The Honorable Sherrod Brown
Chairman
Committee on Banking, Housing, and Urban Affairs
U.S. Senate
Washington, DC 20510

The Honorable Maxine Waters
Chairwoman
Committee on Financial Services
U.S. House of Representatives
Washington, DC 20515

The Honorable Pat Toomey
Ranking Member
Committee on Banking, Housing, and Urban Affairs
U.S. House of Representatives
Washington, DC 20510

The Honorable Patrick McHenry
Ranking Member
Committee on Financial Services
U.S. House of Representatives
Washington, DC 20515

Re: Unprecedented SEC Staff Interpretation to Force Private Companies Public and Raise Costs on Job Creators

Dear Chairman Brown, Chairwoman Waters, Ranking Member Toomey, and Ranking Member McHenry:

The undersigned associations write to express our strong concerns with a surprising new rule interpretation, recently issued by staff at the Securities and Exchange Commission (“SEC”), that conflicts with existing regulation, will force private companies to make public disclosures, and will directly harm businesses’ ability to raise capital for job-creating projects. This change constitutes a reversal of 50 years of SEC policy and will have far-reaching implications, yet it was adopted without input from the public or any analysis of its potential impacts.

If Congress does not step in to reverse this erroneous and damaging staff interpretation before it takes effect in January 2023, private companies will be forced to publicly disclose competitively sensitive information and will face new barriers to capital formation—significantly limiting their growth potential and imposing direct consequences on their ability to create jobs here in the U.S. What is more, the new interpretation will provide no additional protection for investors, given that retail investors cannot participate in the private placements implicated by the change—and the institutional investors who can participate will face increased costs and decreased value as a result of the staff’s actions.

In 2020, the SEC adopted amendments to Rule 15c2-11, which governs the quotation of securities in the over-the-counter (“OTC”) market, to provide new protections for retail investors in OTC equity securities. In September 2021, however, the SEC’s Division of Trading and Markets issued a no-action letter expressing the view that Rule 15c2-11, including the 2020 amendments thereto, applies to other types of OTC securities—including bonds and other fixed income securities.1 Given the complete lack of analysis of fixed income securities in the 2020 adopting release, this new interpretation was a shock to companies, investors, and broker-dealers alike—and even to some SEC Commissioners.2 To our knowledge, in the 50 years of the existence of Rule 15c2-11, the SEC has never attempted to enforce compliance with the rule for fixed income securities.

 

1 Letter from Josephine Tao, Assistant Director, Office of Trading Practices, Division of Trading and Markets, SEC to Racquel Russell, Senior Vice President and Director of Capital Markets Policy, Office of the General Counsel, FINRA (Sept. 24, 2021). Available at https://www.sec.gov/files/rule-15c2-11-fixed-incomesecurities-092421.pdf.