\170\ Amended Rule 15c2-11(b)(3)(iii)(B).
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C. Supplemental Information Requirement--Rule 15c2-11(c)

    To help support the integrity of the OTC market and to promote
investor protection by helping to ensure that market participants
consider material information prior to the initiation of a quoted
market for an issuer's security, the Commission is extending the
application of the Rule's obligations regarding supplemental
information \171\ to cover all market participants that comply with the
Rule's information review requirement, including broker-dealers and
qualified IDQSs alike.\172\ Under the amended Rule, a broker-dealer and
a qualified IDQS, in complying with the information review requirement,
must consider supplemental information about the issuer of an OTC
security as part of its evaluation of whether the amended Rule's
specified information is materially accurate. The type of information
that is considered to be supplemental information (e.g., a copy of a
trading suspension order issued by the Commission pursuant to Exchange
Act Section 12(k)) includes information about the issuer of the
security that comes to the knowledge or possession of the broker-dealer
before the broker-dealer publishes or submits a quotation for the
issuer's security,\173\ including records of transactions involving the
issuer and company insiders.\174\ The Commission has determined to
adopt paragraph (c) as proposed, with one technical modification.\175\
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    \171\ For purposes of this release, this requirement is referred
to as the ``supplemental information requirement.''
    \172\ See Proposing Release at 58217. As stated in the Proposing
Release, this modification was designed to help ensure that all
market participants that comply with the information review
requirement would be subject to the same requirements regarding
supplemental information. See Proposing Release at 58218. Proposed
paragraph (c) would not require that a qualified IDQS (or a broker-
dealer) affirmatively seek additional information about the issuer.
Rather, proposed paragraph (c) would require that a qualified IDQS
(or broker-dealer) that complies with the information review
requirement keep records of the documents and information specified
in proposed paragraphs (c)(1) through (c)(3) (excluding documents
and information available on EDGAR), including any information
regarding the transactions actually provided to the qualified IDQS
(or broker-dealer).
    \173\ See Proposed Rule 15c2-11(c); 1999 Reproposing Release at
11146-47 (explaining that, while a broker-dealer is not required to
affirmatively seek out information about the issuer beyond that
specifically required by the Rule, material information about the
issuer that comes to the broker-dealer's knowledge or possession--
orally or in writing--must be taken into account by the broker-
dealer in assessing whether the issuer information is accurate and
from a reliable source).
    \174\ As stated in the Proposing Release, such information is
important to consider, in conjunction with the issuer's paragraph
(b) information and any other supplemental information, because
persons such as company insiders might be able to exert control over
the issuer of an OTC security and have a heightened incentive to
manipulate the price of the security. See Proposing Release at
58218. The proposed Rule would not have required that company
insider status automatically lead a broker-dealer or qualified IDQS
to conclude that the issuer's information is not accurate in all
material respects or from a reliable source. Instead, such
information would need to have been evaluated in conjunction with
the issuer's paragraph (b) information, along with any other
supplemental information that has come to the knowledge or
possession of the broker-dealer or qualified IDQS, in forming a
reasonable basis to believe that the issuer's information is
accurate and from a reliable source. The Commission stated that the
knowledge that a quotation is by or on behalf of a company insider
could aid investors by alerting the broker-dealer or qualified IDQS
to the possibility that the quotation is being made on behalf of a
person who may have a heightened incentive to manipulate the price
of an issuer's security. See id.
    \175\ Specifically, paragraph (c)(3) of the amended Rule uses
the newly defined term ``company insider'' to capture persons who
are associated with an issuer, manage the company, or have
heightened access to issuer information and who may have a
heightened incentive to engage in fraudulent or manipulative
conduct. See infra Part II.J.5.
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    The Commission sought comment on its proposed changes to the
supplemental information requirement, including extending the
requirement to qualified IDQSs and requiring records of transactions
involving issuers and

company insiders.\176\ One commenter stated that broker-dealers and
qualified IDQSs that comply with the information review requirement
should not be required to affirmatively seek additional information
about the issuer because such a requirement would effectively turn
broker-dealers into a combination of due diligence firms and private
investigative agencies.\177\ While the supplemental information
requirement places an affirmative obligation on broker-dealers and
qualified IDQSs that comply with the information review requirement to
consider and record information beyond the paragraph (b) information,
the Commission believes that this provision will help to support the
integrity of the OTC market and promote investor protection by
requiring that broker-dealers and qualified IDQSs consider material
information before commencing a quoted market.\178\ The Commission also
believes that the provision, as amended, is appropriately tailored to
minimize burdens on broker-dealers and qualified IDQSs. Broker-dealers
and qualified IDQSs are required to seek out only certain supplemental
information (e.g., the identity of the person on whose behalf the
quotation is made, company insider status, and recent trading
suspensions). The requirement to obtain information regarding for whom
a quotation is being published and whether the security has been
subject to a trading suspension is not a new requirement. Obtaining
such information does not require any particular due diligence or
private investigation skills. For example, the broker-dealer can
ascertain the identity of a person who is requesting that an initial
quotation for a security be published or submitted by asking the person
when the person contacts the broker-dealer. Additionally, whether a
security has been the subject of a trading suspension is available on
the Commission's website and is easily accessible.\179\
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    \176\ See Proposing Release at 58216-17.
    \177\ See Coral Capital Letter.
    \178\ As discussed below in Part II.O, the supplemental
information requirement places an affirmative requirement on such
broker-dealers and qualified IDQSs to consider and have in their
records the following documents and information: (1) Records related
to the identity of the person or persons for whom the quotation is
being published or submitted, whether such person or persons is the
issuer or a company insider, and any information regarding the
transactions that such person or person has provided to the broker-
dealer or qualified IDQS; and (2) a copy of any trading suspension
order issued by the Commission pursuant to Section 12(k) of the
Exchange Act regarding any securities of the issuer or its
predecessor (if any) during the 12 months preceding the date of the
publication or submission of the quotation or a copy of the public
release issued by the Commission announcing such trading suspension
order. However, such broker-dealers or qualified IDQSs must consider
and record a copy or a written record of any other material
information (including adverse information) regarding the issuer
only if it comes to the knowledge or possession of the broker-dealer
or qualified IDQS before the quotation is published or submitted.
    \179\ Trading Suspensions, https://www.sec.gov/litigation/suspensions.shtml (last visited Aug. 27, 2020).
---------------------------------------------------------------------------

    A broker-dealer or qualified IDQS is required to consider and
record other supplemental information only if such information: (1) Is
provided to the broker-dealer or qualified IDQS by the person on whose
behalf the quotation is published (e.g., information regarding
transactions),\180\ or (2) comes to the knowledge or possession of the
broker-dealer or qualified IDQS (e.g., other material information
regarding the issuer).\181\ Considering and recording such information
does not require a broker-dealer or qualified IDQS to conduct a due
diligence review or a private investigation into facts that have not
otherwise been provided to the broker-dealer or qualified IDQS, or that
have not come to the knowledge or possession of the broker-dealer or
qualified IDQS. The Commission believes structuring the supplemental
information provision in this way strikes an appropriate balance of
achieving the objectives of the Rule without placing unduly burdensome
obligations on broker-dealers and qualified IDQSs.
---------------------------------------------------------------------------

    \180\ Amended Rule 15c2-11(c)(1).
    \181\ Amended Rule 15c2-11(c)(3).
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    Another commenter stated that information regarding the identity of
the retail end-customer is not required to be publicly disclosed, so it
is difficult for a broker-dealer that receives orders from
correspondent brokers to have this information in its records on a
transaction-by-transaction basis.\182\ The Commission appreciates that
a broker-dealer that publishes a quotation may not have a direct
relationship with the retail customer on whose behalf the quotation is
published and that such customer's broker is not required to publicly
disclose the customer's identity.\183\ Prior to the amendment, the Rule
already required that a broker-dealer that complies with the
information review requirement retain a record of the identity of the
person or persons for whom the quotation is submitted or published. The
Commission believes that it is operationally feasible for a broker-
dealer to obtain this information (e.g., the customer's retail broker
might provide information to the broker-dealer about the identity of
its customer) when such broker-dealer is reviewing the issuer's
information and commencing a quoted market at the behest of a customer.
While the amended Rule requires that broker-dealers and qualified IDQSs
record the identity of the person on whose behalf the initial quotation
is made, the Commission believes that requiring a record of the
identity of the person on whose behalf the quotation is made when
commencing a quoted market furthers the objectives of the Rule without
imposing undue burdens associated with individual quotations and may
aid Commission oversight of broker-dealers' and qualified IDQSs'
compliance with the amended Rule. Further, the Commission understands
that the majority of quotations are currently, and expects that they
will continue to be, published in reliance on exceptions to the amended
Rule and not in reliance on the performance of the information review
requirement.
---------------------------------------------------------------------------

    \182\ OTC Markets Group Letter 3.
    \183\ See infra Part II.E (discussing the final amendments to
the unsolicited quotation exception).
---------------------------------------------------------------------------

    This commenter also requested that the supplemental information
regarding company insiders be limited to information that has come to
the knowledge or possession of the broker-dealer or qualified
IDQS.\184\ The Commission has determined not to limit the amended
Rule's specified supplemental information regarding status as an issuer
and company insider to information that has come to the knowledge or
possession of the broker-dealer or qualified IDQS. Because the amended
Rule requires a broker-dealer or qualified IDQS to consider
supplemental information only for initial quotations when initiating or
resuming a quoted market, the Commission does not believe that it is
unreasonable to require a broker-dealer or qualified IDQS to know the
identity of the person making the request to commence a quoted market
in this limited circumstance. Issuers and company insiders can have a
heightened incentive to engage in misconduct to artificially affect the
price and trading volume of the issuer's security. The Commission
believes that application of the supplemental information requirement
only to information that has come to the knowledge or possession of the
broker-dealer or qualified IDQS would be inconsistent with the
Commission's goal of enhancing the Rule to better protect retail
investors from fraud and

manipulation orchestrated by company insiders.
---------------------------------------------------------------------------

    \184\ OTC Markets Group Letter 3.
---------------------------------------------------------------------------

    The Commission continues to believe that certain supplemental
information is relevant for a broker-dealer or qualified IDQS to
evaluate in establishing a reasonable basis under the circumstances for
believing that an issuer's paragraph (b) information is accurate in all
material respects and from a reliable source.\185\ Consequently,
paragraph (c) of the amended Rule adds qualified IDQSs to the Rule's
list of market participants that must have in their records
supplemental information to help ensure that all market participants
that comply with the information review requirement are subject to the
same requirements.\186\ Under the amended Rule, broker-dealers and
qualified IDQSs that comply with the information review requirement
must retain a copy or a written record of three categories of
supplemental information: (1) Records related to the publication or
submission of the quotation, including the identity of the person on
whose behalf the quotation is made, whether such person is an issuer or
a company insider, and any information regarding the transaction
provided to the broker-dealer or qualified IDQS; (2) a copy of any
trading suspension order issued by the Commission during the 12 months
preceding the date of publication or submission of the quotation or a
copy of the press release announcing such suspension; and (3) any other
material information regarding the issuer that comes onto the knowledge
or possession of broker-dealer or qualified IDQS.\187\
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    \185\ Amended Rule 15c2-11(c).
    \186\ Paragraph (c) of the amended Rule also adds to the former
Rule's list of records related to the submission or publication of a
quotation for a security a record of whether such submission or
publication is on behalf of an issuer or company insider because
such individuals might be able to influence or control the issuer of
an OTC security. See Amended Rule 15c2-11(c), (c)(1); Proposing
Release at 58218.
    \187\ Amended Rule 15c2-11(c)(1) through (3).
---------------------------------------------------------------------------

    The Commission is amending the Rule as proposed to require that the
entity that complies with the information review requirement must have
in its records the documents and information related to the identity of
the person or persons for whom the quotation is being submitted or
published, including whether such person is the issuer or a company
insider \188\ because the knowledge that a quotation is by or on behalf
of the issuer or a company insider could promote investor protection by
alerting the broker-dealer or qualified IDQS conducting the required
review to the possibility that the quotation is being made on behalf of
a person who may have a heightened incentive to manipulate the price of
the security.\189\ Whether the quotation is being made on behalf of
such person is information that must be considered, together with any
other supplemental information or paragraph (b) information, by the
broker-dealer or qualified IDQS in forming a reasonable basis under the
circumstances for believing that the issuer's paragraph (b) information
is accurate in all material respects and from a reliable source.\190\
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    \188\ Amended Rule 15c2-11(c)(1).
    \189\ See Proposing Release at 58218.
    \190\ See Amended Rule 15c2-11(a)(1)(i)(C), (a)(2)(iii)
(requiring a broker-dealer or qualified IDQS that complies with the
information review requirement to have a reasonable basis under the
circumstances for believing that the issuer's paragraph (b)
information is accurate in all material respects and that the
sources of such paragraph (b) information are reliable based upon a
review of the issuer's paragraph (b) information, together with any
other supplemental information, as applicable); see also supra notes
174-175 and accompanying text (discussing how this requirement helps
to promote the Rule's investor protection goals).
---------------------------------------------------------------------------

D. Piggyback Exception

    The Commission is adopting various amendments to the piggyback
exception, paragraph (f)(3), as discussed below.
1. Increased Transparency of Issuer Information--Rule 15c2-
11(f)(3)(i)(C)(1) Through (3)
    The Commission is requiring that an issuer's paragraph (b)
information be current and publicly available, timely filed, or filed
within 180 calendar days from a specified time frame,\191\ in reference
to the underlying timing obligations for each of the types of issuers
under paragraph (b), for a broker-dealer to rely on the piggyback
exception to publish quotations for the issuer's security.\192\
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    \191\ As discussed below, this requirement with respect to the
paragraph (b) information of certain types of reporting issuers is
measured from the end of the issuer's most recent fiscal year or any
quarterly reporting period that is covered by a report required by
Exchange Act Section 13 or 15(d), as applicable. See Amended Rule
15c2-11(f)(3)(i)(C)(1). For purposes of this release, the phrase
``filed within 180 calendar days from [a/the] specified period''
refers to the phrase ``filed within 180 calendar days from the end
of the issuer's most recent fiscal year or any quarterly reporting
period that is covered by a report required by [S]ection 13 or 15(d)
of the [Exchange] Act), as applicable,'' as specified in the rule
text. See Amended Rule 15c2-11(f)(3)(i)(C)(1).
    \192\ See Amended Rule 15c2-11(f)(3)(i)(C)(1) through (3). For a
discussion of the requirements for an issuer's paragraph (b)
information to be current and publicly available before an issuer's
security is initially quoted, see supra Part II.A.1.
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(a) Current and Publicly Available Issuer Information
    The Commission sought comment about the proposed amendment,
including whether to permit a broker-dealer to rely on the piggyback
exception to publish or submit quotations for the securities of catch-
all issuers only where the issuer's proposed paragraph (b) information
is current and has been made publicly available within six months
before the date of publication or submission of such quotation.
Commenters who supported this aspect of the proposal stated that it
would help to strengthen investor protections by offering the investing
public access to information about OTC companies \193\ and to enhance
market efficiency and transparency.\194\ One commenter stated that it
is inconsistent for the proposal to both: (1) State that the piggyback
exception's historical basis is that regular and continual priced
quotations are an appropriate substitute for information about the
issuer that would otherwise be relevant in establishing a quotation,
and (2) require that issuer information be current and publicly
available for a broker-dealer to rely on the piggyback exception.\195\
The Commission continues to believe that the piggyback exception serves
an important purpose in helping to facilitate liquidity. The
Commission, however, does not believe that the historical basis for the
piggyback exception--that ``regular and continual priced quotations are
an appropriate substitute for information about the issuer which would
otherwise be relevant in establishing a

quotation'' \196\--adequately takes account of current industry and
investor practices in today's OTC market, nor does it sufficiently
promote investor protection or the broker-dealer's role as a gatekeeper
to the OTC market.\197\ In particular, prior to the amendments, the
piggyback exception resulted in quoted markets persisting for
securities of issuers that no longer exist and certain securities of
issuers that do not make their information publicly available
sustaining the false appearance of an active market.\198\ These
securities, which primarily are owned by retail customers,\199\
historically have been more susceptible to fraud and manipulation.\200\
The Commission believes that transparency of issuer information is
essential for investors to be able to effectively analyze the issuer,
its security, and the market for its security, particularly in light of
the substantial reductions in information acquisition and dissemination
costs due to the internet and modern technology. The Commission
believes that the modern ease of accessing and disseminating
information allows investors to more easily form inferences about the
value of OTC securities based upon current and publicly available
information rather than relying principally upon inferences based on
the prices of piggybacked quotes.\201\
---------------------------------------------------------------------------

    \193\ See, e.g., Hamilton & Associates Letter; Massachusetts
Letter; NASAA Letter.
    \194\ E.g., OTC Markets Group Letter 2; SIFMA Letter; see FINRA
Letter; Letter from J. Brad Wiggins, President and Legal Counsel,
Securities Law USA (``Securities Law USA Letter''); Zuber Lawler
Letter.
    \195\ Letter from Larry E. Bergmann, Partner, Murphy &
McGonigle, P.C., to Vanessa Countryman, Sec'y, SEC (Dec 10, 2019)
(``Murphy & McGonigle Letter''). This commenter wrote that, because
the proposal's discussion about the policy rationale behind the
piggyback exception--that regular and frequent quotations, including
regular and frequent two-sided market making, reflect independent
supply and demand forces--draws no distinction among the types of
securities that are the subject of trading suspensions, it is
unclear if the ``current and publicly available'' information
requirement for catch-all issuers in the proposed provision would
apply to catch-all issuers that were the subject of a trading
suspension. Id. The paragraph (b) information of a catch-all issuer
must be current and publicly available for a broker-dealer to
publish or submit quotations for the catch-all issuer's security
following the termination of a trading suspension for the issuer's
security. See Amended Rule 15c2-11(f)(3)(i)(C)(3).
    \196\ See Initiation or Resumption of Quotations Without
Specified Information, Exchange Act Release No. 21470 (Nov. 8,
1984), 49 FR 45117 (Nov. 15, 1984).
    \197\ See, e.g., supra Part I.
    \198\ See Proposing Release at 58219; see also infra Part
VI.B.2.c (discussing how OTC market may attract those seeking to
engage in fraudulent practices, such as pump-and-dump schemes, due
to a lack of publicly available current information about certain
issuers of quoted OTC securities).
    \199\ See Proposing Release at 58207; see also Ang et al., supra
note 3.
    \200\ Douglas Cumming et al., Financial Market Misconduct and
Agency Conflicts: A Synthesis and Future Directions, 34 J. Corp. Fin
150-68 (2015).
    \201\ See infra Part VI.A. In this regard, 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.
---------------------------------------------------------------------------

    One commenter suggested that the Commission should repeal the
piggyback exception because, as the commenter stated, it is ``a
loophole that has permitted broker-dealers to solicit interest from and
sell OTC securities to retail investors without verifying any of the
details of the security, including, whether the issuer actually
exists.'' \202\ Another commenter stated that repealing the piggyback
exception entirely would harm existing shareholders in OTC securities
because it would cause many broker-dealers to cease market making or
quoting prices in many OTC securities, draining or even eliminating
liquidity in the OTC market.\203\ The Commission believes that the
piggyback exception serves an important purpose in helping to
facilitate liquidity but remains concerned that the OTC market may
attract those seeking to engage in fraudulent practices, such as pump-
and-dump schemes, due to a lack of publicly available current
information about certain issuers of quoted OTC securities.\204\ This
concern is amplified by the fact that the primary investors in the OTC
market are retail investors. The amendments to the piggyback exception
under the amended Rule are designed to facilitate liquidity in the OTC
market while making narrowly tailored updates that promote investor
protection and market efficiency, including the prevention of fraud and
manipulation.\205\
---------------------------------------------------------------------------

    \202\ Letter from Dennis M. Kelleher, President and CEO, and Lev
Bagramian, Senior Securities Policy Advisor, Better Markets, Inc.,
to Vanessa Countryman, Sec'y, SEC (Dec. 30, 2020) (``Better Markets
Letter'').
    \203\ NASAA Letter.
    \204\ Proposing Release at 58282.
    \205\ See infra Part VI.C.1.b.
---------------------------------------------------------------------------

    Some commenters stated their concern that prohibiting quotations
for securities of companies that do not provide current and publicly
available information would not prevent fraud and manipulation \206\
but would destroy liquidity,\207\ be inconsistent with the proposal's
goal of promoting a fair and orderly market for OTC securities,\208\
and make dark companies' shares ``worthless.'' \209\ Commenters stated
that some of these companies have longstanding histories of operation
and profit, and suggested that issuers of securities with certain
characteristics should be exempt from the requirement that their
information be current and publicly available.\210\
---------------------------------------------------------------------------

    \206\ See Anbec Partners Letter; Franklin Antonio; Caldwell
Sutter Capital Comment; Alexandra Elliott; Braxton Gann; Han Han
(Oct. 15, 2019); Peter Hayman; Norberg Letter; Daniel Raider; Jim
Rivest; Mark Schepers (Oct. 15, 2019); STA Letter; Terravoir Venture
Letter; Tiercel Capital Comment; Michael Tofias; Alex Toppan (Oct.
14, 2019); Debby Valentijn; Virtu Letter; Don C. Whitaker; see also
Coral Capital Letter (stating that the loss of a quoted market would
harm the ability of an issuer to become current in its reporting
obligations by reducing access to capital that is necessary to pay
expenses associated with regaining its current status). One
commenter argued that closed-end funds that hold securities of
issuers that are not current in their reporting requirements would
need to fair value those securities rather than calculate net asset
value using recent trades. Sanders Letter (arguing that such a
result could provide investors with less reliable information to
make informed investment decisions). The Investment Company Act of
1940 prescribes the method for closed-end funds to value their
portfolio securities, whether or not market quotations are readily
available. See, e.g., Investment Company Act Section 2(a)(41); see
also Good Faith Determinations of Fair Value, Investment Company
Release No. 33845 (Apr. 21, 2020), 85 FR 28734 (May 13, 2020).
    \207\ See, e.g., Alluvial Letter; Andersen Letter; Franklin
Antonio (Dec. 27, 2019); Hank Armested (Oct. 24, 2019); Thomas M.
Amenda (Oct. 23, 2019); R. Berkvens; Tyler Black (Nov. 25, 2019);
J.H. Broekhoven (Nov. 16, 2019); Brad Christensen (Oct. 3, 2019);
Caldwell Sutter Capital Comment; Laura Coffman; Connor Davis,
Founder and Principal, Lake Highlands Capital Management (``Lake
Highlands Comment''); Douglas DiSanti (Nov. 18, 2019); Brett
Dorendorf; Drinker Letter; Alexandra Elliott; David J. Flood (Oct.
8, 2019); Braxton Gann; Letter from Matt Geiger, Managing Partner,
MJG Capital Fund, LP, to Chairman Clayton (Oct. 28, 2019) (``MJG
Capital Fund Letter''); Carlton Getz, Winter Harbor Advisors, LLC
(``Winter Harbor Advisors Comment''); Chris Girand (Oct. 25, 2019);
Bradley Grasl, Chief Investment Officer, Tiercel Capital Texas
(``Tiercel Capital Comment''); Peter Hayman (Dec. 31, 2019); Gary
Huscher (Nov. 1, 2019); Matt Jester (Oct. 8, 2019); Richard
Krejcarek (Jan. 2, 2020); Ron Lefton (Nov. 11, 2020); Aharon Levy;
Guarang Merani (Oct. 15, 2019); Michael Milchen (Oct. 10, 2019);
Milner Letter; Mitchell Partners Letter 1; William E. Mitchell (Oct.
24, 2019); Norberg Letter; Peter Quagliano (Nov. 1, 2019); Daniel
Raider; Charles M. Rardon (Oct. 1, 2019); Michael E. Reiss; Ronald
Ringelberg; Jim Rivest; GTS Letter; David Schiff (Oct. 22, 2019);
Eric Schleien, Investment Manager, Granite State Capital Management
(``Granite State Capital Comment''); Dan Schum (Oct. 7, 2019); Lucas
H. Selvidge (Oct. 23, 2019); Chris Soule (Oct. 10, 2019); Andrew
Summers, CFA, Managing Partner, Summers Value Partners LLC
(``Summers Value Partners Comment''); Total Clarity Comment;
Franklin Urdaneta (Dec. 3, 2019); Debby Valentijn (Dec. 21, 2019);
S. Van den Hoogenhoff (Dec. 9, 2019); Virtu Letter; Don C. Whitaker
(Sept. 29, 2019); Samuel J. Yake (Oct. 5, 2019); see generally Logan
Kemper (Nov. 6, 2019) Professor Angel Letter; Winter Harbor Advisors
Comment.
    \208\ Brett Dorendorf; Peter Hayman; Kyle M. Peeples; Norberg
Letter; S. Van den Hoogenhoff; Debby Valentijn.
    \209\ Andersen Letter. Other commenters were primarily concerned
with the proposed amendments' effect on liquidity of securities of
dark companies and what they perceived as potential harm to
shareholders of those companies. E.g., Exchange Listing Letter; GTS
Letter; Virtu Letter; see OTC Markets Group Letter 3. Comments
regarding a general opposition to the proposed amendments with
respect to this perceived impact are discussed above, in Part II.
    \210\ See Aztec Letter; Caldwell Sutter Capital Comment;
Lawrence Goldstein, President, SMP Asset Management LLC (``SMP Asset
Management Comment''); Ron Lefton; William E. Mitchell; Mitchell
Partners Letter 1; Doug Mohn; Norberg Letter; Peter Quagliano;
Michael E. Reiss; Jim Rivest; Mark Schepers; Total Clarity Comment;
Debby Valentijn; Don C. Whitaker; David Wright (Dec. 16, 2019);
Michael A. Zgayb (Oct. 23, 2019); see also James Duade; Eric Speron
(Nov. 27, 2019); Michael Tofias; Virtu Letter.
---------------------------------------------------------------------------

    The Commission understands commenters' concern regarding the
proposed Rule's impact on certain OTC companies that do not make their
information publicly available. Under the amended Rule, the potential
reduction in public price discovery in an OTC security due to the loss
of a quoted market can reduce an issuer's ability to raise capital
through stock issuances or through other channels,

such as debt,\211\ and existing shareholders of non-reporting issuers
can be negatively impacted from the loss of a quoted market for such
securities, even if the securities migrate to the grey market.\212\ The
Commission believes, however, that undertaking to try to determine what
constitutes a ``legitimate'' issuer, as suggested by commenters,\213\
may require the Commission to make a merit-based determination that
weighs certain characteristics of OTC issuers in relation to, or to the
exclusion of, other characteristics of other OTC issuers. In addition,
the limited available data regarding dark issuers would hamper
analysis.
---------------------------------------------------------------------------

    \211\ See infra Part VI.C.2 (discussing how issuers may
nevertheless be able to access capital through transactions in the
grey market).
    \212\ See infra Part VI.C.1.a.
    \213\ See, e.g., Doug Mohn; Taranis Comment.
---------------------------------------------------------------------------

    Further, the Commission does not believe the fact that such
companies have longstanding histories of operation and profit obviates
the need for their information to be current and publicly available for
a broker-dealer to publish quotations for such securities. The
Commission does not believe that these issuers with operations and
profitability will become ``worthless'' \214\ as a result of the
amendments. The amendments can adversely affect these issuers and their
shareholders; however, these issuers, even without a quotation for
their securities by a broker-dealer, presumably would continue to
operate and generate profits for their shareholders. These OTC
securities would continue to represent an ownership interest on these
profits and the issuer's assets. For newer issuers with prospective
future profits, OTC shares would similarly represent a claim on these
prospective profits. The Commission also believes that the potential
harm to existing shareholders is (1) limited by the ability of broker-
dealers to rely on exceptions to publish quotations, including the
unsolicited quotation exception,\215\ and the ability of existing
shareholders to continue to trade their securities; and (2) mitigated
by the decrease in exposure to fraudulent activity involving the
securities of non-transparent companies (due to broker-dealers'
inability to rely on the piggyback exception) to engage in manipulative
schemes, such as pump-and-dump schemes.\216\
---------------------------------------------------------------------------

    \214\ Andersen Letter.
    \215\ See infra Part VI.C.1.a.
    \216\ See infra Part VI.C.2; see also Proposing Release at
58258, 58259 (stating that requirements for the transparency of
issuer information could have a deterrent effect in inhibiting
fraudulent activity related to quoted OTC securities). In addition,
as discussed below in this Part II.D.1, the formation of an ``expert
market,'' see infra note 269 and accompanying text, may alleviate
these concerns, as well.
---------------------------------------------------------------------------

    However, the Commission understands that market participants may
have unique facts and circumstances as to how the amended Rule affects
their activities, and the Commission will consider requests from market
participants, including issuers, investors, or broker-dealers, for
exemptive relief from the amended Rule for OTC securities that are
currently eligible for the piggyback exception yet may lose piggyback
eligibility due to the amendments to the Rule.\217\ In considering
whether an exemption from the Rule (pursuant to Section 36 of the
Exchange Act and paragraph (g) of the amended Rule) \218\ under these
circumstances is necessary or appropriate and in the public interest,
and is consistent with the protection of investors, the Commission may
consider a number of factors, such as whether, based on data or other
facts and circumstances provided by requestors, the issuers and/or
securities are less susceptible to fraud or manipulation. In this
regard, the Commission may consider, among other things, securities
that have an established prior history of regular quoting and trading
activity; issuers that do not have an adverse regulatory history;
issuers that have complied with any applicable state or local
disclosure regulations that require that the issuer provide its
financial information to its shareholders on a regular basis, such as
annually; issuers that have complied with any tax obligations as of the
most recent tax year; issuers that have recently made material
disclosures as part of a reverse merger; or facts and circumstances
that present other features that are consistent with the goals of the
amended Rule of enhancing protections for investors, particularly
retail investors. The Commission encourages requests to be submitted
expeditiously during the nine-month transition period of the amended
Rule to avert potential interruptions in quotations in such securities
that may occur on or after implementation.\219\
---------------------------------------------------------------------------

    \217\ Issuers and investors that may be interested in requesting
any such exemptive relief may coordinate with broker-dealers to
submit requests. Because the amended Rule governs publications or
submissions by broker-dealers, the requirements of the amended Rule
and any conditions of any such exemptive relief would likely be
undertaken to be complied with by a broker-dealer rather than an
investor or issuer.
    \218\ See infra Part II.L. Paragraph (g) of the amended Rule
states that ``[u]pon written application or upon its own motion, the
Commission may, conditionally or unconditionally, exempt by order
any person, security, or transaction, or any class or classes of
persons, securities, or transactions, from any provision or
provisions of this section, to the extent that that such exemption
is necessary or appropriate in the public interest, and is
consistent with the protection of investors.''
    \219\ The amended Rule has a compliance date that is nine months
after the effective date of the amended Rule, and the compliance
date for paragraph (b)(5)(i)(M) of the amended Rule is two years
after the effective date of the amended Rule. See infra Part II.P.
Prior to the compliance date, broker-dealers may continue to publish
quotations in reliance on the piggyback exception even if an
issuer's paragraph (b) information is not current and publicly
available.
---------------------------------------------------------------------------

    In addition, the Commission believes that the amendments are
appropriate to help protect investors against potential exposure to
fraud and manipulation that can occur when current information about an
issuer is not publicly available. The Commission recognizes that
shareholders of OTC securities may incur costs related to a loss of
liquidity when broker-dealers cannot rely on the piggyback exception
because there is no current and publicly available paragraph (b)
information. However, on balance, the Commission believes that any such
costs would be warranted by the attendant benefits. The Commission
continues to believe that requiring issuer information to be current
and publicly available will facilitate investor protection and
transparency that will assist retail investors in making better-
informed investment decisions and will counteract misinformation that
can proliferate through promotions and other channels, thereby helping
to prevent fraud and manipulation. More specifically, the amended
Rule's requirements could have a deterrent effect in inhibiting
fraudulent activity related to quoted OTC securities. Investors could
benefit from decreased exposure to investment losses as a result of
diminished fraudulent activity in the OTC market.\220\ Further,
academic studies have highlighted the relationship between the breadth
and quality of firm disclosures and liquidity in the OTC market.\221\
The Commission also believes that, because prices may become less
susceptible to manipulation as a result of the trading activity of
informed investors who have access to paragraph (b) information, the
efficiency of prices (i.e., the degree to which prices reflect the
fundamental value of the security) could improve in the OTC market.
These investors could buy underpriced securities and sell overpriced
securities, pushing

mispriced securities toward fundamental values.\222\
---------------------------------------------------------------------------

    \220\ See infra Part VI.C.1.a; see also Proposing Release at
58255.
    \221\ See supra note 6 and accompanying text.
    \222\ See infra Part VI.C.2.
---------------------------------------------------------------------------

    Another commenter suggested that the Rule should explicitly except
market makers who do not solicit retail customers and that other
broker-dealers should not be permitted to piggyback on market makers
relying on the piggyback exception.\223\ Although such market makers
may not directly solicit retail customers, retail investors may access
these market makers' quotations that are published or submitted in an
IDQS. Such quotations may thereby serve as an advertisement (for
interest in a particular security) to these retail investors to
purchase shares in the quoted company, which could be a dark issuer.
Accordingly, this suggested exception would undermine the amended
Rule's goal of providing transparency of the OTC market because it
would allow broker-dealers that provide liquidity as market makers to
publish or submit quotations for any security, including the security
of an issuer for which information is not current and publicly
available. Because the investor protection goals of this requirement
are achieved, in part, by greater transparency and the public
availability of current issuer information, and not by the mere fact
that a broker-dealer provides liquidity as a market maker, the
Commission does not believe that it would be appropriate to except
broker-dealers who do not solicit retail customers, as suggested by the
commenter.
---------------------------------------------------------------------------

    \223\ Professor Angel Letter (stating that market makers provide
important liquidity to the market and produce important price
information that is useful to investors and as a tool for
enforcement).
---------------------------------------------------------------------------

    Other commenters stated that the elimination of a quoted market for
securities of issuers for which paragraph (b) information is not
current and publicly available would disadvantage minority shareholders
\224\ or non-company insiders.\225\ For example, some commenters
believed that the proposal could encourage companies to go dark to
destroy a public market in their stock.\226\ The Commission
acknowledges that existing shareholders, including minority
shareholders, of companies that do not have current and publicly
available paragraph (b) information will be negatively impacted if
broker-dealers cease publishing quotations for the securities of such
companies and OTC firm insiders repurchase shares from outside
investors at lower stock prices.\227\ However, the Commission believes
that such impact would affect a limited number of existing shareholders
in the overall market because the Commission expects a majority of
issuers may not engage in such activity. To the extent that issuers
engage in such activity, however, the Commission believes that any such
impact is justified by the benefits of deterring potential fraud and
manipulation, incentivizing greater issuer transparency and
contributing to more efficient price formation.\228\ In addition, the
requirement for current and publicly available issuer information for a
broker-dealer to rely on the piggyback exception to maintain a quoted
market could also benefit existing shareholders, including minority
shareholders or non-company insiders, due to more efficient pricing of
securities of issuers for which information is current and publicly
available.
---------------------------------------------------------------------------

    \224\ Caldwell Sutter Capital Comment; Ron Lefton; Milner
Letter; Professor Angel Letter.
    \225\ Caldwell Sutter Capital Comment; Brad Christensen; James
Duade; Michael Hess; Richard Krejcarek; Ron Lefton; Milner Letter;
William E. Mitchell; MJG Capital Fund Letter; Doug Mohn; Ariel
Ozick; Peter Quagliano; Dan Schum; Eric Speron; Michael Tofias; Don
C. Whitaker.
    \226\ Anbec Partners Letter; Tim Bergin (Oct. 9, 2019); Lucas
Elliott (Oct. 9, 2019); Ralf Erz; Braxton Gann; James Gibson (Oct.
25, 2019); Han Han; William E. Mitchell; Daniel Raider; Michael E.
Reiss; Mark Schepers; Dan Schum (``These companies enjoy operating
in the shadows.''); Michael Tofias; Raymond Webb (Oct. 7, 2019).
    \227\ See infra Part VI.C.1.a.
    \228\ See infra Part VI.C.1.a. Further, as discussed above, the
Commission will consider requests for exemptive relief regarding
issuers that currently do not make their information publicly
available.
---------------------------------------------------------------------------

    Another commenter stated that certain OTC companies have decades of
profits and cash yields without any operations or staff to manage the
distribution of financial information, so the public distribution of
financial information through a website, for example, would come
directly at the expense of the cash yield to investors.\229\ The
Commission recognizes that the requirement for current and publicly
available issuer information could come at the expense of cash yield to
investors but believes that this requirement will promote investor
protection by facilitating investors' access to information that they
could use to make better-informed investment decisions. While an issuer
may choose to make its financial information publicly available on its
website using its own operations, an issuer may also choose to make
information ``publicly available'' on a wide range of venues, including
on the website of, and using the services of, a qualified IDQS, a
registered national securities association, or a registered broker-
dealer. Indeed, an investor may choose to coordinate with a broker-
dealer or a qualified IDQS to have an issuer's current information made
publicly available on, for example, the website of a broker-dealer or
qualified IDQS.\230\
---------------------------------------------------------------------------

    \229\ William E. Mitchell.
    \230\ See infra Part II.J.3.
---------------------------------------------------------------------------

    Some commenters opposed the requirement for current and publicly
available information because, according to them, it is inconsistent
with the fact that not all issuers have a reporting or disclosure
obligation under the federal securities laws.\231\ The amended Rule,
however, does not place any obligation on an issuer to file or furnish
information with the Commission--any such obligation already would
exist for the issuer--and some issuers may choose to make current
information about themselves publicly available while others may
not.\232\
---------------------------------------------------------------------------

    \231\ David Aldridge; R. Berkvens; Tyler Black; J.H. Broekhoven;
Brandon Cline (Dec. 7, 2019); David A. Moeller, CIMA, Director of
Investment Planning, Symphony Financial, Ltd., Co. (``Symphony
Financial Comment''); Anthony Perala (Oct. 25, 2019); Michael E.
Reiss; Jim Rivest; Robert Schmidt (Nov. 5, 2019); Michael Tofias;
Alex Toppan; Debby Valentijn; S. Van den Hoogenhoff. But see
Peregrine Comment (``I[n] the case of companies who say that the
cost of providing basic reporting and accounting information is
overly complex or expensive, then these companies are probably too
small, unprofessional and/or under resourced to be publicly traded
in the first place and should probably remain private.'').
    \232\ Further, the Rule does not prevent an issuer from
terminating or suspending its reporting obligations under the
Exchange Act. Such an issuer, however, would become a catch-all
issuer for purposes of the amended Rule. Under those circumstances,
a broker-dealer would only be able to initiate a quoted market in
that issuer's security if certain information specified in amended
Rule 15c2-11(b)(5)(i) is current and publicly available.
---------------------------------------------------------------------------

    Commenters expressed concern regarding the potential for reduced
access to capital for small companies that have chosen to ``go dark''
to reduce compliance costs.\233\ While the Commission recognizes that
these companies could be negatively affected by the amended Rule, the
Commission is unable to quantify the potential impact on liquidity and
value.\234\ Further, as discussed above, the Commission recognizes that
the loss of a quoted market and the information embedded in prices may
reduce an issuer's ability to raise capital through stock issuances or
through other channels, such as debt.\235\ The Commission recognizes
that some companies may choose to remain dark

over the objections of minority shareholders whose shares could lose
value as a result of the amendments. However, non-transparent issuers
with productive investment opportunities could opt to disclose
information to maintain a quoted market and alleviate effects on
capital formation. Therefore, a decision by the issuer to remain non-
transparent may result in the issuer being less likely to have
productive investment opportunities because the issuer may have less
access to capital to use for productive investments than those that opt
to disclose.\236\ In addition, the Commission believes that the
amendments could result in reduced investment in securities more
susceptible to fraud and increased investment in securities less
susceptible to fraud.\237\
---------------------------------------------------------------------------

    \233\ See, e.g., Anbec Partners Letter; Caldwell Sutter Capital
Comment; Laura Coffman; Paul Lucot (Oct. 16, 2019); Michael Tofias;
Michael A. Zgayb; see James Duade; Terravoir Venture Letter.
    \234\ See infra Part VI.C.1.a.
    \235\ See infra Part VI.C.2.
    \236\ See infra Part VI.C.1.a.
    \237\ See infra Part VI.C.1.a.
---------------------------------------------------------------------------

    Some commenters stated that broker-dealers should not be prohibited
from relying on the piggyback exception to publish quotations for
securities of delinquent reporting companies because, according to the
commenter, price discovery that is created by publishing a quotation is
``a significant and important function of the market.'' \238\ The
Commission agrees that price discovery is an important function of the
market and, therefore, has adopted an amendment to the piggyback
exception allowing broker-dealers to rely on the exception based on
one-way priced quotations (so long as the other requirements of the
exception are met) that will help to facilitate price discovery in the
OTC market.\239\ Further, as discussed above \240\ and below in Part
VI.C.2, the Commission believes that efficiency of prices could improve
in the OTC market as a result of greater issuer transparency. However,
the Commission believes that investor protection requires that broker-
dealers be prohibited from relying on the piggyback exception for an
unlimited period to quote securities of reporting issuers that do not
have current and publicly available information or are delinquent in
their filing obligations. The Commission's belief is informed by
studies that show a greater incidence of litigated cases involving
pump-and-dump schemes brought against issuers of OTC securities
relative to cases brought against issuers of exchange-listed
securities.\241\
---------------------------------------------------------------------------

    \238\ Coral Capital Letter; see Coulson Comment.
    \239\ See infra Part II.D.2.
    \240\ See supra note 222 and accompanying text.
    \241\ See Cumming & Johan, supra note 7.
---------------------------------------------------------------------------

    One commenter stated that the proposal would hurt valuation
multiples for OTC securities because investors would be reluctant to
invest in a company that might fall two quarters behind in its public
disclosure requirements, which would lower share prices and trading
volumes, thereby making it more difficult to meet the listing standards
of exchanges.\242\ While the Commission acknowledges, as discussed in
the Economic Analysis below, that the proposed amendments may cause
capital to migrate from opaque to more transparent companies,\243\ the
Commission does not believe that the requirement for issuer information
to be current and publicly available makes it more difficult for
issuers whose information is not current and publicly available to meet
the listing standards of national securities exchanges because, in
part, exchange listing standards already require such issuer
information to be current and publicly available.\244\ As discussed
below in the Economic Analysis, securities of issuers with higher
levels of disclosure typically experience an increase in liquidity,
while the securities of issuers that do not disclose information
typically experience a decrease in liquidity,\245\ and liquid
securities often trade at higher prices based on lower costs associated
with their resale.\246\ The amended Rule's requirement that issuer
information be current and publicly available for a broker-dealer to
maintain a quoted market in an issuer's security has the potential to
increase the liquidity and price of securities of issuers for which
information is current and publicly available, thereby benefiting such
issuers such that they may consider seeking to list on a national
securities exchange.\247\
---------------------------------------------------------------------------

    \242\ Coral Capital Letter.
    \243\ See infra Part VI.C.2 (citing James J. Angel, et al., From
Pink Slips to Pink Sheets: Liquidity and Shareholder Wealth
Consequences of NASDAQ Delistings (Working Paper, Nov. 4, 2004),
available at https://www.researchgate.net/profile/Jeffrey_Harris7/publication/4893245_From_Pink_Slips_to_Pink_Sheets_Liquidity_and_Shareholder_Wealth_Consequences_of_Nasdaq_Delistings/links/02e7e527daa56e7612000000.pdf (explaining that less liquid OTC
securities could migrate away from the quoted OTC market as a result
of the proposed restrictions on the piggyback exception)); see also
Proposing Release at 58259.
    \244\ The listing standards of national securities exchanges are
more extensive than the amended Rule's requirement regarding current
and publicly available information. See, e.g., Original Listing
Application for Equity Securities, New York Stock Exchange,
available at https://www.nyse.com/publicdocs/nyse/listing/Full_Application.pdf (last visited June 13, 2020) (requiring, among
other things, that the applicant issuer agree to file all required
periodic financial reports with the Commission, including annual
reports, and where applicable, quarterly or semi-annual reports, by
the due dates established by the Commission).
    \245\ See infra Part VI.C.1.a.
    \246\ See Ang et al., supra note 3 (finding that the return
premium for illiquid stocks is much higher in OTC markets than in
listed markets).
    \247\ See, e.g., infra note 690 and accompanying text.
---------------------------------------------------------------------------

    Another commenter stated that to require yet another reporting
layer at the holding company level for community banks could lead many
to ``decide they cannot afford to trade at all.'' \248\ The Commission
recognizes that broker-dealers may not publish quotations pursuant to
the piggyback exception (but may publish quotations pursuant to the
unsolicited quotation exception, as discussed in the next paragraph)
for the securities of issuers if issuer information, including that of
holding companies for community banks,\249\ is not current and publicly
available, and that investors may incur costs associated with a loss of
liquidity and possible associated decrease in share value.\250\
However, the Commission believes that, on balance, by requiring current
and publicly available issuer information--information regarding the
holding company that is the issuer of the quoted security, not
information limited to the bank that is the issuer's subsidiary--for a
broker-dealer to maintain a quoted market in an issuer's security, the
amended Rule promotes investor protection and facilitates efficiencies
in price discovery by providing greater access to issuer information
that investors can use to make more informed investment decisions.
Moreover, fraudsters could have more difficulty in driving up the price
for an OTC security in pump-and-dump and other manipulative schemes,
which may be facilitated by investors' inability to analyze information

contained in promotion campaigns when issuer information is not current
and publicly available, because quotations for such issuers' securities
would not be published or submitted for retail investors to
access.\251\ Further, a promoter may be less likely to engage in a
fraudulent or manipulative scheme for the security of an issuer for
which there is current and publicly available information; the presence
of current and publicly available issuer information can be a deterrent
to a potential fraudster.\252\
---------------------------------------------------------------------------

    \248\ William E. Mitchell. Under the amended Rule, catch-all
issuer information must be current and publicly available on an
annual basis, with the exception of certain financial information,
not on a quarterly basis, as this commenter suggested. See Amended
Rule 15c2-11(f)(3)(i)(C)(3); Amended Rule 15c2-11(b)(5)(i).
    \249\ Financial information that is posted on the website of a
federal banking regulator, such as https://cdr.ffiec.gov/ and
https://www.ffiec.gov/, generally includes the following financial
information for companies that is specified in paragraph
(b)(5)(i)(L) of the amended Rule: The issuer's balance sheet, income
statements, and retained earnings statement. However, the Commission
notes that a bank's financial information provided on such a website
might not include the relevant financial information of the bank's
holding company (i.e., the issuer of the security), which would have
to be current and publicly available for a broker-dealer to publish
a quotation.
    \250\ See infra Part VI.C.1.a (stating that the cessation of
published quotations and the migration to the grey market for some
OTC securities can be followed by subsequent drops in price and
trading volume but that a causal relationship is difficult to
establish because of other contemporaneous factors, such as
financial distress).
    \251\ See infra Part VI.C.1.b; Proposing Release at 58255 n.267
and accompanying text.
    \252\ Cf. Karen K. Nelson et al., Are Individual Investors
Influenced by the Optimism and Credibility of Stock Spam
Recommendations?, 40 J. Business Fin. & Acct. 1155-83 (2013)
(stating that ``stock spam invariably targets small securities with
relatively little publicly available financial or other
information'').
---------------------------------------------------------------------------

    Trading in the grey market, where no quoted prices are available
for buyers and sellers to transact, will result in some costs from loss
of liquidity \253\ for certain securities because it involves manual
efforts to locate the other side of a trade. However, these increased
search costs associated with grey market trading may be limited or
avoided if broker-dealers are able to rely on the unsolicited quotation
exception to publish quotations on behalf of an investor that is not a
company insider or affiliate of the issuer.\254\ Rule 15c2-11 governs
broker-dealers' publications or submissions of quotations for OTC
securities in a quotation medium; the Rule does not govern trading in
OTC securities altogether (e.g., in the grey market, without
quotations).\255\
---------------------------------------------------------------------------

    \253\ See, e.g., Br[uuml]ggemann et al., supra note 72 (stating
that ``both market quality proxies change monotonically when moving
from the [quoted market] to the [g]rey [m]arket'' and that ``[t]he
decline in liquidity and increase in crash risk are consistent with
a ranking of these venues in terms of their regulatory strictness
and disclosure requirements'').
    \254\ See Amended Rule 15c2-11(f)(2).
    \255\ See Amended Rule 15c2-11(a).
---------------------------------------------------------------------------

    Some commenters who opposed a requirement for current and publicly
available information stated that some dark companies provide
information,\256\ such as an audited annual report, on an annual basis
to their existing shareholders \257\ or by request,\258\ and that these
dark issuers may not make this information more widely available to
avoid revealing confidential financial and business information to
competitors, to allow insiders to be the buyer of last resort at low
prices, to have fewer shareholders, and to take advantage of tax
benefits.\259\ The Commission recognizes that compliance with this
requirement, including with respect to the financial information for an
issuer that does not have a statute- or rule-based reporting
obligation, such as a catch-all issuer, may reveal confidential
financial or business information to competitors. The Commission
acknowledges there may be costs associated with potentially revealing
(or revealing more widely) confidential information, but requiring the
public availability of current issuer information can help to better
facilitate informed investment decisions by both existing investors
\260\ and potential investors in addition to potentially limiting
incidents of fraud and manipulation in OTC securities. The public
availability of current issuer information improves the overall mix of
information about issuers that is readily and easily accessible to
investors. Further, the public availability of current issuer
information can also promote market efficiency and pricing integrity of
catch-all issuers' securities, which may facilitate capital formation
and lead to more efficient prices that are less susceptible to
manipulation.\261\
---------------------------------------------------------------------------

    \256\ Such catch-all issuer information is discussed above in
Part II.B.3.
    \257\ See Duane DeYoung (Oct. 26, 2019); Brett Dorendorf;
Christian Gabis; Michael Hess; Matt Jester; Lake Highlands Comment;
Dave Peirce (Oct. 16, 2019); Anthony Perala.
    \258\ Anbec Partners Letter; Gary Huscher (Nov. 1, 2019); see
Duane DeYoung; SMP Asset Management Comment; Michael P. Kruger (Oct.
10, 2019); Lucas Selvidge (Oct. 23, 2019).
    \259\ Peter Quagliano; Michael Tofias; see Alluvial Letter;
Drinker Letter. But see NASAA Letter (stating that paragraph (b)
information does not involve trade secrets, proprietary business
operations, or other highly sensitive business information).
    \260\ Securities of well-established issuers that provide
information to existing shareholders can still be subject to fraud
and manipulation. See infra Part VI.C.1.a.
    \261\ See infra Part VI.C.1.a. Rule 15c2-11 does not impose any
disclosure obligations upon issuers.
---------------------------------------------------------------------------

    In response to the Commission's request for comment, one commenter
stated that the securities of issuers that have undergone a
reorganization, any major merger or acquisition, reverse merger, or
significant restructuring should be eligible for the piggyback
exception,\262\ stating that companies that have undergone reverse
mergers already are required to disclose ``a significant amount of
information'' publicly by filing a ``[F]orm 8-K12(g),'' which the
commenter stated is ``nearly identical'' to a Form 10, and that the
Commission should require the disclosure of more information on this
form if it is not satisfied with the amount of information a Form 8-K
filer must disclose if it engages in a reverse merger.\263\ The amended
Rule does not prevent broker-dealers from relying on the piggyback
exception for the securities of issuers that undergo major corporate
transactions, so long as certain requirements are met. To the extent
that the reports and filings specified in paragraph (b) require the
disclosure of any major corporate action, such as a reorganization,
merger, acquisition, or reverse merger, and such paragraph (b)
information is current and publicly available, timely filed, or filed
within 180 calendar days from the specified period, as applicable, for
an issuer that has undergone such transaction, a broker-dealer would be
able to rely on the piggyback exception for that issuer's security, so
long as the other requirements of the piggyback exception are met.
---------------------------------------------------------------------------

    \262\ Coral Capital Letter. But see NASAA Letter (encouraging
the Commission to amend the Rule so that broker-dealers cannot rely
on the piggyback exception to publish quotations for securities of
issuers that undergo material business developments, including, but
not limited to, declarations of bankruptcy, re-organizations, and
mergers, unless information regarding such development ``has been
disclosed'').
    \263\ Coral Capital Letter.
---------------------------------------------------------------------------

    Another commenter stated that the proposal would not increase the
availability of information that would help investors.\264\ The
Commission believes, however, that some market participants, such as a
qualified IDQS or broker-dealer, may choose to make current issuer
information publicly available in response to the amended Rule and that
doing so would increase access to issuer information that could help
investors to make better-informed investment decisions.\265\ Further,
allowing broker-dealers only to quote securities when information is
``publicly available'' (consistent with the amended Rule's
requirements) on any online location within a broad list of regulated
market participants' websites and an issuer's website, in addition to
EDGAR or the website of a state or federal agency, would increase
access to issuer information, such as balance sheets, profit and loss
statements, and retained earnings statements that investors could use
to analyze in making better-informed investment decisions. The public
availability of current information, in addition to the expansion of
the Rule's specified paragraph (b) information for catch-all issuers,
could enable investors to better assess information contained in
promotion campaigns and, therefore, could have a deterrent effect in

inhibiting fraudulent activity related to quoted OTC securities.\266\
---------------------------------------------------------------------------

    \264\ John Sheehy (Oct. 15, 2019).
    \265\ See, e.g., Aztec Letter (stating that ``Aztec . . . could,
and is willing to, publish on its website the annual information
required by Rule 15c2-11(b)[(5)(i)(A) through (M)]'').
    \266\ See infra Part VI.C.1.b; Proposing Release at 58255.
---------------------------------------------------------------------------

    Some commenters provided examples of where they believed paragraph
(b) information would be unnecessary to make an informed decision:
Sophisticated investors with sufficient investment experience; active,
self-directed traders that use professional products offered by
electronic brokers; institutions and regulated investment advisers;
broker-to-broker transactions; sales by all non-affiliate, retail
investors; \267\ and existing shareholders or short-term traders or
speculators.\268\ The Commission recognizes that investors may have
varying needs for an issuer's paragraph (b) information to be current
and publicly available due to different approaches in analyzing the
issuer and the market for its security. The Commission also does not
believe that the requirement for an issuer's paragraph (b) information
to be current and publicly available would prevent investors from
utilizing their own methods for analyzing issuers and their securities.
Instead, the Commission believes that, on balance, by requiring
paragraph (b) information to be current and publicly available for a
broker-dealer to be able to publish quotations for issuers' securities,
the amendments will require that a minimum amount of information be
available about these quoted securities, which can be used by investors
to make better-informed investment decisions. In addition, the public
availability of paragraph (b) information should help to alleviate
concerns that limited or no information for certain issuers of quoted
OTC securities exists or that such information is difficult or
impossible for retail investors to find.
---------------------------------------------------------------------------

    \267\ OTC Markets Group Letter 2; see also Securities Law USA
Letter; Zuber Lawler Letter.
    \268\ Coral Capital Letter.
---------------------------------------------------------------------------

    Some commenters suggested that securities of companies that do not
make their information publicly available or otherwise fail to meet an
exception should be eligible for quoting on a market where quote
distribution would be limited to ``professional investors'' and certain
non-institutional investors would only be allowed to liquidate
holdings.\269\ These comments do not provide sufficient detail to
address how such a market would function while ensuring that the Rule's
goals would be achieved through such alternative means. The Commission
recognizes, however, that investors in securities that migrate to the
grey market (as a result of the amendments) may be more susceptible to
fraud and less efficient pricing, and, as one commenter stated, may
lack electronic mechanisms to facilitate best execution.\270\ The
Commission believes that, under certain conditions and circumstances,
it could be beneficial to establish an ``expert market'' that would
enhance liquidity for sophisticated or professional investors in grey
market securities, as well as for small companies seeking growth
opportunities that might prefer to be quoted in a market limited to
such persons. To facilitate the formation and implementation of such a
market, the Commission has the authority to issue exemptive relief by
order pursuant to Section 36 of the Exchange Act and paragraph (g) of
the amended Rule \271\ that is necessary or appropriate in the public
interest, and is consistent with the protection of investors. In this
regard, the Commission may consider, among other things, the types of
investors who could access quotations in this market and the types of
securities that would be quoted in such a market.
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    \269\ E.g., OTC Markets Group Letter 2. Specifically, this
commenter suggested that (what the commenter called) an ``Expert
Market'' should be exempt from the definition of an IDQS under the
Rule. OTC Markets Group Letter 2; OTC Markets Group Letter 3
(mentioning Qualified Institutional Buyers, accredited investors,
certain registered entities, and banks); see Coulson Comment.
Several commenters agreed that there should be a way to trade
securities that would no longer be eligible for a quoted public
market, including such an ``Expert Market.'' OTC Markets Group
Letter 1; see Canaccord Letter; CrowdCheck Letter; HTFL Letter;
Lucosky Brookman Letter; MCAP Letter; Sosnow & Associates Letter;
Securities Law USA Letter; Zuber Lawler Letter; see also Caldwell
Sutter Capital Comment; Taranis Comment; Ron Lefton; Letter from
James E. Mitchell, General Partner, Mitchell Partners, L.P., to Hon.
Jay Clayton, Chairman, SEC (Mar. 13, 2020) (``Mitchell Partners
Letter 3''); STA Letter; Virtu Letter. One commenter stated that
such a market, however, could compound systemic risks. Jean-Paul
Tres.
    \270\ See OTC Markets Group Letter 2.
    \271\ See infra Part II.L. Paragraph (g) of the amended Rule
states that ``[u]pon written application or upon its own motion, the
Commission may, conditionally or unconditionally, exempt by order
any person, security, or transaction, or any class or classes of
persons, securities, or transactions, from any provision or
provisions of this section, to the extent that that such exemption
is necessary or appropriate in the public interest, and is
consistent with the protection of investors.''
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    In considering any such exemptive relief, the Commission
preliminarily believes that any such expert market must not have the
potential to develop into a parallel market for which quotations are
accessible by retail investors and the general public. To protect
retail investors from the harms resulting from incidents of fraud and
manipulation in OTC securities for which no or limited publicly
available information about the issuers exists to help counteract
misinformation, such exemptive relief could focus on the types of
investors that have the ability to assess an investment opportunity,
including the ability to analyze the risks and rewards.\272\ Thus, the
Commission preliminarily believes that any such exemptive relief should
be narrowly tailored to limit access to sophisticated investors, such
as qualified institutional buyers, as defined in Securities Act Rule
144A(a)(1); accredited investors, as defined in Securities Act Rule
501(a); investment companies registered under the Investment Company
Act of 1940; investment advisers registered under Section 203 of the
Investment Advisers Act of 1940; banks, bank holding companies, savings
associations, depository institutions, or foreign banks, as defined in
Section 3 of the Federal Deposit Insurance Act; and broker-dealers.
---------------------------------------------------------------------------

    \272\ See, e.g., Amending the ``Accredited Investor''
Definition, Securities Act Release No. 10824 (Aug. 26, 2020), __ FR
__ (__. __, 2020).
---------------------------------------------------------------------------

    The Commission may consider any appropriate factors or conditions
for any such expert market including certain safeguards such as, for
example, requiring that any participating security: (1) Is of an issuer
that has an active license from its state of incorporation or domicile
to carry on any business for which a license is required; and (2) was
the subject of a quotation that was published or submitted pursuant to
either paragraph (f)(1) (the exchange-traded security exception) or
(f)(3) (the piggyback exception) of the amended Rule on the business
day preceding the initial quotation in any such expert market.
    Some commenters stated that certain catch-all issuers provide their
paragraph (b) information to their shareholders (e.g., on an annual
basis), and so questioned the requirement for public availability of
issuer information.\273\ The amended Rule seeks to equalize
opportunities for informed investment decisions based on information
access between existing and potential shareholders by requiring that an
issuer's financial information be current and publicly available before
a broker-dealer can publish or submit a quotation for that issuer. The
Commission recognizes that the type of information that investors may
require to make an informed investment decision may vary based on their
investment objectives, as well as on other factors. The Commission,
however, believes that

allowing quotations absent current and publicly available financial
information, regardless of investment strategy, would benefit existing
shareholders who may have access to information that potential
investors may lack because existing shareholders, for example, may be
sent such information on a regular basis or upon request. Further, such
an outcome could facilitate a market where demand is based on
significant information asymmetries.
---------------------------------------------------------------------------

    \273\ E.g., Duane DeYoung; Brett Dorendorf; Michael Hess; Matt
Jester; Lake Highlands Comment; Dave Peirce; Anthony Perala; see
Christian Gabis.
---------------------------------------------------------------------------

    One commenter stated that the proposed piggyback exception would
not be available for foreign private issuers that restrict access by
U.S. persons to their disclosure documents,\274\ and the Commission
agrees. However, this restriction on the ability of a broker-dealer to
maintain a quoted market in the securities of such foreign private
issuers, in the absence of current and publicly available issuer
information, aligns with the amendments' objective of providing
additional transparency to investors, including retail investors, so
that they can make better-informed investment decisions and more easily
evaluate the issuer, its security, and the market for the
security.\275\
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    \274\ Murphy & McGonigle Letter.
    \275\ The amended Rule also expands the definition of the term
``publicly available'' to align the Rule with Exchange Act Rule
12g3-2(b) and include an electronic information delivery system that
is generally available to the public in the primary trading market
of a foreign private issuer, which accommodates information that is
available on a foreign regulator's website. See infra Part II.J.3.
---------------------------------------------------------------------------

    As discussed above, the proposed Rule would have required that a
catch-all issuer's financial information be current and publicly
available within six months from a broker-dealer's publication or
submission of a quotation for a broker-dealer to rely on the piggyback
exception for the catch-all issuer. Some commenters specifically
addressed the six-month requirement in the proposed Rule as too short
an amount of time for a catch-all issuer's information to be current
and publicly available.\276\ One commenter opposed the six-month time
frame because, according to the commenter, such an amount of time would
place an undue burden on small issuers, create a compliance burden on
broker-dealers, and negatively impact the ability of small issuers to
raise capital.\277\ Some commenters stated that certain well-
established, thinly traded non-reporting issuers make their financial
information \278\ available to their existing shareholders only on an
annual basis, which would not meet the standard of ``current'' for
purposes of paragraph (b)(5)(i)(L) of the proposed Rule.\279\
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    \276\ See Coral Capital Letter; Joshua Marino.
    \277\ Coral Capital Letter.
    \278\ See infra Part II.B.3 for a discussion of such issuer
information.
    \279\ See, e.g., Alluvial Letter; Aztec Letter; Beacon
Redevelopment Letter; Brett Dorendorf; Michael Hess; Doug Mohn;
Ariel Ozick; Robert E. Schermer, Jr.; Total Clarity Comment.
---------------------------------------------------------------------------

    The Commission has determined not to require catch-all issuer
information to be current and publicly available within six months
before the date of publication or submission of a broker-dealer's
quotation for the broker-dealer to rely on the piggyback exception.
Instead, for a broker-dealer to rely on the piggyback exception to
publish or submit a quotation for a catch-all issuer's security, such
issuer's balance sheet is current if its most recent balance sheet is
as of a date less than 16 months \280\ before the publication or
submission of the broker-dealer's quotation, and 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.\281\ Such
catch-all issuer's other information specified in paragraph (b)(5)(i),
except for the information specified in paragraphs (b)(5)(i)(N) through
(P), must be as of a date within 12 months before the publication or
submission of the quotation.\282\
---------------------------------------------------------------------------

    \280\ See supra note 142.
    \281\ See Amended Rule 15c2-11(b)(5)(i)(L); infra Part II.J.1
(discussing the amended Rule's definition of the term ``current'').
    \282\ See Amended Rule 15c2-11(b)(5)(i). Consistent with the
proposed Rule, the amended Rule does not require the information
specified in paragraphs (b)(5)(i)(N) through (P) to be current and
publicly available because those paragraphs are not issuer-specific
and, instead, refer to information about the publication or
submission of the quotation and the broker-dealer publishing or
submitting the quotation.
---------------------------------------------------------------------------

    While the Commission recognizes investors' need for current
financial information, the Commission is also cognizant of the
anticipated costs to issuers of producing and updating paragraph (b)
information. As discussed in Part II.B.3, a more frequent disclosure
requirement for catch-all issuer financial information would require an
allocation of resources to the preparation of financial statements that
the Commission does not believe is justified in light of the fact that
catch-all issuers may not have an ongoing reporting or disclosure
obligation. In addition, the Commission believes that catch-all issuer
information made publicly available on an annual basis, in addition to
the expansion of the list of specified information for catch-all
issuers,\283\ will help provide investors with appropriate information
to make better-informed investment decisions. Furthermore, as some
commenters observed, the extension of time for catch-all issuer
financial information to be current and publicly available aligns with
current industry standards and practices regarding when issuers provide
information to their investors \284\ and certain requirements under
state law to provide financial information to investors on an annual
basis.\285\ Therefore, the Commission believes the extension of time
for the disclosure of catch-all issuer financial information (as
compared to the proposed Rule's semi-annual requirement) strikes an
appropriate balance between facilitating capital formation and issuer
and market transparency to provide investors with information to make
better-informed investment decisions.
---------------------------------------------------------------------------

    \283\ See supra Part II.B.3.
    \284\ See, e.g., Alluvial Letter; Aztec Letter; Beacon
Redevelopment Letter; Brett Dorendorf; Michael Hess; Doug Mohn;
Ariel Ozick; Robert E. Schermer, Jr.; Total Clarity Comment.
    \285\ See Drinker Letter.
---------------------------------------------------------------------------

    As discussed above, the proposed Rule would have treated an issuer
as a catch-all issuer if it were delinquent in its reporting or
disclosure obligations as a result of not timely filing a report, as
required by the Exchange Act or Securities Act. Accordingly, if an
issuer had not timely filed a required report by the prescribed due
date for such report, its information would not be current for purposes
of the proposed Rule, and the issuer would be treated as a catch-all
issuer until the issuer were to file its required report. In this
instance, a broker-dealer would not have been able to rely on the
piggyback exception to publish or submit a quotation for the issuer's
security if the information specified in proposed paragraph
(b)(5)(i)(L) for such issuer were not current and publicly available as
of a date within six months from the publication or submission of the
broker-dealer's quotation. This treatment of delinquent reporting
issuers as catch-all issuers in the proposed Rule would have created
different outcomes with respect to when information is current and
publicly available for purposes of relying on the piggyback exception
based on the frequency of Exchange Act or Securities Act reporting and
disclosure obligations. For example, if an issuer did not file a
required quarterly report by its prescribed due date, broker-dealers
would continue to be able to publish a quotation in

reliance on the piggyback exception so long as the last day of the
reporting period covered by the issuer's most recently filed quarterly
report were as of a date within six months from the date of the
publication or submission of the broker-dealers' quotations; the
delinquent reporting issuer would have been treated as a catch-all
issuer, but it would not immediately have lost its quoted market. In
contrast, a broker-dealer would not have been able to publish a
quotation in reliance on the piggyback exception for an issuer with a
reporting obligation under Regulation A if the issuer failed to file
its semi-annual or annual report by the prescribed due date for such
report. Here, even though the issuer is delinquent in its reporting and
would be treated as a catch-all issuer, its information would not be
current and publicly available within the six-month time frame for the
piggyback exception, and its quoted market must be discontinued, unless
its information were made current and publicly available. To simplify
the application of the piggyback exception, and to address the
potential for disparate treatment under the piggyback exception of
issuers that may have different reporting obligations, the piggyback
exception under the amended Rule groups issuers based on their
regulatory status in regard to Exchange Act or Securities Act reporting
obligations. Accordingly, issuers with Exchange Act or Securities Act
reporting or disclosure obligations are not treated as catch-all
issuers for purposes of the piggyback exception.\286\
---------------------------------------------------------------------------

    \286\ See Amended Rule 15c2-11(f)(3)(i)(C).
---------------------------------------------------------------------------

(b) Time Frame Requirements for Issuer Information
    The following table summarizes the time frames for which paragraph
(b) information must be current and publicly available, timely filed,
or filed within 180 calendar days from the specified period, as
applicable, for purposes of piggyback exception eligibility:

    Table 1--Piggyback Exception Requirements Regarding Paragraph (b)
                               Information
------------------------------------------------------------------------
  Documents and information
        specified in:              Paragraph (b) information must be:
------------------------------------------------------------------------
Paragraphs (b)(3)(i),          Filed within 180 calendar days following
 (b)(3)(iv), and (b)(3)(v)      the end of the reporting period (e.g.,
 for reporting issuers that     the fiscal year or fiscal quarter, as
 have an Exchange Act           applicable).
 reporting obligation.
Paragraph (b)(3)(ii) for       Filed within 120 calendar days following
 reporting issuers that have    the end of the issuer's fiscal year \a\
 a reporting obligation under   and 90 calendar days after the end of a
 Regulation A.                  semi-annual period.\b\
Paragraph (b)(3)(iii) for      Filed within 120 calendar days following
 crowdfunding issuers.          the end of the issuer's fiscal year.\c\
Paragraph (b)(4) for exempt    Since the first day of its most recently
 foreign private issuers.       completed fiscal year, information that
                                has been made public as required by the
                                laws of the country of the issuer's
                                incorporation, organization or domicile;
                                or has filed with the principal stock
                                exchange in its primary trading market
                                on which its securities are traded.\d\
Paragraph (b)(5) for catch-    Current and publicly available annually,
 all issuers.                   except for certain financial
                                information: The issuer's most recent
                                balance sheet must 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
                                for the 12 months preceding the date of
                                the most recent balance sheet.
------------------------------------------------------------------------
\a\ See Form 1-K., General Instructions, A.(2) (specifying that annual
  reports filed on Form 1-K shall be filed within 120 calendar days
  after the end of the fiscal year covered by the report).
\b\ See Form 1-SA, General Instructions, A.(2).
\c\ See Rule 203(b) of Regulation Crowdfunding.
\d\ See Exchange Act Rule 12g3-2(b)(1)(iii), (b)(3)(ii).

    To facilitate issuer transparency in connection with a broker-
dealer's reliance on the piggyback exception to maintain a quoted
market in the issuer's security, the amended Rule requires that an
issuer's documents and information be filed within 180 calendar days
from the end of the issuer's most recent fiscal year or any quarterly
reporting period that is covered by a report required by Section 13 or
15(d) of the Exchange Act for reporting issuers for which documents and
information are specified in paragraphs (b)(3)(i), (b)(3)(iv), and
(b)(3)(v) of the amended Rule. The requirement under the amended Rule
that an issuer's documents and information be filed within 180 calendar
days from the specified period allows broker-dealers to continue to
rely, for a limited period, on the piggyback exception to publish or
submit quotations for securities of issuers that have not filed a
required report by the prescribed due date for such report. Consistent
with the proposed Rule, the amended Rule allows a broker-dealer to
continue to rely on the piggyback exception to publish quotations, for
a limited period, for a delinquent reporting issuer's security.\287\
The provision of this limited time period balances the Rule's goals of
preventing fraudulent and manipulative activity (specifically, in this
case, in delinquent issuers' securities) while preserving liquidity in
the OTC market.\288\ By providing a specific, limited period for these
reporting issuers to file reports before a broker-dealer can no longer
rely on the piggyback exception for the issuer's security, the amended
Rule limits the potential for the disruption and loss of a broker-
dealer quoted market resulting from the failure of such issuer to file
a required report by the prescribed due date for the report, which, at
the same time, provides time for: (1) The issuer's paragraph (b)
information to become current and publicly available for investors to
access and utilize to make investment decisions, and (2) investors to
sell securities if they so choose in a market that is maintained by
broker-dealer quotations for a limited time.
---------------------------------------------------------------------------

    \287\ See infra note 291.
    \288\ See infra Part VI.B.2.c.
---------------------------------------------------------------------------

    The reports referenced in the amended Rule for issuers with a
reporting obligation under Regulation A (i.e., paragraph (b)(3)(ii))
and for crowdfunding issuers (i.e., paragraph (b)(3)(iii)) must be
``timely filed'' for a broker-dealer to rely on the piggyback
exception. Because issuers with a reporting obligation under Regulation
A and crowdfunding issuers are not required to file reports more
frequently than on a semi-annual or annual basis,\289\ the due date for
filing such

reports will always be greater than 180 days from the end of the prior
reporting period covered by such a report. By requiring that issuer
information be timely filed (i.e., by the prescribed due date for a
form or as required by Regulation A or Regulation Crowdfunding), the
piggyback exception under the amended Rule is consistent with the time
frames for issuers' Exchange Act or Securities Act reporting
obligations.
---------------------------------------------------------------------------

    \289\ See Form 1-SA, General Instructions, A.(2) (specifying
that semi-annual reports on Form 1-SA shall be filed within 90
calendar days after the end of the semi-annual period covered by the
report, which would result in a report being filed 270 calendar days
(180 calendar days + 90 calendar days) from the end of the prior
reporting period); Rule 203(b) of Regulation Crowdfunding
(specifying that annual reports filed on Form C-AR shall be filed no
later than 120 days after the end of the fiscal year covered by the
report, which would result in a report being filed 485 days (365
days + 120 days) from the end of the prior reporting period).
---------------------------------------------------------------------------

    Paragraph (f)(3)(i)(C)(1) under the amended Rule provides that the
piggyback exception shall apply to the publication or submission of a
quotation for a security of a reporting issuer (other than a
crowdfunding issuer or an issuer that has a reporting obligation under
Regulation A) \290\ if the applicable paragraph (b) information is
current and publicly available within 180 calendar days from the end of
the issuer's most recent fiscal year or any quarterly reporting
period.\291\ For example, if an issuer with a quarterly reporting
obligation, such as an issuer that has information specified in
paragraph (b)(3)(i), (b)(3)(iv), or (b)(3)(v), were to file an annual
report for a fiscal year that ended on December 31, 2020, a quotation
for that issuer's security that was published or submitted by a broker-
dealer in an IDQS, between January 1, 2021, and, inclusive of, June 29,
2021, would comply with the requirements in paragraph (f)(3)(i)(C) of
the piggyback exception. If, however, the same issuer were to file a
quarterly report for the quarters ending on March 31, 2021, and June
30, 2021, and was required but failed to file a quarterly report for
the quarter that ended on September 30, 2021, a quotation for such
issuer's security that was published or submitted, by a broker-dealer
in an IDQS, between July 1, 2021, and, inclusive of, December 27, 2021,
would meet the requirements of paragraph (f)(3)(i)(C) of the piggyback
exception. In this same scenario, where the issuer failed to file a
quarterly report for the quarter that ended on September 30, 2021, a
quotation for such issuer's security that was published or submitted,
by a broker-dealer in an IDQS, on December 28, 2021, would not meet the
requirements of paragraph (f)(3)(i)(C) of the piggyback exception
because the applicable paragraph (b) information was not current and
publicly available with respect to any reporting period that ended 180
calendar days before the publication or submission of the
quotation.\292\
---------------------------------------------------------------------------

    \290\ As discussed below, the requirements for the paragraph (b)
information of such issuers are included in paragraph
(f)(3)(i)(C)(2) of the amended Rule and provide that: (1) A
crowdfunding issuer's paragraph (b) information would be timely
filed if it were filed within 120 calendar days following the end of
the issuer's fiscal year, or (2) paragraph (b) information for an
issuer with a reporting obligation under Regulation A would be
timely filed if it were filed within 120 calendar days following the
end of the issuer's fiscal year and 90 calendar days after the end
of semi-annual period.
    \291\ Amended Rule 15c2-11(f)(3)(i)(C)(1). As proposed, a
reporting issuer that was delinquent in its reporting obligation
would have been treated as a catch-all issuer. See Proposed Rule
15c2-11(b)(5)(ii). As such, the issuer's information would need to
have been current and made publicly available within six months (or
180 calendar days) before the date of publication or submission of
such quotation for a broker-dealer to rely on the piggyback
exception to publish quotations for its security. See Proposed Rule
15c2-11(f)(3)(ii). As discussed above, the amended Rule's piggyback
exception does not impose the proposed six-month requirement for
catch-all issuer information to be current and publicly available.
In addition, the amended Rule treats delinquent reporting issuers as
catch-all issuers only with respect to compliance with the
information review requirement so that a broker-dealer can publish
or submit an initial quotation to commence a quoted market in an
issuer's security. See amended Rule 15c2-11(b)(5)(ii). In light of
these changes from the proposal, the amended Rule's piggyback
exception requires that an issuer's information specified in
paragraph (b)(3)(i), (b)(3)(iv), or (b)(3)(v) be filed within 180
calendar days from the end of the issuer's most recent fiscal year
or any quarterly reporting period that is covered by a report
required by section 13 or 15(d) of the Exchange Act, as applicable,
to avoid disparate treatment of issuers by imposing a requirement
for such information that has an unduly short time frame. Although
decreased access to current issuer information may have the
potential to hamper an investor's ability to counteract
misinformation, the Commission believes that the amendments to the
piggyback exception appropriately balance these concerns (i.e.,
disparate treatment of issuers and transparency of issuer
information) by permitting broker-dealers to quote the securities of
certain reporting issuers for a time-limited period (i.e., so long
as their paragraph (b) information is filed within 180 calendar days
from the end of the issuer's most recent fiscal year or any
quarterly reporting period that is covered by a report required by
section 13 or 15(d) of the Exchange Act).
    \292\ A broker-dealer or qualified IDQS may comply with the
information review requirement by reviewing the specified
information for a catch-all issuer in paragraph (b)(5) of the
amended Rule so that a broker-dealer can publish a quotation for the
issuer's security if such issuer's information is current and
publicly available. See Amended Rule 15c2-11(b)(5)(ii); supra Part
II.B.5 (discussing the application of the catch-all issuer
provision). Until the issuer's required report is filed, however,
the broker-dealer would not be able to maintain a quoted market for
such issuer's security in reliance on the piggyback exception.
---------------------------------------------------------------------------

    If an issuer with an annual filing obligation (i.e., an issuer for
which documents and information are specified in paragraph (b)(3)(v) of
the amended Rule) were to file its annual statement, pursuant to the
requirements of section 12(g)(2)(G)(i) of the Exchange Act, for the
period that ended on December 31, 2020, the quotation for such issuer's
security that was published or submitted, by a broker-dealer in an
IDQS, between January 1, 2021, and, inclusive of, June 29, 2022, would
comply with the requirements in paragraph (f)(3)(i)(C) of the piggyback
exception. If, however, the same (b)(3)(v) issuer failed to file an
annual statement for the period that ended on December 31, 2020, a
quotation for such issuer's security that was published or submitted,
by a broker-dealer in an IDQS after June 29, 2021 (i.e., 180 days after
the end of issuer's fiscal year), would not comply with the
requirements of paragraph (f)(3)(i)(C) of the piggyback exception.
    Paragraph (f)(3)(i)(C)(2) under the amended Rule provides that the
piggyback exception shall apply to the publication or submission of a
quotation for a security of an issuer with a reporting obligation under
Regulation A or a crowdfunding issuer so long as the applicable
paragraph (b) information is timely filed.\293\ If an issuer for which
documents and information are specified in paragraph (b)(3)(ii) of the
amended Rule that has reporting obligations under Regulation A were to
file an annual report within 120 calendar days from the end of a fiscal
year that ended on December 31, 2020,\294\ the quotation for such
issuer's security that was published or submitted, by a broker-dealer
in an IDQS, between January 1, 2021, and, inclusive of, September 28,
2021,\295\ would comply with the requirements of paragraph (f)(3)(i)(C)
of the piggyback exception. If, however, the same issuer were to fail
to timely file a semi-annual report by September 28, 2021, for the
period that ended June 30, 2021, the quotation for such issuer's
security that was published or submitted, by a broker-dealer in an
IDQS, on September 29, 2021, would not comply with paragraph
(f)(3)(i)(C) of the piggyback exception. In this example, a broker-
dealer would not be able to rely on the piggyback exception to publish
a quotation for the issuer's security beginning on September 29, 2021,

because the issuer failed to timely file its semi-annual report
pursuant to Rule 257(b)(3).\296\ If, however, the same issuer were to
timely file its semi-annual report by September 28, 2021, a broker-
dealer could rely on the piggyback exception to publish or submit a
quotation for the issuer's security through, and inclusive of, April
30, 2022 (i.e., 120 days from the end of the issuer's 2021 annual
reporting period).
---------------------------------------------------------------------------

    \293\ Amended Rule 15c2-11(f)(3)(i)(C)(2).
    \294\ For purposes of this example, this date represents the
deadline for this issuer to file an annual report pursuant to Rule
257(b)(1) of Regulation A.
    \295\ In this example, September 28, 2020, is 90 calendar days
after the end of the issuer's semi-annual reporting period, the
deadline to file its semi-annual report.
    \296\ As discussed below, amended Rule 15c2-11(f)(3)(ii)
provides a limited grace period that would allow broker-dealers to
continue to rely on the piggyback exception for a time-limited
period to quote the security of an issuer that files a tardy report.
Further, if the required report is filed during the grace period,
broker-dealers could continue to rely on the piggyback exception
even after the expiration of such grace period. See Rule 15c2-
11(f)(3)(ii)(C); see also infra Part II.D.6.
---------------------------------------------------------------------------

    If a crowdfunding issuer, which has documents and information
specified in paragraph (b)(3)(iii) under the amended Rule, were to
timely file by April 30, 2021, an annual report for a fiscal year that
ended on December 31, 2020 (i.e., 120 days after the end of the
issuer's most recent fiscal year), a quotation for the issuer's
security that was published or submitted, by a broker-dealer in an
IDQS, between January 1, 2021, and, inclusive of, April 30, 2022, would
comply with the requirements of paragraph (f)(3)(i)(C) of the piggyback
exception. The 120-day requirement in the piggyback exception under the
amended Rule--and, in this example, the period January 1, 2021, through
April 30, 2022--reflects the requirements of a crowdfunding issuer to
file a report within 120 days from the end of its fiscal year. If,
however, the same crowdfunding issuer were to fail to timely file by
April 30, 2021, an annual report for its fiscal year that ended on
December 31, 2020, the quotation for such issuer's security that was
published or submitted, by a broker-dealer in an IDQS, beginning on May
1, 2021, would not comply with the requirements of paragraph
(f)(3)(i)(C) of the piggyback exception because the issuer's paragraph
(b) information would not be timely filed within 120 days from the end
of the issuer's most recent fiscal year.
    Paragraph (f)(3)(i)(C)(3) under the amended Rule provides that the
piggyback exception shall apply to the publication or submission of a
quotation for a security of an exempt foreign private issuer or a
catch-all issuer, so long as the applicable paragraph (b) information
is current and publicly available.\297\ If an exempt foreign private
issuer, which has documents and information specified in paragraph
(b)(4) of the amended Rule, were to publish its annual report, pursuant
to a requirement of the laws of the country of the issuer's
incorporation or the rules of its primary trading market, for the
period that ended on December 31, 2020, the quotation for such issuer's
security that was published or submitted, by a broker-dealer in an
IDQS, between January 1, 2021, and the day the issuer is required to
publish its next annual report, would comply with the requirements of
paragraph (f)(3)(i)(C) of the piggyback exception. If, however, the
same exempt foreign private issuer failed to publish its annual report
pursuant to a requirement of the laws of the country of the issuer's
incorporation or the rules of its primary trading market, the quotation
for such issuer's security that was published or submitted on the day
after such issuer was required to publish its annual report would not
comply with the requirements of paragraph (f)(3)(i)(C) of the piggyback
exception because the information specified in paragraph (b)(4) of the
amended Rule would not be current and publicly available.
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    \297\ Amended Rule 15c2-11(f)(3)(i)(C)(2).
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    Finally, for a broker-dealer to publish or submit in an IDQS a
quotation for the security of a catch-all issuer, which has documents
and information specified in paragraph (b)(5) of the amended Rule, on
or before February 1, 2023, the broker-dealer would comply with the
requirements of paragraph (f)(3)(i)(C) of the piggyback exception if
the information specified in paragraph (b)(5) of the amended Rule for
such issuer were current and publicly available as of February 1, 2022
(a date that is within 12 months prior to the publication or submission
of the broker-dealer's quotation), including if its balance sheet were
dated as of October 1, 2021 (a date less than 16 months before the
publication or submission of the quotation), and its profit and loss
and retained earnings statements were for the 12 months preceding the
date of the balance sheet. However, the broker-dealer's quotation for
such issuer's security that was published or submitted on or after
February 1, 2022, would not meet the requirements of paragraph
(f)(3)(i)(C) of the piggyback exception if the issuer's paragraph (b)
information were not current and publicly available as of February 1,
2021, including if its balance sheet were dated before October 1, 2020,
and its profit and loss and retained earnings statements were for a
period older than the 12 months preceding the date of the balance
sheet, the specified information would not be current and publicly
available within the time frame specified in paragraph (b)(5) of the
amended Rule.
(c) Publicly Available Determinations Regarding Issuer Information
    As discussed below, a qualified IDQS may make a publicly available
determination that issuer information is current and publicly
available, and broker-dealers may rely upon such publicly available
determinations to submit or publish a quotation in an OTC security. In
response to a comment requesting clarification as to whether a
qualified IDQS's obligation to determine whether an issuer's paragraph
(b) information is current and publicly available is ongoing,\298\ the
Commission clarifies that a qualified IDQS that makes a publicly
available determination that the piggyback exception is available must
establish, maintain, and enforce reasonably designed written policies
and procedures to determine, on an ongoing basis, whether the documents
and information specified in paragraph (b) are, depending on the type
of issuer, current and publicly available, timely filed, or filed
within 180 days from the end of a reporting period, as applicable.\299\
While the obligation is ongoing, the frequency with which a qualified
IDQS or registered national securities association must make such
determination depends on the frequency with which an issuer's reports
are required to (1) be filed with the Commission, according to the
issuer's Exchange Act or Securities Act reporting obligation, or (2) be
as of a certain date and publicly available (in the case of a catch-all
issuer).\300\ For example, a qualified IDQS or registered national
securities association may determine that an issuer's paragraph (b)
information, such as a required annual or semi-annual report, is timely
filed once or twice a year, respectively, based on the prescribed due
date for such issuer's report in compliance with its reporting
obligation under Regulation A.\301\ A broker-dealer relying on a

publicly available determination made by a qualified IDQS or registered
national securities association, however, does not have an independent
obligation to confirm the continued public availability of current
issuer information, though such broker-dealer would have a
recordkeeping requirement to support its reliance on the piggyback
exception,\302\ including its reliance on the piggyback exception's
grace period.\303\
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    \298\ FINRA Letter.
    \299\ See supra Part II.A.4 (discussing policies and procedures
for qualified IDQSs and registered national securities associations
that make publicly available determinations, including requirements
for ongoing obligations).
    \300\ Amended Rule 15c2-11(a)(3) (stating that a qualified IDQS
that makes a publicly available determination must establish,
maintain, and enforce reasonably designed written policies and
procedures to determine ``whether'' the requirements of an exception
are met); see supra Part II.A.4 (discussing the policies and
procedures requirements for publicly available determinations to be
made by a qualified IDQS or registered national securities
association).
    \301\ See Form 1-SA, General Instructions, A.(2).
    \302\ See Amended Rule 15c2-11(d)(2).
    \303\ See infra Part II.D.6.
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2. One-Way Priced Quotations--Rule 15c2-11(f)(3)(i)(A)
    To facilitate price discovery in a quoted market, the Commission is
modifying the piggyback exception to require at least a one-way priced
quotation (as opposed to adopting the proposed requirement that
quotations represent both a bid and an offer at specified prices) for
broker-dealers to rely on the piggyback exception. The Commission
sought comment about the proposal to require that a security be the
subject of both a bid and an offer at specified prices, in an IDQS, for
a broker-dealer to rely on the piggyback exception to publish or submit
a quotation for such security. Two commenters provided general support
for this aspect of the proposal.\304\ Commenters who opposed this
aspect of this proposal stated that securities with a one-sided priced
quotation should be eligible for the piggyback exception. Some stated
that a one-sided priced bid should be eligible for the piggyback
exception because, according to one commenter, one-sided priced bids
provide sufficient evidence of legitimate, independent market
interest,\305\ while other commenters stated that allowing broker-
dealers to rely on the piggyback exception based on one-sided priced
quotations helps to protect minority shareholders \306\ and provides
price discovery and market development.\307\
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    \304\ FINRA Letter (stating that two-way priced quotations are
appropriate to support broker-dealers' reliance on the piggyback
exception because, by entering priced quotations, the broker-dealer
provides substantive market information concerning its view about
the value of the security); Massachusetts Letter.
    \305\ OTC Markets Group Letter 2; see Securities Law USA Letter;
Zuber Lawler Letter. One commenter stated that there is value in
permitting piggyback eligibility for securities with a one-sided
priced bid quotation. OTC Markets Group Letter 1.
    \306\ Mitchell Partners Letter 1. While permitting broker-
dealers to rely on the piggyback exception based on one-sided
quotations could protect minority shareholders, as this commenter
suggested, the amendments are designed to provide protections to all
investors. See, e.g., supra Part I (discussing the objectives of the
amended Rule).
    \307\ Coral Capital Letter; OTC Markets Group Letter 2 (``A
priced bid indicates a firm desire to buy the security, which itself
acts as a valid price discovery mechanism.''); see Securities Law
USA Letter; Zuber Lawler Letter.
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    The Commission has determined to permit broker-dealers to rely on
the piggyback exception for securities that have at least either a bid
quotation at a specified price or an offer quotation at a specified
price \308\ instead of requiring that both bid and offer quotations be
at specified prices, as proposed. After considering the comments, and
in light of other requirements of the piggyback exception and self-
regulatory organization (``SRO'') rules that apply to the quotations of
a broker-dealer,\309\ the Commission believes that the requirement for
at least a one-sided quotation at a specified price is an appropriate
element of a multi-prong exception that strikes the right balance of
updating the piggyback exception to reduce the likelihood that its use
could facilitate a potential fraudulent or manipulative scheme without
unduly hampering the development of liquidity in the OTC market.
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    \308\ Amended Rule 15c2-11(f)(3)(i)(A). The Commission is making
a technical edit from the proposal to use the word ``offer'' instead
of the word ``ask'' to make the wording of the piggyback exception
consistent with the Rule's definition of ``quotation,'' which uses
the word ``offer'' instead of the word ``ask.''
    \309\ See, e.g., FINRA Rule 5220.
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    A one-sided quotation at a specified price can contribute to price
discovery and the commencement of a quoted market, each of which are
important, especially in a thinly traded market, to an efficient and
liquid OTC market. The Commission believes that expanding this part of
the piggyback exception to require a one-sided quotation at a specified
price rather than two-sided quotations at specified prices may avoid
unduly impeding liquidity for investors and capital formation for
issuers while still addressing the vulnerability of the piggyback
exception to be used to facilitate potential fraud and manipulation. As
amended, the multiple prongs of the piggyback exception, including the
paragraph (f)(3)(i)(B) provision regarding shell companies and the
paragraph (f)(3)(i)(C) provision regarding current and publicly
available information for all issuers, both of which are discussed
below, are designed to work together to help reduce the potential for
fraudulent and manipulative activity when a broker-dealer relies on the
piggyback exception, without unduly hampering liquidity in the OTC
market.\310\
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    \310\ While the provision in proposed Rule 15c2-11(f)(3)(ii)
referenced ``an issuer included in paragraph (b)(5),'' the provision
in amended Rule 15c2-11 references the documents and information
regarding an issuer that are specified in the applicable
subparagraph of the amended Rule regarding such documents and
information. This technical change from the proposal addresses the
fact that paragraph (b) specifies an issuer's documents and
information. In addition, while the proposed Rule's provision in the
piggyback exception regarding shell companies, trading suspensions,
and current and publicly available catch-all issuer information was
contained in a single paragraph under proposed Rule 15c2-
11(f)(3)(ii), the amended Rule has split the provision into multiple
paragraphs. Amended Rule 15c2-11(f)(3)(i)(B) provides a provision
regarding shell companies and trading suspensions, while amended
Rule 15c2-11(f)(3)(i)(C)(1) through (3) provides a provision
regarding an issuer's paragraph (b) information that is current and
publicly available, timely filed, or filed within 180 calendar days
from a specified period. This clarifying edit from the proposal has
been made to make the provision easier to read.
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    In response to a Commission solicitation of comment about whether
there is a certain price threshold below which the piggyback exception
should not apply, one commenter stated it was generally opposed to the
establishment of a price threshold because, according to the commenter,
price thresholds interfere with the normal functioning of a
market.\311\ The Commission has determined that a price threshold test
would be inappropriate for the piggyback exception in light of its
concerns that such a test could be subject to abuse through, for
example, reverse stock splits.
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    \311\ Coral Capital Letter.
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3. Following a Trading Suspension--Rule 15c2-11(f)(3)(i)(B)
    The Commission is eliminating the ability of a broker-dealer to
rely on the piggyback exception during the first 60 calendar days after
the termination of a Commission trading suspension under Section 12(k)
of the Exchange Act, as proposed. The Commission sought comment on this
aspect of the proposal. One commenter stated that requiring current and
publicly available issuer information for a broker-dealer to rely on
the piggyback exception, in conjunction with the proposed 60-calendar-
day ``cooling off'' period following a trading suspension, should serve
to enhance market transparency.\312\
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    \312\ SIFMA Letter.
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    The Commission has determined to adopt, without modification, the
proposal to eliminate the ability of a broker-dealer to rely on the
piggyback exception during the first 60 calendar days after the
termination of a trading suspension order issued by the

Commission under Section 12(k) of the Exchange Act.\313\ The Commission
continues to believe that such a period provides the appropriate amount
of time for investors to consider new or additional information about
an issuer that may arise following the expiration of a trading
suspension order issued by the Commission. Among other things, a
Commission trading suspension could indicate uncertainty about the
accuracy of publicly available issuer information or questions about
trading in the issuer's security.\314\ The ability of investors to
analyze information about an issuer is crucial to making informed
investment decisions about the security of an issuer, and transparency
into the market for an issuer's security for which trading has been
suspended is especially important following the circumstances that lead
to a trading suspension, such as the occurrence of deceptive or
manipulative conduct.
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    \313\ Amended Rule 15c2-11(f)(3)(i)(B). As the Commission
explained in the Proposing Release, ``adding 30 days to the
piggyback exception's existing timing requirement of 30 days,''
which would result in ``a longer period of 60 calendar days[,]
should provide investors with a better opportunity to consider new
or additional information that may arise in the period following the
conclusion of the issuer's trading suspension. The Commission
believes that this proposed limitation would help to ensure that
regular and frequent quotations for the securities of formerly
suspended issuers generally reflect market supply and demand and are
based on informed pricing decisions rather than on pricing decisions
that are based on information that is no longer accurate or that
(potentially) had led the issuer to be suspended.'' Proposing
Release at 58222.
    \314\ See id.
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    Although the 60-calendar-day period, as proposed, was intended to
incorporate the 30-calendar-day timing requirement to establish
piggyback eligibility under the proposed Rule,\315\ and although the
amended Rule no longer includes such a requirement,\316\ the Commission
continues to believe that the process of re-establishing eligibility
for the piggyback exception should not occur any sooner than 60
calendar days following the termination of a suspension order issued by
the Commission. The Commission believes that the 60-calendar-day period
before a broker-dealer may rely on the piggyback exception remains an
appropriate period during which new or additional information about an
issuer could be reviewed, which should promote informed investment
decisions following a trading suspension. The Commission believes that
a shorter amount of time would be inconsistent with the promotion of
investor protection and the integrity of the OTC market.
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    \315\ Proposing Release at 58222. After the expiration of a
trading suspension at the conclusion of the 10-day period, the
trading suspension no longer applies (i.e., trading can resume, even
if quoting does not automatically do so). See Exchange Act Section
12(k)(1)(A).
    \316\ Compare Amended Rule 15c2-11(f)(3)(i)(A), with Proposed
Rule 15c2-11(f)(3)(i)(A), (B).
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4. Shell Company Exclusion--Rule 15c2-11(f)(3)(i)(B)
    The Commission has determined to adopt, with some modification, the
proposal to prohibit broker-dealers from relying on the piggyback
exception for shell companies. Specifically, under this modified
approach, a broker-dealer may rely on the piggyback exception to quote
the security of an issuer that the broker-dealer has a reasonable basis
under the circumstances for believing is a shell company \317\ for the
18 months following the initial priced quotation for an issuer's
security that is published or submitted in an IDQS. This approach will
help protect retail investors by preventing such companies, which can
be used as vehicles for fraud, from maintaining a quoted market
indefinitely,\318\ while promoting capital formation by preserving for
a time-limited period a cost-effective means for companies to maintain
a broker-dealer quoted market. The Commission remains concerned about
the potential that a continuously quoted market facilitated by the
piggyback exception could be used to entice investors to make an
investment decision based on what appears to be an active and
independent market when, in fact, the investor may be considering an
artificially increased price for the shell company's security due to
inaccurate and misleading promotional information.\319\ The Commission,
however, is also concerned that a blanket prohibition on broker-
dealers' ability to rely on the piggyback exception for shell companies
may negatively impact capital formation opportunities for privately
held companies that seek to merge into OTC shell companies (through
reverse mergers) as an alternative to an initial public offering
(``IPO'').\320\ The amended Rule appropriately balances the promotion
of investor protection and the facilitation of capital formation by
allowing broker-dealers to maintain a quoted market in the securities
of shell companies to provide opportunities for privately held
companies to engage in reverse mergers with such publicly quoted shell
companies, for a limited period of 18 months.
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    \317\ Alternatively, a broker-dealer may rely on the publicly
available determination of a qualified IDQS or registered national
securities association that the exception is available. However,
such qualified IDQS or registered national securities association
must have a reasonable basis for believing that the issuer is a
shell company in making a publicly available determination that the
requirements of the piggyback exception are met. The Commission is
also making a technical edit from the provision in the proposed
Rule's piggyback exception to focus on the broker-dealer, rather
than the issuer. Whereas the proposed Rule specified that the
piggyback exception ``shall not apply to the security of an
issuer,'' see Proposed Rule 15c2-11(f)(3)(ii), the provision in the
amended Rule's piggyback exception specifies that the piggyback
exception ``shall not apply to a quotation that is published or
submitted by a broker or dealer for the security of an issuer,'' see