[Federal Register Volume 85, Number 208 (Tuesday, October 27, 2020)]
[Rules and Regulations]
[Pages 68124-68207]
[FR Doc No: 2020-20980]

Vol. 85

Tuesday,

No. 208

October 27, 2020

Part II

 Securities and Exchange Commission

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17 CFR Parts 230 and 240

 Publication or Submission of Quotations Without Specified Information;
Final Rule

Federal Register / Vol. 85 , No. 208 / Tuesday, October 27, 2020 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release Nos. 33-10842; 34-89891; File No. S7-14-19]
RIN 3235-AM54

Publication or Submission of Quotations Without Specified
Information

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (the ``SEC'' or the
``Commission'') is adopting amendments to Rule 15c2-11 (the ``Rule'')
under the Securities Exchange Act of 1934 (the ``Exchange Act''), which
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 amendments are designed to modernize
the Rule, promote investor protection, and curb incidents of fraud and
manipulation by, among other things: Requiring information about
issuers to be current and publicly available for broker-dealers to
quote their securities in the OTC market; narrowing reliance on certain
exceptions from the Rule's requirements, including the piggyback
exception; adding new exceptions for the quotations of securities that
may be less susceptible to fraud and manipulation; removing obsolete
provisions; adding new definitions; and making technical amendments.

DATES:
    Effective date: December 28, 2020. Compliance date: The compliance
dates are discussed in Part II.P of this release.

FOR FURTHER INFORMATION CONTACT: Laura Gold, Special Counsel, John
Guidroz, Branch Chief, James Curley, Theresa Hajost, Samuel Litz,
Patrice Pitts, Special Counsels, Elizabeth Sandoe, Senior Special
Counsel, Josephine Tao, Assistant Director, Office of Trading
Practices, and Mark Wolfe, Associate Director, Office of Derivatives
Policy and Trading Practices, and John Fahey, Senior Special Counsel,
Office of Chief Counsel, Division of Trading and Markets, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549, at
(202) 551-5777.

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

Table of Contents

I. Overview
II. Discussion of the Final Amendments
    A. Unlawful Activity
    1. Current and Publicly Available Issuer Information--Rule 15c2-
11(a)(1)(i)(B), (a)(2)(ii)
    2. Qualified IDQS That Complies With the Information Review
Requirement--Rule 15c2-11(a)(2)(i) Through (iv)
    3. Broker-Dealer That Relies on a Qualified IDQS's Publicly
Available Determination That It Complied With the Information Review
Requirement--Rule 15c2-11(a)(1)(ii)
    4. Policies and Procedures for Making Certain Publicly Available
Determinations--Rule 15c2-11(a)(3)
    B. Specified Information
    1. Current Reports--Rule 15c2-11(b)(3)(i) Through (iv)
    2. Reporting Issuer Provision--Rule 15c2-11(b)(3)
    3. Catch-All Issuer Information--Rule 15c2-11(b)(5)(i)
    4. Requirement To Make Catch-All Issuer Information Available
Upon Request--Rule 15c2-11(b)(5)(ii)
    5. Application of the Catch-All Issuer Provision--Rule 15c2-
11(b)(5)(ii)
    6. Specified Information Provision for Crowdfunding Issuers--
Rule 15c2-11(b)(3)(iii)
    C. Supplemental Information Requirement--Rule 15c2-11(c)
    D. Piggyback Exception
    1. Increased Transparency of Issuer Information--Rule 15c2-
11(f)(3)(i)(C)(1) through (3)
    2. One-Way Priced Quotations--Rule 15c2-11(f)(3)(i)(A)
    3. Following a Trading Suspension--Rule 15c2-11(f)(3)(i)(B)
    4. Shell Company Exclusion--Rule 15c2-11(f)(3)(i)(B)
    5. Frequency of Quotation Requirement--Rule 15c2-11(f)(3)(i)(A)
    6. Grace Period--Rule 15c2-11(f)(3)(ii)
    7. Removal of Certain Piggyback Exception Provisions Under the
Former Rule
    E. Unsolicited Quotation Exception--Rule 15c2-11(f)(2)
    F. ADTV and Asset Test Exception--Rule 15c2-11(f)(5)
    G. Underwritten Offering Exception--Rule 15c2-11(f)(6)
    H. Publicly Available Determination That an Exception Applies--
Rule 15c2-11(f)(7)
    I. Recordkeeping Requirement--Rule 15c2-11(d)
    J. Definitions
    1. Current--Rule 15c2-11(e)(2)
    2. Shell Company--Rule 15c2-11(e)(9)
    3. Publicly Available--Rule 15c2-11(e)(5)
    4. Qualified Interdealer Quotation System--Rule 15c2-11(e)(6)
    5. Company Insider--Rule 15c2-11(e)(1)
    K. Removal of Outdated Provisions
    L. Exemptive Authority--Rule 15c2-11(g)
    M. Technical Amendments
    N. Conforming Rule Change--Rule 144(c)(2)
    O. Guidance
    1. Introduction
    2. Source Reliability
    3. Information Review Requirement
    4. Examples of Red Flags
    P. Compliance Date
III. Comments on the Concept Release
    A. Information Repositories
    B. Other Issues
IV. Other Matters
V. 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
    2. Other Burden Hours
    3. Collection of Information Is Mandatory
    4. Confidentiality
    5. Retention Period of Recordkeeping Requirement
VI. Economic Analysis
    A. Background
    B. Baseline and Affected Parties
    1. Affected Parties
    2. Baseline
    C. Discussion of Economic Effects
    1. Effects of Rule 15c2-11 Amendments
    2. Efficiency, Competition, and Capital Formation
    D. Reasonable Alternatives
    1. Eliminating the Piggyback Exception
    2. Maintaining the Piggyback Exception for the Securities of
Non-Transparent Issuers
    3. Eliminating or Maintaining the Piggyback Exception for Shell
Companies
    4. Alternative Thresholds for Exceptions
    5. Quotations With Both Bid and Offer Prices for the Piggyback
Exception
    6. Alternative Required Frequency of Current and Publicly
Available Information
VII. Regulatory Flexibility Act Certification
VIII. Statutory Authority

I. Overview

    The Commission is adopting amendments to Rule 15c2-11, which sets
out certain requirements for a broker-dealer seeking to initiate (or
resume) quotations for securities in the OTC market.\1\ The amendments
are

designed to modernize the Rule and to enhance investor protection by
requiring that current and publicly available issuer information be
accessible to investors. Specifically, the amendments provide greater
transparency to the investing public by requiring information about the
issuer and its security \2\ to be current and publicly available before
a broker-dealer can begin quoting that security.
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    \1\ For purposes of this release, Rule 15c2-11, as amended, is
referred to as the ``amended Rule.'' 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-dealer in receiving bids or
offers from others for a security, or any indication by a broker-
dealer that wishes to advertise its general interest in buying or
selling a particular security. Amended Rule 15c2-11(e)(7). A
``quotation medium'' is defined as any ``interdealer quotation
system'' or 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. Amended Rule 15c2-11(e)(8). An ``interdealer
quotation system'' is defined as any system of general circulation
to brokers or dealers that regularly disseminates quotations of
identified broker-dealers. Amended Rule 15c2-11(e)(3). A ``national
securities exchange'' is an exchange, as defined under Section
3(a)(1) of the Exchange Act and Rule 3b-16 thereunder, that is
registered with the Commission under Sections 5 and 6 of the
Exchange Act. The amendments adopted do not change the definitions
of the terms ``quotation,'' ``quotation medium,'' and ``interdealer
quotation system'' under the Rule.
    \2\ This information is listed in paragraph (a) of the former
Rule and in paragraph (b) of the proposed Rule and amended Rule. For
purposes of this release, the documents and information specified in
paragraph (b) of the proposed Rule and amended Rule are referred to
as ``paragraph (b) information.''
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    Securities that trade in the OTC market are primarily owned by
retail investors.\3\ Many issuers of quoted OTC securities publicly
disclose current information about themselves.\4\ 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 investment decisions. A lack
of current and public information about these companies disadvantages
retail investors because it may prevent them from estimating return
probabilities and generating positive returns in OTC stocks.\5\ It can
contribute to incidents of fraud and manipulation by preventing retail
investors from being able to counteract misinformation.\6\ A majority
of the Commission enforcement cases involving allegations of fraudulent
behavior in the OTC securities market has involved delinquent filings,
which result in a lack of current, accurate, or adequate information
about an issuer.\7\ As broker-dealers play an integral role in
facilitating investor access to OTC securities and serve an important
gatekeeper function, Rule 15c2-11 is designed to prevent fraud and
manipulation by requiring that broker-dealers review key, basic
information about an issuer before initiating a quoted market in an OTC
security. In practice, however, certain of the Rule's outdated
exceptions often have resulted in a quoted market for the securities of
issuers for which there is no current and publicly available
information for analysis by market participants, including broker-
dealers and retail investors. In some cases, a quoted market may
continue for the securities of issuers that no longer exist or have
ceased operations.\8\ Providing greater transparency of OTC issuers to
retail investors so that they can make better-informed investment
decisions and counteract misinformation promotes the Commission's
important mission of protecting investors.\9\
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    \3\ See Andrew Ang et al., Asset Pricing in the Dark: The Cross-
Section of OTC Stocks, 26 Rev. Fin. Studs. 2985-3028 (2013).
    \4\ See infra Part VI.B.2.b, Table 3 (describing how, of the
9,895 companies that issue securities that are quoted in the OTC
market, 6,886 of those issuers have public information available).
    \5\ See, e.g., Joshua T. White, Outcomes of Investing in OTC
Stocks (Dec. 16, 2016), https://www.sec.gov/files/White_OutcomesOTCinvesting.pdf.
    \6\ See Rajesh Aggarwal & Guojun Wu, Stock Market Manipulations,
79 J. Bus. 1915 (2006); Thomas Renault, Market Manipulation and
Suspicious Stock Recommendations on Social Media, Universite Paris I
Pantheon-Sorbonne--Centre d'Economie de la Sorbonne (Dec 20, 2017),
https://ssrn.com/abstract=3010850; infra Part VI.C.1.a.
    \7\ For instance, one study looked at a broad sample of
litigated securities cases between January 2005 and June 2011 and
identified 1,880 cases involving OTC securities and 1,157 cases
involving securities listed on national securities 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) (``We stress the fact that litigated cases of
fraud are not necessarily representative of actual cases of fraud.
The difference between actual cases and litigated cases depend on
rule setting (listing standards and exchange trading rules),
surveillance (the people and technology available to detect fraud),
and the quality of enforcement (the process and expenditures to
enable cases to go forward and the effectiveness of courts).''); see
also infra Part VI.B.2.c.
    \8\ See Publication or Submission of Quotations Without
Specified Information, Exchange Act Release No. 87115, at 7-8 (Sept.
25, 2019), 84 FR 58206, 58207 (Oct. 30, 2019) (``Proposing Release''
or the ``proposal'').
    \9\ See Proposing Release at 58210-11 (discussing key regulatory
approaches that the Commission has implemented to combat retail
investor fraud).
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    Further, the OTC market has changed significantly since the Rule
was initially adopted in 1971\10\ (approximately 49 years ago) and last
substantively amended in 1991 (over 29 years ago).\11\ For example, use
of the internet is much more widespread today than it was when the Rule
was last substantively amended. In 1991, it was significantly more
difficult to obtain information about issuers of OTC securities and to
continuously update and widely disseminate quotations for OTC
securities. The internet and other forms of electronic communication
and innovation have made it far less costly and burdensome to access,
update, and disseminate information on a global scale.
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    \10\ 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).
    \11\ 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'').
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    Responding to these developments, and as part of the Commission's
overall efforts to protect retail investors from fraud and
manipulation,\12\ the Commission is adopting amendments that are
designed to modernize the Rule to: (1) Promote investor protection by
providing greater transparency to the investing public regarding
issuers of OTC securities, (2) facilitate capital formation for issuers
for which information is current and publicly available, and (3) reduce
unnecessary burdens on broker-dealers and enhance the efficiency of the
OTC market.
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    \12\ See supra note 9.
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    The amended Rule continues to require a broker-dealer to obtain and
review basic information about an issuer of an OTC security before
initiating or resuming a quoted market in the issuer's security.\13\
The amended Rule also continues to require the broker-dealer to have a
reasonable basis for believing that the information about the issuer,
when considered along with any supplemental information, is accurate
and from a reliable source. In addition to broker-dealers, under the
amended Rule, qualified interdealer quotation systems (each, a
``qualified IDQS'') \14\ are permitted to comply with the information
review requirement, and broker-dealers may rely upon a qualified IDQS's
publicly available determination that it has complied with the
information review requirement to publish or submit a quotation to
initiate or resume a quoted market in an issuer's security.
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    \13\ For purposes of this release, the term ``information review
requirement'' refers to the requirement for broker-dealers and
qualified interdealer quotation systems to obtain and review certain
issuer information before a broker-dealer publishes a quotation for
a security in the absence of an exception.
    \14\ See infra Part II.J.4 for a discussion of the proposed
definition of the term ``qualified interdealer quotation system''
and how that term is defined in the amended Rule.
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    The information review requirement in the amended Rule includes
additional provisions that are designed to enhance transparency of
issuer information and help to foster the integrity of the OTC market.
Importantly, the amended Rule requires that the documents and
information that a broker-dealer or qualified IDQS reviews generally
must be current and publicly available. The amended Rule specifies
under paragraph (b) the documents and information that must

be reviewed with respect to issuers, including a new provision to
recognize companies that issue securities in reliance on Regulation
Crowdfunding (``crowdfunding issuers''), and expands the list of
documents and information that must be reviewed for certain other types
of issuers. In addition, the amended Rule requires that a broker-dealer
or qualified IDQS identify whether the quotation is published on behalf
of the issuer or a company insider and also expands the list of market
participants that must review supplemental information to comply with
the information review requirement to include qualified IDQSs.
    The amended Rule contains several exceptions to the information
review requirement. The amended Rule continues to provide an exception
that permits broker-dealers to publish a quotation for unsolicited
customer orders without complying with the information review
requirement.\15\ However, the amendments to the Rule prohibit broker-
dealers from relying on this exception for an affiliate of the issuer
or a company insider, unless information about the issuer is current
and publicly available. This exception, as amended, permits a broker-
dealer to rely on a representation from the customer's broker that such
customer is not an affiliate of the issuer or a company insider.
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    \15\ See Amended Rule 15c2-11(f)(2).
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    The amended Rule also adds three new exceptions. First, the amended
Rule adds an exception for highly liquid securities of well-capitalized
issuers if the security meets a multi-prong test involving the
security's worldwide average daily trading volume value and its
issuer's total assets and shareholders' equity.\16\ Second, the amended
Rule adds an underwritten offerings exception for quotations for a
security by a broker-dealer that is named as an underwriter in the
registration statement or offering statement for such security.\17\
Finally, the amended Rule adds an exception to permit broker-dealers to
rely on publicly available determinations by a qualified IDQS or a
registered national securities association that the requirements of
certain other exceptions are met.\18\ The qualified IDQS or registered
national securities association must establish, maintain, and enforce
reasonably designed written policies and procedures with respect to
making the determinations.
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    \16\ See Amended Rule 15c2-11(f)(5).
    \17\ See Amended Rule 15c2-11(f)(6).
    \18\ These exceptions are the exchange-traded security
exception, the municipal security exception, the ``piggyback''
exception, and the exception for the highly liquid securities of
well-capitalized issuers. See Amended Rule 15c2-11(f)(7).
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    In addition, the amended Rule modifies the ``piggyback'' exception,
which allows a broker-dealer to rely on the quotations of another
broker-dealer that initially complied with the information review
requirement.\19\ The amended Rule permits broker-dealers to rely on the
piggyback exception based on at least a one-way priced quotation, so
long as there are no more than four business days in succession without
a quotation,\20\ and prohibits reliance on the exception if the issuer
of the security is a shell company after a certain prescribed period or
was the subject of a trading suspension order issued by the Commission
until 60 calendar days after the expiration of such order.\21\ The
exception also now requires issuer information to be, depending on the
regulatory status of the issuer, one of the following: (1) Current and
publicly available, as defined by the amended Rule; (2) timely filed
(i.e., filed by the prescribed due date for a report or statement as
required by an Exchange Act or Securities Act reporting obligation); or
(3) filed within 180 calendar days from a specified period. The
exception also now includes a grace period that permits broker-dealers
to continue quoting the securities for a limited period of up to 15
calendar days once a qualified IDQS or register national securities
association makes a publicly available determination that issuer
information is no longer current and publicly available, timely filed,
or filed within 180 calendar days from the applicable specified time
frame. The piggyback exception no longer requires that there be
quotations on each of at least 12 days within the previous 30 calendar
days to establish piggyback eligibility.
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    \19\ See Amended Rule 15c2-11(f)(3). Once the requirements of
this exception are met, a broker-dealer can ``piggyback'' on either
its own or other broker-dealers' previously published quotations.
    \20\ See Amended Rule 15c2-11(f)(3)(i)(A). The piggyback
exception under the amended Rule no longer includes provisions
contained in the piggyback exception under the former Rule for: (1)
A broker-dealer quotation in an IDQS that does not identify the
quotation as an unsolicited quotation, which provision permitted
broker-dealers to publish or submit quotations in reliance on the
piggyback exception in an IDQS that did not make known to others
unsolicited quotations; and (2) self-piggybacking by market makers,
which provision permitted broker-dealers to publish or submit
quotations in reliance on their own quotations if all of the other
requirements of the piggyback exception were met.
    \21\ See Amended Rule 15c2-11(f)(3)(i)(B).
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    Generally, under the amended Rule, broker-dealers, qualified IDQSs,
and a national securities association must preserve the applicable
documents and information they reviewed, including to demonstrate
reliance on an exception and in relation to publicly available
determinations, for at least three years, the first two years in an
easily accessible place.\22\ These entities are not required to
preserve documents and information available on the Commission's
Electronic Data Gathering, Analysis, and Retrieval System
(``EDGAR'').\23\ A broker-dealer that publishes a quotation in reliance
on a publicly available determination of a qualified IDQS or a
registered national securities association need only preserve a record
of the name of such qualified IDQS or registered national securities
association.\24\
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    \22\ The requirement for broker-dealers and other entities to
keep certain records that support their compliance with the
information review requirement or reliance on an exception, as
applicable, is referred to throughout this release as the
``recordkeeping requirement.''
    \23\ See Amended Rule 15c2-11(d)(1), (2).
    \24\ See Amended Rule 15c2-11(d)(2)(ii).
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    The amended Rule also adds definitions for the terms ``company
insider,'' ``current,'' ``publicly available,'' ``qualified interdealer
quotation system,'' and ``shell company.'' \25\ Finally, the Commission
is providing guidance regarding source reliability and the information
review requirement, with modifications to incorporate and update the
red flags guidance provided in 1999.\26\
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    \25\ See Amended Rule 15c2-11(e).
    \26\ See 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'').
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II. Discussion of the Final Amendments

    In general, the final amendments: (1) Provide greater transparency
to retail investors and other market participants regarding issuers of
quoted OTC securities, (2) limit the use of certain exceptions under
the Rule to better protect retail investors from fraud and
manipulation, and (3) add new exceptions to reduce unnecessary burdens
on broker-dealers and to enhance the efficiency of the OTC market. As
discussed in greater detail below, commenters supported many aspects of
the proposal. For example, commenters stated that the proposal would
help to modernize the Rule, better protect investors by facilitating
increased availability of issuer information for OTC securities and
their issuers,\27\ and make the OTC market

more efficient.\28\ Some commenters supported the amendments as
proposed.\29\ Many commenters generally supported amending the Rule to
better protect investors but suggested certain changes to the
proposal,\30\ including, for example, to permit broker-dealers to
publish quotations for securities of issuers whose paragraph (b)
information is current and publicly available on an annual basis, as
opposed to on a six-month basis, to maintain a quoted market in such
issuers' securities.\31\
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    \27\ Letter from Marcia E. Asquith, Executive Vice President,
Board and External Relations, Financial Industry Regulatory
Authority, Inc., to Vanessa Countryman, Sec'y, SEC (Feb. 11, 2020)
(``FINRA Letter''); Letter from Ted Haberfield, Chairman &
President, MZHCI, LLC, to SEC (Sept. 2, 2020) (``MZ Letter'');
Letter from John B. Lowy, P.C., to SEC (July 26, 2020) (``Lowy
Letter''); see Letter from Gerald Adler, Adler Silverberg PLLC, to
SEC (Mar. 3, 2020) (``Adler Silverberg Letter''); Sherwood E. Neiss,
Co-founder, GUARDD and Principal, Crowdfund Capital Advisors,
Douglass S. Ellenoff, Esq., Co-founder, GUARDD and Founding Partner,
Ellenoff Grossman & Schole LLP, James P. Dowd, CPA, CFA, Co-founder
GUARDD and CEO North Capital Private Securities Corporation, GUARDD,
Inc., to Div. Trading & Mkts., SEC (Jan. 13, 2020) (``GUARDD
Letter''); Letter from Aseel M. Rabie, Managing Director and
Associate General Counsel, and Bernard V. Canepa, Vice President and
Assistant General Counsel, Securities Industry and Financial Markets
Association, to Vanessa Countryman, Sec'y, SEC (Dec. 23, 2019)
(``SIFMA Letter''); Letter from James Toes, President and CEO, and
Chris Halverson, Chairman of the Board, Security Traders
Association, to Vanessa Countryman, Sec'y, SEC (Jan. 23, 2020)
(``STA Letter''); Letter from Robert Verderese, Head of Cash
Trading, Virtu Financial, to Vanessa Countryman, Sec'y, SEC (Feb. 7,
2020) (``Virtu Letter'') (stating that stocks that meet the
definition of a penny stock and are not providing current
information would not be eligible for quoting under the Rule);
Letter from Andrew F. Viles, U.S. General Counsel, Canaccord Genuity
LLC, to Vanessa Countryman, Sec'y, SEC (Mar. 20, 2020) (``Canaccord
Letter'').
    \28\ Letter from William F. Galvin, Sec'y of the Commonwealth,
Commonwealth of Massachusetts, to Vanessa Countryman, Sec'y, SEC
(Dec. 30, 2019) (``Massachusetts Letter''); Letter from Sherry J.
Sandler, Global OTC, to Vanessa Countryman, Sec'y, SEC (Mar. 3,
2020) (``Global OTC Letter''); see MZ Letter.
    \29\ Steven Barber (Dec. 30, 2019); Barry Gleicher (Nov. 7,
2019); Massachusetts Letter.
    \30\ See, e.g., R. Cromwell Coulson, CEO, OTC Mkts. Grp. Inc.
(May 6, 2020) (citing R. Cromwell Coulson, Exploring the Investor
Impact of an SEC Rule Proposal, Traders Magazine (May 1, 2020),
available at https://www.tradersmagazine.com/departments/regulation/exploring-the-investor-impact-of-an-sec-rule-proposal/) (``Coulson
Comment''); FINRA Letter; Global OTC Letter; Letter from Peter
Goldstein, Managing Member, Exchange Listing LLC, to Vanessa
Countryman, Sec'y, SEC (May 8, 2020) (``Exchange Listing Letter'');
Letter from Sara Hanks, CEO, CrowdCheck, Inc., to Vanessa
Countryman, Sec'y, SEC (May 22, 2020) (``CrowdCheck Letter'');
Letter from Joseph M. Lucosky, Managing Partner, Lawrence Metelitsa,
Partner, and Scot E. Linsky, Counsel, Lucosky Brookman LLP, to SEC
(May 29, 2020) (``Lucosky Brookman Letter''); Letter from David
Menn, CEO, MCAP LLC, to Vanessa Countryman, Sec'y, SEC (May 15,
2020) (``MCAP Letter''); Richard Revelins, Executive Director,
Peregrine Corporate Limited (July 10, 2020) (``Peregrine Comment'');
Letter from Robin Sosnow, Managing Partner, & Manuel Pesendorfer,
Attorney, Sosnow & Associates PLLC, to Vanessa Countryman, Sec'y,
SEC (May 14, 2020) (``Sosnow & Associates Letter''); SIFMA Letter;
STA Letter; Letter from Louis Taubman, Partner, Hunter Taubman
Fischer & Li LLC, to Vanessa Countryman, Sec'y, SEC (May 28, 2020)
(``HTFL Letter''); Virtu Letter.
    \31\ See, e.g., Letter from Stephen M. Brophy, President, Aztec
Land and Cattle Company, Limited, to SEC (Dec. 27, 2019) (``Aztec
Letter''); Brett Dorendorf (Nov. 23, 2019); Al Gonzalez, President,
Beacon Redevelopment Industrial Corp. (Dec. 8, 2019) (``Beacon
Redevelopment Letter''); Michael Hess (Sept. 27, 2019); Doug Mohn
(Nov. 8, 2019); Ariel Ozick (Dec. 30, 2019); Robert E. Schermer, Jr.
(Dec. 20, 2019); Tom H. Sleeter, Chief Investment Officer, Total
Clarity Wealth Management, Inc. (``Total Clarity Comment''); Letter
from David Waters, President, Alluvial Capital Management, LLC (Oct.
9, 2019) (``Alluvial Letter'').
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    Other commenters, however, believed that the proposal would not be
effective in deterring fraud and manipulation, including pump-and-dump
schemes,\32\ and stated that the proposal was too broad and overly
expansive.\33\ For example, one commenter stated its belief that the
proposal would not effectively deter fraud but would negatively affect
liquidity in the OTC market, which, according to this commenter,
ultimately would impair capital formation.\34\
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    \32\ Laura Coffman (Nov. 7, 2019); Alexandra Elliott (Oct. 10,
2019); Christian Gabis (Nov. 26, 2019); Letter from Ari Rubenstein,
Co-Founder and Chief Executive Officer, Global Trading Systems, LLC,
to Vanessa Countryman, Sec'y, SEC (Feb. 26, 2020) (``GTS Letter'');
Reid McKenzie (Oct. 31, 2019); Joshua Marino (Oct. 4, 2019); Letter
from James E. Mitchell, General Partner, Mitchell Partners, L.P., to
Vanessa Countryman, Sec'y, SEC (Oct. 9, 2019) (``Mitchell Partners
Letter 1''); Letter from Erik S. Nelson, President, Coral Capital
Partners, Inc., to Vanessa Countryman, Sec'y, SEC (Dec. 30, 2019)
(``Coral Capital Letter''); Virtu Letter; see Christopher J. DiIorio
(Feb. 4, 2020).
    \33\ Coral Capital Letter; Ron Lefton (Nov. 11, 2019); Letter
from Jon Norberg, to Chairman Clayton (Nov. 19, 2019) (``Norberg
Letter''); Debby Valentijn (Dec. 21, 2020). Another commenter
highlighted that, because there are many different types of
companies in the OTC market, the proposed regulatory solutions are
not always effective. Mitchell Partners Letter 1; see John Gardiner,
President and CEO, Taranis Resources, Inc. (Mar. 4, 2020) (``Taranis
Comment''); GTS Letter.
    \34\ Coral Capital Letter.
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    As discussed further below, the Commission agrees that there may be
a negative impact on liquidity for dark issuers (i.e., issuers that do
not make their information publicly available) as a result of broker-
dealers not being able to continuously quote their securities and
understands that existing shareholders of non-reporting issuers may be
negatively impacted from the loss of a quoted market for such
securities, even if the securities migrate to the grey market.\35\ The
Commission, however, believes that the amendments should incentivize
issuers to make their information current and publicly available to
allow broker-dealers to continuously quote their securities.\36\ As
discussed further below, the Commission believes the amendments will
enhance transparency overall, which will facilitate price discovery,
provide investors with information that will allow them to make better-
informed investment decisions and help counteract misinformation about
the issuers of such securities that can contribute to incidents of
fraud and manipulation.\37\ The Commission further believes that this
requirement, in combination with the addition of new, targeted
exceptions, will enhance the efficiency of the OTC market.\38\
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    \35\ The Commission, however, believes that the potential for
such harm would be limited by the ability of broker-dealers to rely
on exceptions to publish quotations, including the unsolicited
quotation exception, and the ability of existing shareholders to
continue to trade their securities. See infra note 216 and
accompanying text.
     The Commission does not expect the amended Rule to affect the
liquidity and pricing of securities in the entire OTC market, as
this commenter stated. A delinquent reporting issuer's security
could experience a discount in price resulting from the risk that
the issuer may not file its required report within 180 days from the
end of a specified period. In such case, as discussed below in Part
II.D.1, broker-dealers would not be able to rely on the piggyback
exception to publish or submit quotations for such issuer's security
if its paragraph (b) information were not ``current'' and ``publicly
available.'' This scenario involving a particular subset of OTC
securities is not expected to affect the liquidity and pricing of
all quoted securities in the OTC market because individual
securities in the OTC market generally are not included in a market
index or benchmark that would be affected by any one security's
liquidity or pricing. Further, to the extent an OTC security is
included in an index or benchmark, such an index or benchmark would
require that issuer information be current and publicly available.
See, e.g., OTC Markets Indices, OTC Mkts. Grp. Inc., https://www.otcmarkets.com/market-activity/indices (last visited Aug. 31,
2020).
    \36\ See infra Part VI.C.1.a.
    \37\ Several academic studies have found that higher levels of
disclosure are associated with higher levels of liquidity in the OTC
markets. See infra Part VI.C.1.
    \38\ See infra Part VI.C.1.a, c.
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    Other commenters stated that additional regulation would make it
more expensive to trade OTC securities.\39\ The Commission believes, as
discussed below, that the amended Rule contains provisions that help
mitigate costs associated with quoting OTC securities (e.g., the
ability for a broker-dealer to rely on publicly available
determinations of a qualified IDQS or a registered national securities
association, new exceptions to broker-dealers' compliance with the
information review requirement, and flexibility to make current
information about an issuer publicly available on any of several
different websites).
---------------------------------------------------------------------------

    \39\ Frank Danna, III (Nov. 10, 2019); James Duade (Dec. 26,
2019); Christian Gabis.
---------------------------------------------------------------------------

    Some commenters stated that the Rule should be left as is.\40\
Specifically, some commenters stated that the amendments are
unnecessary because, according to

these commenters, investors are aware of the risks when they buy OTC
securities,\41\ other Commission rules and regulations have superseded
the original purpose of Rule 15c2-11,\42\ and state law already
provides investor protections that the proposal seeks to provide.\43\
While investor protections can be provided through a variety of means
(e.g., from sales practice rules to registration requirements), the
specific manner in which Rule 15c2-11 governs the publication or
submission of broker-dealers' quotations in a quotation medium serves
to cement the broker-dealer's role as a gatekeeper for many investors,
including retail investors, to the OTC market. Further, as discussed
above, in light of technological developments that have transformed the
OTC market since the Rule was adopted and last substantively amended,
the Commission believes that it is appropriate to update and modernize
the Rule with the goals of providing greater transparency and better
combatting fraud.
---------------------------------------------------------------------------

    \40\ Letter from Steven Erickson, CFA, Anbec Partners, LP, to
Hon. Jay Clayton, Chairman, SEC (Oct. 23, 2019) (``Anbec Partners
Letter''); Ariel Ozick; Michael E. Reiss (Oct. 25, 2019).
    \41\ David Aldridge (Oct. 1, 2019); R. Berkvens (Oct. 3, 2019);
Dana Blanc (Oct. 10, 2019); Joe Helmer, CFA, Caldwell Sutter Capital
(Dec. 24, 2019) (``Caldwell Sutter Capital Comment''); Frank Danna,
III; Ralf Erz (Oct. 8, 2019); Philippe Goodwill (Oct. 1, 2019);
Letter from Matthew Kerchner, CFA, Terravoir Venture, to Hon. Jay
Clayton, Chairman, SEC (Nov. 25, 2019) (``Terravoir Venture
Letter''); Richard Kogut (Oct. 8, 2019); Aharon Levy (Oct. 12,
2019); Tracy Michaels (Sept. 30, 2019); Michael E. Reiss; Robert
Ringelberg (Oct. 13, 2019); Jim Rivest (Sept. 29, 2019); Letter from
David Sanders, to SEC (Oct. 10, 2019) (``Sanders Letter''); Thomas
Schiessling (Oct. 30, 2019); Lucas H. Selvidge (Oct. 23, 2019);
Kevin Ward (Oct. 8, 2019); see Philippe Goodwill. Another commenter
specified that broker-dealers require purchasers of OTC stocks to
sign multiple agreements and disclaimers before they are eligible to
purchase OTC stocks and that broker-dealers require annual income
qualifications and tax bracket verification when opening accounts.
Letter from Darian Andersen, General Counsel, P.C., to Vanessa
Countryman, Sec'y, SEC (Dec. 23, 2019) (``Andersen Letter'').
    \42\ See Letter from James J. Angel, Ph.D., CFA, Associate
Professor of Finance, Georgetown University, McDonough School of
Business, to SEC (Jan. 24, 2020) (``Professor Angel Letter'').
    \43\ Letter from Douglas Raymond, Drinker Biddle & Reath (Nov.
21, 2019) (``Drinker Letter'').
---------------------------------------------------------------------------

    Another commenter stated that, instead of amending the Rule, the
Commission should focus on enforcing rules governing market makers.\44\
Some commenters stated that the Commission should instead focus its
enforcement efforts on bad actors.\45\ For example, one commenter
stated that the most effective way to protect retail investors is by
suspending trading in securities that are implicated in conduct that
appears suspicious or ``illegitimate.'' \46\ For the reasons discussed
throughout this release, the Commission believes that the amended Rule
is an important tool to combat fraud and manipulation and enhance
investor protection, in addition to trading suspensions and other
enforcement actions.
---------------------------------------------------------------------------

    \44\ Hans Brost (Nov. 15, 2019).
    \45\ See, e.g., Caldwell Sutter Capital Comment; Exchange
Listing Letter; Braxton Gann (Oct. 11, 2019); Joshua Marino; Daniel
Raider (Oct. 2, 2019); see Canaccord Letter.
    \46\ Canaccord Letter.
---------------------------------------------------------------------------

    While certain of the Commission's initiatives to protect investors
involve addressing 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.\47\ The Commission
believes that the amendments facilitate such efforts by, for example,
addressing the lack of current and publicly available information about
companies to the disadvantage of retail investors in comparison to
other market participants.\48\ The amendments are narrowly tailored to
further the Commission's ongoing effort to protect retail investors
from fraud and manipulation in the OTC market, maintain the integrity
of the OTC market, promote a more efficient and effective OTC market,
and facilitate capital formation for issuers that make their
information current and publicly available.\49\
---------------------------------------------------------------------------

    \47\ See Proposing Release at 58210.
    \48\ Id. For example, the Commission stated in the Proposing
Release its concern that market participants can take advantage of
exceptions from the Rule's information review requirement to the
detriment of retail 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. See id. at 58208.
    \49\ See infra Part VI.C.2.
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    The Commission is adopting substantially as proposed several
amendments to the Rule, as discussed above. However, the Commission has
modified the proposed Rule in a number of respects. Summarized below
are key modifications from the proposal:
     Piggyback Exception. The Commission is adopting the
proposed amendments to the piggyback exception with several targeted
modifications: Requiring at least a one-way priced quotation (as
opposed to two-way priced quotations); \50\ removing from the exception
the 30-calendar-day window but still requiring that no more than four
days in succession elapse without a quotation; \51\ permitting broker-
dealers to rely on the piggyback exception to publish quotations for
the security of a shell company for the 18 months following the initial
priced quotation for an issuer's security that is published or
submitted in an IDQS; \52\ and providing a limited, conditional grace
period to permit broker-dealers to continue to rely on the piggyback
exception to publish quotations for an issuer in certain instances when
the issuer's paragraph (b) information ceases to be, depending on the
regulatory status of the issuer, current and publicly available, timely
filed, or filed within 180 calendar days from a specified time
frame.\53\
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    \50\ Amended Rule 15c2-11(f)(3)(i)(A).
    \51\ Amended Rule 15c2-11(f)(3)(i)(A). As discussed above, the
former Rule required that 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. Former Rule 15c2-11(f)(3)(i), (ii).
    \52\ See Amended Rule 15c2-11(f)(3)(i)(B)(2).
    \53\ See Amended Rule 15c2-11(f)(3)(ii).
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     Specified Information. The Commission is adopting a
provision to clarify that issuers that make filings pursuant to
Regulation Crowdfunding are reporting issuers for purposes of the
Rule.\54\ For catch-all issuers, the Commission is also: (1) Expanding
the list of information specified in paragraph (b) to include the
address of the issuer's principal place of business, the state of
incorporation of each of the issuer's predecessors (if any), the ticker
symbol of the issuer's security (if assigned), and the title of each
company insider; \55\ and (2) requiring the issuer's most recent
balance sheet to be as of a date less than 16 months before the
publication or submission of a broker-dealer's quotation and the
issuer's profit and loss and retained earnings statements to be for the
12 months preceding the date of the most recent balance sheet.\56\
---------------------------------------------------------------------------

    \54\ Amended Rule 15c2-11(b)(3)(iii).
    \55\ See paragraphs (b)(5)(i)(B), (C), (D), and (K) of the
amended Rule, respectively, for such requirements.
    \56\ See Amended Rule 15c2-11(b)(5)(i)(L). As discussed below in
Part II.B.3, the Commission has determined not to adopt the proposed
requirement for a catch-all issuer's balance sheet that is not as of
a date less than six months before the publication or submission of
the broker-dealer's quotation to be accompanied with profit and loss
and retained earnings statements for the period from the date of
such balance sheet to a date that is less than six months before the
publication or submission of the quotation.
---------------------------------------------------------------------------

     Unsolicited Quotation Exception. The Commission is
limiting reliance on the exception for a quotation on behalf of either
a company insider, as proposed, or an affiliate of the issuer if the
issuer's paragraph (b) information is not current and publicly
available; modifying the exception to permit broker-dealers to rely on
a written representation from a customer's broker that such customer is
not a company insider or an affiliate; \57\ and clarifying

that broker-dealers may rely on a publicly available determination by a
qualified IDQS or a registered national securities association that an
issuer's information is current and publicly available.\58\
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    \57\ See Amended Rule 15c2-11(f)(2)(iii)(A). While the
Commission proposed this limitation with respect to quotations that
are published or submitted on behalf of company insiders, the
amended Rule also applies this limitation with respect to affiliates
of the issuer.
    \58\ See Amended Rule 15c2-11(f)(2)(iii)(B).
---------------------------------------------------------------------------

     ADTV and Asset Test Exception. The Commission is
clarifying in the rule text that the worldwide ADTV value must be
``reported'' and eliminating the term ``unaffiliated'' from the
shareholders' equity prong of the three-part test.\59\
---------------------------------------------------------------------------

    \59\ See infra Part II.F.
---------------------------------------------------------------------------

     Publicly Available Determination That an Exception
Applies. The Commission is adopting the proposed exception for a
broker-dealer to rely on a qualified IDQS's or registered national
securities association's publicly available determination that an
exception applies; however, the Commission is not adopting the
provision in the exception that would have required a qualified IDQS or
registered national securities association to make a publicly available
determination that an issuer's information is current and publicly
available in addition to its determination that an exception
applies.\60\ The Commission is adding a new provision that a qualified
IDQS or a registered national securities association that makes certain
publicly available determinations must establish, maintain, and enforce
certain reasonably designed written policies and procedures.\61\ The
Commission is making conforming changes in the rule text to clarify
that a broker-dealer may rely on publicly available determinations
regarding the exception for exchange-traded securities, the piggyback
exception, the exception for municipal securities, and the ADTV and
asset test exception.\62\
---------------------------------------------------------------------------

    \60\ See Proposed Rule 15c2-11(f)(8)(i).
    \61\ Amended Rule 15c2-11(a)(3). The Commission, therefore, is
not adopting in each of the exceptions that reference a publicly
available determination the proposed requirement for a qualified
IDQS or a national securities association to make a publicly
available determination that it ``has'' certain reasonably designed
written policies and procedures, as proposed paragraph (f)(8)(iii)
would have required.
    \62\ See Amended Rule 15c2-11(f)(7).
---------------------------------------------------------------------------

     Location of Publicly Available Specified Information. The
Commission is expanding the list of locations where issuer information
may be made publicly available to include (in addition to EDGAR and the
website of a qualified IDQS, a registered national securities
association, an issuer, and a broker-dealer) the website of: (1) A
state or federal agency, and (2) an electronic delivery system that is
generally available to the public in the primary trading market of a
foreign private issuer.\63\
---------------------------------------------------------------------------

    \63\ Amended Rule 15c2-11(e)(5).
---------------------------------------------------------------------------

A. Unlawful Activity

1. Current and Publicly Available Issuer Information--Rule 15c2-
11(a)(1)(i)(B), (a)(2)(ii)
    The Commission is adopting, largely as proposed, the amendment that
requires an issuer's paragraph (b) information to be current and
publicly available \64\ for a broker-dealer to publish or submit an
initial quotation for that issuer's security. Consistent with the
proposed Rule, the amended Rule provides that the particular
information that a broker-dealer must obtain and review is determined
by an issuer's regulatory status: Whether the issuer (1) filed a
registration statement under the Securities of Act of 1933 (a
``prospectus issuer''), (2) filed an offering statement under
Regulation A \65\ (a ``Reg. A issuer''), (3) is subject to the periodic
reporting requirements of the Exchange Act, Regulation A or Regulation
Crowdfunding, or is the issuer of a security covered by Section
12(g)(2)(G) of the Exchange Act (a ``reporting issuer''), or (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''). Such issuers are subject to statute- or rule-based
disclosure and reporting requirements under the federal securities
laws. An issuer that does not fall within any of these categories and
is generally not subject to similar statute- or rule-based disclosure
and reporting requirements under the federal securities laws is
referred to as a ``catch-all issuer.'' \66\ Consistent with the
proposed Rule, the amended Rule requires that an issuer's paragraph (b)
information be current and publicly available for all issuers,
including catch-all issuers, for a broker-dealer to initiate or resume
a quoted market in an issuer's security.\67\
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    \64\ For purposes of this release, the terms ``current'' and
``publicly available'' have the same meaning as their definitions in
paragraphs (e)(2) and (e)(5) of the amended Rule, respectively. See
infra Part II.J.1. The definition of the term ``current'' as used in
this release may differ from its meaning in other Commission rules
(e.g., Securities Act Rule 144).
    \65\ See Rules 251 and 252 of Regulation A. The proposal used
the term ``notification'' instead of ``offering statement'' to refer
to the specified information for a Reg. A issuer, and the Commission
is making a technical edit in the amended Rule to use the term
``offering statement'' to be consistent with Regulation A. See
Amended Rule 15c2-11(b)(2).
    \66\ For purposes of this release, the term ``catch-all issuer''
refers to issuers for which documents and information are specified
in paragraph (b)(5) of the proposed Rule and amended Rule. As
discussed in more detail below, this term refers to an issuer for
which the documents and information specified in paragraphs (b)(1)
through (b)(4) of the proposed Rule or amended Rule do not apply. As
discussed below in Part II.B.5, the amended Rule treats reporting
issuers that are delinquent in their filing obligations (i.e., their
paragraph (b) information is not ``current'') as catch-all issuers
only for purposes of initiating or resuming a quoted market in these
issuers' securities. However, other catch-all issuers may have no
Exchange Act or Securities Act reporting or disclosure obligation
whatsoever.
    \67\ Specifically, the amended Rule requires an issuer's
paragraph (b) information (excluding, in the case of a catch-all
issuer, the documents and information specified in paragraphs
(b)(5)(i)(N) through (P)) to be current and publicly available. See
Amended Rule 15c2-11(a)(1)(i)(B), (a)(2)(ii). Paragraph (b)
information must be current and publicly available, consistent with
(1) a broker-dealer's determination, as part of its compliance with
the information review requirement, that an issuer's paragraph (b)
information is current and publicly available or a qualified IDQS's
publicly available determination that it has complied with the
information review requirement, including the requirement in
paragraph (a)(2)(ii) that the issuer's paragraph (b) information is
current and publicly available; and (2) the broker-dealer publishing
or submitting a quotation within three business days after it
complies with the information review requirement or the qualified
IDQS makes such publicly available determination. As discussed below
in Part II.A.3, this three-business-day requirement is designed to
promote the commencement of a quoted market in a security
concomitant with current information about the issuer of that
security.
---------------------------------------------------------------------------

    The Commission sought comment about the proposal's requirement that
an issuer's paragraph (b) information be current and publicly available
for a broker-dealer to publish or submit, after complying with the
information review requirement or after relying on the review performed
by a qualified IDQS,\68\ an initial quotation for that issuer's
security in a quotation medium.\69\

Certain commenters supported the principle of increased access to
issuer information to support informed investment decisions,\70\
observing that the internet has created new ways of accessing and
storing information, as well as the rise of online brokerages, which
has made trading securities easier and less expensive than it was when
the Rule was last substantively amended.\71\ The Commission also
received comments that did not support increased transparency; in
particular, the Commission received numerous comments on the proposed
requirement for an issuer's paragraph (b) information to be current and
publicly available to remain eligible for the piggyback exception, as
discussed below in Part II.D.1. However, the Commission did not receive
any comments specifically relating to the proposed requirement for
current and publicly available information in the context of publishing
or submitting an initial quotation for an issuer's security. The
Commission is adopting this provision related to broker-dealers'
initial quotations largely as proposed.
---------------------------------------------------------------------------

    \68\ For purposes of this release, the ``proposed qualified IDQS
review exception'' refers to the proposed exception provided in
paragraph (f)(7) of the proposed Rule. The ability of a broker-
dealer to initiate or resume a quoted market in a security in
response to a qualified IDQS's publicly available determination that
it complied with the information review requirement is substantively
adopted; however, this provision no longer appears as an exception
under paragraph (f) of the amended Rule and, instead, appears in the
amended Rule's unlawful activity provision under paragraph
(a)(1)(ii). For a discussion of this amendment, see infra Part
II.A.3.
    \69\ Proposed Rule 15c2-11(a)(1)(ii), (a)(2)(ii). While the
Commission proposed to require that an issuer's paragraph (b)
information be current and publicly available for a broker-dealer to
rely on certain exceptions to publish or submit quotations for that
issuer's security (e.g., the proposed amendments to the piggyback
exception), paragraph (a) of the proposed Rule and the amended Rule
address broker-dealers' initial quotations that are published or
submitted to commence a quoted market once they have either complied
with the information review requirement or relied on a qualified
IDQS's publicly available determination that it complied with the
information review requirement.
    \70\ See, e.g., Letter from Christopher Gerold, President, North
American Securities Administrators Association, Inc., to Vanessa
Countryman, SEC (Dec. 27, 2019) (``NASAA Letter''); Letter from
Brenda Hamilton, Hamilton & Associates Law Group, P.A., to Vanessa
Countryman, Sec'y, SEC (Oct. 15, 2019) (``Hamilton & Associates
Letter''); Josh Lawler, Partner, Zuber Lawler & Del Duca LLP (Feb.
24, 2020) (``Zuber Lawler Letter''); Michael E. Reiss; Jim Rivest;
Robert E. Schermer, Jr.; Michael Tofias (Oct. 21, 2019); see Peter
Kniffin (Oct. 12, 2019); Sosnow & Associates Letter.
    \71\ See Hamilton & Associates Letter (``The result has been the
entry of large numbers of new investors into the once-obscure OTC
market. Revisions to the Rule are long overdue.''); see Dana Blanc;
Doug Mohn.
---------------------------------------------------------------------------

    As discussed below in relation to the piggyback exception, the
Commission believes that the public availability of an issuer's
paragraph (b) information helps to alleviate concerns that limited or
no information for certain OTC issuers, such as catch-all issuers,
exists or that such information is difficult for retail investors to
find.\72\ However, the Commission also believes that the amended Rule's
requirement that an issuer's paragraph (b) information be current and
publicly available for a broker-dealer to quote the issuer's security
should not result in an obligation for the public availability of
current information for catch-all issuers that is more onerous than the
disclosure obligations for reporting issuers under the federal
securities laws. The Commission believes that this is important because
not all catch-all issuers have a reporting or disclosure obligation
under the federal securities laws, and catch-all issuers' paragraph (b)
information might not be updated more frequently than annually if the
issuer's state or local disclosure regulations do not impose such a
requirement. Accordingly, the Commission has made a modification to the
proposed information review requirement for broker-dealers to publish
or submit initial quotations. For broker-dealers to publish or submit
initial quotations (and also for broker-dealers to rely on the
piggyback exception, as discussed below), the Commission is not
requiring certain financial information for catch-all issuers to be as
of a date less than six months of the publication or submission of a
broker-dealer's quotation for a catch-all issuer's security.\73\
Instead, the Commission is requiring that the issuer's: (1) Most recent
balance sheet must be as of a date less than 16 months before the
publication or submission of the broker-dealer's quotation, and (2)
profit and loss and retained earnings statements must be as of a date
for the 12 months preceding the date of such balance sheet.\74\
Consistent with the proposed Rule, the amended Rule provides that, for
a broker-dealer to initiate or resume a quoted market in a catch-all
issuer's security, the catch-all issuer information specified in
paragraph (b)(5)(i), excluding the issuer's financial information
described above, must be as of a date within 12 months before the
publication or submission of the quotation.\75\
---------------------------------------------------------------------------

    \72\ See, e.g., Ulf Br[uuml]ggemann 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 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). In addition, increasing the public availability of
current information about OTC issuers has the potential to
counteract misinformation, which can proliferate through promotions
and other channels. See infra Part VI.B.2.c.
    \73\ See infra Part II.B.3.
    \74\ See Amended Rule 15c2-11(b)(5)(i)(L); see also infra Part
II.J.1.
    \75\ See Amended Rule 15c2-11(b)(5)(i).
---------------------------------------------------------------------------

2. Qualified IDQS That Complies With the Information Review
Requirement--Rule 15c2-11(a)(2)(i) Through (iv)
    The Commission is expanding the scope of market participants that
may comply with the information review requirement.\76\ Paragraph
(a)(2) of the amended Rule permits a qualified IDQS to make known to
others the publication or submission of a quotation by a broker-dealer
that relies on a qualified IDQS's compliance with the information
review requirement, so long as certain criteria are met (a ``qualified
IDQS review quotation'').\77\ The qualified IDQS that makes known to
others the quotation of a broker-dealer that is published or submitted
pursuant to paragraph (a)(1)(ii) of the amended Rule must first have
complied with paragraphs (a), (b), and (c) of the amended Rule, which
require the qualified IDQS to review the issuer's paragraph (b)
information and any of its supplemental information in compliance with
the information review requirement. In addition, a qualified IDQS that
complies with the information review requirement must also comply with
the recordkeeping requirement in paragraph (d)(1)(i)(B) of the amended
Rule.
---------------------------------------------------------------------------

    \76\ See Proposing Release at 58212. Consistent with the
proposal, paragraph (a)(2) of the amended Rule does not impose an
affirmative obligation on a qualified IDQS to comply with the
information review requirement; rather, paragraph (a)(2) makes it an
unlawful activity for a qualified IDQS to make known to others the
publication or submission of a quotation by a broker-dealer that
relies on the qualified IDQS's compliance with the information
review requirement, unless the qualified IDQS has obtained and
reviewed the applicable specified issuer documents and information
in compliance with the information review requirement and made a
publicly available determination of such compliance.
    \77\ Amended Rule 15c2-11(a)(2). The definition of the term
``qualified interdealer quotation system'' under the amended Rule is
discussed below in Part II.J.4.
---------------------------------------------------------------------------

    The Commission proposed to permit a qualified IDQS to make known to
others the publication or submission of a qualified IDQS review
quotation.\78\ The Commission also proposed to define the term
``qualified interdealer quotation system'' to mean any IDQS that meets
the definition of an ``alternative trading system'' (an ``ATS'') 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.'' \79\ Under the proposed Rule, broker-dealers would have
been able to publish or submit quotations based on their reliance on a
qualified IDQS's publicly available determination that it complied with
the information review requirement.\80\ In addition, under the proposed
Rule, the activities that satisfy the information review requirement
that

would apply to a qualified IDQS (i.e., obtaining and reviewing the
applicable paragraph (b) information and supplemental information)
would be the same as those that would apply to a broker-dealer.\81\
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    \78\ See Proposing Release at 58213.
    \79\ Proposed Rule 15c2-11(e)(5).
    \80\ See Proposing Release at 58213; see also Proposed Rule
15c2-11(f)(7).
    \81\ See Proposing Release at 58213.
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    The Commission sought comment about the proposed amendment to
permit qualified IDQSs to comply with the information review
requirement.\82\ This aspect of the proposal received no comment in
opposition, and commenters who supported the proposal stated that it
expands the types of entities that may comply with the information
review requirement, modernizes the information review process, and
makes the process more efficient.\83\ The Commission has determined to
adopt this provision substantially as proposed, with technical
edits.\84\
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    \82\ Proposed Rule 15c2-11(a)(2).
    \83\ See, e.g., Letter from James Berns, Berns & Berns, to
Vanessa Countryman, Sec'y, SEC (Aug. 31, 2020); Coral Capital
Letter; CrowdCheck Letter; see also HTFL Letter; Lowy Letter.
    \84\ The amended Rule replaces the phrase ``required by'' with
``specified in'' and adds the word ``the'' to the requirement that
``[s]uch qualified interdealer quotation system ha[ve] in its
records the documents and information specified in paragraph (b) of
this section . . . .'' Amended Rule 15c2-11(a)(2)(i) (emphasis
added). Paragraph (a)(2) of the amended Rule also includes the
phrase ``for publication'' to mirror the text of paragraph (a)(1),
updates the cross-reference to paragraph (a)(1)(ii) of the amended
Rule, and removes in three instances the word ``and.''
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    A qualified IDQS's requirements under paragraph (a)(2) of the
amended Rule mirror the requirements for broker-dealers under paragraph
(a)(1) of the amended Rule.\85\ The amended Rule's recordkeeping
requirements for broker-dealers and qualified IDQSs should aid in
Commission oversight of compliance with the Rule's provisions. Finally,
the notice and reporting requirements for an IDQS that operates as an
ATS under the Exchange Act contribute to the Commission's effective
oversight of ATSs.
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    \85\ The shell company limitation in paragraph (f)(7)(i) of the
proposed qualified IDQS review exception is not incorporated into
the information review requirement for qualified IDQSs under the
amended Rule. The Commission believes that the investor protections
provided from a qualified IDQS's compliance with the information
review requirement for a shell company helps to ensure that a quoted
market for its security is less susceptible to fraudulent or
manipulative schemes because the qualified IDQS must have a
reasonable basis for believing that the shell company's information
is accurate in all material respects and from a reliable source
before a broker-dealer can initiate or resume a quoted market in the
shell company's security.
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3. Broker-Dealer That Relies on a Qualified IDQS's Publicly Available
Determination That It Complied With the Information Review
Requirement--Rule 15c2-11(a)(1)(ii)
    The Commission is adopting a new provision in the amended Rule to
allow broker-dealers to rely on a qualified IDQS's publicly available
determination that it complied with the information review
requirement.\86\ The amended Rule, consistent with the proposed Rule,
sets forth certain criteria for a broker-dealer to publish or submit a
quotation in reliance on a qualified IDQS's compliance with the
information review requirement.
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    \86\ See Amended Rule 15c2-11(a)(1)(ii).
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    The Commission sought comment about the proposal for an exception
to permit a broker-dealer to publish or submit a qualified IDQS review
quotation.\87\ The Commission received comment supporting this
provision.\88\ Commenters who supported the proposed exception stated
that it would: (1) Reduce burdens for broker-dealers by expanding the
scope of entities that may comply with the information review
requirement, (2) modernize and make the Rule more efficient, and (3)
promote more competition to improve the overall process.\89\ One
commenter also stated that the qualified IDQS review exception should
be collapsed into the Rule's unlawful activity provision to simplify
the Rule.\90\
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    \87\ Proposed Rule 15c2-11(f)(7). The Commission stated that the
proposed exception would have reduced the burden on broker-dealers
in connection with initiating or resuming a quoted market in an OTC
security. Under the proposed exception: (1) A broker-dealer would
need to have published or submitted a quotation within three
business days after the qualified IDQS made its determination
publicly available, and (2) broker-dealers could rely on the
exception only during the 30 calendar days after the first quotation
was published or submitted in reliance on the proposed exception.
These timing requirements were intended, among other things, to
ensure that the broker-dealer would commence a quoted market shortly
after the qualified IDQS makes the applicable publicly available
determination and to provide an opportunity for the broker-dealer to
establish the frequency of quotations that the proposed amendments
to the piggyback exception would require. See Proposing Release at
58231. Further, the proposed exception would not have applied if the
issuer of a security were a shell company. See Proposed Rule 15c2-
11(f)(7)(i).
    \88\ Coral Capital Letter (stating that the exception should
apply to the securities of shell companies and penny stocks);
Canaccord Letter; Letter from Daniel Zinn, General Counsel, and Cass
Sanford, Associate General Counsel, OTC Mkts. Grp. Inc., to SEC
(Nov. 25, 2019) (``OTC Markets Group Letter 1''); Letter from Daniel
Zinn, General Counsel, and Cass Sanford, Associate General Counsel,
OTC Mkts. Grp. Inc., to SEC (Dec. 30, 2019) (``OTC Markets Group
Letter 2''); Letter from F. Mark Reuter, Partner, Keating, Muething
& Klekamp (Dec. 13, 2019) (``Keating Letter''); SIFMA Letter.
Commenters also supported the proposal with respect to publicly
available determinations that issuer information is current and
publicly available. Zuber Lawler Letter.
    \89\ Coral Capital Letter; see Keating Letter.
    \90\ See Letter from Daniel Zinn, General Counsel, and Cass
Sanford, Associate General Counsel, OTC Mkts. Grp. Inc., to SEC
(Apr. 8, 2020) (``OTC Markets Group Letter 3''). This commenter also
suggested a reordering of the Rule such that there would no longer
exist a need to distinguish between initial versus ongoing quoting
requirements, according to the commenter. Id.
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    The Commission is adopting new paragraph (a)(1)(ii) of the amended
Rule,\91\ which substantively is the same as the proposed exception to
permit broker-dealers to rely on a qualified IDQS's publicly available
determination that it complied with the information review
requirement.\92\ Specifically, this provision requires a broker-
dealer's quotation to be published or submitted within three business
days after the qualified IDQS makes a publicly available
determination.\93\ Unlike the proposed Rule, the amended Rule does not
include a 30-calendar-day limitation for broker-dealers to rely on a
qualified IDQS's publicly available determination.\94\ To ensure that
there is current issuer information at the initiation of a quoted
market in such issuer's security, the Commission has determined to
adopt the proposed requirement that a broker-dealer's quotation must be
published within three business days of the qualified IDQS making
publicly available its determination. This three-business-day window is
designed to help ensure that there is a very limited time period
between the information review conducted by the qualified IDQS and the
first quotation published or submitted by a broker-dealer in reliance
on the qualified IDQS's publicly available determination that it
complied with the information review requirement.\95\ As discussed
below,

broker-dealers that publish quotations pursuant to paragraph (a)(1)(ii)
need only to preserve the name of the qualified IDQS that made the
publicly available determination that it has complied with the
information review requirement.\96\
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    \91\ This provision is substantively the same as that in the
proposed exception but is achieved through different means; the
amended Rule provides this ability in a single place, under the
unlawful activity provision, while the proposed Rule largely
provided this through an exception. The amendments as modified are
designed to streamline the amended Rule and facilitate compliance.
    \92\ See Proposed Rule 15c2-11(f)(7).
    \93\ See infra note 95 (stating that this three-business-day
window is consistent with the time frame specified for the required
manner in which current reports must be obtained under paragraph
(b)(3) of the amended Rule).
    \94\ As discussed below in Part II.D.5, the piggyback exception
under the amended Rule no longer has a timing requirement of 30
calendar days following the initiation (or resumption) of a quoted
market for securities to establish piggyback eligibility.
    \95\ The requirement for a broker-dealer's quotation to be
published within three business days of the qualified IDQS making
publicly available its determination is consistent with the time
frame specified for the required manner in which current reports
must be obtained under amended Rule 15c2-11(b)(3), as discussed
below in Part II.B.1. Further, this three-business-day window is
designed to take account of the fact that certain issuer information
(e.g., a current report) is not filed at regular intervals.
Accordingly, the three-business-day window provides a limited time
frame during which a quoted market for an issuer's security can be
initiated following the potential disclosure of new information
about the issuer. This requirement that a broker-dealer's quotation
be published within three business days of the qualified IDQS making
its publicly available determination applies equally for publicly
available determinations across all issuers, including those that do
not have a reporting or disclosure obligation under the federal
securities laws, to promote the investor protections that result
from the commencement of a quoted market in a security concomitant
with current information about the issuer of that security.
    \96\ See infra Part II.I (discussing the recordkeeping
requirement).
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    In response to a comment stating that entities other than a broker-
dealer or a qualified IDQS should be able to comply with the
information review requirement,\97\ the Commission does not believe
that it would be appropriate to further expand the scope of entities
that may comply with the Rule's information review requirement. The
Commission's oversight of, and regulatory requirements for, broker-
dealers and qualified IDQSs under the Exchange Act would help to
promote compliance with the information review requirement and enhance
investor protection.\98\ Other commenters stated that the Rule should
permit broker-dealers to rely on the determination of a qualified IDQS:
(1) To initiate quotes in these securities without requiring a broker-
dealer or qualified IDQS to file a separate Form 211 with the Financial
Industry Regulatory Authority (``FINRA''),\99\ and (2) to publish
subsequent quotations without the 30-calendar-day ``piggyback
eligibility'' period following the initial quotation.\100\ One
commenter requested clarification on whether a qualified IDQS would
need to submit a Form 211 to FINRA for a broker-dealer to rely on a
qualified IDQS's publicly available determination that it complied with
the information review requirement before it could publish a quotation
for some or all categories of securities.\101\ The requirement to file
a Form 211 falls under FINRA Rule 6432. The amended Rule does not
impose obligations with respect to FINRA Rule 6432 and does not require
qualified IDQSs, or broker-dealers relying on a qualified IDQS's
publicly available determination that an exception applies, to file
Forms 211 with FINRA. During and after the transition period, the
Commission will continue to monitor the operation of this market and
expects FINRA to do the same, including through examinations of
qualified IDQSs. The Commission's staff expects to work with FINRA on
an ongoing basis regarding the implementation of the amended Rule.\102\
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    \97\ Coral Capital Letter.
    \98\ See Proposing Release at 58236.
    \99\ Canaccord Letter; STA Letter; Virtu Letter.
    \100\ Letter from Laura Anthony, Anthony L.G., PLLC, to SEC
(Feb. 26, 2020) (``Anthony Letter''); Letter from Leonard Burningham
to SEC (Dec. 30, 2019), and Letter from Leonard Burningham to SEC
(Dec. 30, 2019) (collectively, the ``Leonard Burningham Letters'');
OTC Markets Group Letter 2; OTC Markets Group Letter 3 (advocating
for an elimination of the three-business-day requirement for
reliance on the exception); SIFMA Letter.
    \101\ FINRA Letter (stating that its current rules do not
contemplate that a qualified IDQS would be required to submit a Form
211 to FINRA and that the Form 211 includes a certification
attesting that the submitting broker-dealer has not accepted and
will not accept payments from the issuer of the security to be
quoted for market making, which applies to the filing of a Form
211).
    \102\ As discussed below in Part II.P, the Commission staff
intends to offer assistance and support to covered entities during
the transition period and thereafter, with the aim of helping to
ensure that the investor protections and other benefits of the
amended Rule are implemented in an efficient and effective manner.
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4. Policies and Procedures for Making Certain Publicly Available
Determinations--Rule 15c2-11(a)(3)
    The Commission has determined to require a qualified IDQS or
registered national securities association that makes certain publicly
available determinations in accordance with the amended Rule to
establish, maintain, and enforce reasonably designed written policies
and procedures associated with making such a determination. Such
publicly available determinations may pertain to whether: (1) An
issuer's paragraph (b) information is current and publicly available
for purposes of the unsolicited quotation exception,\103\ (2) the
piggyback exception's grace period applies,\104\ or (3) the
requirements of a certain exception (i.e., the exchange-traded security
exception, the piggyback exception, the municipal security exception,
or the ADTV and asset test exception) are met.\105\ Under the proposed
Rule, the qualified IDQS or registered national securities association
would have had to make a publicly available determination that it has
reasonably designed policies and procedures in place and being
maintained and enforced to determine whether the applicable paragraph
(b) information is current and publicly available, and that the
requirements of an exception are met.\106\
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    \103\ See Amended Rule 15c2-11(f)(2)(iii)(B).
    \104\ See Amended Rule 15c2-11(f)(3)(ii)(A).
    \105\ See Amended Rule 15c2-11(f)(7).
    \106\ Proposing Release at 58232; see Proposed Rule 15c2-
11(f)(8)(iii).
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    Commenters expressed general concern that the proposal would weaken
Commission oversight of compliance with the Rule.\107\ The Commission
is strengthening the proposed Rule's policies and procedures
requirements for making such publicly available determinations. Instead
of requiring a qualified IDQS or registered national securities
association to make a publicly available determination that it ``has''
reasonably designed policies and procedures, the amended Rule requires
such entities to establish, maintain, and enforce reasonably designed
written policies and procedures to make the particular publicly
available determination.
---------------------------------------------------------------------------

    \107\ See, e.g., Steven Gereau, Mayfair Plastics Inc. (Sept. 30,
2019); Tom Prenger (Sept. 30, 2019).
---------------------------------------------------------------------------

    Specifically, paragraph (a)(3) under the amended Rule requires a
qualified IDQS or registered national securities association that makes
a publicly available determination regarding whether issuer information
is current and publicly available, and, in some instances, whether the
requirements of an exception are met, to establish, maintain, and
enforce reasonably designed written policies and procedures to
determine whether: (1) Paragraph (b) information is current and
publicly available, and (2) the requirements of the paragraph (f)(7)
exception are met.\108\ The obligation to establish, maintain, and
enforce written policies and procedures specified in paragraph (a)(3)
of the amended Rule is designed to help promote the integrity of such
publicly available determinations and to facilitate Commission
oversight of the qualified IDQS or registered national securities
association that makes them.
---------------------------------------------------------------------------

    \108\ Amended Rule 15c2-11(a)(3). Paragraph (a)(3) of the
amended Rule applies to registered national securities associations
(and qualified IDQSs) that make publicly available determinations,
but a registered national securities association is not eligible to
comply with the information review requirement, as provided in
paragraphs (a)(1)(i)(A) through (C) and (a)(2)(i) through (iii) of
the amended Rule.
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B. Specified Information

1. Current Reports--Rule 15c2-11(b)(3)(i) Through (iv)
    The Commission is adopting as proposed\109\ the requirement that a

broker-dealer or a qualified IDQS obtain current reports as of a date
up to three business days before the publication or submission of the
quotation in connection with the information review requirement.\110\
The Commission proposed to update and streamline the timing requirement
for obtaining certain reports about material events affecting the
issuer of a quoted security, such as a Form 8-K or Form 6-K, in
connection with the information review requirement.\111\ Prior to the
amendment, the Rule required that a broker-dealer obtain such reports
on the earlier of five business days before: (1) The initial
publication or submission of a quotation; or (2) the date of submission
of certain information pursuant to applicable rules of FINRA or its
successor.\112\
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    \109\ See Proposing Release at 58214. The proposed Rule would
revise the timing requirement from five business days to three
business days and would streamline the timing standard associated
with obtaining current reports by removing the requirement regarding
a broker-dealer's demonstration of its compliance with the Rule by
filing a form (i.e., a Form 211) with FINRA, which must be received
at least three business days before the broker-dealer's quotation is
published or displayed in a quotation medium. Thus, 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 before the
initial publication or submission of a quotation. The proposed
timing requirement was intended to reflect that, in today's market,
reports, such as a Form 8-K, are easily accessible and can be
obtained in a timely manner. In addition, the proposed requirement
to obtain all current reports as of a certain date is related to the
initiation or resumption of a quoted market for a security, not to
the requirements of applicable FINRA rules for a broker-dealer to
submit certain information to FINRA. See id. These changes were
intended to require broker-dealers and qualified IDQSs to obtain
current reports closer in time to the initial publication or
submission of a quotation.
    \110\ Amended Rule 15c2-11(b)(3)(i) through (iii).
    \111\ Proposed Rule 15c2-11(b)(3)(i) through (iii). Current
reports filed with the Commission include, but are not limited to,
current reports on Form 8-K pursuant to Section 13 or 15(d) of the
Exchange Act and current reports on Form 1-U pursuant to Rule
257(b)(4) of Regulation A. See Proposing Release at 58214 n.58.
    \112\ Former Rule 15c2-11(d)(2)(i). The timing standard for
obtaining current reports in paragraph (d)(2)(i) of the former Rule
was incorporated, with a modification, into paragraphs (b)(3)(i)
through (iii) of the proposed Rule.
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    In response to the proposal, one commenter expressed concern that
the proposal imposed a requirement to wait three business days before
publishing quotations,\113\ while another suggested that the Commission
remove the three-day-window.\114\ After consideration of these
comments, the Commission has determined to adopt the provision as
proposed. As discussed in the Proposing Release, events that require
the filing of current reports, such as a Form 8-K or Form 6-K,
generally involve material events affecting an issuer.\115\ The three-
business-day period recognizes that current reports are not filed at
regular intervals, and thus removing the entire period would be
impractical. For example, a reporting issuer might file a current
report, such as a Form 8-K, minutes before a broker-dealer publishes a
quotation for such security. Therefore, the amended Rule, like the
proposed Rule, provides a period during which such recently filed
current reports will not be required paragraph (b) information for
issuers that have a reporting obligation under Section 13 or 15(d) of
the Exchange Act or Regulation A, although the amended Rule shortens
the former Rule's five-day period to a three-day period.
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    \113\ See Coral Capital Letter.
    \114\ OTC Markets Group Letter 3.
    \115\ See Proposing Release at 58214.
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    This amendment is not designed to serve as a waiting period, as one
commenter suggested,\116\ but rather as a cutoff date at which a
broker-dealer is not required to consider a more recently filed current
report to comply with the information review requirement prior to
publishing or submitting a quote. For example, a broker-dealer could
publish a quotation on the same day that it complies with the
information review requirement or on the same day that a qualified IDQS
makes a publicly available determination that it has complied with the
information review requirement. The Commission believes that removing
the three-business-day period would create an impractical result and
require broker-dealers and qualified IDQSs to continuously monitor for
the filing of current reports with the Commission in the three business
days leading up to the publication or submission of a broker-dealer's
quotation. The three-business-day period provides a degree of certainty
in regard to compliance burdens for the uncertain timing surrounding
current reports, while at the same time shortening the previously
existing period to better achieve the Commission's goals.
---------------------------------------------------------------------------

    \116\ See Coral Capital Letter.
---------------------------------------------------------------------------

2. Reporting Issuer Provision--Rule 15c2-11(b)(3)
    To simplify the amended Rule and improve its readability, the
Commission is breaking out the provisions governing paragraph (b)
information for reporting issuers by addressing each type of issuer in
a separate paragraph. This amendment would not have changed any
substantive obligations for a broker-dealer under the Rule and would
remove from the list of issuers those that are covered by Section
12(g)(2)(B) under the Exchange Act because such issuers have a
reporting obligation under Section 13 or 15(d) under the Exchange Act
and would, therefore, already be covered by paragraph (b)(3)(i) under
the proposed Rule.\117\ The Commission sought comment about this aspect
of the proposal but did not receive any comment. The Commission is
adopting the reorganized structure, as proposed.\118\
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    \117\ See Proposing Release at 58214.
    \118\ See Amended Rule 15c2-11(b)(3)(i) through (v). To make the
amended Rule easier to read, the Commission is making a streamlining
edit from the proposal by not adopting the proposed requirement in
paragraphs (b)(3)(i)(B), (b)(3)(ii)(B), and (b)(3)(iii)(B) for a
broker-dealer or qualified IDQS to have a reasonable basis for
believing that the issuer is current in filing the applicable
specified information. This requirement was redundant with the
proposed Rule's information review requirement--and would have been
redundant with the amended Rule's information review requirement--
that a broker-dealer or a qualified IDQS must have a reasonable
basis for believing that the specified information is ``current and
publicly available.'' See Amended Rule 15c2-11(a)(1)(i)(B) and (C),
(a)(2)(ii) and (iii); Proposed Rule 15c2-11(a)(1)(ii) and (iii),
(a)(2)(iii); see also infra Parts II.J.1 and 3 (discussing how
paragraph (b) information that is filed by the applicable time
frames specified in paragraph (b) for the issuer is current and
publicly available for purposes of the amended Rule). Instead,
paragraph (b)(3) of the amended Rule provides that the specified
information for reporting issuers is a current copy of the documents
and information that are listed under the applicable subparagraph
under paragraph (b). This technical edit is appropriate because the
definition of current for purposes of the amended Rule pertains to
an issuer's paragraph (b) information and not to the issuer itself.
See Amended Rule 15c2-11(e)(2); infra Part II.J.1. For a description
of non-structural changes to the specified information provision for
reporting issuers, see infra Part II.B.6, which discusses the
addition of a specified information provision for crowdfunding
issuers under the amended Rule.
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3. Catch-All Issuer Information--Rule 15c2-11(b)(5)(i)
    The Commission is also expanding the list of specified paragraph
(b) information for catch-all issuers to include the identity of
company officers and large shareholders, along with additional
information that commenters suggested, and is lengthening the amount of
time for all catch-all issuer information to be updated for such
information to meet the definition of ``current.'' \119\ The Commission
proposed to expand the list of specified paragraph (b) information
associated with catch-all issuers to include the identity of company
officers and large shareholders of the company.\120\ The proposed
requirement to make such information publicly available was designed to
make it easier for investors and other market participants to identify
a more complete list of persons who are associated with the issuer and
to research their backgrounds.\121\
---------------------------------------------------------------------------

    \119\ See Amended Rule 15c2-11(b)(5)(i).
    \120\ Proposed Rule 15c2-11(b)(5)(i)(K).
    \121\ See Proposing Release at 58214-15.
---------------------------------------------------------------------------

    The Commission sought comment about the proposal to expand the list
of

paragraph (b) information for catch-all issuers to include the identity
of company insiders and larger shareholders of the company; the ticker
symbol of the security being quoted; the address of the issuer's
principal place of business if that address differs from the address of
the issuer's principal executive offices; and any additional
information to help accurately identify company insiders (e.g., job
title). One commenter stated that a variety of securities trade in the
OTC market and advocated for greater flexibility in the specified
information that is required to be current and publicly available.\122\
The Commission believes that, by requiring different types of paragraph
(b) information to address the wide variety of OTC issuers\123\ and by
providing flexible requirements for such information to be current and
publicly available,\124\ the amended Rule is appropriately tailored to
each type of covered issuer. Further, the Commission believes that the
list of catch-all issuer information that is required to be current and
publicly available appropriately balances the fact that some catch-all
issuers do not have a reporting obligation while protecting investors
through the disclosure of a relatively limited amount of information
that could help investors access information about the catch-all issuer
before making an investment decision.
---------------------------------------------------------------------------

    \122\ Mitchell Partners Letter 1; see Letter from Philip Milner,
Jr., to Hon. Jay Clayton (Nov. 26, 2019) (``Milner Letter'');
Norberg Letter; Kyle M. Peeples (Dec. 1, 2019); Debby Valentijn.
    \123\ This specified information ranges from a registration
statement for prospectus issuers to a list of specified information
for a catch-all issuer. See Amended Rule 15c2-11(b)(1) through (5).
Further, the paragraph (b) information for catch-all issuers that
must be obtained and reviewed for a broker-dealer to initiate a
quoted market does not approach the level of comprehensiveness that
is required with respect to a company with reporting obligations
under the federal securities laws. As discussed above, except for
certain financial information, most paragraph (b) information for
catch-all issuers is current if it is publicly available on an
annual basis. In contrast, certain reporting issuers may have an
obligation to file a report on a quarterly basis.
    \124\ For example, certain information for a catch-all issuer is
not required to be current and publicly available for a broker-
dealer to rely on the piggyback exception. See Amended Rule 15c2-
11(f)(3)(i)(C)(3).
---------------------------------------------------------------------------

    Another commenter stated that the Rule's requirements for paragraph
(b) information for catch-all issuers to be current and publicly
available should not be as onerous as the disclosure obligations
imposed on reporting companies and that information that is required to
be current and publicly available should not be too complicated for an
investor to read.\125\ The Commission believes that the information
that is required to be current and publicly available for catch-all
issuers includes basic information about the issuer and does not
include the type of detail or complexity as is required for reporting
issuers under the federal securities laws. For example, the amended
Rule's specified information for catch-all issuers does not require
that the issuer's balance sheet be audited. Other commenters requested
that paragraph (b) information for catch-all issuers also include: Any
trade sanctions to which the issuer is subject; \126\ the security's
ticker symbol and CUSIP number; \127\ the address of the issuer's
principal place of business if that address differs from the address of
the issuer's principal executive office; \128\ the job titles of
company insiders; \129\ the number of freely tradeable securities;
\130\ and additional information with regard to an issuer's recent
predecessors (over the prior five years), along with their state of
incorporation and the CUSIP numbers of any equity securities issued by
those predecessors.\131\ The Commission agrees that it is appropriate
that some of this information be required to be disclosed to the
investing public regarding catch-all issuers before a broker-dealer can
publish or submit a quotation for securities of such issuers and,
therefore, has determined to expand the former Rule's list of paragraph
(b) information for catch-all issuers to include, in paragraph
(b)(5)(i) of the amended Rule, the identity of company officers and
large shareholders, as proposed, along with certain additional
information that commenters suggested: (1) Job titles for company
insiders, (2) the names of all of an issuer's predecessors during the
past five years, (3) the issuer's principal place of business, (4) the
state of incorporation or registration of each of the issuer's
predecessors (if any) during the past five years, and (5) the ticker
symbol (if assigned) during the past five years.\132\ The Commission
has determined not to require all of the information suggested by
commenters because the Commission believes that the catch-all issuer
information required in paragraph (b) of the amended Rule strikes an
appropriate balance between (1) ensuring that important basic
information about an issuer is current and publicly available to
commence a quoted market or rely on many of the amended Rule's
exceptions (e.g., the piggyback exception), and (2) allowing broker-
dealers to facilitate demand in a quoted market for OTC securities
without an overly burdensome list of information to prepare, obtain,
and review.\133\ The public availability of this additional information
about catch-all issuers will provide a more comprehensive look at the
company and its operations for those making investment decisions before
a broker-dealer can publish quotations for such issuers' securities.
---------------------------------------------------------------------------

    \125\ Beacon Redevelopment Letter.
    \126\ Jean-Paul Tres (Dec. 29, 2019).
    \127\ Coral Capital Letter.
    \128\ Id.
    \129\ Id.
    \130\ FINRA Letter.
    \131\ Id.
    \132\ See Amended Rule 15c2-11(b)(5)(i).
    \133\ See infra Part VI.C.1.a.
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    One commenter suggested that the list of persons described in
paragraph (b)(5)(i)(K) of the proposed Rule include the word
``executive'' in front of the word ``officer'' because, according to
the commenter, an issuer may employ many persons with the title of
``officer'' who do not direct company-wide policies and do not manage
the company.\134\ As stated in the proposal, the Commission believes
that investors could benefit from knowing the identity of officers who
manage a company.\135\ Further, the term ``officer'' refers to a
person's management functions as opposed to his or her title. For
example, under the amended Rule, while the term ``officer'' could be
used to refer to a president, vice president, secretary, treasurer or
principal financial officer, comptroller or principal accounting
officer of a company, it can also refer to any person routinely
performing corresponding functions with respect to the company.\136\ In
complying with the information review requirement, a broker-dealer or
qualified IDQS may rely on information regarding officers provided by a
person whom the broker-dealer has a reasonable basis for believing is a
reliable source, such as the issuer.\137\ Paragraph (b)(5)(i)(K) of the
amended Rule uses the newly defined term ``company insider'' to replace
the list of persons delineated in paragraph (b)(5)(i)(K) of the
proposed Rule.\138\ As discussed below in Part II.L.5, this term is
designed to capture persons who manage a company or have a greater
degree of access to issuer information and who may have a heightened
incentive to engage in fraudulent or manipulative conduct.\139\
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    \134\ Brian Brown, Chief Financial Officer and Treasurer,
Computer Services, Inc. (Mar. 10, 2020) (``Computer Services
Letter'').
    \135\ See Proposing Release at 58214.
    \136\ See Exchange Act Rule 3b-2.
    \137\ See infra Part II.O.
    \138\ Amended Rule 15c2-11(e)(1).
    \139\ For example, company insiders may stand to profit by
selling the company shares they own during a pump-and-dump scheme.
Proposing Release at 58225.

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    Finally, the Commission has determined not to adopt the proposed
requirement that would have required certain catch-all issuer financial
information--the issuer's profit and loss and retained earnings
statements--to be as of a date less than six months before the
publication or submission of a broker-dealer's quotation for a catch-
all issuer's security if the issuer's balance sheet were not as of a
date within six months before such publication or submission of a
quotation.\140\ As discussed below in Part II.D.1, the Commission also
has lengthened the time period for financial information of catch-all
issuers to be current and publicly available under the piggyback
exception. Among other reasons, including those discussed below, the
Commission believes that requiring such financial information for
catch-all issuers to be compiled and published more frequently than
annually would require an allocation of resources to the preparation of
financial statements that is not justified in light of the facts that a
catch-all issuer generally does not have any reporting or disclosure
obligation under the federal securities laws and that an issuer's
reporting obligations under state law generally are annual. In
addition, the Commission believes that this time frame, in addition to
the expansion of the list of specified information for catch-all
issuers, as discussed above, will help provide investors with the
appropriate tools to make better-informed investment decisions.
Accordingly, the amended Rule specifies that, for a broker-dealer to
initiate, resume, or maintain a quoted market in a catch-all issuer's
security: \141\ (1) Such issuer's balance sheet is current if its most
recent balance sheet is as of a date less than 16 months before the
publication or submission of the broker-dealer's quotation,\142\ and
(2) the issuer's profit and loss and retained earnings statements are
current if they are for the 12 months preceding the date of such
balance sheet.\143\ Consistent with the proposed Rule, the amended Rule
also provides that catch-all issuer information specified in paragraph
(b)(5)(i), excluding the issuer's financial information, is current if
it is as of a date within 12 months before the publication or
submission of the quotation.\144\
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    \140\ Amended Rule 15c2-11(b)(5)(i)(L).
    \141\ The timing requirements for a catch-all issuer's paragraph
(b) information to be current (and publicly available) are the same
notwithstanding whether a broker-dealer is initiating or resuming a
quoted market in a catch-all issuer's security pursuant to paragraph
(a) of the amended Rule or whether it is relying on the piggyback
exception to maintain a quoted market in a catch-all issuer's
security. For a discussion of the requirement for catch-all issuer
information to be current and publicly available for a broker-dealer
to initiate or resume a quoted market in a catch-all issuer's
security, see supra Part II.A.1. For a discussion of the requirement
for catch-all issuer information to be current and publicly
available for a broker-dealer to maintain a quoted market in a
catch-all issuer's security by relying on the piggyback exception,
see infra Part II.D.1.
    \142\ As discussed above, the Commission is not requiring such
financial information for catch-all issuers to be current and
publicly available on a six-month basis, as proposed, because such a
requirement would result in a catch-all issuer's financial
information being compiled and published on a more frequent basis
than the information of certain issuers that have a reporting or
disclosure obligation under the federal securities laws, such as
crowdfunding issuers. A period of 16 months allows time to finalize
and make publicly available an annual balance sheet.
    \143\ See Amended Rule 15c2-11(b)(5)(i)(L).
    \144\ Amended Rule 15c2-11(b)(5)(i); see Amended Rule 15c2-
11(e)(2). The Commission is also making technical edits to the
proposed Rule so that the amended Rule is easier to read. First,
while the proposed Rule would have used the phrase ``the documents
and information required by paragraph (b),'' the amended Rule uses
the term ``the documents and information specified in paragraph
(b).'' This technical edit is intended to reflect that paragraph (b)
specifies the documents and information regarding an issuer that a
broker-dealer or qualified IDQS must obtain and review to comply
with the information review requirement or determine that the
requirements of an exception are met. Second, the Commission is not
adopting the requirement in proposed paragraph (b)(5)(i) that catch-
all issuer information must be ``current and made publicly
available.'' The Commission believes that this change from the
proposal is appropriate, given the requirement that such information
be current and publicly available for a broker-dealer or qualified
IDQS to comply with the information review requirement, or for a
broker-dealer to rely on certain of the amended Rule's exceptions.
This streamlining amendment does not change any of the timing
components for such information to be considered current and
publicly available.
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4. Requirement To Make Catch-All Issuer Information Available Upon
Request--Rule 15c2-11(b)(5)(ii)
    To facilitate investor access to information, the amended Rule
requires broker-dealers that comply with the information review
requirement to make catch-all issuer information available upon the
request of a person expressing an interest in a proposed transaction in
the issuer's security, such as by providing the requesting person with
appropriate instructions regarding how to obtain publicly available
information electronically.\145\ The Commission proposed to permit
broker-dealers to provide persons who express an interest in a proposed
transaction involving a catch-all issuer with instructions regarding
how to obtain publicly available information electronically.\146\ This
proposed amendment was intended to make it easier for retail investors
to locate and easily access catch-all issuer information.\147\ This
proposed amendment would not limit other ways in which a broker-dealer
could make information available to persons expressing an interest in a
proposed transaction in a security of a catch-all issuer; it simply
recognized that the internet provides a cost-effective means to
distribute catch-all issuer information to such persons.\148\
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    \145\ Amended Rule 15c2-11(b)(5)(ii).
    \146\ Proposed Rule 15c2-11(b)(5)(ii). Proposed Rule 15c2-
11(b)(4) included a similar requirement to permit a broker-dealer to
provide to persons who express an interest in a proposed transaction
in a security of an exempt foreign private issuer appropriate
instructions regarding how to obtain the information electronically.
    \147\ See Proposing Release at 58215.
    \148\ See id. Additionally, as the Commission explained in the
Proposing Release, ``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).'' Id.
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    The Commission sought comment on this aspect of the proposal and
received support.\149\ The Commission has determined to adopt the
proposed amendment regarding the manner in which a broker-dealer may
provide this information. To alleviate the concern that issuer
information may be difficult for investors to locate on their own, this
amendment is designed to make such information easier to find while
providing a cost-effective means for broker-dealers to distribute
catch-all issuer information to all investors, not just those that
request such information.\150\ In this regard, if such information is
located on different websites, broker-dealers may provide the website
addresses at which investors can find the information that is required
to be publicly available. The Commission is also adopting a technical
edit.\151\ Consistent with the proposal, the amended Rule requires
that, to the extent the broker-dealer also has catch-all issuer
information, the broker-dealer must make such information available to
persons who request such information.\152\ A broker-dealer that
publishes a quotation in reliance on a publicly available determination
of a qualified IDQS that the qualified IDQS complied with the
information review requirement, therefore, is not required to make
catch-all issuer information available upon request because such
broker-dealer is not itself complying

with the information review requirement.
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    \149\ Coral Capital Letter.
    \150\ See Proposing Release at 58215.
    \151\ Paragraph (b)(5)(ii) of the amended Rule replaces the
words ``required by'' with the words ``specified in'' and includes
the word ``the'' so that the broker-dealer ``must make the
information specified in paragraph (b)(5)(i) of this section''
available upon request. See Amended Rule 15c2-11(b)(5)(ii) (emphasis
added).
    \152\ See Amended Rule 15c2-11(b)(5)(ii).
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5. Application of the Catch-All Issuer Provision--Rule 15c2-
11(b)(5)(ii)
    Consistent with the Commission's efforts to increase transparency
about OTC securities for all investors, the Commission is adopting, as
proposed, the provision that specifies that an issuer would be a
``catch-all issuer'' if the documents and information specified in
paragraphs (b)(1) through (b)(4) of the amended Rule do not apply to
the issuer.\153\ As discussed below, however, the amended Rule treats
reporting issuers that are delinquent in their filing obligations
(i.e., their paragraph (b) information is not ``current,'' as that term
is defined in paragraph (e)(2) of the amended Rule) as catch-all
issuers only for purposes of initiating or resuming a quoted market in
these issuers' securities.
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    \153\ See Amended Rule 15c2-11(b)(5)(ii). While proposed Rule
15c2-11(b)(5)(ii) would have applied ``to any security of an issuer
that is not included in paragraphs (b)(1) through (b)(4) of [the
Rule],'' amended Rule 15c2-11(b)(5)(ii) requires that ``[t]he
documents and information specified in paragraph (b)(5) of [the
amended Rule] must be reviewed where paragraphs (b)(1) through
(b)(4) of [the amended Rule] do not apply to such issuer.'' This
technical change from the proposal addresses the fact that paragraph
(b) specifies an issuer's documents and information.
    One commenter stated that the term ``catch-all issuer'' is a
term that many market participants will not understand. Hamilton &
Associates Letter. This term, however, is used only for purposes of
this release to refer to issuers for which documents and information
are specified in paragraph (b)(5) of the amended Rule.
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    The Commission sought comment about the provision in paragraph
(b)(5)(ii) of the proposed Rule that specified the two circumstances in
which an issuer would be a catch-all issuer: (1) If an issuer is not a
type of reporting issuer enumerated in (b)(1) through (b)(4) of the
proposed Rule, and (2) if the information required to be reported by
the particular type of reporting issuer is not current because, for
example, it is not timely filed. One commenter stated that a company
with a reporting obligation that files a Form NT and provides notice
that it will not file a periodic report on a timely basis may become a
catch-all issuer and thus be ineligible for quoting pursuant to the
piggyback exception because, under paragraph (b)(5)(i)(L) of the
proposed Rule, its financial information would be older than six
months.\154\
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    \154\ OTC Markets Group Letter 2 (recommending that the
Commission align references in paragraph (b) to the timing of
disclosure with relevant Commission rules that apply to smaller
reporting companies). The amended Rule's timing requirements for
piggyback eligibility provide a longer window than reporting issuers
have to comply with their Exchange Act reporting obligations, and
are aligned with the requirements of Commission rules that apply to
smaller reporting companies, by requiring that the documents and
information specified in paragraph (b) be either filed within 180
calendar days from a specified period, for issuers with an Exchange
Act reporting obligation, or timely filed for issuers with a
reporting obligation under Regulation A or Regulation Crowdfunding.
See infra Part II.D.1. In addition, the piggyback exception under
the amended Rule includes a grace period that permits broker-dealers
to continue to rely on the piggyback exception for a time-limited
period if a report that must be filed pursuant to an Exchange Act or
Securities Act reporting obligation has not been timely filed or
filed within 180 days from the end of the specified period. See
infra Part II.D.6.
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    The Commission has determined to modify the proposed provision that
specified that a reporting issuer would be a catch-all issuer if its
information is no longer ``current,'' \155\ by limiting its application
to compliance with the information review requirement for a broker-
dealer to initiate a quoted market for an issuer's security.
Accordingly, the amended Rule treats reporting issuers that are
delinquent in their filing obligations as catch-all issuers only for
purposes of initiating or resuming a quoted market in these issuers'
securities, and thus a broker-dealer or a qualified IDQS would be
required to comply with the information review requirement using the
catch-all issuer's information required under the amended Rule only if
a broker-dealer were initiating or resuming a quoted market in the
issuer's security.\156\ Notably, the amended Rule does not treat
delinquent reporting issuers as catch-all issuers for purposes of the
piggyback exception, as discussed below in Part II.D.1.
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    \155\ See Amended Rule 15c2-11(e)(2); infra Part II.J.1.
    \156\ Specifically, paragraph (b)(5)(ii) of the amended Rule
provides that, for purposes of compliance with paragraph
(a)(1)(i)(C) (broker-dealer complies with the information review
requirement) or (a)(2)(ii) (qualified IDQS complies with the
information review requirement) of the amended Rule, the documents
and information specified in paragraph (b)(5) must be reviewed for
an issuer for which the documents and information specified in
paragraph (b)(1), (b)(2), (b)(3), or (b)(4) of the amended Rule
regarding such issuer are not current. See Amended Rule 15c2-
11(b)(5)(ii).
    While proposed Rule 15c2-11(b)(5)(ii) would have required that
``[p]aragraph (b)(5) of this section [ ] apply to any security of an
issuer if information described in paragraphs (b)(1) through (b)(4)
of [the proposed Rule] is not current,'' amended Rule 15c2-
11(b)(5)(ii) requires that ``the documents and information specified
in paragraph (b)(5) of [the amended Rule] must be reviewed for an
issuer for which the documents and information specified in
paragraph (b)(1), (b)(2), (b)(3), or (b)(4) of [the amended Rule]
regarding such issuer are not current.'' This technical change from
the proposal addresses the fact that paragraph (b) specifies an
issuer's documents and information.
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    In the context of maintaining a quoted market for an issuer's
security, this change from the proposal (i.e., limiting the treatment
of delinquent reporting issuers as catch-all issuers to the initiation
or resumption of a quoted market for an issuer's security) enhances the
Rule's investor protections by reducing the potential for broker-
dealers to sustain the false appearance of an active market in the
securities of issuers that remain delinquent in their reporting
obligations or no longer exist.\157\ Consistent with the proposed
amendment, the amended Rule does not change an issuer's statute- or
rule-based reporting or disclosure obligation.\158\ In response to a
comment regarding an issuer that is granted an extension to file its
annual report, and as discussed below, such an issuer will remain a
reporting issuer \159\ for purposes of the amended Rule's piggyback
exception, and thus the broker-dealer would need to comply with the
provisions of the piggyback exception that apply to reporting issuers
(i.e., paragraph (f)(3)(i)(C)(1) or (2)), depending on the category of
reporting issuer, and not the provision that applies to catch-all
issuers (i.e., paragraph (f)(3)(i)(C)(3)).\160\
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    \157\ See infra Part II.D.1.a (discussing the time frame
requirements associated with the transparency of reporting issuer
information under the amended Rule's piggyback exception).
    \158\ See Amended Rule 15c2-11(b)(5)(ii) (using the phrase
``specified in'' instead of ``required by'' to clarify that the Rule
does not impose any obligation on issuers).
    \159\ See Exchange Act Rule 12b-25(b) (providing that a
registrant's report shall be deemed to be filed on the prescribed
due date for such report if, among other things, the issuer
represents in the Form 12b-25 that the subject annual report will be
filed no later than the fifteenth calendar day following the
prescribed due date).
    \160\ See infra Part II.D.1.
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6. Specified Information Provision for Crowdfunding Issuers--Rule 15c2-
11(b)(3)(iii)
    The Commission has determined to add paragraph (b)(3)(iii) to the
amended Rule as a technical amendment to align the amended Rule with
Regulation Crowdfunding \161\ and to tailor the provision to the
specific regulatory status and existing disclosure and reporting
obligations of a crowdfunding issuer, similar to how the amended Rule
is tailored to recognize issuers that have an ongoing reporting
obligation under the Exchange Act and Regulation A. Before the
amendments, the Rule did not contain a provision tailored to the
specific regulatory status and existing disclosure and reporting
obligations of a crowdfunding issuer. A broker-dealer, therefore, would
have been able to review the documents and information for a catch-all
issuer to comply with the information review requirement before a
broker-dealer could publish a quotation

for the crowdfunding issuer's security. However, under the amended
Rule, a crowdfunding issuer would not be treated as a catch-all issuer,
and thus a broker-dealer or qualified IDQS would need to obtain and
review the documents and information specified in the specific
provision for crowdfunding issuer information to comply with the
information review requirement (assuming the issuer is not delinquent
in its reporting obligations, as discussed above).\162\ In light of the
addition of a specified information provision for crowdfunding issuers,
a broker-dealer or qualified IDQS would need to obtain and review the
documents and information in paragraph (b)(3)(iii) of the amended Rule
(rather than paragraph (b)(5) for catch-all issuers, as proposed) to
determine if the requirements of certain exceptions are met.
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    \161\ E.g., Rules 201 through 203 of Regulation Crowdfunding.
    \162\ This new provision regarding the documents and information
of crowdfunding issuers is provided in paragraph (b)(3)(iii) of the
amended Rule. Paragraphs (b)(3)(iii) and (iv) of the proposed Rule
pertained to the documents and information regarding (1) issuers
that file annual statements referred to in Section 12(g)(2)(G)(i) of
the Exchange Act and any periodic and current reports pursuant to
Section 13 or 15(d) of the Exchange Act and (2) issuers of
securities that fall within the provisions of Section 12(g)(2)(G) of
the Exchange Act and that file annual statements referred to in
Section 12(g)(2)(G)(i) of the Exchange Act, respectively. Such
paragraphs are now contained in paragraphs (b)(3)(iv) and (b)(3)(v)
of the amended Rule, respectively, in light of the addition of the
specified information provision for crowdfunding issuers in
paragraph (b)(3)(iii) of the amended Rule.
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    Paragraph (b)(3)(iii) of the amended Rule specifies that the
applicable information for a crowdfunding issuer is the issuer's most
recent annual report \163\ because such report is the only periodic
report required by Regulation Crowdfunding to be filed with the
Commission.\164\ The amended Rule also provides that, until a
crowdfunding issuer files an annual report, the applicable paragraph
(b) information is the Form C (the offering statement for securities
offered under Regulation Crowdfunding) \165\ filed by the issuer within
the prior 16 months, together with any Form C/A (amendments to the
offering statement) \166\ and Form CU (updates on meeting targeted
offering amounts) \167\ filed thereafter.\168\ The amended Rule allows
broker-dealers and qualified IDQSs to review the issuer's Form C,
together with any Form C/A and Form CU filed thereafter as an
alternative to obtaining and reviewing the issuer's annual report when
the issuer's first annual report may not have been filed due to a gap
between: (1) The end of the issuer's fiscal year after initially
offering securities pursuant to Regulation Crowdfunding, and (2) the
prescribed due date for the issuer to file its first annual report.
Form C, together with Form C/A and Form C/U, includes substantially the
same information that is required by an annual report.\169\ In
addition, paragraph (b)(3)(iii) of the amended Rule requires that a
broker-dealer or qualified IDQS have a reasonable basis under the
circumstances for believing that the issuer is current in filing such
reports described in this paragraph (b)(3)(iii).\170\ Paragraph
(b)(3)(iii) of the amended Rule closely tracks the document and
information provisions regarding issuers with an Exchange Act or
Securities Act reporting or disclosure obligation, and includes
provisions specific to crowdfunding issuers in accordance with the
thrust of the amended Rule to separate information requirements by the
type of issuer.
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    \163\ See Amended Rule 15c2-11(b)(3)(iii).
    \164\ See Rule 202 of Regulation Crowdfunding.
    \165\ See Rule 203(a)(1) of Regulation Crowdfunding.
    \166\ See Rule 203(a)(2) of Regulation Crowdfunding.
    \167\ See Rule 203(a)(3) of Regulation Crowdfunding.
    \168\ Amended Rule 15c2-11(b)(3)(iii). Under the amended Rule, a
recently filed Form C offering statement is not specified as
paragraph (b) information because securities sold under Regulation
Crowdfunding are generally not transferable for one year from
issuance.
    \169\ See Rule 202 of Regulation Crowdfunding.