significantly since the Rule was adopted
in 1971 and was last substantively amended in 1991. For example, the
existing Rule was last substantively amended prior to the widespread
use of the internet, when it was significantly more difficult to obtain
information on issuers of OTC securities and to continuously update and
widely disseminate quotations for OTC securities. The internet and
other forms of electronic communication have made it less costly and
less burdensome to access, update, and disseminate information on a
global scale. Marketplaces have developed platforms that collect and
provide information to the public through easily accessible websites,
including information regarding the risks involving certain quoted OTC
securities.\30\ In light of these developments, the Commission
preliminarily believes that it is appropriate to update and modernize
the Rule.
---------------------------------------------------------------------------

    \30\ At least one IDQS, OTC Markets Group, has voluntarily
implemented measures to warn investors about the risks involving
certain securities by using easy to identify symbols, such as stop
signs and skull and crossbones, to indicate that specific securities
present risks or there is a lack of information about them. See
Compliance Flags, OTC Mkts. Grp. Inc., https://www.otcmarkets.com/files/OTCM%20Compliance%20Flags.pdf (last visited Sept. 23, 2019)
(describing designators and flags ``to help identify opportunity and
quantify risk'').
---------------------------------------------------------------------------

C. Prior Rule 15c2-11 Proposals

    The Commission proposed to amend Rule 15c2-11 in February 1998 \31\
and re-proposed amendments to the Rule in February 1999.\32\ Among
other things, both the 1998 Proposing Release and the 1999 Reproposing
Release would have eliminated the existing Rule's piggyback exception
and required broker-dealers to publish priced quotations as well as
obtain updated information about the issuer annually.\33\
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    \31\ Publication or Submission of Quotations Without Specified
Information, Exchange Act Release No. 39670 (Feb. 17, 1998), 63 FR
9661 (Feb. 25, 1998) (``1998 Proposing Release'').
    \32\ 1999 Reproposing Release at 11124.
    \33\ The 1999 Reproposing Release also included an Appendix. The
Appendix was intended to supplement the guidance from the 1991
Adopting Release (which was incorporated into the Rule through the
Preliminary Note) by providing additional guidance on, among other
things, ``red flags'' concerning the issuer that broker-dealers
should consider as part of the information review requirement. See
id., 1999 Reproposing Release at 11145.
---------------------------------------------------------------------------

    Commenters on the 1999 Reproposing Release stated that the adoption
of the proposed amendments, including elimination of the piggyback
exception, would severely constrain liquidity in the OTC market
resulting in less competitive pricing, impair access to capital by
issuers, and increase compliance costs for broker-dealers. Commenters,
however, were generally supportive of certain proposed new exceptions
in the 1999 Reproposing Release. Specifically, commenters were in favor
of proposed new exceptions to exclude larger issuers and more liquid
securities that are not prone to the abuses that are more likely in the
microcap market. The Commission did not take further action on the
proposals.

III. Discussion of Proposed Amendments

A. Proposed Amendments to the Information Review Requirement

1. Existing Information Review Requirement
    The existing Rule requires that a broker-dealer review certain
information about the issuer of an OTC security prior to publishing a
quotation for such security. The Rule requires that the broker-dealer
form a reasonable basis for believing that such information about

the issuer is accurate in all material respects and from a reliable
source.
    Currently, Rule 15c2-11(a) requires that, prior to initially
publishing or submitting quotations for a security in a quotation
medium when no exception to the information review requirement is
available (the ``initial publication or submission''), a broker-dealer
must have in its records the information and documentation specified in
Rule 15c2-11(a)(1)-(5) (the ``paragraph (a) information'').\34\ In
addition, the broker-dealer must have a reasonable basis under the
circumstances, based on a review of paragraph (a) information and any
other supplemental information required by Rule 15c2-11(b) (the
``paragraph (b) information''), to believe that the information is
accurate in all material respects and from a reliable source.\35\
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    \34\ Exchange Act Rule 15c2-11(a).
    \35\ Id. To simplify the structure of the existing Rule, the
Commission proposes to separate the activities constituting the
review requirement from the specific list of information to be
reviewed.
---------------------------------------------------------------------------

    The existing Rule requires particular information depending on the
regulatory status of the issuer--i.e., whether the issuer (1) filed a
registration statement under the Securities Act of 1933 (``Securities
Act'') (a ``prospectus issuer''), (2) filed a notification under
Regulation A \36\ (a ``Reg. A issuer''), (3) is subject to the Exchange
Act's or Regulation A's periodic reporting requirements or is the
issuer of a security covered by Section 12(g)(2)(B) or (G) of the
Exchange Act (a ``reporting issuer''), (4) is a foreign private issuer
that is exempt from registration under Exchange Act Section 12(g)
pursuant to Rule 12g3-2(b) (an ``exempt foreign private issuer''), or
(5) is an issuer that does not fall within one of these categories (a
``catch-all issuer'').\37\ Depending on the circumstances, statutes or
Commission rules also require the paragraph (a) information for
prospectus issuers, Reg. A issuers, and reporting issuers to be made
publicly available, either by prospectus, offering circular, or
periodic reports.\38\ Similarly, exempt foreign private issuers are
required, among other things, to publish certain information in order
to be exempt from the requirement to register a class of equity
securities under Section 12(g) of the Exchange Act. In contrast, the
information that is required under paragraph (a)(5) of the existing
Rule for catch-all issuers generally is not subject to similar
statutory or rule-based disclosure and reporting requirements.
---------------------------------------------------------------------------

    \36\ See Rules 251 through 263 of Regulation A.
    \37\ See Exchange Act Rule 15c2-11(a)(1) (an issuer that has
filed an effective registration statement under the Securities Act),
(a)(2) (an issuer that has filed a notification under Regulation A
and was authorized to commence an offering), (a)(3) (an issuer that
is required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act or pursuant to Regulation A, or an issuer of a security
covered by Section 12(g)(2)(B) or (G) of the Exchange Act), (a)(4)
(a foreign private issuer that is exempt from registering a class of
equity securities under Section 12(g) of the Exchange Act pursuant
to Rule 12g3-2(b) thereunder), (a)(5) (an issuer that does not fall
within any paragraphs (a)(1) through (a)(4)). For example, the Rule
sets out the specific information requirements for Reg. A issuers,
but these information requirements are specific to Rule 15c2-11 and
do not supplant the requirements in Rule 144(c) for adequate current
public information. See, e.g., Amendments for Small and Additional
Issues Exemptions Under the Securities Act (Regulation A),
Securities Act Release No. 9741 (Mar. 25, 2015), 80 FR 21806, 28151
(Apr. 20, 2015).
    \38\ See, e.g., Securities Act Section 7 (information required
in registration statement); Securities Act Section 10 (information
required in prospectus); Exchange Act Section 12(b) (information
required to register a security on a national securities exchange);
Exchange Act Section 13 (periodic and other reports); Securities Act
Rule 257 of Regulation A (periodic and current reporting); Exchange
Act Rule 13a-1 (annual reports); Exchange Act Rule 13a-13 (quarterly
reports).
---------------------------------------------------------------------------

    Under the existing Rule, catch-all issuer information that a
broker-dealer obtains and reviews for the information review
requirement is not required to be publicly available. Instead, Rule
15c2-11(a)(5) requires a broker-dealer that publishes or submits
quotations for a security of a catch-all issuer when no exception is
available to make such information reasonably available upon request to
a person expressing an interest in a proposed transaction in the
security with that broker-dealer.\39\ The Commission believes that
enhancing the Rule's investor protections to require basic issuer
information to be publicly available \40\ in order for a broker-dealer
to publish or submit a quotation when no exception to the information
review requirement is available for an OTC security and to publish
quotations throughout the life of the quoted market for the security
could help investors to make better-informed investment decisions.\41\
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    \39\ Exchange Act Rule 15c2-11(a)(5).
    \40\ See Proposed Rule 15c2-11(e)(4). Publicly available would
be defined to mean available on EDGAR or on the website of a
qualified IDQS, a registered national securities association, the
issuer, or a registered broker-dealer, so long as access is not
restricted by user name, password, fees, or other restraints. As
discussed below, this requirement also would apply to a qualified
IDQS under proposed paragraph (a)(2).
    \41\ See, e.g., Joshua T. White, Outcomes of Investing in OTC
Stocks, 10 (Dec. 16, 2016), https://www.sec.gov/files/White_OutcomesOTCinvesting.pdf (``Academic studies point to a lack
of information produced by OTC Companies as one determinant of
negative and volatile OTC stock returns.'').
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2. Proposed Amendments to the Information Review Requirement
(a) Revisions to the Review Requirement
    The Commission is proposing changes to the existing Rule's
information review requirement, which requires broker-dealers to review
certain information prior to publishing a quotation in an OTC
security.\42\ Specifically, the proposed Rule would (1) restructure the
review requirement into paragraphs and re-letter such paragraphs
accordingly, (2) require that certain issuer information be current and
publicly available, and (3) permit additional market participants to
perform the required review. Combined, these proposed amendments are
intended to, among other things, promote better-informed investment
decisions by increasing investors' opportunity for access to current
information, and facilitate capital formation by allowing more market
participants to perform the required review with respect to the
proposed Rule so that quotations can be initiated and investors can buy
and sell OTC securities.
---------------------------------------------------------------------------

    \42\ See infra Part V.
---------------------------------------------------------------------------

    The Commission is proposing to restructure the review requirement
and include the requirement as applicable to broker-dealers in proposed
paragraph (a)(1).\43\ The Commission is proposing to separate each
element of existing paragraph (a) into separate paragraphs and re-
letter the paragraphs accordingly. Proposed paragraph (a)(1)(i) would
contain the existing requirement that a broker-dealer have in its
records the documents and information required by the Rule. Proposed
paragraph (a)(1)(iii) would contain the existing requirement that the
broker-dealer, based upon a review of certain required information,\44\
together with any other required documents and any supplemental
information,\45\ have a

reasonable basis under the circumstances for believing that the
information required to be reviewed is accurate in all material
respects and from a reliable source.
---------------------------------------------------------------------------

    \43\ The term ``review requirement'' refers to the requirements
under proposed paragraph (a).
    \44\ Note that, generally, the existing Rule's provisions would
be re-lettered to conform with these changes, so that required
information in existing paragraph (a) would be re-lettered to
proposed paragraph (b). Proposed paragraph (b) information would
include the information required to be reviewed by the regulated
entity, such as a prospectus, an offering circular, periodic
reports, or information specified in paragraph (b), to quote a
security of different types of issuers, i.e., prospectus issuers,
Reg. A issuers, reporting issuers, exempt foreign private issuers,
and catch-all issuers.
    \45\ Existing paragraph (b), which would be re-lettered to
proposed paragraph (c), would include supplemental information
(including information about the person on whose behalf the
quotation is being submitted, trading suspensions within the prior
12 months, any other material information) that would also be
required to be reviewed by a regulated entity.
---------------------------------------------------------------------------

    As discussed below, the Commission is proposing a new paragraph
(a)(1)(ii) to add a new requirement that the issuer information
required to be reviewed (except for information required by proposed
paragraphs (b)(5)(i)(N) through (P)) must be current and publicly
available.\46\
---------------------------------------------------------------------------

    \46\ See Proposed Rule 15c2-11(a)(1)(ii).
---------------------------------------------------------------------------

    The proposed Rule would not require a qualified IDQS to comply with
the information review requirement as a condition to the qualified
IDQS's making known to others the quotation of a broker or dealer that
is published or submitted, unless it is published or submitted by a
broker-dealer relying on paragraph (f)(7). The proposed Rule would
permit a qualified IDQS to make known to others the publication or
submission of quotations of a broker-dealer that relies on a qualified
IDQS's compliance with the information review requirement pursuant to
proposed paragraph (f)(7). The qualified IDQS requirements under
proposed paragraph (a)(2) would mirror the requirements for broker-
dealers under proposed paragraph (a)(1). The Commission is proposing to
add this provision for qualified IDQSs because the Commission is
proposing to except broker-dealers from the information review
requirement where (1) a qualified IDQS complies with the information
review requirement and (2) the broker-dealer relies on the qualified
IDQS's review to publish or submit a quotation for that security.\47\
Accordingly, the qualified IDQS would be required to have in its
records proposed paragraph (b) information, excluding proposed
paragraphs (b)(5)(i)(N) through (P) as explained below, except where
the qualified IDQS has knowledge or possession of information set forth
in proposed paragraphs (b)(5)(i)(N) through (P).\48\ In addition, the
proposed amendments would require that proposed paragraph (b)
information, excluding proposed paragraphs (b)(5)(i)(N) through (P), be
current and publicly available.
---------------------------------------------------------------------------

    \47\ See Proposed Rule 15c2-11(f)(7).
    \48\ See Proposed Rule 15c2-11(a)(2). Proposed paragraphs
(b)(5)(i)(N) through (P) would include information about whether the
broker-dealer or its associated person is affiliated with the
issuer; whether the quotation is being published or submitted on
behalf of any other broker-dealer (if so, the name of such broker-
dealer); and whether the quotation is being submitted or published
(directly or indirectly) by or on behalf of the issuer or certain
persons associated with the issuer and, if so, the name of such
person, and the basis for any exemption. A qualified IDQS might not
have knowledge or possession of information set forth in proposed
paragraphs (b)(5)(i)(N) through (P) because this information
pertains to individual quotations and broker-dealers and is not
issuer-specific. A qualified IDQS would only be required to have
proposed paragraph (b)(5)(i)(N) through (P) information that has
come to its knowledge or that is in its possession.
---------------------------------------------------------------------------

(b) Require Current and Publicly Available Issuer Information
    The proposed Rule would require that issuer information relied upon
by a broker-dealer be current and publicly available in order for a
broker-dealer to publish or submit a quotation for that security. The
proposed amendments to the Rule would provide an additional mechanism
through which investors could have access to information about issuers
with securities that are quoted by broker-dealers in the OTC market.
Current and publicly available information could enable retail
investors to make better-informed investment decisions and counteract
misinformation. By requiring that certain issuer information be current
and publicly available before a broker-dealer publishes or submits
quotations in the OTC market without an exception, the proposed
amendments could facilitate investors' research of issuers and their
securities and help investors to be able to make better-informed
investment decisions. The public availability of issuer information
required under proposed paragraph (b) would help to alleviate concerns
that limited or no information for certain issuers of quoted OTC
securities exists or that such information is difficult for retail
investors to find.\49\
---------------------------------------------------------------------------

    \49\ See, e.g., Ulf Bruggemann et al., The Twilight Zone: OTC
Regulatory Regimes and Market Quality, 31 Rev. Fin. Stud. 898, 907
(2018) (noting difficulties in accessing information about
companies, even information filed with state regulators); Jeff
Swartz, The Twilight of Equity Liquidity, 34 Cardozo L. Rev. 531,
573 (2012) (stating that this situation is particularly problematic
because unsophisticated investors make up a large portion of OTC
market participants); see also Roundtable Transcript, supra note 18,
at 85, 192-93; Michael K. Molitor, Will More Sunlight Fade the Pink
Sheets? Increasing Public Information About Non-Reporting Issuers
with Quoted Securities, 39 Ind. L. Rev. 309, 311, 337 (2006).
---------------------------------------------------------------------------

    Proposed paragraphs (a)(1)(ii) and (a)(2)(ii) would require that
proposed paragraph (b) information be current and publicly available
for all issuers, without regard to the regulatory category they fall
into, prior to a broker-dealer providing the initial publication or
submission of a quotation for an issuer's OTC security. The Commission
is proposing to exclude from that requirement information identified in
proposed paragraphs (b)(5)(i)(N) through (P) because those paragraphs
refer to information about the quotations and the entities providing
them, not issuer-specific information.\50\
---------------------------------------------------------------------------

    \50\ See Proposed Rule 15c2-11(b)(5)(i)(N) through (P).
---------------------------------------------------------------------------

    The Commission is proposing to define the term ``publicly
available'' to mean available on EDGAR or on the website of a qualified
IDQS, a registered national securities association, the issuer, or a
registered broker-dealer.\51\ If such proposed paragraph (b)
information is restricted by user name, password, fees, or other
restraints, it would not be publicly available. The Commission is also
proposing to define ``current'' to mean filed, published, or disclosed
in accordance with the time frames identified in each paragraph (b)(1)
through (b)(5).\52\
---------------------------------------------------------------------------

    \51\ See Proposed Rule 15c2-11(e)(4).
    \52\ See Proposed Rule 15c2-11(e)(1).
---------------------------------------------------------------------------

    The Commission believes that many issuers already make publicly
available proposed paragraph (b) information that is current because
these issuers have a reporting obligation or voluntarily do so.\53\ The
Commission believes the proposal provides incentives for issuers of
quoted OTC securities that do not currently make proposed paragraph (b)
information publicly available or do not keep such information current
to make such information publicly available and keep it current. Under
the proposal, before a broker-dealer can initiate the publication or
submission of a quotation for an issuer's securities in the OTC market,
or rely on an exception to the information review requirement, proposed
paragraph (b) information must be current and publicly available. The
proposed amendments to the Rule would not preclude others, such as
broker-dealers or investors, from making proposed paragraph (b)
information publicly available, particularly when the information comes
directly from the issuer.\54\
---------------------------------------------------------------------------

    \53\ The Commission believes that there are some issuers that
voluntarily make publicly available proposed paragraph (b)
information through OTC Markets Group's Alternative Reporting
Standard. See infra Part VIII.
    \54\ To the extent an issuer, underwriter, or dealer is
providing consideration to a person to publish proposed paragraph
(b) information, such person may have additional disclosure
obligations under Section 17(b) of the Securities Act.
---------------------------------------------------------------------------

    The Commission believes that requiring proposed paragraph (b)
information to be current and publicly available in order for a broker-
dealer to initiate and maintain a quoted market for OTC securities
would impose costs but provide significant benefits to investors. In
particular, retail investors, who might not have the same level of

access to information available to other market participants, such as
those that may have a relationship with the issuer, would benefit from
having access to proposed paragraph (b) information that is current.
The proposed amendments would also help prevent the potential use of a
catch-all issuer as a vehicle to defraud investors by, for example,
changing its business or ownership and ceasing to provide public
information after a market has developed for its securities.
    Q1. Should the proposed Rule allow other entities besides a broker-
dealer or qualified IDQS to comply with the information review
requirement? Why, or why not? If a commenter believes an entity should
be added, what entity should be added, and why?
    Q2. Should proposed paragraph (b) information meet the definition
of ``publicly available'' if, for example, access to such information
requires payment of a fee or registration and provision of customer
data to be allowed access to such information? Are there any other
potential barriers to accessibility that the Commission should address?
If so, what are they and how should the Commission address them in this
rulemaking?
(c) Reorganize the Reporting Issuer Information
    The proposed Rule would simplify the organization of information
regarding reporting issuers by addressing each type of issuer in a
separate paragraph in order to improve readability. The Commission is
proposing to reorganize how the information for reporting issuers is
arranged in paragraph (a)(3) of the existing Rule to group the required
information that a broker-dealer must obtain and review into paragraphs
by the type of issuer. Additionally, the Commission is proposing to
apply paragraph (a)(3), which would be re-lettered to proposed
paragraph (b)(3), to qualified IDQSs that make known to others the
quotation of a broker-dealer pursuant to proposed paragraph (a)(2), so
that the requirements (1) regarding when to obtain reports, and (2) to
have a reasonable basis under the circumstances for believing that the
issuer is current in filing reports, would apply to the qualified IDQS.
    The proposed change to the Rule is not intended to change any
substantive obligations for a broker-dealer under the existing Rule.
The reorganization would remove references to Section 12(g)(2)(B),
which exempts from registration under Section 12 of the Exchange Act
securities issued by investment companies registered pursuant to
Section 8 of the Investment Company Act of 1940. Under the existing
Rule, to the extent that an issuer covered by 12(g)(2)(B) has a
reporting obligation under the Exchange Act, a broker-dealer would be
required to comply with the information review requirement and conduct
a review of such issuer's annual, quarterly, and current reports. Given
proposed paragraph (b)(3)(i), which would apply to issuers with a
reporting obligation under Section 13 or 15(d) under the Exchange Act,
the removal of the reference to Section 12(g)(2)(B) would not be a
substantive change.
(d) Current Reports
    The Commission is proposing to incorporate into proposed paragraphs
(b)(3)(i) through (iii), with some modification, paragraph (d)(2)(i) of
the existing Rule, which provides a timing requirement for a broker-
dealer to obtain current reports, such as Forms 8-K. The events
triggering an issuer's filing of current reports with the Commission
generally are material events affecting the issuer, such as a change in
control, acquisition or disposition of assets, bankruptcy or
receivership, change in accountants, or resignation of a director.\55\
The existing Rule requires that a broker-dealer obtain all current
reports filed with the Commission by the issuer from the earlier of
five business days before the initial publication or submission of a
quotation or the date of submission of paragraph (a) information
pursuant to applicable rules of the Financial Industry Regulatory
Authority (``FINRA'') or its successor \56\ because the timing of an
event that triggers the filing of a current report is variable and
unknown.\57\
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    \55\ 1991 Adopting Release at 19154.
    \56\ See Exchange Act Rule 15c2-11(d)(2)(i).
    \57\ 1991 Adopting Release at 19154.
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    The proposed Rule would require that a broker-dealer or qualified
IDQS obtain all current reports as of a date up to three business days
prior to the initial publication or submission of a quotation.\58\ At
the time that the Commission adopted the existing requirement, it noted
that providing five business days to obtain current reports prior to
publishing a quote should alleviate uncertainties about available
information, given the unpredictable timing of current reports.\59\ The
Commission, however, preliminarily believes that it is appropriate to
shorten the window within which a broker-dealer or qualified IDQS must
obtain current reports from five days to three days because, in
contrast to 1991, current reports are more easily accessible by broker-
dealers or qualified IDQSs on EDGAR and can be obtained in a more
timely manner at low cost. The Commission is also proposing to remove
from the Rule the provision regarding broker-dealers obtaining current
reports five business days prior to the submission of information to
FINRA pursuant to applicable FINRA rules. The Commission believes that
the time period for a broker-dealer to obtain a current report should
directly relate to the initial publication or submission of a quotation
and should not be tied to the submission of information to FINRA
because FINRA may require more time to complete its review of the
proposed paragraph (b)(3) information. For example, a broker-dealer
might file a Form 211 with FINRA that lacks the information that FINRA
requires to process the form, which may delay FINRA's processing of the
form.
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    \58\ See Proposed Rule 15c2-11(b)(3). Current reports filed with
the Commission include (1) current reports on Form 8-K pursuant to
Section 13 or 15(d) of the Exchange Act and (2) current reports on
Form 1-U pursuant to Rule 257(b)(4) of Regulation A.
    \59\ 1991 Adopting Release at 19154.
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(e) Expand Catch-All Issuer Information
    The proposed Rule would require that information about certain
issuers, including issuers that are not required to provide or file
reports to the Commission, be current and publicly available, which is
intended to benefit retail investors' decision-making process.
Additionally, the Commission is proposing to revise some of the
information required by the existing Rule to be reviewed by a broker-
dealer. For example, compared to the existing Rule, the proposed Rule
would require the identification of additional company officers as well
as large shareholders of the company.
    The Commission is proposing to amend existing paragraph (a)(5)(xi)
(which would be re-lettered to proposed paragraph (b)(5)(i)(K)), to
require the names of certain persons with relationships to the issuer,
including the chief executive officer and members of the board of
directors, to also require the names of officers or any person who is,
directly or indirectly the beneficial owner of more than 10 percent of
any class of any equity security of the issuer. The Commission proposes
these additions to the list of persons that must be disclosed because
the Commission believes that investors could benefit from knowing the
identity of officers who manage the company as well as the identity of
any large shareholders. For example, investors would be able to
research the background of these persons to determine whether or not

they have a track record of success as an officer of a corporation,
experience in the industry of the issuer, any criminal convictions, or
any other problems that raise questions about their fitness to be an
officer of the issuer of a quoted OTC security.\60\
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    \60\ As a conforming change and to reduce redundancy, the
Commission is also proposing to amend paragraph (b)(5)(i)(P), which
focuses on quotations published by or on behalf of certain company
insiders, to remove the persons enumerated in the paragraph and
cross-reference to paragraph (b)(5)(i)(K).
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    The Commission is proposing to incorporate in proposed paragraph
(b) the existing presumption regarding when catch-all issuer
information is ``reasonably current,'' which is presently included in
paragraph (g) of the existing Rule.\61\ Proposed paragraph
(b)(5)(i)(L), which pertains to the issuer's financials, would include
the requirement that the issuer's balance sheet be as of a date that is
less than 16 months before the publication of a quotation.
Additionally, this paragraph would require that the issuer's profit and
loss statement, as well as the retained earnings statement, cover the
12 months preceding the date of the balance sheet. If the balance
sheet, however, is not as of a date less than six months before the
publication of the quotation, the balance sheet would need to be
accompanied by a profit and loss statement and a retained earnings
statement, both for a period from the date of the balance sheet to a
date less than six months before the publication of a quotation.
---------------------------------------------------------------------------

    \61\ See Exchange Act Rule 15c2-11(g).
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    Similarly, the Commission is proposing to incorporate into proposed
paragraph (b)(5) the existing presumption that ``all other information
specified'' under the Rule for catch-all issuers is current if it is as
of a date within 12 months prior to the publication or submission of
the quotation.\62\ Although the Commission is proposing to incorporate
the presumption of ``reasonably current'' from existing paragraph (g),
the Commission is proposing to use instead the term ``current'' in the
context of proposed paragraph (b)(5). The Commission believes that the
word ``reasonably'' is unnecessary in this context because the proposed
Rule specifically enumerates what is current for purposes of catch-all
issuers.
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    \62\ See Exchange Act Rule 15c2-11(g)(2).
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(f) Modify Requirement To Make Catch-All Issuer Information Available
Upon Request
    The proposed Rule would modernize the Rule to permit broker-dealers
to direct retail investors to electronically available information,
which could make information about an issuer easier to find, compared
to investors locating the information on their own, as discussed below.
Consistent with the Rule's existing requirements, the proposed Rule
would still require that a broker-dealer that complies with the
information review requirement make certain information available to
investors that request such information.\63\ The Commission believes
that the broker-dealer initiating quotations should assist investors in
obtaining catch-all issuer information because the information might be
difficult to find when a quoted market first begins. However, this
requirement would be modified to provide broker-dealers the flexibility
to satisfy this obligation by providing the requesting person with
appropriate instructions regarding how to obtain publicly available
information electronically because the internet provides a cost-
effective means to distribute catch-all issuer information to all
investors, not just those that request such information. This proposed
amendment would not limit other ways in which a broker-dealer could
make information available.
---------------------------------------------------------------------------

    \63\ Rule 15c2-11(a)(4) and Proposed Rule 15c2-11(b)(4) include
a similar requirement that broker-dealers make proposed paragraph
(b)(4) information available upon request to a person expressing an
interest in a proposed transaction in an exempt foreign private
issuer's security.
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    In such instances, to the extent the broker-dealer has information
regarding proposed paragraphs (b)(5)(i)(N) through (P), the broker-
dealer would be required to make such information available to persons
who request the information pursuant to proposed paragraph (b)(5)(ii).
(g) Clarify the Application of the Catch-All Issuer Provision
    Consistent with the Commission's efforts to increase transparency
about OTC securities for all investors, the proposed Rule would specify
the required information that a broker-dealer must review depending on
the circumstances and the type of issuer. In particular, the provisions
of proposed paragraph (b)(5) for catch-all issuers would apply to the
security of any issuer that is not included in proposed paragraphs
(b)(1) through (b)(4). Accordingly, if a prospectus issuer, a Reg. A
issuer, a reporting issuer, or an exempt foreign private issuer does
not fit within the provisions of proposed paragraphs (b)(1) through
(b)(4), the issuer would be, for purposes of the proposed Rule, a
catch-all issuer.
    The provisions of proposed paragraphs (b)(1) and (b)(2) include
specific time frames during which certain issuer information (i.e., the
issuer's prospectus or offering circular) would be current, and the
provisions of paragraphs (b)(1) and (b)(2) apply to an issuer only
during the time frames that are identified in those paragraphs. For
example, proposed paragraph (b)(1) applies only to an issuer with a
registration statement that has become effective less than 90 calendar
days prior to the day on which a broker-dealer publishes or submits a
quotation. Similarly, proposed paragraph (b)(2) applies only to an
issuer with an offering circular and that has been authorized to
commence its offering less than 40 calendar days prior to the day on
which a broker-dealer publishes or submits a quotation.
    When proposed paragraph (b) information is as of a date outside of
the time frames identified in proposed paragraph (b)(1) or (b)(2), such
as when the offering is authorized to commence 100 calendar days before
the publication of a quotation, the issuer is not a prospectus issuer
or a Reg. A issuer under the proposed Rule. At that time, proposed
paragraphs (b)(1) and (b)(2) are no longer applicable and the issuer
may be a reporting issuer or a catch-all issuer, depending on the
issuer's reporting obligation. For example, an issuer that does not
have an ongoing reporting obligation, such as a Reg. A issuer that has
conducted a Tier 1 offering, would be a catch-all issuer, and a broker-
dealer or qualified IDQS would be required to review information
required by proposed paragraph (b)(5) (``proposed paragraph (b)(5)
information'') if the issuer's offering has been authorized to commence
more than 40 calendar days prior to the day on which a broker-dealer
publishes or submits a quotation. If, however, an issuer has an ongoing
reporting obligation, such as an issuer that filed a prospectus more
than 90 calendar days prior to the day on which a broker-dealer
publishes or submits a quotation, that issuer would be a reporting
issuer and a broker-dealer or qualified IDQS would be required to
review proposed paragraph (b)(3) information.
    Proposed paragraphs (b)(3) and (b)(4) apply to issuers that have
ongoing disclosure obligations. If the reporting issuer or exempt
foreign private issuer has not filed, published, or disclosed
information that is current within the time frames identified in
proposed paragraphs (b)(3) or (b)(4), respectively, the issuer would
be, for purposes of proposed Rule 15c2-11, a catch-all issuer and,
therefore, quotations of the

securities of such an issuer would be subject to the provisions of
proposed paragraph (b)(5) until the issuer complies with its Securities
Act or Exchange Act disclosure requirements. Broker-dealers and
qualified IDQSs that comply with the information review requirement for
securities of these issuers would, therefore, need to review proposed
paragraph (b)(5) information for the initial publication or submission
of a quotation. For example, a broker-dealer that complies with the
information review requirement for a reporting issuer that has a
quarterly reporting obligation but has not been timely in its reporting
obligations would need to review the issuer's proposed paragraph (b)(5)
information.
    As explained above, the proposed amendment--that the provisions of
proposed paragraph (b)(5) would apply to the publication or submission
by a broker-dealer of the securities of any issuer that is not included
in proposed paragraphs (b)(1) through (b)(4)--would not change any
issuer's statutory or rule-based disclosure obligation. Even if catch-
all issuers are not subject to a statutory or rule-based disclosure
obligation, the proposed Rule would require that catch-all issuer
information be current and made publicly available for a broker-dealer
prior to the initial publication or submission of a quotation for the
security of a catch-all issuer. The proposed amendment to apply the
provisions of proposed paragraph (b)(5) to an issuer that does not fit
within the provisions of proposed paragraphs (b)(1) through (b)(4), if
such issuer's information described in those paragraphs is not current,
would not lead to a lower information review standard. Rather, a
broker-dealer would still need to have a reasonable basis under the
circumstances for believing that the proposed paragraph (b)
information, based on a review of such information, together with any
supplemental information required by proposed paragraph (c), is
accurate in all material respects and from a reliable source. For
example, regardless of whether a broker-dealer is complying with the
information review requirement for the security of a reporting issuer
under proposed paragraph (b)(3) or a catch-all issuer under proposed
paragraph (b)(5), the required review standard is the same.
    Under the existing Rule, an issuer's periodic report or statement
is ``reasonably available'' when the report or statement is filed with
the Commission.\64\ The Commission proposes to delete the ``reasonably
available'' provision because proposed paragraph (b)(5), and its
application to any issuer that is not included in proposed paragraphs
(b)(1) through (b)(4) due to a delinquent filing or otherwise, renders
redundant the ``reasonably available'' provision.
---------------------------------------------------------------------------

    \64\ Exchange Act Rule 15c2-11(a)(5).
---------------------------------------------------------------------------

    Proposed paragraph (b)(5) would classify catch-all issuers the same
way as does the existing Rule. Specifically, if a reporting issuer has
timely filed reports with the Commission, the issuer is, for purposes
of existing Rule 15c2-11, a reporting issuer. For purposes of the
proposed Rule, if the issuer's periodic reports or statements are not
timely filed with the Commission, the issuer would be a catch-all
issuer and a broker-dealer would need to comply with proposed paragraph
(b)(5).
    While the Commission welcomes any public input on the proposed
amendments, including input regarding the publication of proposed
paragraph (b) information, the Commission asks commenters to consider
the following questions:
    Q3. Should the requirement to obtain current reports filed by a
reporting issuer be less than, or more than, the three days as proposed
in proposed paragraph (b)(3)? Why or why not? What would be the
appropriate number of days for a broker-dealer or qualified IDQS to
obtain current reports in advance of publishing or submitting a
quotation or submitting paragraph (b)(3) information to a registered
national securities association? Should the requirement to obtain
current reports include reports furnished to, rather than solely filed
with, the Commission?
    Q4. Are there any advantages or disadvantages regarding the various
permitted means of making proposed paragraph (b) information publicly
available? If so, what are they? Are there other means of making
proposed paragraph (b) information publicly available and easily
accessible by investors, particularly retail investors, or should any
of the proposed means be modified or eliminated? What are the potential
costs to issuers, particularly small businesses, of requiring that
information, including proposed paragraph (b)(5) information that is
current, be made publicly available in a way that would be easily
accessible to investors, particularly retail investors?
    Q5. Are there any data privacy concerns the Commission should
address with regard to issuers' proposed paragraph (b) information
being made publicly available by someone other than the issuer? Please
give examples of any concerns and how the Commission might address them
in this rulemaking.
    Q6. Are there any circumstances where proposed paragraph (b)
information is unnecessary for an investor to be able to make an
informed investment decision? What are they?
    Q7. Do commenters agree that the Commission should remove
references to Section 12(g)(2)(B) of the Exchange Act in proposed
paragraph (b)(3)? Why or why not?
    Q8. A person may violate the antifraud provisions of the securities
laws by knowingly or recklessly disseminating, publishing, or
republishing false or misleading information. This may include publicly
available information (such as proposed paragraph (b) information), if
the person knew, or was reckless in not knowing, that the information
was materially false or misleading and nevertheless used that
information to establish or maintain a quoted market for a security.
Are there other alternatives, or additional or different approaches,
that the Commission should adopt as a means reasonably designed to
prevent persons from knowingly or recklessly using false information
published or provided by another person to establish a quoted market
for an OTC security? Commenters are invited to comment regarding any
additional actions the Commission could take to further preserve the
integrity of the OTC market.
    Q9. Should proposed paragraph (b)(5) also require the ticker symbol
of the security being quoted?
    Q10. Currently, paragraph (a)(5)(ii) requires the address of the
issuer's principal executive offices. Should proposed paragraph
(b)(5)(i)(B) also require the address of the issuer's principal place
of business if that address differs from the address of the issuer's
principal executive offices?
    Q11. Should proposed paragraph (b)(5)(i)(K) require additional
information to help accurately identify individuals listed in proposed
paragraph (b)(5)(i)(K), such as job title? Why or why not?
    Q12. Should changes be made to proposed paragraph (b)(5)(i)(K) to
include additional parties or persons, such as affiliates of the
issuer, or promoters? For example, should proposed paragraph
(b)(5)(i)(K) include the word ``affiliate'' as defined in Securities
Act Rule 144(a)(1)? Please explain. Conversely, are there persons
included in proposed paragraph (b)(5)(i)(K) that commenters believe
should not be included? Please explain. Should the proposed Rule
include a definition of beneficial owner? If so, how should the
proposed Rule define beneficial owner? Should the definition

of beneficial owner be defined by total voting power? If the proposed
Rule used total voting power to define beneficial ownership, should the
proposed Rule calculate total voting power to include all securities
for which the person, directly or indirectly, has or shares voting
power, which includes the power to vote or to direct the voting of such
securities, and any shares or units of which the person has the right
to acquire voting power within 60 days, including through the exercise
of any option, warrant or right, the conversion of a security, or other
arrangement, or, if securities are held by a member of the family,
through corporations or partnerships, or otherwise in a manner that
would allow a person to direct or control the voting of the securities
(or share in such direction or control as, for example, a co-trustee)?
Should the method of determining the amount of beneficial ownership set
forth in Exchange Act Rule 13d-3 be incorporated into paragraph
(b)(5)(i)(K)? Please explain.
    Q13. In addition to the information that is proposed to be required
under proposed paragraph (b)(5), is there other information relating to
an issuer or the trading of an issuer's security in the OTC market that
could help investors to make better-informed investment decisions and,
therefore, should be required to be made publicly available under
proposed paragraph (b)(5)? If so, please describe this information and
how it could be useful to investors.
    Q14. Are there any concerns with the proposal to require that the
information specified in proposed paragraph (b)(5)(i)(K) be publicly
available, in particular, the name of any officer as well as any person
who is, directly or indirectly, the beneficial owner of more than 10
percent of the outstanding units or shares of any class of any equity
security of the issuer? Please explain. If yes, how should those
concerns be resolved? Should proposed paragraph (b)(5)(i)(K) require a
higher, or lower, percentage of beneficial ownership of the outstanding
units or shares of any class of any equity security of the issuer? If
so, what percentage of beneficial ownership should proposed paragraph
(b)(5)(i)(K) use and why?
    Q15. Is it useful to continue to require that the broker-dealer
initiating the publication or submission of a quotation make the
information it obtains and reviews reasonably available to an investor
upon request even if such information must also be made publicly
available, as proposed? Should this existing requirement be modified to
require that any broker-dealer quoting the security must, upon request,
instruct an investor as to how to access such information?
    Q16. Are the time frames in proposed paragraph (b)(5)(i)(L)
regarding when the balance sheet, profit and loss statement, and
retained earnings statement would be current for purposes of this
section clear? If not, how should the proposed Rule be modified to
clarify the time frames for the balance sheet, profit and loss
statement, and retained earnings statement? Please explain. How do
broker-dealers calculate the dates for which the issuer's balance
sheet, profit and loss statement, and retained earnings statement are
reasonably current under existing paragraph (g)(1)? Is it difficult for
broker-dealers to determine what information they need to review under
existing paragraph (g)(1)? If so, please explain. Would the proposed
Rule make it more difficult for broker-dealers to determine what
information they need to review under proposed paragraph (b)(5)(i)(L)?
Please explain.
    Q17. Are there ways to reduce the administrative burdens associated
with the proposed Rule? In particular, are there changes to proposed
paragraph (b)(5)(i)(L) that would ease compliance with the proposed
Rule without minimizing investor protection? If so, please explain.
    Q18. Are there more streamlined requirements that could be used in
the proposed Rule? In particular, could the financial statement
requirements in proposed paragraph (b)(5)(i)(L) be simplified while
remaining consistent with the Rule's objective? Should the timing
requirements associated with the financial statements included in
proposed paragraph (b)(5)(i)(L) be simplified (e.g., all financial
statements must be ``as of'' a date within 12 calendar months before
the publication or submission of a broker-dealer's quotation)? If so,
please explain.
    Q19. How, and to what extent, would these proposed amendments
affect liquidity, transparency, and capital formation, particularly for
small issuers?

B. Proposed Amendments to Supplemental Information

1. Existing Supplemental Information Requirement
    The existing Rule requires that a broker-dealer consider
supplemental information about the issuer of an OTC security when
evaluating whether the required information is materially accurate. In
particular, paragraph (b) of the existing Rule requires a broker-dealer
that complies with the information review requirement to have in its
records (1) a record of the circumstances involved in the submission or
publication of such quotation,\65\ including the identity of the person
or persons for whom the quotation is being submitted or published and
any information regarding the transactions provided to the broker-
dealer by such person or persons; (2) a copy of any trading suspension
order or public release announcing such suspension issued by the
Commission pursuant to Section 12(k) of the Exchange Act during the 12
months preceding the date of the publication or submission of the
quotation; and (3) a copy or a written record of any other material
information (including adverse information) regarding the issuer which
comes to the broker's or dealer's knowledge or possession before the
publication or submission of the quotation.
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    \65\ The existing Rule includes a typographical error, stating
that the broker-dealer must keep a record of the circumstances
involved in the ``submission of publication of such quotation.''
Exchange Act Rule 15c2-11(b)(1). The rule text should instead say
``submission or publication of such quotation.'' The Commission is
proposing to correct this error as part of its proposed technical
edits, as described further below. For purposes of discussion, the
Commission will use ``or'' rather than ``of'' when discussing the
provisions of proposed paragraph (c).
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2. Proposed Amendments to Supplemental Information
    Existing paragraph (b) would be re-lettered to proposed paragraph
(c) and further amended to (1) add qualified IDQSs to the list of
market participants that must have in their records supplemental
information as specified by the Rule, and (2) revise the supplemental
information that broker-dealers and qualified IDQSs must have in their
records of a transaction involving company insiders.
(a) Supplemental Information for Qualified IDQSs
    The proposal would extend the existing obligations regarding
consideration of supplemental information to cover all market
participants that conduct the required review, including broker-dealers
and qualified IDQSs. This proposal is intended to preserve the
integrity of the OTC market and to promote investor protection by
helping to ensure that market participants consider material
information prior to the beginning of a quoted market.
    In light of the proposed review requirement for qualified IDQSs
contained in proposed paragraph (a)(2), the Commission is proposing to
add qualified IDQSs to the list of market participants that are
required to have in

their records the supplemental documents required by proposed paragraph
(c). Proposed paragraph (a) would require, therefore, that both broker-
dealers and qualified IDQSs have a reasonable basis under the
circumstances for believing, based on a review of proposed paragraph
(b) information, together with any supplemental information required by
proposed paragraph (c), that the proposed paragraph (b) information is
accurate in all material respects.
    Similar to the existing Rule, proposed paragraph (c) would not
require a broker-dealer or qualified IDQS to affirmatively seek
additional information about the issuer. The proposed Rule would
require, however, the broker-dealer or qualified IDQS to retain a copy
or a written record of material information, including adverse
information, regarding the issuer that comes to the knowledge or
possession of the broker, dealer, or qualified IDQS before the initial
publication or submission of a quotation.\66\
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    \66\ Proposed Rule 15c2-11(c)(3); see 1991 Adopting Release at
19151 n.28.
---------------------------------------------------------------------------

    In addition to applying to broker-dealers that provide the initial
publication or submission of quotations for a an OTC security, proposed
paragraph (c) would also apply to qualified IDQSs that make known to
others the quotation of a broker-dealer pursuant to proposed paragraph
(a)(2). If the provisions of proposed paragraph (c) were not to apply
to a qualified IDQS, the qualified IDQS would not need to consider
material information (including adverse information) of which it has
knowledge or possession. This modification to the Rule is designed to
help ensure that all market participants that comply with the
information review requirement would be subject to the same
requirements regarding supplemental information under the Rule,
including any adverse information regarding the issuer in the market
participant's knowledge or possession.
    The Commission anticipates that, similar to a broker-dealer that
conducts the required review, a qualified IDQS would be able to obtain
the supplemental information required by proposed paragraph (c) for it
to have in its records from several sources, including the issuer,
broker-dealers, or investors that desire a quoted market for an OTC
security. For example, a qualified IDQS might have a relationship with
the issuer, such that it may obtain supplemental information directly
from the issuer. Or, if a broker-dealer or investor requests that the
qualified IDQS conduct the review in proposed paragraph (a)(2), the
broker-dealer or investor could supply the qualified IDQS with
supplemental information.
(b) Supplemental Information for Company Insiders' Transactions
    The proposal would require that company insiders be identified. The
knowledge that a quotation is by or on behalf of a company insider
could aid investors by alerting the broker-dealer conducting the
required review to the possibility that the quotation is being made on
behalf of a person who may have a heightened incentive to manipulate
the price of the security.
    The Commission is proposing to require, in proposed paragraph
(c)(1), that the broker-dealer or qualified IDQS have a record of
instances when the person or persons for whom the initial publication
or submission of a quotation is being published is the issuer, chief
executive officer, a member of the board of directors, officer, or any
person, directly or indirectly, who is the beneficial owner of more
than 10 percent of the outstanding units or shares of any class of any
equity security of the issuer. The Commission believes that whether a
quotation is being published or submitted by a broker-dealer on behalf
of a company insider is important supplemental information for the
broker-dealer or qualified IDQS to evaluate because a company insider
might be able to influence or control the issuer of an OTC security.
    Additionally, proposed paragraph (c)(1) would require broker-
dealers and qualified IDQSs to retain a record of any information
regarding the transactions provided to the broker-dealer or qualified
IDQS by any person for whom the quotation is being published or
submitted. Circumstances may arise in which a qualified IDQS does not
have the supplemental information listed in proposed paragraph (c)(1)
because such information is specific to a quotation or a transaction,
and the qualified IDQS might not be involved in the publication or
submission of a quotation or a transaction in such security. However,
if a person provides this information to a qualified IDQS (e.g., the
person provides information to the qualified IDQS for the qualified
IDQS to comply with the information review requirement), the qualified
IDQS would be required to create a record of any information regarding
such transactions.
    While the Commission welcomes any public input on this topic, the
Commission asks commenters to consider the following questions:
    Q20. Proposed paragraph (c) would require that a broker-dealer
submitting or publishing a quotation or any qualified IDQS that makes
known to others the quotation of a broker-dealer pursuant to proposed
paragraph (a)(2) have in its records documents and information
concerning company insiders, trading suspensions, and any other
material information regarding the issuer that comes to the knowledge
or possession of the broker-dealer or qualified IDQS before the initial
publication or submission of a quotation. Are there other documents and
information that the broker-dealer or qualified IDQS should be required
to have in its records? Please explain.
    Q21. Currently, paragraph (b)(3) of the Rule requires that a
broker-dealer submitting or publishing a quotation have in its records
documents and information regarding material information (including
adverse information) regarding the issuer which comes to the broker-
dealer's knowledge or possession before the initial publication or
submission of the quotation. We seek comment concerning the type of
such information that most often falls within this existing paragraph
and frequency of such occurrences.
    Q22. Should proposed paragraph (c) require that a broker-dealer or
qualified IDQS, affirmatively seek additional information about the
issuer? Please explain. Should proposed paragraph (c)(3) use the terms
``actual knowledge'' or ``physical possession'' instead of the terms
``knowledge or possession''? Please explain.

C. Proposed Amendments to the Piggyback Exception

1. Existing Piggyback Exception and Fraudulent Activity
    Currently, broker-dealers do not have to comply with the Rule's
information review requirement if they can rely on the piggyback
exception. Under the existing piggyback exception, the Rule's
provisions do not apply when a broker-dealer publishes or submits, in
an IDQS, a quotation for an OTC security that was already the subject
of regular and frequent quotations in that IDQS (i.e., quotations must
have appeared on each of at least 12 days during the previous 30
calendar days, with no more than four consecutive business days in
succession without a quotation).\67\ Once

these requirements are met, a broker-dealer can ``piggyback'' on either
its own or other broker-dealers' previously published quotations.\68\
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    \67\ A broker-dealer may rely on the piggyback exception for a
submission or publication concerning a security only where that
submission or publication is made in an IDQS. Exchange Act Rule
15c2-11(f)(3). If a broker-dealer cannot rely on the piggyback
exception or any other exception to the Rule, the broker-dealer must
comply with the Rule for each quotation prior to publishing or
submitting such quotation in a quotation medium.
    \68\ Exchange Act Rule 15c2-11(f)(3); 1991 Adopting Release at
19156.
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    There are three ways that a broker-dealer can rely on the piggyback
exception to publish or submit quotations under the existing Rule.
First, a broker-dealer can rely on the exception if (1) the IDQS
identifies unsolicited customer quotations for a security as such and
(2) the security is continuously quoted on each of at least 12 days
within the first 30 calendar days after the initial publication of
quotations, with no more than four business days in succession without
a quotation.\69\ Second, a broker-dealer can rely on the exception if
(1) the IDQS does not identify unsolicited orders for a security as
such and (2) the security has been the subject of both bid and ask
quotations at specified prices on each of at least 12 days within the
first 30 calendar days after the initial publication of quotations,
with no more than four business days in succession without a
quotation.\70\ Third, once eligibility for the piggyback exception is
established, a market maker may continue to publish or submit
quotations in the IDQS pursuant to the exception until it stops quoting
or ceases acting as a market maker in that security.\71\ Under the
piggyback exception, in these three circumstances, broker-dealers may
publish or submit quotations without complying with the existing Rule's
information review requirement.
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    \69\ See Exchange Act Rule 15c2-11(f)(3)(i).
    \70\ See Exchange Act Rule 15c2-11(f)(3)(ii).
    \71\ See Exchange Act Rule 15c2-11(f)(3)(iii).
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    As a result of the piggyback exception, the first broker-dealer
publishing or submitting a quotation for a security is the only one
that has to comply with the Rule's information review requirement;
thereafter, any other broker-dealer can publish or submit quotations
for the security indefinitely, without complying with the information
review requirement, so long as the security is quoted in an IDQS on
each of at least 12 days within the previous 30 calendar days, with no
more than four consecutive business days without any quotations.\72\
Consequently, broker-dealers can rely on the piggyback exception to
publish or submit quotations for a security of a company that no longer
makes information publicly available or that has ceased operations and
no longer exists.\73\
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    \72\ See 1999 Reproposing Release at 11146.
    \73\ See Exchange Act Rule 15c2-11(f)(3)(i) and (ii); see also
Order of Trading Suspension (May 14, 2012), available at https://www.sec.gov/litigation/suspensions/2012/34-66980-o.pdf; Press
Release, SEC Microcap Fraud-Fighting Initiative Expels 379 Dormant
Shell Companies to Protect Investors From Potential Scams (May 14,
2012), https://www.sec.gov/news/press-release/2012-2012-91htm.
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    By relying on the existing piggyback exception to publish or submit
quotations for securities of companies that no longer make information
publicly available or that no longer exist, broker-dealers may sustain
the false appearance of an active market in the securities of these
issuers. In some cases, broker-dealers intentionally participate in
improper activities. For example, unscrupulous company insiders may
participate with a broker-dealer to publish quotations to perpetuate
the company insiders' fraud, or fraudsters may usurp the identity of
defunct or inactive publicly traded corporations.\74\
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    \74\ See Order of Suspension of Trading, Exchange Act Release
No. 57486 (Mar. 13, 2008) (suspending securities of 26 companies).
The Commission ordered the suspensions because of questions
regarding the adequacy and accuracy of information pertaining to
their status as publicly traded companies. Press Release, SEC
Suspends Trading of 26 Companies to Combat Corporate Hijackings
(Mar. 13, 2008), https://www.sec.gov/news/press/2008/2008-41.htm
(describing how the Commission suspended trading in the securities
of 26 companies that ``appear to have usurped the identity of
defunct or inactive publicly-traded corporations using a tactic
known as corporate hijacking'').
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    Another example of improper activity that arises in part due to
broker-dealers' ability to rely indefinitely on the piggyback exception
for these types of companies is the pump-and-dump scheme. By publishing
quotations, a broker-dealer raises the public profile of a security and
makes the security more accessible to investors.\75\ A broker-dealer
that publishes quotations in response to increased demand for the
security may further facilitate the generation of fictitious demand,
potentially helping perpetuate the fraud.\76\ For example, unscrupulous
market participants can create interest in a quoted OTC security by
issuing false or misleading statements into the marketplace. Broker-
dealers' continuous quotations for the security help create the
appearance of an active market, seemingly ``validating'' the price of
an essentially worthless or artificially inflated security.\77\ As the
security rises in price, the perpetrators of the fraud liquidate their
stake at an inflated price. Once the perpetrators have cashed out and
abandoned the security, the market price collapses, and innocent
investors are left holding securities with little or no value.\78\
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    \75\ Using data on daily dollar trading volume for quoted OTC
securities, the Commission observes that securities with published
two-way priced quotations were 3.34 times more likely to have
reported a positive dollar trading volume on a given day in 2018
relative to securities with only one-way priced or unpriced
published quotations. In addition, for those that were traded,
quoted OTC securities with two-way priced quotations reported on
average 3.05 times greater dollar trading volume than securities
with only one-way priced or unpriced published quotations. See infra
note 234 for a description of OTC securities data sources.
    \76\ See 1999 Reproposing Release at 11126.
    \77\ See id., 1999 Reproposing Release at 11125.
    \78\ Tao Li et al., Cryptocurrency Pump-and-Dump Schemes (Feb.
2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3267041.
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2. Proposed Amendments to the Piggyback Exception
    The amendments that the Commission is proposing are designed to
help curtail the use of the piggyback exception in connection with
potential manipulative and fraudulent schemes that are facilitated
through having false, stale, or misleading information in the OTC
market. The proposed amendments seek to address, among other things, a
particular vulnerability of the existing piggyback exception: Once
publications or submissions of quotations for securities meet the
requirements of the piggyback exception, broker-dealers may rely on the
piggyback exception to publish or submit quotations for those
securities in perpetuity, even in the absence of current or publicly
available information about the issuer of those securities.
    The Commission is proposing amendments to the piggyback exception
that are narrowly tailored to assist in reducing fraudulent and
manipulative activity while allowing broker-dealers to rely on the
piggyback exception when certain additional criteria are met. The
proposed amendments would permit broker-dealers to rely on the
piggyback exception for securities of catch-all issuers only when
information about the issuer is current and made publicly available.
The proposed amendments would also (1) restrict broker-dealers' ability
to rely on the piggyback exception by limiting the exception to
securities that have been the subject of both priced bid and priced ask
quotations in an IDQS, (2) require a cooling-off period following a
trading suspension to establish piggyback eligibility, (3) eliminate
broker-dealers' ability to rely on the piggyback exception to publish
or submit quotations for securities of ``shell companies,'' and (4)
revise the frequency of quotation requirement.

(a) Current and Publicly Available Information for Catch-All Issuers
    The proposal would condition reliance on the piggyback exception by
requiring that information for certain issuers, including issuers that
are not required to provide or file reports to the Commission, be
current and publicly available. This additional transparency is
intended to help retail investors make better-informed investment
decisions and more easily evaluate the issuer, its security, and the
market for the security.
    The existing disclosure requirements for prospectus issuers, Reg. A
issuers, reporting issuers, and exempt foreign private issuers specify
that the type of information required by proposed paragraphs (b)(1),
(b)(2), (b)(3), and (b)(4) must be publicly available.\79\ In contrast,
no statute or rule provides that information required by proposed
paragraph (b)(5) must be made publicly available. The Commission
believes that it would be more difficult for pump-and-dump schemes to
succeed if proposed paragraph (b)(5) information, excluding paragraphs
(b)(5)(i)(N) through (P), were current and made publicly available
within six months prior to a broker-dealer's publication or submission
of a quotation in an IDQS in reliance on the piggyback exception. The
public availability of catch-all issuer information that is current
would allow investors, who would not otherwise have access to this
information, the opportunity to review and analyze such information
more easily.
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    \79\ See, e.g., Exchange Act Rule 12g3-2(b).
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    The Commission is proposing to include a proviso in proposed Rule
15c2-11(f)(3)(ii) such that a broker-dealer may rely on the piggyback
exception to publish or submit a quotation for a catch-all issuer only
where proposed paragraph (b)(5) information, excluding paragraphs
(b)(5)(i)(N) through (P), is current and has been made publicly
available within six months before the date of publication or
submission of such quotation. The Commission is proposing to exclude
paragraphs (b)(5)(i)(N) through (P) from the required catch-all issuer
information that must be current and made publicly available for a
broker-dealer to rely on the piggyback exception because such
information pertains to individual quotations and broker-dealers and is
not issuer-specific. In this context, the Commission is specifically
focusing on catch-all issuer information because reporting issuers and
exempt foreign private issuers already are subject to ongoing
disclosure requirements under the federal securities laws.\80\
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    \80\ See Proposed Rule 15c2-11(f)(3); supra note 38. As
discussed above, the provisions of proposed paragraphs (b)(1) and
(b)(2) include specific time frames during which certain issuer
information (i.e., the issuer's prospectus or offering circular)
would be current, and the provisions of paragraphs (b)(1) and (b)(2)
apply only during the time frames that are identified in those
paragraphs. After such time has elapsed, the issuer would be either
a reporting issuer or a catch-all issuer, for purposes of the Rule,
depending on the issuer's regulatory status. See supra Part
III.A.2.g.
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    As discussed above, however, an issuer that does not comply with
its ongoing reporting or disclosure obligations would be, for purposes
of proposed Rule 15c2-11, a catch-all issuer because that issuer would
no longer fit within the provisions of proposed paragraphs (b)(3) or
(b)(4). Thus, if a reporting issuer or exempt foreign private issuer
fails to comply with its ongoing reporting or disclosure obligations, a
broker-dealer may not rely on the piggyback exception to publish or
submit quotations for a security of the issuer, unless the proposed
paragraph (b)(5) information is otherwise current and made publicly
available.\81\ In this circumstance, a broker-dealer would need to
ensure that proposed paragraph (b)(5) information were both current and
made publicly available before it could rely on the piggyback
exception.\82\ A delinquent reporting issuer or an exempt foreign
private issuer that has not made timely disclosure under Rule 12g3-2(b)
would continue to be a catch-all issuer until the reporting issuer
files or the exempt foreign private issuer timely publishes the
required information within the time frames identified in proposed
paragraph (b)(3) and (b)(4), respectively (e.g., the reporting issuer
is timely under the federal securities laws with respect to its
obligation to file periodic and current reports after it has filed its
most recent annual report).
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    \81\ See supra Part III.A.2.g.
    \82\ See supra Part III.A.2.g.
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    Requiring that proposed paragraph (b)(5) information, excluding
paragraphs (b)(5)(i)(N) through (P), be current and made publicly
available within the six months before the date of publication or
submission of a quotation in an IDQS for a broker-dealer to rely on the
piggyback exception would effectively require the publication of
proposed paragraph (b)(5) information semiannually. This proposed
requirement would help to improve transparency of information about
catch-all issuers and, therefore, should aid investors in making
investment decisions. As proposed, if catch-all issuer information were
no longer current or made publicly available, broker-dealers would no
longer be able to rely on the piggyback exception to quote the security
of that issuer. In such case, broker-dealers would need to comply with
the proposed Rule for each and every publication or submission of a
quotation, unless another exception to the Rule applies.
    The Commission believes that investors would benefit from the
information, and that the new requirement would not impose an undue
burden on broker-dealers. To mitigate the potential costs and burdens
that this proposal might have on broker-dealers, however, the
Commission is also proposing a new exception that would permit broker-
dealers to rely on third party determinations that the requirements of
an exception are met.\83\
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    \83\ See Proposed Rule 15c2-11(f)(8).
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    While the Commission welcomes any public input on this topic, the
Commission asks commenters to consider the following questions:
    Q23. Certain issuers choose not to have reporting obligations for
business purposes. The proposal, however, would require proposed
paragraph (b)(5) information from a catch-all issuer, excluding
paragraphs (b)(5)(i)(N) through (P), to be current and made publicly
available within six months before the date of publication or
submission of the broker-dealers' quotation in order for broker-dealers
to rely on the piggyback exception to publish or submit quotations for
the security of a catch-all issuer. Is six months the appropriate time
frame within which a market participant must have published proposed
paragraph (b)(5) information, excluding paragraphs (b)(5)(i)(N) through
(P)? If so, why? If six months is too short or too long of a time
frame, what should the time frame be and why? What are the potential
costs and benefits to small issuers of this requirement? For reporting
issuers that are delinquent in their reporting obligations (and are
treated as catch-all issuers), should the piggyback exception require a
shorter time frame, such as four months, for current information? Are
there alternative methods that could be used that would protect
investors while minimizing costs to issuers and broker-dealers?
    Q24. Would the six month time frame place an undue burden on small
issuers? Would the six month time frame discourage small issuers from
raising capital in the public markets? What are the potential costs and
benefits to small issuers of this six month time frame? What
alternative methods could be used to encourage quoted public

markets for securities of start-ups while also distinguishing them from
entities that are potential vehicles for fraudulent activity?
    Q25. Are there alternatives to limiting reliance on the piggyback
exception to publish or submit quotations for securities of catch-all
issuers when information is no longer made publicly available or
current that would benefit investors of quoted OTC securities? If so,
what are they?
    Q26. Should the piggyback exception not apply to publications or
submissions of quotations for securities of issuers that have declared
bankruptcy, filed for corporate dissolution, or otherwise taken steps