demand associated with new current and publicly available information
within quoted markets. For example, there may be changes in trading
volume which alter the number of transactions from which broker-dealers
earn fees. As discussed below, there may be migration from the quoted
market to the grey market for OTC issuers avoiding these requirements.
Therefore, the proportion of rents earned by broker-dealers from the
grey market for OTC securities may increase relative to the quoted
market. The net effect of these changes on the profits of trading
intermediaries is unclear. Some of these costs and benefits to broker-
dealers may be passed on to investors in the form of higher or lower
transaction costs and account fees. The Commission anticipates that
costs and benefits would be passed on more readily as competition
increases among broker-dealers for OTC transactions.
(b) Amendments to Rule 15c2-11 Exceptions
    The following amendments to the piggyback exception would serve to
limit the circumstances under which the exception would apply relative
to the baseline: The requirement for paragraph (b) information to be,
depending on the regulatory status of the issuer, filed within 180
calendar days from a specified period, timely filed, or current and
publicly available for broker-dealers to continue to rely on the
piggyback exception; the requirement that reliance on the piggyback
exception be based upon priced quotations with either bid or offer
prices; and the elimination of piggyback eligibility for quotations for
securities of shell companies that are published or submitted 18 months
following the publication or submission of the initial priced quotation
for such issuer's security in an IDQS or for securities within 60
calendar days of a trading suspension. Such amendments generally would
serve to draw quotation and trading activity away from less liquid and
less transparent quoted OTC securities. Hence, these amendments to the
piggyback exception are designed to provide narrowly tailored updates
to prevent fraud and manipulation, while otherwise maintaining
liquidity in OTC market.
    Currently, broker-dealers may rely on the piggyback exception to
publish or submit quotations for the vast majority of quoted OTC
securities, but many issuers of these securities do not provide current
and publicly available financial information.\723\ The requirement that
an issuer's paragraph (b) information be, depending on the regulatory
status of the issuer, filed within 180 calendar days from a specified
period, timely filed, or current and publicly available, would
encourage the production and publication of such information so that
broker-dealers could continue to publish quotations in reliance on the
piggyback exception. The Commission discusses in detail the expected
benefits and costs associated with providing current information
publicly for investors, issuers of quoted OTC securities, and broker-
dealers.\724\ In general, the ease of accessing information on the
internet should allow investors to migrate toward forming inferences
about the value of OTC securities based upon paragraph (b) information
and away from inferences based principally upon the prices of
piggybacked quotes.
---------------------------------------------------------------------------

    \723\ See supra note 686. The Commission estimates that during
the calendar year 2019, issuers of 3,014 quoted OTC securities for
which broker-dealers could rely on the piggyback exception when
publishing quotations, did not have current and publicly available
information.
    \724\ See supra Part V.C.1.a.
---------------------------------------------------------------------------

    Generally, these amendments could benefit investors by drawing
their trading activity away from less liquid and less transparent
quoted OTC securities that could attract fraudulent activity, thereby
potentially deterring fraudulent activity. For example, the inability
of broker-dealers to rely on the piggyback exception where there is no
current and publicly available information about the issuer could draw
trading activity away from these securities. Currently, many
publications of quotations for quoted OTC securities associated with
completely dark issuers are eligible for broker-dealers to rely on the
piggyback exception. Potential fraudsters could incur costs in
providing paragraph (b) information to perpetrate fraud in these dark
issuers. Alternatively, quotations for OTC securities would not be
easily accessible to retail investors if the issuer does not provide
current and publicly available information, which could cause
fraudsters to have more difficulty in driving up the price for an OTC
security. In addition, higher quality issuers in the OTC market could
benefit from greater access to capital to the extent that the change
leads to a net increase in demand for higher quality OTC stocks and a
net decrease in demand for less liquid quoted OTC securities that could
attract fraudulent activity.\725\ However, to the extent that
investment decisions are driven by other factors, such as a personal
interest in specific companies, there might be no increase in access to
capital for certain issuers.
---------------------------------------------------------------------------

    \725\ See supra note 690.
---------------------------------------------------------------------------

    These amendments could also cause broker-dealers to incur
additional costs. In particular, broker-dealers may need to comply with
the information review requirement as well as file FINRA Forms 211 to
resume a quoted market in securities that lose piggyback eligibility as
a result of the amendments. The Commission estimates that it will take
broker-dealers four hours to complete the information review and file
Form 211 for prospectus issuers, Reg. A issuers, and reporting issuers
and eight hours to do so for exempt foreign private issuers or catch-
all issuers whenever a broker-dealer initiates the publication or
submission of a quotation for an OTC security.\726\ These costs are

mitigated by the fact that information can be readily accessed through
the internet. Therefore, broker-dealers will bear a monetized cost of
$280 for prospectus issuers, Reg. A issuers, crowdfunding issuers, and
reporting issuers, $560 for exempt foreign private issuers and catch-
all issuers whenever a broker-dealer initiates the publication or
submission of a quotation in an OTC security.\727\ The Commission
estimates that 3,489 securities would lose piggyback eligibility as a
result of the changes to the piggyback exception.\728\ Therefore, the
aggregate monetized cost on broker-dealers would be $1,612,240 assuming
that 1,220 securities were from prospectus, Reg. A, crowdfunding, or
reporting issuers, 216 were from exempt foreign private issuers, and
2,053 were from catch-all issuers.\729\ However, these costs of
individual broker-dealers may be mitigated by allowing a qualified IDQS
to satisfy the information review requirement under the Rule, as these
amendments permit.\730\
---------------------------------------------------------------------------

    \726\ The Commission estimates that it would take one hour for a
broker-dealer to complete and file FINRA Form 211. The estimate
above represents an average number of hours per security across the
set of all securities for which broker-dealers comply with the
information review requirement and file a Form 211 to resume a
quoted market. The Commission recognizes that broker-dealers may
spend more time than the average to comply with the information
review requirement for certain securities, such as those that raise
multiple red flags.
    \727\ 4 hours x $70 per hour = $280 for prospectus, Reg. A, and
reporting issuers; 8 hours x $70 per hour = $560 for exempt foreign
private issuers and for catch-all issuers.
    \728\ The Commission estimates that during 2019, broker-dealers
could publish quotations relying on the piggyback exception for
9,864 quoted OTC securities. The Commission estimates the total
number of securities that would lose piggyback eligibility under
these amendments by considering the number of securities that were
piggyback eligible, but also would meet at least one of the
following conditions: (1) The issuer of the quoted OTC security did
not provide public information (3,059 securities); (2) the issuer of
the quoted OTC security was a shell company and the initial priced
quotation for its security was more than 18 months ago (460
securities); (3) the security did not have either a priced bid or
offer quotations for four or more consecutive days (264 securities);
and (4) the security was piggyback eligible after having been
suspended (219 securities).
    Of the 3,489 securities that would lose piggyback eligibility
under these amendments, 1,220 were securities of prospectus issuers,
Reg. A issuers, and reporting issuers, 216 were securities of exempt
foreign private issuers, and 2,053 were securities of catch-all
issuers.
    The estimated number securities that would lose piggyback
eligibility (as a result of their issuers' paragraph (b) information
not being current and publicly available) represents an upper bound.
See supra note 651.
    \729\ 1,220 x $280 + 216 x $560 + 2,053 x $560 = $1,612,240. To
the extent that broker-dealers may maintain the ability to rely on
the piggyback exception by starting to publish either bid or offer
quotations for securities that are presently piggyback eligible with
only unpriced quotations, fewer securities may lose piggyback
eligibility under these amendments than the estimates the Commission
presents. As noted in the PRA section, broker-dealers may also
withdraw from quoting in securities such as shell companies and
suspended securities. Therefore, the Commission expects the costs
for broker-dealers computed here to be an upper bound.
    \730\ One commenter stated that there is uncertainty around the
costs that broker-dealers may incur for the services provided by a
qualified IDQS and the extent to which the costs for such services
may be passed down to issuers and investors. See Virtu Letter. The
Commission acknowledges that there may be uncertainty in the costs
broker-dealers incur for the services provided by a qualified IDQS
as a result of these amendments. These costs are included in the
upper bound estimates above, which aggregates the cost of
information review for OTC securities losing piggyback eligibility
irrespective of whether this review is conducted by a broker-dealer
or qualified IDQS.
---------------------------------------------------------------------------

    Broker-dealers will also incur costs related to determining and
documenting whether or not these conditions apply to the issuer (i.e.,
whether the issuer is a shell company within the Rule definition). The
Commission believes that broker-dealers could set up information
systems to assess whether these conditions apply to OTC securities such
that there would be a one-time cost plus an ongoing cost for each
security. Several comments stated that it may be difficult for broker-
dealers to determine whether an OTC securities issuer is a shell
company.\731\ However, costs associated with determinations of whether
conditions of the Rule apply to OTC securities may be mitigated by
permitting broker-dealers to rely on publicly available determinations
by qualified IDQSs and national securities associations that an
exception to the Rule applies. Consistent with the PRA section,\732\
the Commission estimates that it would take a broker-dealer, IDQS, or
national securities association a total of nine hours to establish a
system to determine whether or not the piggyback exception applies to a
particular security as well as to create associated documentation, for
an aggregate cost of $51,660.\733\ Consistent with the PRA
section,\734\ the Commission estimates that it would take a broker-
dealer, IDQS, or national securities association at most one minute per
each OTC security per quarter to determine and document whether the
issuer is a shell company in order to rely upon the piggyback
exception. Therefore, the maximum aggregate ongoing cost of this
determination and documentation would be $3,097,400 per year.\735\ In
addition, the Commission estimates that it would take one second for a
broker-dealer, qualified IDQS, or registered national securities
association to create a record regarding the frequency of a priced bid
or offer quotation when the piggyback exception applies and that each
respondent would do this 252 times a year (i.e., each trading day).
Therefore, the maximum aggregate ongoing cost of this determination and
documentation would be $4,637,576 per year.\736\ The Commission
believes that a broker-dealer, qualified IDQS, or registered national
securities association needs to create records for securities that have
been the subject of a trading suspension in order to fulfill the
amended requirements of the piggyback exception. In 2019, the
Commission issued a trading suspension for 213 securities. Consistent
with the PRA section,\737\ it is estimated that it would take a broker-
dealer, qualified IDQS, or registered national securities association
approximately one minute to create a record regarding whether a
security has been subject to a trading suspension.\738\ Therefore, the
maximum aggregate ongoing cost of this determination and documentation
would be $20,377 per year.\739\
---------------------------------------------------------------------------

    \731\ See, e.g., Coral Capital Letter; OTC Markets Letter 1; STA
Letter; Virtu Letter. See supra Part II.D.4.
    \732\ See supra Part V.C.2.b. The nine hour burden in the PRA
section includes the establishment of systems to both determine and
document that the piggyback exception applies to a particular OTC
security. In the PRA section, the documentation of trading
suspensions, determination and documentation of shell company
status, as well as documentation of the frequency of bid and offer
prices are each attributed three hours of this systems cost.
    \733\ (80 broker-dealers + 1 IDQS + 1 national securities
association) x 3 hours x $70 = $17,220. These costs are an upper
bound of the total costs on broker-dealers because the actual number
of broker-dealers quoting OTC securities may be a subset of the 80
broker-dealers identified by OTC Markets Group.
    \734\ See supra Part V.C.2.b. The one minute burden in the PRA
section includes the time required to both determine and document
that an OTC issuer is a shell company.
    \735\ (80 broker-dealers + 1 IDQS + 1 national securities
association) x [(3081 SEC/Reg. A/Bank Reporting Obligation issuers x
1 minute x 4 responses per year) + (4413 exempt foreign private
issuers x 1 minute x 4 responses per year) + (2401 catch-all issuers
x 1 minute x 1 response per year)] x 1/60 hours x $70 = $3,097,400.
    \736\ (80 broker-dealers + 1 IDQS + 1 national securities
association) x (11,542 OTC issuers) x 1/3600 hours x 252 trading
days per year x $70 = $4,637,576.
    \737\ See supra Part V.C.2.b.
    \738\ See supra Part V.C.2.b.
    \739\ (80 broker-dealers + 1 IDQS + 1 registered national
securities association) x (213 trading suspensions) x 1/60 hours x
$70 = $20,377.
---------------------------------------------------------------------------

    Alternatively, broker-dealers could withdraw from publishing or
submitting quotations for certain OTC securities as a result of the
requirements related to paragraph (b) information, including the
requirements to review and retain this information, as suggested by
commenters.\740\ This withdrawal may

impose costs on investors by reducing liquidity for OTC securities they
might want to purchase or already owned before the withdrawal of
liquidity. In addition, such withdrawal might impose costs of raising
capital for OTC issuers. Broker-dealers, again, could incur costs and
benefits associated with possible migration in trading activity from
certain issuers to others as well as from the quoted to non-quoted
market. Some of these costs and benefits to broker-dealers, again, may
be passed on to investors.
---------------------------------------------------------------------------

    \740\ See, e.g., Coral Capital Letter. The Commission is unable
to quantify the extent of any such withdrawal by broker-dealers as a
result of information review requirements. For example, the
Commission lacks data on profits earned from market making activity
in OTC stocks which would inform this decision. Furthermore, the
Commission is unable to quantify the effect of any such withdrawal
on liquidity in the OTC market. For example, the Commission lacks
data on the number and identities of broker-dealers are that are
publishing quotes for OTC securities in reliance on the piggyback or
other exceptions to the Rule. As such, it cannot estimate the degree
of activity and concentration in this market by individual broker-
dealers with respect to piggybacking quotes. See supra Part VI.A.
---------------------------------------------------------------------------

    The amended requirement that reliance on the piggyback exception be
conditioned on quotations with at least a bid or offer quotation at a
specified price also could impose costs on broker-dealers and issuers
of quoted OTC securities by possibly limiting the formation of an
active quoted market for OTC securities for which broker-dealers
initially publish unpriced quotes. The Commission estimates that, out
of 345 quoted OTC securities for which broker-dealers could start
relying on the piggyback exception to publish or submit quotations
during the calendar year 2019, 34 (10 percent) had unpriced quotes only
for the entire first 30-days of being quoted.\741\ At the same time,
however, if the requirement were to encourage broker-dealers to shift
away from publishing unpriced quotations to publishing priced
quotations for some quoted OTC securities, the amended requirement may
expedite the development of a priced market and facilitate price
discovery and liquidity in these securities.
---------------------------------------------------------------------------

    \741\ Of the 34 quoted OTC securities that became piggyback
eligible based on unpriced quotations, 22 (65 percent) had a
published priced quote within the first 60 days after becoming
piggyback eligible.
---------------------------------------------------------------------------

    In contrast, eliminating from the piggyback exception the
requirement for 12 days of quotations within the previous 30 calendar
days has the potential to widen the circumstances under which broker-
dealers may rely on the piggyback exception relative to the baseline.
This amendment could make publishing quotations and trading easier in
less liquid securities. Therefore, this amendment could, in principle,
mitigate both the benefits and costs of the amendments described above.
However, the Commission expects that eliminating the 12-day
publication-of-quotations requirement would have an insignificant
effect on the OTC market as it should only impact a small fraction of
quoting activity. In particular, of all quoted OTC securities in the
calendar year 2019, the Commission estimates that only 16 of more than
10,000 securities had fewer than 12 days of published quotations within
the 30 previous calendar days, with no more than four business days in
succession without a priced quotation.
    Eliminating the 30-day requirement before OTC securities become
eligible for the piggyback exception can increase price competition
between broker-dealers. In particular, all broker-dealers would be able
to rely on the piggyback exception to begin quoting an OTC security
during the 30-day period after the initial quote under the amended
Rule. This increased competition could decrease the cost of bid-offer
spreads for OTC investors during this 30-day period. However, this
increased competition may deter broker-dealers from conducting the
initial information review and filing of FINRA Form 211. Therefore, the
net effect on the liquidity of OTC securities and the trading costs of
OTC investors is unclear.
    These amendments also include changes to the exception for
unsolicited customer quotations. In particular, the amendments limit
reliance on the unsolicited quotation exception on behalf of company
insiders and affiliates of the issuer when paragraph (b) information is
not current and publicly available. These amendments could increase
costs for broker-dealers because they may need to verify whether
paragraph (b) information is current and publicly available. Broker-
dealers could also be required to document and record the circumstances
involved in an unsolicited customer quotation. Two commenters stated
that it may be difficult for broker-dealers to determine whether
quotations are submitted on behalf of company insiders or affiliates,
especially in cases when market makers receive order flow from retail
broker-dealers.\742\ However, this cost may be mitigated by the
possibility under these amendments that the quoting broker-dealer may
rely upon a written representation from a customer's broker that such
customer is not a company insider.
---------------------------------------------------------------------------

    \742\ See, e.g., Canaccord Letter; OTC Markets Letter 3.
---------------------------------------------------------------------------

    Consistent with the PRA section,\743\ the Commission estimates that
it would take a broker-dealer, IDQS, or national securities association
at most three hours to establish a system to document and record the
circumstances of an unsolicited customer quotation, for an aggregate
cost of $17,220.\744\ Consistent with the PRA section,\745\ the
Commission also estimates that it would take a broker-dealer one minute
to document and record these circumstances for each customer order
arising from a distinct customer and circumstance. There were 5,782,286
quotations published in reliance on the unsolicited quotation exception
in 2019 based on OTC Markets Group data. Therefore, it is estimated
that annually, broker-dealers would spend at most $6,746,000 \746\ in
the aggregate complying with this requirement. Broker-dealers could
withdraw from quoting for unsolicited customer orders as result of
these costs, which could impose costs on OTC investors and issuers as
discussed previously.
---------------------------------------------------------------------------

    \743\ See supra Part V.C.2.a.
    \744\ (80 broker-dealers + 1 IDQS + 1 national securities
association) x 3 hours x $70 = $17,220. These costs are an upper
bound of the total costs on broker-dealers because the actual number
of broker-dealers quoting OTC securities may be a subset of the 80
broker-dealers identified by OTC Markets Group.
    \745\ See supra Part V.C.2.a.
    \746\ (5,782,286 quotations x 1 minute)/60 minutes x $70 =
$6,746,000. This estimate reflects an upper bound as not all of
these quotations necessarily represent distinct customers under
distinct circumstances, such that not all of these quotations would
require a separate document and record.
---------------------------------------------------------------------------

    The costs incurred by broker-dealers related to the unsolicited
quotation exception could be passed on to OTC investors. For example,
OTC investors may be required to provide documentation supporting the
fact that they are not a prohibited person within this exception. The
magnitude of this potential cost to OTC investors could vary
significantly depending on the manner in which the supporting
documentation is or is not acquired by broker-dealers. However, the
Commission believes that this cost could be minimal because there are
means to provide documentation such as through attestations which would
require minimal resources on the part of the investor. In addition, OTC
investors seeking to transact using unsolicited orders may incur costs
related to reduced liquidity if broker-dealers withdraw from quoting
unsolicited customer orders as a result of costs. This reduced
liquidity would pertain to certain OTC securities for which the issuer
elects not to make paragraph (b)

information current and publicly available.
    There could also be benefits to OTC investors from the requirement
for broker-dealers to obtain and review paragraph (b) information when
the unsolicited quotation exception does not apply. For example, the
review of paragraph (b) information in order to provide a quotation for
an unsolicited customer quotation of a company insider or issuer
affiliate could deter fraud by alerting broker-dealers to potential
sales by company insiders or issuer affiliates related to fraud. In
addition, as discussed above in relation to the new limitations on the
piggyback exception, the costs and benefits to investors, issuers and
broker-dealers would be qualitatively similar. OTC investors could
benefit if quotations and trading activity migrate away from fraudulent
investments. Higher quality issuers in the OTC market could also
benefit from greater access to capital. Broker-dealers could also incur
costs and benefits associated with possible migration in trading
activity if unsolicited customer orders move from quoted to non-quoted
markets. These costs and benefits could be passed on to OTC investors.
Finally, there would be benefits and costs associated with the
requirements pertaining to current and publicly available paragraph (b)
information, as the unsolicited quotation exception for a company
insider or issuer affiliate would be contingent on this information
being current and publicly available.
(c) New Exceptions to Rule 15c2-11 To Reduce Burdens
    The amended Rule introduces three new exceptions to except
publications of quotations for certain OTC securities from the
provisions of Rule 15c2-11, primarily the requirement for broker-
dealers to obtain and review paragraph (b) information. The first of
the three new exceptions would apply to securities with (1) a $100,000
ADTV value and where (2) the issuer of such security has $50 million
total assets value and $10 million shareholders' equity on the issuer's
publicly available audited balance sheet issued within six months after
the end of the most recent fiscal year. This exception would apply only
to securities for which paragraph (b) information is current and
publicly available. This exception is meant to target more visible
quoted OTC securities for which current and reliable information about
the issuer is publicly available to investors, specifically for larger
issuers, and for more liquid securities. Larger companies with greater
trading activity may be less vulnerable to fraud for a number of
reasons. For example, there may be a greater likelihood of arbitrage or
information-based trading with higher trading activity, which can drive
prices toward fundamental values. Larger issuers may also attract this
type of trading activity through their visibility. In addition,
companies with higher shareholder equity may be more expensive to
acquire, making them less vulnerable to being purchased for the
purposes of perpetrating a fraudulent scheme. The analysis in the
baseline revealed no issuers that had financial information publicly
available to investors and that had been the subject of Commission-
ordered trading suspensions or assigned a ``caveat emptor'' designation
by OTC Markets Group in calendar year 2019 would have met both the ADTV
and assets test prongs of the ADTV and asset test exception.\747\
Therefore, the Commission expects that many other quoted OTC securities
that would qualify for these exceptions would be less susceptible to
misinformation campaigns and share price run-ups as a result of buying
pressure.
---------------------------------------------------------------------------

    \747\ The Commission finds that in 2019, seven suspended
securities and nine ``caveat emptor'' securities had an ADTV value
in excess of $100,000. However, issuers of these securities would
not have satisfied the thresholds for assets and shareholder equity
required to qualify for the exemption under these amendments.
Similarly, three issuers of suspended securities and three issuers
of securities with the ``caveat emptor'' designation that would have
met the assets and the shareholder thresholds but would not have had
sufficient trading volume to meet the liquidity threshold.
    Because delinquent filings may be the reason for the trading
suspension, the Commission is aware that the Commission's analysis
using data on total assets and shareholder equity of issuers with
suspended OTC securities may rely on information which is outdated
and no longer representative of issuer fundamentals.
---------------------------------------------------------------------------

    The main economic effect of the ADTV and assets test exception
should be to relieve broker-dealers from the information review
requirement and filing a FINRA Form 211 to publish quotations in a
quotation medium. As before, the Commission estimates that broker-
dealers will incur relief from a monetized cost of $280 for prospectus
issuers, Reg. A issuers, crowdfunding, and reporting issuers, $560 for
exempt foreign private and catch-all issuers whenever a broker-dealer
publishes or submits a quotation for issuers satisfying these
requirements. Consistent with the PRA section,\748\ the Commission
estimates that two reporting issuers and four exempt foreign private or
catch-all issuers per year would satisfy these requirement so that the
total cost savings would be $2,800.\749\ Broker-dealers would also need
to incur the costs of determining and creating documentation supporting
the broker-dealer's reliance on the ADTV and asset test. Consistent
with the PRA section,\750\ the Commission estimates that it would take
one minute to create documentation supporting the broker-dealer's
reliance on the asset test prong of the exception and that broker-
dealers would do this at most once annually per issuer.\751\ In
addition, the Commission estimates that it would take one minute for a
broker-dealer, qualified IDQS, or registered national securities
association to preserve documents and information that demonstrate that
the requirements of the ADTV test have been met and that each
respondent would do this 252 times a year (i.e., each trading
day).\752\ Therefore, the total cost of determination and documentation
related to the ADTV and asset test would be $4,356,660 each year.\753\
Broker-dealers would also need to incur costs to establish systems to
verify and document that OTC issuers

satisfy these ADTV and size thresholds. Consistent with the PRA
section,\754\ the Commission estimates that it would take a broker-
dealer, IDQS, or national securities association three hours to
establish a system to determine whether or not the ADTV and assets test
exception applies to a particular security as well as to create
associated documentation, for an aggregate cost of $17,220.\755\
---------------------------------------------------------------------------

    \748\ See supra Part V.C.2.c.
    \749\ (2 reporting issuers x $280) + (4 foreign private or
catch-all issuers x $560) = $2,800.
    The Commission estimates that approximately 180 (two percent) of
quoted OTC securities on an average day during calendar year 2019
would be eligible for the ADTV and assets exception. Of these
securities, approximately 35 percent were of reporting issuers, 63
percent were of exempt foreign private issuers and the remaining two
percent were of catch-all issuers. Applying these proportions to the
384 OTC securities for which broker-dealers were required to conduct
an information review for the initiation or the resumption of
quotations, yields securities of two reporting issuers and four
exempt foreign private or catch-all issuers.
    There could be additional relief as a result of the ADTV and
assets exception for broker-dealers quoting securities that end up
losing piggyback eligibility under the paragraph (f)(3) exception.
The Commission estimates that out of the 3,489 securities that would
lose piggyback eligibility under these amendments five securities of
prospectus issuers, Reg. A issuers, crowdfunding, and reporting
issuers and one security of an exempt foreign private issuer would
have satisfied the ADTV value and assets thresholds. The ability of
broker-dealers to rely on the paragraph (f)(5) exception for
securities for which they could no longer rely on the paragraph
(f)(3) exception could lead to an additional relief of five x $240 +
1 x $480 = $1,680.
    \750\ See supra Part V.C.2.c.
    \751\ The one minute burden in the PRA section for the ADTV
prong of the exception includes the time required to both determine
and document that the threshold applies to a particular OTC issuer.
    \752\ See supra Part V.C.2.c. The one minute burden in the PRA
section for the asset prong of the exception includes the time
required to both determine and document that the threshold applies
to a particular OTC issuer.
    \753\ (252 days x 180 securities x 1 minute)/60 minutes x $70 +
(180 securities x 1 minute)/60 minutes x $70 = $53,130. (80 broker-
dealers + 1 IDQS + 1 national securities association) x $53,130 =
$4,356,660. The Commission estimates that approximately 180 (two
percent) of quoted OTC securities on an average day during calendar
year 2019 would be eligible for the ADTV and assets exception.
    \754\ See supra Part V.C.2.c. The three hour burden in the PRA
section includes the establishment of systems to both determine and
document that the ADTV and assets test applies to a particular OTC
security.
    \755\ (80 broker-dealers + 1 IDQS + 1 national securities
association) x 3 hours x $70 = $17,220. These costs are an upper
bound of the total costs on broker-dealers because the actual number
of broker-dealers quoting OTC securities may be a subset of the 80
broker-dealers identified by OTC Markets Group.
---------------------------------------------------------------------------

    Some of these benefits and costs may be passed on to OTC investors.
Certain issuers or securities that would meet the Rule's ADTV and asset
test exception but that currently trade in the grey market may benefit
from a broker-dealer establishing a quoted market without incurring
costs associated with complying with the Rule's provisions. This
migration may result in a benefit to investors to the extent that it
may establish a new quoted market that facilitates price discovery and
liquidity for higher quality securities previously traded in the grey
market.
    The second of the three new exceptions would apply to quotations
following a registered or Regulation A offering, where the broker-
dealer was named as an underwriter in the registration statement or
offering circular and publishes or submits quotations for the same
class of security in an IDQS within certain specified time frames. This
exception is targeted towards those OTC securities that were recently
offered in a transaction in which a regulated entity may have conducted
a due diligence review. Because of the liability attached to
underwriting activity, an underwriter typically conducts a due
diligence review to mitigate potential liability associated with
underwriting an offering of securities. Depending on its breadth and
quality, this review may permit an underwriter to assert a defense to
liability under Section 11 or Section 12(a)(2) of the Securities Act.
As a result, underwriters of registered and Regulation A offerings are
incentivized to confirm that the information provided to investors in
the prospectus for a registered offering and offering circular for a
Regulation A offering is materially accurate and obtained from a
reliable source. Thus, excepting publications or submissions of
quotations by underwriters from the Rule's provisions is expected to
reduce the burden of complying with the Rule for such broker-dealers
without sacrificing investor protection. The Commission does not
currently have data that allow it to estimate the propensity with which
broker-dealers are underwriting offerings for the same securities for
which they are publishing quotations and thus quantify the effect of
this exception on broker-dealers.
    In addition, the Commission is adopting an exception for
publications or submissions of quotations respecting securities where a
qualified IDQS complies with the Rule's provisions. Broker-dealers
could rely on a publicly available determination by a qualified IDQS
that paragraph (b) information is current and publicly available for a
given security, as well as whether a broker-dealer may rely on certain
exceptions to the Rule. This exception is expected to reduce the burden
on some broker-dealers with respect to publishing or submitting
quotations for certain OTC securities. In particular, the Commission
expects the main economic effect of this exception to be mitigating
costs broker-dealers are expected to incur associated with determining
certain characteristics about an issuer (e.g., whether the security
satisfies the criteria for the ADTV and asset test exception).
    Lastly, the Commission is also adopting an exception for
publications or submissions of quotations by broker-dealers that rely
on publicly available determinations by a qualified IDQS or a
registered national securities association that paragraph (b)
information is current and publicly available, as well as whether a
broker-dealer may rely on certain exceptions to the Rule. The
Commission expects the main economic effect of this exception to be
mitigating costs broker-dealers are expected to incur associated with
determining certain characteristics about an issuer (e.g., whether the
issuer is a shell company within the definition, or whether the
security jointly satisfies the ADTV and assets tests). The quantified
costs above for these determinations provide an upper bound for
aggregate costs irrespective of whether they are made by a broker-
dealer, qualified IDQS, or registered National Securities Association.
    Under the amended Rule, a qualified IDQS or registered national
securities association must also establish, maintain, and enforce
reasonably designed written policies and procedures to make certain
publicly available determinations.\756\ Consistent with the PRA
section,\757\ the Commission estimates that it would take one qualified
IDQS and one registered national securities association subject to the
amended Rule approximately 9 hours each to initially prepare these
written policies and procedures, and 5 hours each on an ongoing annual
basis to review and update policies and procedures, resulting in an
aggregate cost of $1,260 initially \758\ and $700 annually \759\
thereafter.
---------------------------------------------------------------------------

    \756\ Amended Rule 15c2-11(a)(3).
    \757\ See supra Part V.C.2.f.
    \758\ (1 IDQS + 1 national securities association) x 9 hours x
$70 = $,1260.
    \759\ (1 IDQS + 1 national securities association) x 5 hours x
$70 = $700.
---------------------------------------------------------------------------

2. Efficiency, Competition, and Capital Formation
    In this section, the Commission discusses the impact that these
amendments to Rule 15c2-11 may have on efficiency, competition, and
capital formation. As discussed above, these amendments generally would
increase transparency by requiring public availability of paragraph (b)
information that is current to enable broker-dealers to publish or
submit quotations for OTC securities. As a result, these amendments may
cause capital to migrate from opaque to more transparent companies. A
transfer of capital could occur as a result of OTC issuers without
current and publicly available information either exiting the OTC
market altogether because broker-dealers could no longer publish
quotations for the securities of such issuer or migrating from the
quoted OTC market to the grey market. Less liquid OTC securities could
also migrate away from the quoted OTC market as a result of these
restrictions on the piggyback exception pertaining to (1) shell
companies, (2) recently suspended securities, and (3) securities
without a sufficient prior history of either bid or offer prices. One
academic study finds that valuations decrease when firms migrate from
more liquid markets to less liquid markets, possibly as a result of
decreased access to capital.\760\ Therefore, investors may reallocate
capital away from OTC issuers of these less liquid securities as these
issuers exit the quoted OTC market. The loss of a quoted market and the
information embedded in prices may affect an issuer's ability to raise
capital through stock issuances or through other channels of finance,
such as debt. These amendments could decrease investors' exposure to
fraudulent activity involving non-transparent securities.

Capital formation could improve as investors' funds are diverted away
from fraudulent OTC securities, which would migrate away from the
quoted OTC market, and investors move toward the investments that
remain.
---------------------------------------------------------------------------

    \760\ See Angel et al., supra note 243.
---------------------------------------------------------------------------

    In addition, the transparency of the market for quoted OTC
securities should generally improve, particularly for previously dark
issuers where paragraph (b) information is made current and publicly
available for broker-dealers to continue to publish quotations. Capital
formation could improve as investors allocate funds toward more
productive investments based on enhanced availability of paragraph (b)
information in the quoted market for OTC securities. In particular,
investors may be able to better discern the value of an OTC security
from the financial and qualitative data contained in paragraph (b)
information. As a result of these effects, these amendments could
generally enhance the efficiency of capital allocation, i.e., the
degree to which funds are diverted away from low value investments and
toward high value investments. Previous academic studies have
documented a relationship between greater quality of a firm's
disclosures and a decreased cost of capital for the firm.\761\ Other
studies find a relationship between increased quality and frequency of
accounting disclosures and the productivity of corporate
investment.\762\ As discussed previously, certain OTC issuers may
withdraw from quoted markets as a result of the amended requirements
pertaining to current and publicly available paragraph (b) information
and, as a result, lose access to capital. Indeed, some commenters were
concerned that these information requirements would encourage issuers
to remain dark and that access to capital would diminish for these
firms as a result.\763\ The Commission acknowledges that issuers could
opt to remain dark for various reasons including the cost of providing
current and publicly available information or the strategic value of
withholding information from competitor firms. The resulting migration
to the grey market could, in principle, adversely impact capital
formation for these firms. However, issuers with productive investment
opportunities should be more likely to elect to provide current and
publicly available paragraph (b) information as they would realize more
value from access to capital by providing this information. Therefore,
remaining non-transparent issuers may be less likely to have productive
investment opportunities than those that opt to provide current and
publicly available information.
---------------------------------------------------------------------------

    \761\ See supra note 693; Luzi Hail & Christian Leuz,
International Differences in the Cost of Equity Capital: Do Legal
Institutions and Securities Regulation Matter?, 44 J. Acct. Res.
485-531 (2006) (finding that stock markets with greater disclosure
requirements have lower costs of capital in cross-country
comparisons).
    \762\ See, e.g., Sugata Roychowdhury et al., The Effects of
Financial Reporting and Disclosure on Corporate Investment: A
Review, 68 J. Acct. & Econ. 1-27 (2019), available at https://www.sciencedirect.com/science/article/pii/S0165410119300412.
    \763\ Paul Lucot Letter; Michael Tofias; Anbec Partners; Michael
A. Zgayb; Laura Coffman; Caldwell Sutter Capital; Coral Capital
Comment.
---------------------------------------------------------------------------

    The efficiency of prices (i.e., the degree to which prices reflect
the fundamental value of the security) could also improve in the OTC
market as a result of greater transparency. In particular, prices could
become less susceptible to manipulation as a result of the trading
activity of informed investors who would have access to paragraph (b)
information. These investors could buy underpriced securities and sell
overpriced securities, pushing mispriced securities toward fundamental
values.
    The heightened transparency that would arise from these amendments
could increase competition among both broker-dealers and issuers of
quoted OTC securities. For example, broker-dealers could access
paragraph (b) information at a low cost and establish more competitive
prices. Before these amendments, broker-dealers could have had
differential access to paragraph (b) information in the quoted OTC
market and potentially benefited from non-competitive pricing as a
result. As mentioned previously, some broker-dealers may withdraw from
quoting certain OTC securities (e.g., those of shell companies that are
published or submitted 18 months following the publication or
submission of the initial priced quotation for such issuer's security
in an IDQS) as a result of the costs of initiating and resuming
quotations associated with these amendments. As a result, there may be
diminished price competition in these types of securities.
    Eliminating the 30-day requirement before OTC securities become
eligible for the piggyback exception can increase price competition
between broker-dealers. In particular, all broker-dealers can begin
quoting an OTC security during the 30-day period after the initial
quote based upon the piggyback exception under the amended Rule.
However, this increased competition may deter broker-dealers from
conducting the initial information review and filing of FINRA Form 211.
Fewer OTC securities may remain in the grey market where there may be
diminished price competition relative to the quoted market.
    Issuers of quoted OTC securities may also need to price seasoned
equity offerings more competitively because investors would have
improved access to information and might be able to more easily compare
the financials of OTC issuers when allocating their investment dollars.
This information could again enable OTC investors to divert funds more
easily from higher to lower cost issues. As a result, OTC issuers would
have less ability to price their issues high relative to the
fundamental value of the securities being offered.

D. Reasonable Alternatives

    In this section, reasonable alternatives to these amendments to
Rule 15c2-11 are discussed.
1. Eliminating the Piggyback Exception
    The 1999 Reproposing Release proposed to eliminate the piggyback
exception from Rule 15c2-11. This amendment would have required all
broker-dealers to complete the information review requirement and file
FINRA Form 211 before publishing or submitting a quotation in a
quotation medium. One commenter also suggested this alternative.\764\
Relative to the baseline (i.e., the existing provisions of Rule 15c2-
11), this alternative would have increased the costs of broker-dealers
that complied with the Rule's review, document collection, and
recordkeeping provisions before publishing or submitting a quotation
for an OTC security. These costs could be passed on to OTC investors.
Alternatively, some broker-dealers could withdraw from publishing
quotations in the OTC market as a result of the information review
requirement, which could lead to the disappearance of a quoted market
for some OTC securities and a migration of these securities to the grey
market. Both possible effects could benefit investors by imposing costs
on potential fraudsters in the OTC market.
---------------------------------------------------------------------------

    \764\ Better Markets Letter.
---------------------------------------------------------------------------

    First, review of paragraph (b) information could help broker-
dealers increase price efficiency, while deterring fraudsters. Second,
broker-dealers' withdrawal from publishing quotations for OTC
securities could benefit investors by inhibiting fraudulent and
manipulative schemes. Higher quality OTC issuers could also benefit
from increased access to capital.
    However, broker-dealers might also withdraw from publishing
quotations

for securities of higher quality issuers at the same time. Therefore,
eliminating the piggyback exception could increase capital raising
costs for OTC issuers. This withdrawal may also impose costs on
investors by reducing the liquidity of OTC securities. The net effect
of this alternative on OTC investors and issuers is unclear.
    The Commission believes that the amended Rule more appropriately
meets the Commission's policy goals because the alternative places the
additional burdens upon broker-dealers and OTC issuers relative to
these amendments. In particular, broker-dealers would incur additional
costs associated with review of paragraph (b) information and filing
FINRA Form 211 for all OTC securities they wish to quote. In addition,
this alternative could raise the costs for OTC issuers and investors
relative to these amendments.
2. Maintaining the Piggyback Exception for the Securities of Non-
Transparent Issuers
    A number of commenters suggested that the amended Rule include a
greater set of OTC securities within the piggyback exception than the
amended Rule permits. For example, commenters raised concerns about
potential negative impacts on persons who are invested in OTC
securities of well-established, non-reporting issuers that do not make
their information current and publicly available.\765\ Therefore, one
alternative to the amended Rule would be to maintain piggyback
eligibility for well-established non-disclosing issuers, which could
include non-penny stocks or existing OTC securities vis-[agrave]-vis a
grandfather exception. Some commenters supported grandfathering
presently quoted OTC securities without current and publicly available
information.\766\
---------------------------------------------------------------------------

    \765\ See, e.g., Don C. Whitaker; Jim Rivest; Lawrence
Goldstein.
    \766\ See, e.g., Alluvial Letter; Anbec Partners Letter; Ariel
Ozick; Michael Tofias; Mitchell Partners Letter 3.
---------------------------------------------------------------------------

    Eliminating transparency requirements related to the piggyback
exception for certain OTC securities may cause more OTC issuers to
remain non-transparent relative to the amended Rule. These additional
issuers would incur lower costs of providing current and publicly
available paragraph (b) information as a result. In addition, OTC
investors may incur costs from less informed investment and voting
decisions as well as less efficient pricing.
    Such an alternative would increase the number of OTC securities
included within the piggyback exception relative to the amended Rule.
Consequently, this alternative would be anticipated to decrease broker-
dealer costs related to information review and filing FINRA Form 211
relative to the amended Rule. Some of these costs savings could be
passed on to OTC investors. Fewer broker-dealers may withdraw from
quoting OTC securities, which could increase liquidity for OTC
investors and access to capital for OTC issuers. This alternative may
also increase investors' exposure to fraud and manipulation in non-
transparent securities or that may be the targeted for these
activities. Indeed, risk of fraud and manipulation may be more
pronounced in OTC securities without current and publicly available
information, as discussed previously.\767\
---------------------------------------------------------------------------

    \767\ See supra Part VI.B.2.c.
---------------------------------------------------------------------------

    This alternative could also diminish possible costs associated with
the ability of OTC firm insiders to manipulate the stock's price
downward when seeking to repurchase shares by keeping their firm dark
and causing migration to the grey market. However, the amended Rule
provides a grace period of up to 15 calendar days for the piggyback
exception to continue once a qualified IDQS or registered national
securities association makes a publicly available determination that
the requisite information is no longer current and/or publicly
available. This grace period should allow existing investors in an OTC
issuer to exit positions before such a potential manipulation could
occur.
3. Eliminating or Maintaining the Piggyback Exception for Shell
Companies
    The proposed Rule presented an alternative to these amendments
whereby the piggyback exception would be eliminated entirely for shell
companies. Therefore, one possible alternative to the amended Rule
would be to eliminate the piggyback exception for shell companies or
maintain it under a stricter set of conditions (e.g., permitting its
use for less than 18 months from the initial priced quotation in an
IDQS). Alternatively, some commenters suggested that the piggyback
exception should include shell companies since they can be used for
non-fraudulent purposes.\768\ Therefore, an additional alternative to
the amended Rule would be to maintain the piggyback exception under a
looser set of conditions (e.g., permitting its use for more than 18
months from the initial priced quotation in an IDQS).
---------------------------------------------------------------------------

    \768\ Philippe Goodwill Letter; Tom Amenda; Coral Capital
Letter.
---------------------------------------------------------------------------

    Relative to these amendments, the first alternative of maintaining
the piggyback exception for shell companies under a stricter set of
conditions could increase the costs of broker-dealers that comply with
the Rule's review, document collection, and recordkeeping provisions
before publishing or submitting a quotation for an OTC security. These
costs could be passed on to OTC investors. Alternatively, some broker-
dealers could withdraw from publishing quotations for shell companies
under these conditions in the OTC market as a result of the information
review requirement, which could lead to the disappearance of a quoted
market for their securities and their migration to the grey market.
Both possible effects could benefit investors by imposing costs on
potential fraudsters in the OTC market.
    First, review of paragraph (b) information could help broker-
dealers increase price efficiency, while deterring fraudsters. Second,
broker-dealers' withdrawal from publishing quotations for OTC
securities could benefit investors by inhibiting fraudulent and
manipulative schemes. As discussed previously, pump-and-dump schemes
are often targeted toward shell companies.\769\ Higher quality OTC
issuers could also benefit from increased access to capital.
---------------------------------------------------------------------------

    \769\ See supra Part VI.B.2.c.
---------------------------------------------------------------------------

    However, broker-dealers might withdraw from publishing quotations
for securities of shell companies seeking to execute a reverse merger
with an operating company seeking capital on the public markets.
Therefore, eliminating the piggyback exception could increase capital
raising costs for issuers, although it may benefit investors by
limiting the potential for fraud arising from shell companies in the
context of reverse mergers.\770\ This withdrawal may also impose costs
on investors by reducing the liquidity of OTC securities of shell
companies. The net effect of this alternative on OTC investors and
issuers is unclear.
---------------------------------------------------------------------------

    \770\ See supra note 345 and accompanying text.
---------------------------------------------------------------------------

    The second alternative of maintaining the piggyback exception for
shell companies under a looser set of conditions could have the
opposite effects listed above relative to the amended Rule. In
particular, broker-dealers could benefit from diminished costs
associated with information review and filing FINRA Form 211. Fewer
broker-dealers may withdraw from quoting the OTC securities of shell
companies and maintain liquidity in these securities as a result.
Investors and issuers may benefit as result relative to

these amendments. However, investors may incur costs from additional
fraud utilizing shell companies as a result of looser restrictions on
the piggyback exception.
    As discussed previously, the Commission believes that 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 for the securities of shell company issuers,
which could become public companies as a result of engaging in a
reverse merger, but providing this piggyback exception for a limited
period of 18 months.
4. Alternative Thresholds for Exceptions
    The 1999 Reproposing Release proposed to except publications of
quotations from the provisions of Rule 15c2-11 for OTC securities with
at least: (1) $100,000 ADTV value, (2) $50 million total assets value
and $10 million shareholders' equity on the issuer's audited balance
sheet or (3) $50 bid price. These exceptions were less restrictive than
the ones in the current amendments as the exception would apply if an
OTC security could conform to only one of these three conditions.
Therefore, one possible alternative would be to establish thresholds
which conform to these conditions from the 1999 Reproposing Release.
    Relative to the baseline, the main economic effect of this
alternative would be to relieve broker-dealers from complying with the
Rule's provisions and filing FINRA Form 211 to publish quotations in a
quotation medium. Some of these benefits may be passed on to OTC
investors. Certain issuers or securities that would qualify for these
exceptions but currently trade in the grey market may benefit from a
broker-dealer establishing a quoted market without incurring costs
associated with complying with the Rule's provisions. This migration
may result in a benefit to investors to the extent that it may
establish a new quoted market that facilitates price discovery and
liquidity for quality securities previously trading in the grey market.
    Relative to these amendments, however, this alternative may be more
likely to except securities that may be targeted for fraudulent
activity from the Rule's review and document collection provisions. For
example, there were seven suspended OTC securities in 2019 with ADTV
value in excess of $100,000 and three issuers of suspended OTC
securities that exceeded the thresholds for $50 million in total assets
and $10 million in shareholders' equity. Therefore, though trading
suspensions are not necessarily indicative of fraud, investors may face
greater exposure to fraud and manipulation under this alternative. In
addition, companies may be able to circumvent thresholds based on stock
price. For example, an OTC issuer could, in principle, conduct reverse
share splits in order to achieve a share price that exceeds a given
threshold. As a result, the Commission believes the amended Rule is
better than the alternative. However, investors in higher quality OTC
issuers could benefit in that a greater number would qualify for the
quoted market relative to these amendments. In addition, broker-dealers
would benefit from even greater relief from the Rule's provisions and
from filing FINRA Form 211.
    The proposed Rule provided an exception from the information review
requirement for OTC securities with at least: (1) $100,000 ADTV value
and (2) $50 million total assets value and $10 million unaffiliated
shareholders' equity on the issuer's audited balance sheet. These
previously proposed thresholds would potentially compel broker-dealers
to conduct the specified information review for more OTC securities
relative to the amended Rule as issuers with more than $10 million
shareholders' equity (but less than $10 million unaffiliated equity)
could be included in the requirement. As a result, the previous
proposal would potentially increase broker-dealers' costs associated
with information review, filing of FINRA Form 211, and their possible
withdrawal from quoting activity relative to the amended Rule. These
additional costs could be passed on to OTC investors. In addition, OTC
issuers could incur additional costs associated with raising capital,
and OTC investors could incur costs associated with diminished
liquidity.
    However, OTC investors may benefit from decreased exposure to fraud
and manipulation relative to the amended Rule. In particular, the
amended Rule may exempt OTC securities with small public float but
total shareholder equity exceeding $10 million. Such securities may be
prone to manipulation if they are controlled by insiders complicit with
a fraudulent scheme. Nonetheless, the Commission believes that the
thresholds of the amended Rule will still confine the exception to OTC
securities not prone to fraudulent or manipulative activity. In
particular, the Commission has found that zero issuers in 2019 that
simultaneously met the $50 million total assets, $10 million
shareholders' equity, and $100,000 ADTV value thresholds were subject
to trading suspensions or caveat emptor status.
    As pointed out by commenters, it can be difficult to accurately
determine unaffiliated shareholder ownership.\771\ As a result, broker-
dealers could bear costs associated with this determination relative to
the amended Rule. Alternatively, broker-dealers may forgo such a
determination, in which case they may instead assess the amount of an
issuer's total shareholder equity. In this case, the costs and benefits
associated with the thresholds of the proposed Rule would be equivalent
to those of the amended Rule.
---------------------------------------------------------------------------

    \771\ OTC Markets Group Letter 2; SIFMA Letter; Professor Angel
Letter.
---------------------------------------------------------------------------

    One commenter also recommended replacing the previously proposed
threshold for shareholder equity with a threshold of $150 million
market capitalization. Similar to the amended Rule, this alternative
would decrease broker-dealers' costs of complying with the Rule's
provisions and filing FINRA Form 211 to publish quotations in a
quotation medium relative to the baseline. Some of these benefits may
be passed on to OTC investors. Certain issuers or securities that would
qualify for these exceptions but currently trade in the grey market may
benefit from a broker-dealer establishing a quoted market without
incurring costs associated with complying with the Rule's provisions.
This migration may result in a benefit to investors to the extent that
it may establish a new quoted market that facilitates price discovery
and liquidity for quality securities previously trading in the grey
market.
    Relative to the amended Rule, this alternative could possibly allow
for more issuers that could be vulnerable to pump-and-dump schemes to
be admitted within the exception, thus increasing investor exposure to
fraud. Unlike shareholders' equity, which is based on book value,
market capitalization can fluctuate with market share price and can be
susceptible to volatility, especially in a fraudulent or manipulative
scheme, such as a pump-and-dump scheme. Indeed, the Commission
estimates that that approximately three percent of issuers with OTC
securities that were the subject of Commission-ordered trading
suspensions over the calendar year 2019 had a market capitalization in
excess of $150 million.
5. Quotations With Both Bid and Offer Prices for the Piggyback
Exception
    The proposed Rule conditioned the piggyback exception on both bid
and offer prices for the prior 30 calendar days with no gap in quoting
of more

than four days. After considering feedback from commenters,\772\ the
amended Rule instead conditions the piggyback exception on quotations
with either bid or offer quotation at a specified price with no more
than four consecutive business days in succession without a quotation.
One alternative would be to condition the exception on quotations with
both a bid and offer price. Relative to the amended Rule, this
alternative would allow fewer securities to become eligible for the
piggyback exception. As such, broker-dealers would incur higher costs
associated with the Rule's review, document collection, and record-
keeping provisions (as well as filing with FINRA a Form 211) before
publishing or submitting a quotation for an OTC security relative to
the amended Rule. The Commission has estimated that 629 OTC securities
for which broker-dealers could publish quotations relying on the
piggyback exception during 2019 had quotations with either a bid or
offer price--but not both--for four days one or more times in a year.
Of these securities, 308 were of prospectus, Reg. A, crowdfunding, and
reporting issuers, 81 were of exempt foreign private issuers, and 240
were of catch-all issuers. Therefore, the Commission estimates that the
additional dollar cost to broker-dealers from this alternative would be
$266,000.\773\
---------------------------------------------------------------------------

    \772\ See supra Part II.D.2.
    \773\ (308 x $280) + (81 x $560) + (240 x $560) = $266,000.
---------------------------------------------------------------------------

    OTC investors in higher quality issuers could suffer from lower
liquidity if this cost results in fewer securities remaining in the
quoted market. However, this alternative may also cause less liquid
securities to lose eligibility for piggyback quotations relative to the
amended Rule. As a result, OTC investors may benefit from this
alternative if these securities are more prone to fraud than securities
with both bid and offer prices.
    Nonetheless, the Commission believes that the amended Rule more
appropriately meets the Commission's policy goals of reducing burdens
on broker-dealers while retaining OTC securities in the quoted markets
with a legitimate, independent market interest. One commenter stated
that a priced bid is a valid price discovery mechanism and that
existing self-regulatory organization rules require broker-dealers to
trade at their publicly quoted prices (i.e., FINRA Rule 5220).\774\
This commenter also stated that the development of liquidity begins
with, and frequently depends on, the ability of a broker-dealer to
publish a one-sided priced bid.\775\
---------------------------------------------------------------------------

    \774\ OTC Markets Group Letter 2.
    \775\ Id.
---------------------------------------------------------------------------

    Eliminating the 30-day requirement before OTC securities can become
eligible for the piggyback exception can increase price competition
between broker-dealers. In particular, broker-dealers can begin quoting
in these securities during the initial 30-day period based on the
piggyback exception under the amended Rule. This increased competition
could decrease the cost of bid-offer spreads for OTC investors during
this 30-day period. However, this increased competition may deter
broker-dealers from conducting the initial information review and
filing of FINRA Form 211. Therefore, the net effect on the liquidity of
OTC securities and the trading costs of OTC investors is unclear.
6. Alternative Required Frequency of Current and Publicly Available
Information
    The Commission has sought to align the amended Rule with existing
regulatory requirements for publicly available information, as well as
with private market solutions that have developed since the Commission
last proposed to amend the Rule. Notwithstanding this, an alternative
to these amendments would be to define paragraph (b) information as
``current'' for issuers based on a different lengths of time (e.g., six
months instead of twelve months for catch-all issuers) for the purposes
of the initiation and resumption of quotes or reliance upon the
piggyback exception. For example, the proposed Rule would have
conditioned broker-dealer quotations on the paragraph (b) information
of catch-all issuers being publicly available and current within six
months of the broker-dealer's quotation (unless the unsolicited
customer exception applied).
    Increasing the frequency of publicly available information required
to qualify as ``current'' relative to the amended Rule could benefit
investors by improving the relevance of information used for investment
and voting decisions relative to the information available under the
existing Rule. Investors could also benefit from decreased exposure to
loss from fraud as additional current and publicly available
information that is more frequently provided could push trading
activity in less transparent securities out of the OTC market or to the
grey market. Higher quality OTC issuers could benefit from increased
access to capital to the extent that more frequent information
requirements lead to a net increase in demand for higher quality OTC
stocks.
    Although the amended Rule does not require any issuer to make
paragraph (b) information current and publicly available, a broker-
dealer could not publish a quotation in the absence of such
information. OTC issuers would face increased costs of providing
current and publicly available information if the amended Rule required
such information to be provided more frequently. In particular, OTC
issuers with no reporting obligations or minimal reporting obligations
have to make current information publicly available more frequently
under such an alternative. In order for a broker-dealer to continue to
publish quotations, some OTC issuers might find they have to prepare
current information and make it publicly available more frequently than
their current annual or semi-annual reporting obligations as an issuer
under the federal securities laws, such as reporting requirements under
the Securities Act or exchange listing requirements under the Exchange
Act. OTC issuers may find that they must prepare current information
and make it available more often than they are required to do so under
state law, as well. Broker-dealers, qualified IDQSs, and national
securities associations may also be required to review paragraph (b)
information more frequently under this alternative in order to
initially publish or submit, or maintain, quotes in the OTC market.
Some OTC issuers may opt not to provide information with a greater
required frequency relative to the amended Rule. Similarly, more
broker-dealers may withdraw from quoted OTC markets as a result of more
frequent information review. Both effects could adversely affect OTC
investors' liquidity and increase their trading costs. The Commission
believes the amended Rule is better than the alternative because the
additional benefits from more frequently available information are
likely to be relatively minor, while the costs for issuers, broker-
dealers, and other market participants could increase in proportion to
the required frequency of making current information publicly
available.
    Decreasing the frequency of publishing current and publicly
available information to relative to the amended Rule (e.g., requiring
current and publicly available information every two years instead of
twelve months for catch-all issuers) could have effects opposite to
those discussed relating to increased frequency of making current
information publicly

available. For example, decreasing the frequency of making current
information publicly available could provide relief, relative to the
requirements of the amended Rule, from the costs to OTC issuers of
preparing and disseminating such information. The Commission is not
pursuing such an alternative because a significant decrease in the
frequency in the availability of current and publicly available
paragraph (b) information could make the information less relevant for
decision making and investor protection purposes, driving down their
potential benefit to investors.

VII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \776\ requires federal
agencies, in promulgating rules, to consider the impact of those rules
on ``small entities,'' \777\ a term that includes ``small businesses.''
\778\ Section 603(a) \779\ of the Administrative Procedure Act,\780\ as
amended by the RFA, generally requires the Commission to undertake a
regulatory flexibility analysis of all proposed rules, or proposed rule
amendments, unless the Commission certifies that the amendments, if
adopted, would not have a significant impact on a substantial number of
small entities.\781\
---------------------------------------------------------------------------

    \776\ 5 U.S.C. 601 et seq.
    \777\ 5 U.S.C. 605(b).
    \778\ Although Section 601(b) of the RFA defines the term
``small business,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
small business for the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as relevant to this
proposed rulemaking, are set forth in Exchange Act Rule 0-10 (``Rule
0-10''). Rule 0-10 also provides that the Commission may, if
warranted by the circumstances, use a different definition for
particular rulemakings.
    \779\ 5 U.S.C. 603(a).
    \780\ 5 U.S.C. 551 et seq.
    \781\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    A broker-dealer is a small entity if it has total capital (net
worth plus subordinated liabilities) of less than $500,000 on the date
in the prior fiscal year as of which its audited financial statements
were prepared pursuant to Sec.  240.17a-5(d), or, if not required to
file such statements, has total capital of less than $500,000 on the
last day of the preceding fiscal year (or in the time that it has been
in business, if shorter); and is not affiliated with any person (other
than a natural person) that is not a small business or small
organization.\782\ In the Proposing Release, the Commission certified,
pursuant to Section 605(b) of the RFA, that the proposed amendments to
Rule 15c2-11 would not have a significant economic impact on a
substantial number of small entities.\783\ The Commission did not
receive any comments on the certification as it related to the entities
impacted by the Rule.\784\
---------------------------------------------------------------------------

    \782\ Rule 0-10(c).
    \783\ See Proposing Release at 58262.
    \784\ The Commission received one comment that mentioned the
Regulatory Flexibility Act in relation to other market participants.
See Virtu Letter, at 8. The costs and benefits of the amended Rule
with respect to other market participants are considered in the
Economic Analysis section. See supra Part VI.
---------------------------------------------------------------------------

    As discussed in the PRA and Economic Analysis sections above, the
Commission believes that the proposed amendments will impact the 80
broker-dealers that publish or submit quotations on OTC Markets Group's
systems.\785\ Based on the Commission's analysis of existing
information relating to broker-dealers that would be subject to the
amended Rule, the Commission does not believe that any of the 80
broker-dealers impacted by the Rule are small entities under the above
definition because they either have at least $500,000 in total capital
or are affiliated with a person (other than a natural person) that is
not a small business or small organization as defined in Rule 0-10.
Based on experience with broker-dealers that participate in the market
for OTC securities, the Commission believes that it is unlikely that in
the future a small entity may become impacted by the amendments since
firms that enter the market are likely to have at least $500,000 in
total capital or be affiliated with a person that is not a small
business or small organization under Rule 0-10.
---------------------------------------------------------------------------

    \785\ See supra Parts V.B, VI.B.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission certifies that the
amendments to Exchange Act Rule 15c2-11 will not have a significant
economic impact on a substantial number of small entities for purposes
of the RFA.

VIII. Statutory Authority

    The rule amendments are being adopted pursuant to sections 3,
10(b), 15(c), 15(h), 17(a), 23(a), and 36 of the Securities Exchange
Act of 1934, 15 U.S.C. 78c, 78j(b), 78o(c), 78o(g), 78q(a), 78w(a), and
78mm.

List of Subjects in 17 CFR Parts 230 and 240

    Administrative practice and procedure, Reporting and recordkeeping
requirements, Securities.

    For the reasons set out in the preamble, the Commission is amending
title 17, chapter II of the Code of the Federal Regulations as follows.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The general authority for part 230 continues to read as follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126
Stat. 313 (2012), unless otherwise noted.
* * * * *

Sec.  230.144  [Amended]

0
2. Section 230.144, paragraph (c)(2), is amended by removing the text
``(a)(5)(i) to (xiv), inclusive, and paragraph (a)(5)(xvi)'' and adding
``(b)(5)(i)(A) to (N), inclusive, and paragraph (b)(5)(i)(P)'' in its
place.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
3. The authority citation for part 240 continues to read, in part, as
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
    Section 240.15c2-11 also issued under 15 U.S.C. 78j(b), 78o(c),
78q(a), and 78w(a).
* * * * *

0
4. Section 240.15c2-11 is revised to read as follows:

Sec.  [thinsp]240.15c2-11  Publication or submission of quotations
without specified information.

    (a) Unlawful activity. As a means reasonably designed to prevent
fraudulent, deceptive, or manipulative acts or practices, it shall be
unlawful for:
    (1) Brokers or dealers. A broker or dealer to publish any quotation
for a security or, directly or indirectly, to submit any such quotation
for publication, in any quotation medium, unless:
    (i)(A) Such broker or dealer has in its records the documents and
information specified in paragraph (b) of this section;
    (B) Such documents and information specified in paragraph (b) of
this section

(excluding paragraphs (b)(5)(i)(N) through (P) of this section) are
current and publicly available; and
    (C) Based upon a review of the documents and information specified
in paragraph (b) of this section, together with any other documents and
information required by paragraph (c) of this section, such broker or
dealer has a reasonable basis under the circumstances for believing
that:
    (1) The documents and information specified in paragraph (b) of
this section are accurate in all material respects; and
    (2) The sources of the documents and information specified in
paragraph (b) of this section are reliable; or
    (ii)(A) The quotation medium is a qualified interdealer quotation
system that made a publicly available determination that it has
performed the activities described in paragraph (a)(2)(i) through (iii)
of this section; and
    (B) Such quotation is published or submitted for publication within
three business days after such qualified interdealer quotation system
makes such publicly available determination.
    (2) Qualified interdealer quotation systems. A qualified
interdealer quotation system to make known to others the quotation of a
broker or dealer that is published or submitted for publication
pursuant to paragraph (a)(1)(ii) of this section, unless:
    (i) Such qualified interdealer quotation system has in its records
the documents and information specified in paragraph (b) of this
section (excluding paragraphs (b)(5)(i)(N) through (P) of this section
except where the qualified interdealer quotation system has knowledge
or possession of this information);
    (ii) Such documents and information specified in paragraph (b) of
this section (excluding paragraphs (b)(5)(i)(N) through (P) of this
section) are current and publicly available;
    (iii) Based upon a review of the documents and information
specified in paragraph (b) of this section (excluding paragraphs
(b)(5)(i)(N) through (P) of this section, except where the qualified
interdealer quotation system has knowledge or possession of this
information), together with any other documents and information
required by paragraph (c) of this section, such qualified interdealer
quotation system has a reasonable basis under the circumstances for
believing that:
    (A) The documents and information specified in paragraph (b) of
this section are accurate in all material respects; and
    (B) The sources of the documents and information specified in
paragraph (b) of this section are reliable; and
    (iv) The qualified interdealer quotation system makes a publicly
available determination that it has performed the activities described
in paragraphs (a)(2)(i) through (iii) of this section; or
    (3) Qualified interdealer quotation systems or registered national
securities Associations. A qualified interdealer quotation system or
registered national securities association to make a publicly available
determination described in paragraph (f)(2)(iii)(B), (f)(3)(ii)(A), or
(f)(7) of this section, unless such qualified interdealer quotation
system or registered national securities association establishes,
maintains, and enforces reasonably designed written policies and
procedures to determine whether:
    (i) The documents and information specified in paragraph (b) of
this section are current and publicly available; and
    (ii) The requirements of an exception under paragraph (f) of this
section are met, if it makes a publicly available determination
described in paragraph (f)(7) of this section.
    (b) Specified information. (1) A copy of the prospectus specified
by section 10(a) of the Securities Act of 1933 for an issuer that has
filed a registration statement under the Securities Act of 1933, other
than a registration statement on Form F-6, that became effective less
than 90 calendar days prior to the day on which such broker or dealer
publishes or submits the quotation to the quotation medium; Provided,
That such registration statement has not thereafter been the subject of
a stop order that is still in effect when the quotation is published or
submitted; or
    (2) A copy of the offering circular provided for under Regulation A
(Sec. Sec.  [thinsp]230.251 through 230.263 of this chapter) for an
issuer that has filed an offering statement under Regulation A that was
qualified less than 40 calendar days prior to the day on which such
broker or dealer publishes or submits the quotation to the quotation
medium; Provided, That the Regulation A exemption, with respect to such
issuer, has not thereafter become subject to a suspension order that is
still in effect when the quotation is published or submitted; or
    (3) A current copy of:
    (i) An annual report filed pursuant to section 13 or 15(d) of the
Act, together with any periodic and current reports that have been
filed thereafter under the Act by the issuer, except for current
reports filed during the three business days prior to the publication
or submission of the quotation; Provided, however, That, until such
issuer has filed its first such annual report, the broker, dealer, or
qualified interdealer quotation system has in its records a copy of the
registration statement filed by the issuer under the Securities Act of
1933, other than a registration statement on Form F-6, that became
effective within the prior 16 months, or a copy of any registration
statement filed by the issuer under section 12 of the Act that became
effective within the prior 16 months, together with any periodic and
current reports filed thereafter under section 13 or 15(d) of the Act;
    (ii) An annual report filed pursuant to Regulation A, together with
any periodic and current reports filed thereafter under Regulation A by
the issuer, except for current reports filed during the three business
days prior to the publication or submission of the quotation; Provided,
however, That, until such issuer has filed its first such annual
report, the broker, dealer, or qualified interdealer quotation system
has in its records a copy of the offering statement filed by the issuer
under Regulation A, that was qualified within the prior 16 months,
together with any periodic and current reports filed thereafter under
Regulation A;
    (iii) An annual report filed pursuant to Regulation Crowdfunding
(Sec. Sec.  [thinsp]227.100 through 227.503 of this chapter); Provided,
however, that, until such issuer has filed its first such annual
report, the broker, dealer, or qualified interdealer quotation system
has in its records a copy of the Form C filed by the issuer under
Regulation Crowdfunding within the prior 16 months, together with any
Form C/A and Form C/U filed thereafter under Regulation Crowdfunding;
    (iv) An annual statement referred to in section 12(g)(2)(G)(i) of
the Act (in the case of an issuer required to file reports pursuant to
section 13 or 15(d) of the Act), together with any periodic and current
reports filed thereafter under the Act by the issuer, except for
current reports filed during the three business days prior to the
publication or submission of the quotation; Provided, however, that,
until such issuer has filed its first such annual statement, the
broker, dealer, or qualified interdealer quotation system has in its
records a copy of the registration statement filed by the issuer under
the Securities Act of 1933, other than a registration statement on Form
F-6, that became effective within the prior 16 months, or a copy of any
registration statement filed by the issuer under section 12 of the Act,
that became effective within the prior 16 months, together with any
periodic and current reports filed thereafter under section 13 or 15(d)
of the Act; or

    (v) An annual statement referred to in section 12(g)(2)(G)(i) of
the Act (in the case of an issuer of a security that falls within the
provisions of section 12(g)(2)(G) of the Act); or
    (4) A copy of the information that, since the first day of its most
recently completed fiscal year, the issuer has published as required to
establish the exemption from registration under section 12(g) of the
Act pursuant to Sec.  [thinsp]240.12g3-2(b) of this chapter, which the
broker or dealer must make available upon the request of a person
expressing an interest in a proposed transaction in the issuer's
security with the broker or dealer, such as by providing the requesting
person with appropriate instructions regarding how to obtain the
information electronically; or
    (5)(i) The following information, which must be (excluding
paragraphs (b)(5)(i)(N) through (P) of this section) as of a date
within 12 months prior to the publication or submission of the
quotation, unless otherwise specified:
    (A) The name of the issuer and any predecessors during the past
five years;
    (B) The address(es) of the issuer's principal executive office and
of its principal place of business;
    (C) The state of incorporation or registration of the issuer and of
each of its predecessors (if any) during the past five years;
    (D) The title, class, and ticker symbol (if assigned) of the
security;
    (E) The par or stated value of the security;
    (F) The number of shares or total amount of the securities
outstanding as of the end of the issuer's most recent fiscal year;
    (G) The name and address of the transfer agent;
    (H) A description of the issuer's business;
    (I) A description of products or services offered by the issuer;
    (J) A description and extent of the issuer's facilities;
    (K) The name and title of all company insiders;
    (L) The issuer's most recent balance sheet (as of a date less than
16 months before the publication or submission of the quotation) and
profit and loss and retained earnings statements (for the 12 months
preceding the date of the most recent balance sheet);
    (M) Similar financial information for such part of the two
preceding fiscal years as the issuer or its predecessors has been in
existence;
    (N) Whether the broker or dealer or any associated person of the
broker or dealer is affiliated, directly or indirectly, with the
issuer;
    (O) Whether the quotation is being published or submitted on behalf
of any other broker or dealer and, if so, the name of such broker or
dealer; and
    (P) Whether the quotation is being submitted or published, directly
or indirectly, by or on behalf of the issuer or a company insider and,
if so, the name of such person and the basis for any exemption under
the federal securities laws for any sales of such securities on behalf
of such person.
    (ii) The broker or dealer must make the documents and information
specified in paragraph (b)(5)(i) of this section available upon the
request of a person expressing an interest in a proposed transaction in
the issuer's security with the broker or dealer, such as by providing
the requesting person with appropriate instructions regarding how to
obtain such publicly available documents and information
electronically. If such information is made available to others upon
request pursuant to this paragraph, such delivery, unless otherwise
represented, shall not constitute a representation by such broker or
dealer that such information is accurate but shall constitute a
representation by such broker or dealer that the information is current
in relation to the day the quotation is submitted, the broker or dealer
has a reasonable basis under the circumstances for believing the
information is accurate in all material respects, and the information
was obtained from sources that the broker or dealer has a reasonable
basis under the circumstances for believing are reliable. The documents
and information specified in paragraph (b)(5) of this section must be
reviewed where paragraphs (b)(1) through (4) of this section do not
apply to such issuer. For purposes of compliance with paragraph
(a)(1)(i)(B) or (a)(2)(ii) of this section, the documents and
information specified in paragraph (b)(5) of this section must be
reviewed for an issuer for which the documents and information
specified in paragraph (b)(1), (2), (3), or (4) of this section
regarding such issuer are not current.
    (c) Supplemental information. With respect to any security the
quotation of which is within the provisions of this section, the broker
or dealer submitting or publishing such quotation, or any qualified
interdealer quotation system that makes known to others the quotation
of a broker or dealer pursuant to paragraph (a)(2) of this section,
shall have in its records the following documents and information:
    (1) Records related to the submission or publication of such
quotation, including 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 provided to the broker, dealer, or qualified
interdealer quotation system by such person or persons;
    (2) A copy of any trading suspension order issued by the Commission
pursuant to section 12(k) of the 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; and
    (3) A copy or a written record of any other material information
(including adverse information) regarding the issuer that comes to the
knowledge or possession of the broker, dealer, or qualified interdealer
quotation system before the publication or submission of the quotation.
    (d) Recordkeeping. (1)(i) The following persons shall preserve for
a period of not less than three years, the first two years in an easily
accessible place, the documents and information required under
paragraphs (a), (b), and (c) of this section, except for the documents
and information that are available on the Commission's Electronic Data
Gathering, Analysis and Retrieval System (EDGAR):
    (A) Any broker or dealer that publishes or submits a quotation
pursuant to paragraph (a)(1) of this section for a security; or
    (B) Any qualified interdealer quotation system that makes known to
others the quotation of a broker or dealer pursuant to paragraph (a)(2)
of this section for a security;
    (ii) Any broker or dealer that publishes or submits a quotation
pursuant to paragraph (a)(1)(ii) of this section shall preserve for a
period of not less than three years, the first two years in an easily
accessible place, the name of the qualified interdealer quotation
system that made a publicly available determination that it has
performed the activities described in paragraph (a)(2)(i) through (iii)
of this section.
    (2) The following persons shall preserve for a period of not less
than three years, the first two years in an easily accessible place,
the documents and information that demonstrate that the requirements
for an exception under paragraph (f)(2), (3), (5), (6), or (7) of this
section are met, except for the documents and information that are
available on EDGAR:
    (i) Any qualified interdealer quotation system or registered
national securities association that makes a publicly available
determination described in

paragraph (f)(2)(iii)(B), (f)(3)(ii)(A), or (f)(7) of this section; and
    (ii) Any broker or dealer that publishes or submits a quotation
pursuant to paragraph (f) of this section; Provided, however, That any
broker or dealer that relies on a publicly available determination
described in paragraph (f)(2)(iii)(B) or (f)(3)(ii)(A) of this section
shall preserve only a record of the name of the qualified interdealer
quotation system or registered national securities association that
determined whether the documents and information specified in paragraph
(b) of this section are current and publicly available in addition to
the documents and information that demonstrate that the other
requirements of the exception provided in paragraph (f)(2) or (3),
respectively, are met; and that any broker or dealer that relies on a
publicly available determination described in paragraph (f)(7) of this
section shall preserve only a record of the exception provided in
paragraph (f)(1), (f)(3)(i), or (f)(4) or (5) for which the publicly
available determination is made and the name of the qualified
interdealer quotation system or registered national securities
association that determined that the requirements of that exception are
met.
    (e) Definitions. For purposes of this section:
    (1) Company insider shall mean any officer or director of the
issuer, or person that performs a similar function, or any person who
is, directly or indirectly, the beneficial owner of more than 10
percent of the outstanding units or shares of any class of any equity
security of the issuer.
    (2) Current shall mean, for the documents and information specified
in:
    (i) Paragraph (b)(1), (2), (4), or (5) of this section, filed,
published, or are as of a date in accordance with the time frames
specified in the applicable paragraph for such documents and
information; or
    (ii) Paragraph (b)(3) of this section, the most recently required
annual report or statement filed pursuant to section 13 or 15(d) of the
Act and any rule(s) thereunder, Regulation A, Regulation Crowdfunding,
or section 12(G)(2)(g) of the Act, together with any subsequently
required periodic reports or statements, filed pursuant to section 13
or 15(d) of the Act and any rule(s) thereunder, Regulation A,
Regulation Crowdfunding, or section 12(G)(2)(g) of the Act.
    (3) Interdealer quotation system shall mean any system of general
circulation to brokers or dealers that regularly disseminates
quotations of identified brokers or dealers.
    (4) Issuer, in the case of quotations for American Depositary
Receipts, shall mean the issuer of the deposited shares represented by
such American Depositary Receipts.
    (5) Publicly available shall mean available on EDGAR; on the
website of a state or federal agency, a qualified interdealer quotation
system, a registered national securities association, an issuer, or a
registered broker or dealer; or through an electronic information
delivery system that is generally available to the public in the
primary trading market of a foreign private issuer as defined in Sec.
240.3b-4 of this chapter; Provided, however, that publicly available
shall mean where access is not restricted by user name, password, fees,
or other restraints.
    (6) Qualified interdealer quotation system shall mean any
interdealer quotation system that meets the definition of an
``alternative trading system'' under Sec.  242.300(a) of this chapter
and operates pursuant to the exemption from the definition of an
``exchange'' under Sec.  240.3a1-1(a)(2) of this chapter.
    (7) Quotation, except as otherwise specified in this section, shall
mean any bid or offer at a specified price with respect to a security,
or any indication of interest by a broker or dealer in receiving bids
or offers from others for a security, or any indication by a broker or
dealer that wishes to advertise its general interest in buying or
selling a particular security.
    (8) Quotation medium shall mean any ``interdealer quotation
system'' or any publication or electronic communications network or
other device that is used by brokers or dealers to make known to others
their interest in transactions in any security, including offers to buy
or sell at a stated price or otherwise, or invitations of offers to buy
or sell.
    (9) Shell company shall mean any issuer, other than a business
combination related shell company, as defined in Sec.  230.405 of this
chapter, or an asset-backed issuer as defined in Item 1101(b) of
Regulation AB (Sec.  229.1101(b) of this chapter), that has:
    (i) No or nominal operations; and
    (ii) Either:
    (A) No or nominal assets;
    (B) Assets consisting solely of cash and cash equivalents; or
    (C) Assets consisting of any amount of cash and cash equivalents
and nominal other assets.
    (f) Exceptions. Except as provided in paragraph (d)(2) of this
section, the provisions of this section shall not apply to:
    (1) The publication or submission of a quotation for a security
that is admitted to trading on a national securities exchange and that
is traded on such an exchange on the same day as, or on the business
day next preceding, the day the quotation is published or submitted.
    (2)(i) The publication or submission by a broker or dealer, solely
on behalf of a customer (other than a person acting as or for a
dealer), of a quotation that represents the customer's unsolicited
indication of interest;
    (ii) Provided, however, that this paragraph (f)(2) shall not apply
to a quotation:
    (A) Consisting of both a bid and an offer, each of which is at a
specified price, unless the quotation medium specifically identifies
the quotation as representing such an unsolicited customer interest; or
    (B) Published or submitted, directly or indirectly on behalf of a
company insider or affiliate as defined in Sec.  230.144(a)(1) of this
chapter, unless the documents and information specified in paragraph
(b) of this section are current and publicly available.
    (iii) For purposes of paragraph (f)(2)(ii)(B) of this section, a
broker or dealer that publishes or submits quotations may rely on
either a:
    (A) Written representation from the customer's broker that such
customer is not a company insider or an affiliate if:
    (1) Such representation is received prior to, and on the same day
that, the quotation representing the customer's unsolicited indication
of interest is published or submitted; and
    (2) The broker or dealer has a reasonable basis under the
circumstances for believing that the customer's broker is a reliable
source; or
    (B) Publicly available determination by a qualified interdealer
quotation system or registered national securities association that the
documents and information specified in paragraph (b) of this section
are current and publicly available.
    (3)(i)(A) The publication or submission, in an interdealer
quotation system that specifically identifies as such unsolicited
customer indications of interest of the kind described in paragraph
(f)(2) of this section, of a quotation for a security that has been the
subject of a bid or offer quotation (exclusive of any identified
customer interests) in such a system at a specified price, with no more
than four business days in succession without such a quotation;
    (B) Provided, however, that this paragraph (f)(3) shall not apply
to a quotation that is published or submitted

by a broker or dealer for the security of an issuer that:
    (1) Was the subject of a trading suspension order issued by the
Commission pursuant to section 12(k) of the Act until 60 calendar days
after the expiration of such order;
    (2) Such broker or dealer, or any qualified interdealer quotation
system or registered national securities association, has a reasonable
basis under the circumstances for believing is a shell company, unless
such quotation is published or submitted within the 18 months following
the initial quotation for such issuer's security that is the subject of
a bid or offer quotation in an interdealer quotation system at a
specified price;
    (C) Provided further, that this paragraph (f)(3) shall apply to the
publication or submission of a quotation for a security of an issuer
only if the documents and information regarding such issuer that are
specified in:
    (1) Paragraph (b)(3)(i), (iv), or (v) of this section are 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 Act, as applicable;
    (2) Paragraph (b)(3)(ii) or (iii) of this section are timely filed;
    (3) Paragraph (b)(4) or (b)(5)(i) (excluding paragraphs
(b)(5)(i)(N) through (P)) are current and publicly available; or
    (4) Paragraph (b)(3)(i), (ii), (iii), (iv), or (v) are filed within
15 calendar days starting on the date on which a publicly available
determination is made pursuant to paragraph (f)(3)(ii)(A) of this
section; or
    (ii) If the documents and information specified in paragraph (b) of
this section (excluding paragraphs (b)(5)(i)(N) through (P)) regarding
an issuer are no longer current and publicly available, timely filed,
or filed within 180 calendar days, as specified in paragraph
(f)(3)(i)(C) of this section, a broker or dealer may continue to
publish or submit a quotation for such issuer's security in an
interdealer quotation system during the time frame specified in in
paragraph (f)(3)(ii)(C) if:
    (A) Within the first four business days that such documents and
information are no longer current and publicly available, timely filed,
or filed within 180 calendar days, as applicable, a qualified
interdealer quotation system or registered national securities
association makes a publicly available determination that:
    (1) Such documents and information are no longer current and
publicly available, timely filed, or filed within 180 calendar days, as
specified in paragraph (f)(3)(i)(C) of this section; and
    (2) The exception provided in paragraph (f)(3)(ii) of this section
is available only during the 15 calendar days starting on the date on
which the publicly available determination described in paragraph
(f)(3)(ii)(A)(1) of this section is made; and
    (B) The broker or dealer complies with the requirements of
paragraphs (d)(2) and (f)(3)(i) of this section, except for the
requirement that the documents and information specified in paragraph
(b) (excluding paragraphs (b)(5)(i)(N) through (P)) regarding such
issuer be current and publicly available, timely filed, or filed within
180 calendar days, as applicable;
    (C) Provided, however, that the provisions of this paragraph
(f)(3)(ii) shall apply only during the shorter of the period beginning
with the date on which a qualified interdealer quotation system or
registered national securities association makes a publicly available
determination identified in paragraph (f)(3)(ii)(A) and ending on:
    (1) The date on which the documents and information specified in
paragraph (b) of this section (excluding paragraphs (b)(5)(i)(N)
through (P)) regarding such issuer become current and publicly
available or filed; or
    (2) The fourteenth calendar day following the date on which such
publicly available determination was made.
    (4) The publication or submission of a quotation for a municipal
security.
    (5) The publication or submission of a quotation for:
    (i) A security with a worldwide average daily trading volume value
of at least $100,000 reported during the 60 calendar days immediately
before the publication of the quotation of such security; and
    (ii) The issuer of such security has at least $50 million in total
assets and $10 million in shareholders' equity as reflected in the
issuer's publicly available audited balance sheet issued within six
months after the end of its most recent fiscal year.
    (6) The publication or submission of a quotation for a security by
a broker or dealer that is named as an underwriter in a registration
statement for an offering of that class of security referenced in
paragraph (b)(1) of this section or in an offering statement for an
offering of that class of security referenced in paragraph (b)(2) of
this section; Provided, however, that this paragraph (f)(6) shall apply
only to the publication or submission of a quotation for such security
within the time frames specified in paragraph (b)(1) or (2) of this
section.
    (7) The publication or submission of a quotation by a broker or
dealer that relies on a publicly available determination by a qualified
interdealer quotation system or registered national securities
association that the requirements of an exception provided in paragraph
(f)(1), (f)(3)(i), or (f)(4) or (5) of this section are met; Provided,
however, that any qualified interdealer quotation system or registered
national securities association that makes a publicly available
determination that the requirements of the exception provided in
paragraph (f)(3)(i) of this section are met must subsequently make a
publicly available determination under paragraph (f)(3)(ii)(A) of this
section, as applicable.
    (g) Exemptive authority. Upon 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 such exemption is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.

    By the Commission.

    Dated: September 16, 2020.
Vanessa A. Countryman,
 Secretary.
[FR Doc. 2020-20980 Filed 10-26-20; 8:45 am]
BILLING CODE 8011-01-P