The US financial regulator, the Securities and Exchange Commission (SEC), has recently amended its rules in order to add a few important components. This comes in relation to its market regulatory structure for over-the-counter (OTC) offerings and was made on Wednesday.
Updating Market Disclosure And Investor Protection
These updated rules enhanced two critical facets of the regulatory framework: The investor protection, as well as the market disclosure within the OTC markets.
The regulator highlighted that retail investors are the primary owner of securities traded within the OTC market. Broker-dealers, in turn, provide access to these OTC securities, primarily serving the role of a gatekeeper in these transactions.
An Amendment Long Overdue
With the newly-amended laws, none of the broker-dealers will be able to publish quotations for a security of an issuer, should the current issuer information not be publicly available. There are, however, a few exceptions to this rule.
Alongside this, broker-dealers are now mandated to review the basic information of the issuer before taking any quotations regarding OTC instruments.
Jay Clayton stands as the chairman of the SEC and gave a statement about this regulatory change. He claimed that the improvements to Rule 15c2-11 have long since been overdue, and focus on the retail investor in said improvements.
He highlighted the various technological advancements that have taken place since the rule was amended prior, which allows the SEC to mandate more from the OTC market. In particular, Clayton highlights how information must now be more timely in the market, which allows investors to make decisions that are better informed.
Alongside this, the improvements will see a reduction in fraud, in a market Clayton highlights to have a very high presence of retail traders. Clayton explained that various frauds, such as pump-and-dump schemes, are sadly quite common in the OTC space.
Striking A Balance
Before the amendment, the SEC noted that broker-dealers were capable of maintaining a quoted market in perpetuity. This can occur even if now information about the issuer is available, or even if the issuer itself is non-existent.
With these amendments within the OTC market, the SEC highlighted that the efficiency would be increased, as a result. Alongside this, market manipulation and fraud will be minimized, as well.
Brett Redfearn stands as the Director of the Trading and Markets Division of the SEC, and stated that these amendments strike a balance between providing new exceptions, as well as promoting critically important investor protections. This, Redfearn said, will make it easier for specific securities to develop a quoted market, as well.