Notice of Proposed Conditional Exemptive Order Granting a Conditional Exemption From the Information Review Requirement and the Recordkeeping Requirement Under the Securities Exchange Act of 1934 for Certain Publications or Submissions of Broker-Dealer Quotations on an Expert Market, 2311-2318 [2020-28700]
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Federal Register / Vol. 86, No. 7 / Tuesday, January 12, 2021 / Proposed Rules
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5. Revise § 304.1 to read as follows:
§ 304.1
Purpose.
This subpart informs the public where
it may obtain forms and instructions for
reports, applications, and other
submittals used by the FDIC, and
describes certain forms that are not
described elsewhere in FDIC
regulations.
§ § 304.15–304.20
■
■
[Reserved]
6. Reserve §§ 304.15 through 304.20.
7. Add subpart C to read as follows:
Subpart C—Computer-Security Incident
Notification
Sec.
304.21 Authority, purpose, and scope.
304.22 Definitions.
304.23 Notification.
304.24 Bank service provider notification.
Subpart C—Computer-Security
Incident Notification
§ 304.21
Authority, purpose, and scope.
(a) Authority. This subpart is issued
under the authority of 12 U.S.C. 1463,
1811, 1813, 1817, 1819, and 1861–1867.
(b) Purpose. This subpart promotes
the timely notification of significant
computer-security incidents that affect
FDIC-supervised institutions and their
service providers.
(c) Scope. This subpart applies to all
insured state nonmember banks, insured
state licensed branches of foreign banks,
and State savings associations. This
subpart also applies to bank service
providers, as defined in § 304.22(b)(2).
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§ 304.22
Definitions.
(a) Except as modified in this subpart,
or unless the context otherwise requires,
the terms used in this subpart have the
same meanings as set forth in 12 U.S.C.
1813.
(b) For purposes of this subpart, the
following definitions apply:
(1) Banking organization means an
FDIC-supervised insured depository
institution, including all insured state
nonmember banks, insured statelicensed branches of foreign banks, and
State savings associations.
(2) Bank service provider means a
bank service company or other person
providing services to a banking
organization that is subject to the Bank
Service Company Act (12 U.S.C. 1861–
1867).
(3) Business line means products or
services offered by a banking
organization to serve its customers or
support other business needs.
(4) Computer-security incident is an
occurrence that:
(i) Results in actual or potential harm
to the confidentiality, integrity, or
availability of an information system or
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the information that the system
processes, stores, or transmits; or
(ii) Constitutes a violation or
imminent threat of violation of security
policies, security procedures, or
acceptable use policies.
(5) Notification incident is a
computer-security incident that a
banking organization believes in good
faith could materially disrupt, degrade,
or impair—
(i) The ability of the banking
organization to carry out banking
operations, activities, or processes, or
deliver banking products and services to
a material portion of its customer base,
in the ordinary course of business;
(ii) Any business line of a banking
organization, including associated
operations, services, functions and
support, and would result in a material
loss of revenue, profit, or franchise
value; or
(iii) Those operations of a banking
organization, including associated
services, functions and support, as
applicable, the failure or discontinuance
of which would pose a threat to the
financial stability of the United States.
(6) Person has the same meaning as
set forth at 12 U.S.C. 1817(j)(8)(A).
§ 304.23
Notification.
A banking organization must notify
the FDIC of a notification incident
through any form of written or oral
communication, including through any
technological means, to a designated
point of contact identified by the FDIC.
The FDIC must receive this notification
from the banking organization as soon
as possible and no later than 36 hours
after the banking organization believes
in good faith that a notification incident
has occurred.
§ 304.24 Bank service provider
notification.
A bank service provider is required to
notify at least two individuals at each
affected banking organization customer
immediately after the bank service
provider experiences a computersecurity incident that it believes in good
faith could disrupt, degrade, or impair
services provided subject to the Bank
Service Company Act (12 U.S.C. 1861–
1867) for four or more hours.
§ § 304.25–304.30
■
[Reserved]
8. Reserve §§ 304.25 through 304.30.
Brian P. Brooks,
Acting Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System.
Ann Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
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2311
By order of the Board of Directors.
Dated at Washington, DC, on or about
December 15, 2020.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2020–28498 Filed 1–11–21; 8:45 am]
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
[Release No. 34–90769; File No. S7–23–20]
Notice of Proposed Conditional
Exemptive Order Granting a
Conditional Exemption From the
Information Review Requirement and
the Recordkeeping Requirement Under
the Securities Exchange Act of 1934
for Certain Publications or
Submissions of Broker-Dealer
Quotations on an Expert Market
Securities and Exchange
Commission.
ACTION: Notice of proposed conditional
exemptive order; request for comment.
AGENCY:
Pursuant to Section 36(a)(1) of
the Securities Exchange Act of 1934 (the
‘‘Exchange Act’’) and Rule 15c2–11
under the Exchange Act (as published in
the Federal Register on October 27,
2020, ‘‘Amended Rule 15c2–11’’ or the
‘‘Amended Rule’’), the Securities and
Exchange Commission (the ‘‘SEC’’ or the
‘‘Commission’’) is proposing to grant
exemptive relief, subject to certain
conditions, to permit broker-dealers to
publish or submit proprietary
quotations for securities, on a
continuous basis, in a market where the
distribution of such quotations is
restricted to sophisticated or
professional investors, without
complying with the information review
and recordkeeping requirements of
Amended Rule 15c2–11(a)(1)(i) and
(d)(1)(i)(A), respectively.
DATES: Comments should be received on
or before February 11, 2021.
ADDRESSES: Comments may be
submitted by any of the following
methods:
SUMMARY:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/exorders.shtml); or
• Send an email to rule-comments@
sec.gov.
Paper Comments
• Send paper comments to Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
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Federal Register / Vol. 86, No. 7 / Tuesday, January 12, 2021 / Proposed Rules
All submissions should refer to File
Number S7–23–20. This file number
should be included on the subject line
if email is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s internet website
(https://www.sec.gov/rules/
exorders.shtml). Comments are also
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549–1090 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All comments
received will be posted without change.
Persons submitting comments are
cautioned that the Commission does not
redact or edit personal identifying
information from comment submissions.
Commenters should submit only
information that they wish to make
available publicly.
FOR FURTHER INFORMATION CONTACT: John
Guidroz, Branch Chief, James Curley,
Laura Gold, Theresa Hajost, Patrice
Pitts, Special Counsels, Elizabeth
Sandoe, Senior Special Counsel,
Josephine Tao, Assistant Director, or
Mark Wolfe, Associate Director, at (202)
551–5777, in the Division of Trading
and Markets, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
SUPPLEMENTARY INFORMATION:
I. Background
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A. Adoption of Amendments to Rule
15c2–11
Rule 15c2–11 specifies key, basic
issuer information that must be obtained
and reviewed before a broker-dealer
may initiate (or resume) quotations for
a security in a market other than a
national securities exchange, subject to
certain exceptions.1 The Amended Rule
becomes effective on December 28,
2020. Except for paragraph (b)(5)(i)(M)
of the Amended Rule, compliance is
required nine months following the
effective date, on September 28, 2021
(the ‘‘Compliance Date’’).2
1 The ‘‘information review requirement’’ refers to
the Amended Rule’s requirement to obtain and
review specified issuer information, and to have a
reasonable basis under the circumstances for
believing, based on a review of such information,
together with any applicable supplemental
information also specified under the Amended
Rule, that the issuer information is accurate in all
material respects and is from reliable sources,
before a broker-dealer may publish or submit a
quotation to initiate or resume a quoted market in
the issuer’s security.
2 See Publication or Submission of Quotations
Without Specified Information, Exchange Act
Release No. 89891 (Sept. 16, 2020), 85 FR 68124,
68172 (Oct. 27, 2020) (‘‘Adopting Release’’). The
compliance date that is nine months after the
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Under the Amended Rule, certain
applicable issuer information must be
‘‘current’’ and ‘‘publicly available,’’ as
those terms are defined in the Amended
Rule,3 for a broker-dealer to initiate (or
resume) a quoted market in the issuer’s
security after complying with the
information review requirement.4
Further, with respect to the ‘‘piggyback’’
exception, which allows a broker-dealer
to rely on the quotations of the brokerdealer that initially complied with the
information review requirement to
maintain continuous quotations for the
security in an interdealer quotation
system (an ‘‘IDQS’’), the amendments
require that applicable issuer
information also must be current and
publicly available, timely filed, or filed
within 180 calendar days from the end
of the issuer’s most recent fiscal year or
any quarterly reporting period that is
covered by a report required by Section
13 or 15(d) of the Exchange Act, as
applicable.5 As a result, on the
Compliance Date, broker-dealers may
not rely on the piggyback exception to
maintain a quoted market in the
securities of issuers for which
information is not current and publicly
available.
The Commission received comments
on the proposed amendments to Rule
effective date of the Rule is referred to herein as the
‘‘Compliance Date.’’ Between the effective date and
the Compliance Date, broker-dealers must comply
with the provisions of Rule 15c2–11 prior to
amendment. The compliance date for paragraph
(b)(5)(i)(M) of the Amended Rule is two years after
the effective date of the Amended Rule.
3 See Amended Rule 15c2–11(e)(2) (defining the
term ‘‘current’’), (e)(5) (defining the term ‘‘publicly
available’’).
4 See Amended Rule 15c2–11(a)(1)(i)(B). The
Rule’s recordkeeping requirement is unchanged
under the amendments, except broker-dealers no
longer have to preserve documents that are
available on the Commission’s Electronic Data
Gathering, Analysis and Retrieval System
(‘‘EDGAR’’). See Amended Rule 15c2–11(d)(1)(i)(A).
5 See Amended Rule 15c2–11(f)(3)(i)(C) (requiring
an issuer’s specified information to be, depending
on the regulatory status of the issuer, one of the
following: (1) Current and publicly available; (2)
timely filed (i.e., filed by the prescribed due date
for a report or statement as required by an Exchange
Act or Securities Act of 1933 (the ‘‘Securities Act’’)
reporting obligation); or (3) filed within 180
calendar days from a specified period); see also
Amended Rule 15c2–11(e)(3) (defining the term
‘‘interdealer quotation system’’). For purposes of
this proposed exemptive order, these requirements
with respect to the piggyback exception are referred
to as the requirement to be ‘‘current and publicly
available.’’ The amendments also (1) modify the
piggyback exception’s frequency-of-quotation
requirement by eliminating both the 12-businessday requirement and the 30-calendar-day window
while still requiring that no more than four business
days in succession elapse without a quotation, see
Amended Rule 15c2–11(f)(3)(i)(A), and (2) limit the
amount of time during which broker-dealers may
rely on the exception to quote securities of issuers
that they have a reasonable basis under the
circumstances for believing are shell companies, see
Amended Rule 15c2–11(f)(3)(B)(2).
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15c2–11 that expressed interest in the
formation of an ‘‘expert market’’ for
certain securities that become ineligible
for quotation after the Compliance Date
because the information required by the
Rule is not current and publicly
available for the issuers of those
securities.6 In response to comments,
the Commission stated that, under
certain conditions and circumstances,
an ‘‘expert market’’ could enhance
liquidity for sophisticated or
professional investors in grey market
securities,7 as well as for small
companies seeking growth opportunities
that might prefer to be quoted in a
market that is limited to such persons.8
The Commission stated that it
‘‘preliminarily believes that any such
expert market must not have the
potential to develop into a parallel
market for which quotations are
accessible by retail investors and the
general public.’’ 9
The Commission stated that it has the
authority to issue exemptive relief by
order, under Section 36 of the Exchange
Act and under the Amended Rule,10 to
facilitate the formation and
implementation of such an expert
market. The Commission also stated
that, in doing so, it may consider certain
safeguards to protect retail investors,
such as (1) the types of investors who
may access quotations in this market
(e.g., sophisticated investors that have
the ability to assess an investment
opportunity, including the ability to
analyze its risks and rewards), and (2)
the types of securities that may be
quoted in such a market (e.g., those that
were quoted in reliance on the
piggyback exception on the business
day preceding the initial quotation that
is published or submitted in any such
market).11
B. Request for Exemptive Relief by OTC
Link LLC
In response to the Commission’s
discussion, OTC Link® LLC (‘‘OTC Link
LLC’’), a wholly owned subsidiary of
OTC Markets Group Inc. (‘‘OTC Markets
Group’’), has submitted a request on
6 Comments are available on the Commission’s
website at https://www.sec.gov/comments/s7/14/
19/s71419.htm.
7 Grey market securities are securities that trade
over-the-counter but for which no quoted prices are
published or submitted in a quotation medium for
buyers and sellers to access.
8 See Adopting Release at 68145.
9 Id.
10 The exemptive authority provision of Rule
15c2–11 has been re-lettered from paragraph (h) to
paragraph (g) under the Amended Rule. In addition,
the standard for exemptive authority under the
Amended Rule conforms to the provision for
exemptive authority in Section 36 of the Exchange
Act. See id. at 68167.
11 See id. at 68145.
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behalf of certain broker-dealers for an
exemption from the Amended Rule’s
information review requirement and
recordkeeping requirement to permit
such broker-dealers to publish or
submit, on a continuous basis,
proprietary quotations for certain
securities of issuers for which there is
no current and publicly available
information, and in other specified
circumstances, on one of its electronic
platforms where the distribution of such
quotations is limited to sophisticated or
professional investors.
OTC Link LLC operates trading
platforms on which broker-dealers
provide liquidity and execution services
for over 11,000 U.S. and global
securities. One such platform is OTC
Link ATS, an alternative trading system
(‘‘ATS’’) that meets the definition of a
‘‘qualified interdealer quotation system’’
under paragraph (e)(6) of the Amended
Rule. The securities that are quoted on
OTC Link ATS are organized into
market tiers based on several factors,
including the public availability of
current issuer information and whether
an issuer meets minimum financial
thresholds. These market tiers include
the OTCQX® Best Market, the OTCQB®
Venture Market, the Pink Open Market,
and the Expert Market. The Expert
Market is a distinct market tier on
which OTC Link LLC’s broker-dealer
subscribers (each, a ‘‘Subscriber’’ and
collectively, the ‘‘Subscribers’’) 12 can,
among other things, find price
transparency in certain securities that
may not be eligible or suitable for retail
investors. Currently, the distribution of
quotations for securities that are
published or submitted on the Expert
Market is limited to broker-dealers, and
OTC Link ATS does not make such
quotations available to the general
public. In requesting exemptive relief on
behalf of the Subscribers, OTC Link LLC
plans to modify the Expert Market to
include the safeguards described
below.13
12 All Subscribers to OTC Link ATS are required
to be broker-dealer members of the Financial
Industry Regulatory Authority (‘‘FINRA’’) and must
enter into a subscription agreement with OTC Link
LLC that outlines the terms and conditions of their
use of OTC Link ATS. All OTC Link ATS
Subscribers can access all market tiers, including
the Expert Market. Under the proposed conditional
exemptive order, all quotations published or
submitted on the Expert Market would be
attributable to Subscribers at prices at which such
Subscribers are prepared to trade. See, e.g., FINRA
Rule 5220.
13 Although OTC Link LLC is requesting relief on
behalf of its Subscribers using the Expert Market on
OTC Link ATS, OTC Link LLC is not requesting the
same relief for OTC Link ATS, as a quotation
medium, because OTC Link ATS does not publish
or submit quotations on the Expert Market and,
thus, does not engage in activity that is subject to
the provisions of Amended Rule 15c2–11.
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The Commission is proposing to grant
OTC Link LLC’s request for exemptive
relief and issue a conditional exemptive
order as outlined below.
1. Distribution of Expert Market Quotes
and Data
Quotations published or submitted on
the Expert Market are clearly identified
in a data feed to which OTC Markets
Group controls which Subscribers,
market data distributors, and users have
access. OTC Markets Group currently
limits the distribution of quotations
published or submitted on the Expert
Market solely to broker-dealers. Under
the proposed conditional exemptive
order, OTC Markets Group would
authorize market data distributors,
including Subscribers, to be eligible to
receive quotations published or
submitted on the Expert Market and to
distribute such data to Subscribers who
comply with certain obligations and
restrictions on data access. As Expert
Market quotations are clearly identified
in the data feed, recipients would be
able to control their distribution and
display.
Under the proposed exemptive relief,
all entities that distribute OTC Markets
Group’s market data, including
Subscribers, would be required to enter
into a Market Data Distribution
Agreement (‘‘MDDA’’) directly with
OTC Markets Group. OTC Markets
Group would control which market data
distributors are permitted to receive
market data, and the MDDA would
require each such market data
distributor to report all end-users to
OTC Markets Group. OTC Markets
Group would distribute quotations
published or submitted on the Expert
Market to market data distributors that
agree to the MDDA’s contractual and
data access restrictions that limit the
distribution and display of quotations to
certain eligible investors, as described
below. Accordingly, real-time and
delayed quotations 14 published or
14 ‘‘Delayed’’ quotations, for the purpose of this
proposal, do not include ‘‘end-of-day’’ quotation
information, which is defined in the MDDA, and is
generally understood to mean information
consisting of a snapshot of the best bid price and
size and the best ask price and size for a security,
taken at the close of regular trading hours. End-ofday quotation information does not include the
identity of the broker-dealer(s) that published or
submitted the quotation(s) that make up the ‘‘endof-day’’ quotation. End-of-day information is used
by broker-dealers, custodian banks, clearing firms,
prime brokers and service bureaus for valuation,
settlement, accounting, clearing and custody
purposes because it can be more accurate, than last
transaction information. Thus, end-of-day quotation
information that is used by broker-dealers in
providing valuation, settlement, accounting,
clearing, and custody information to its customers
may be viewed by retail investors and the general
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submitted on the Expert Market would
not be permitted to be distributed or
displayed to the general public. Further,
pursuant to the MDDA, market data
distributors must require any person to
whom they distribute quotations
published or submitted on the Expert
Market that is not party to the MDDA to
agree, by contract, not to distribute such
quotations to any person that is not a
permitted recipient as described herein.
In operating the Expert Market under
the proposed exemptive relief, OTC
Link LLC would establish, maintain,
and enforce written policies and
procedures that are reasonably designed
to allow only permitted recipients to
view, and to prevent the general public
from viewing, quotations published or
submitted on the Expert Market. OTC
Link LLC also would establish,
maintain, and enforce policies and
procedures to regularly surveil the use
of the Expert Market data feed. Further,
under its written policies and
procedures, OTC Link LLC would
determine whether market data
distributors, including Subscribers, are
complying with the terms of the MDDA.
OTC Link LLC would regularly review
activity on the Expert Market and would
establish, maintain, and enforce policies
and procedures that provide for further
review and escalation of issues,
including irregular quotation activities
that may indicate fraudulent behavior
(e.g., unusually high volumes) and noncompliance with the MDDA. Escalation
of issues may include a determination of
whether any market data distributor or
Subscriber should be denied further
access to the Expert Market or whether
a detailed referral should be made to
FINRA or Commission staff, or both.
2. Permitted Recipients of Quotations
Published or Submitted on the Expert
Market
As described above, the distribution
of real-time and delayed quotations
published or submitted on the Expert
Market would be limited exclusively to
market data distributors, including
Subscribers, and certain types of
sophisticated or professional investors,
specifically, the following categories of
market participants (each, a ‘‘Qualified
Expert’’ and collectively, the ‘‘Qualified
Experts’’): (1) Any qualified institutional
buyer, as defined in Rule 144(A)(a)(1)
under the Securities Act; and (2) any
accredited investor, as defined in Rule
501(a) of Regulation D; 15 and (3) any
public; however, it is not actionable for the
purposes of effecting transactions.
15 The term ‘‘accredited investor’’ includes,
among other things, any bank as defined in Section
3(a)(2) of the Securities Act, broker or dealer
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Federal Register / Vol. 86, No. 7 / Tuesday, January 12, 2021 / Proposed Rules
qualified purchaser, as defined in
Section 2(a)(51)(A) of the Investment
Company Act of 1940 (the ‘‘Investment
Company Act’’) and the rules
thereunder.16 Qualified Experts may
receive quotations published or
submitted on the Expert Market directly
from OTC Markets Group, from any
market data distributor or Subscriber
that has entered into the MDDA with
OTC Markets Group, or from both.17
OTC Markets Group would also
distribute quotations for an issuer’s
security published or submitted on the
Expert Market to the issuer of any such
security if the issuer contractually
agrees not to distribute such quotations,
directly or indirectly, to any person that
is not a current officer, director, or
employee of the issuer.18
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3. Categories of Expert Market Securities
The subject of Subscribers’
proprietary quotations that can be
published or submitted on the Expert
Market would be restricted to the
following categories of securities: (1)
Any security that is quoted in reliance
on the piggyback exception prior to the
Compliance Date and loses such
eligibility upon the Compliance Date
due to a lack of current and publicly
available information about the issuer of
the security; 19 (2) any security that is
quoted in reliance on the piggyback
exception following the Compliance
Date and subsequently loses such
eligibility due to a lack of current and
publicly available information about the
issuer of the security, the issuer’s status
registered pursuant to Section 15 of the Exchange
Act, investment adviser registered pursuant to
Section 203 of the Investment Advisers Act of 1940,
and investment company registered under the
Investment Company Act of 1940. See Rule
501(a)(1) of Regulation D. The term ‘‘accredited
investor’’ also includes any entity of a type not
listed in Rule 501(a)(1), that is not formed for the
specific purpose of acquiring the securities offered,
that own investments in excess of $5,000,000,
which could include a foreign bank or other nonU.S. financial institution. See Rule 501(a)(9) of
Regulation D.
16 OTC Link LLC has requested that foreign
broker-dealers, as defined in Exchange Act Rule
15a–6(b)(3), be included in the list of Qualified
Experts. The Commission is seeking comment,
below, regarding whether foreign broker-dealers, as
defined in Exchange Act Rule 15a–6(b)(3), should
be included in the list of Qualified Experts.
17 Qualified Experts that receive Expert Market
data directly from OTC Markets Group would be
subject to a subscriber agreement that contractually
limits any further distribution.
18 As described above in Part I.B.1, market data
distributors, including Subscribers, would be
contractually required to ensure that the recipients
of quotations published or submitted on the Expert
Market meet the definition of a Qualified Expert.
19 A quoted market on the Expert Market for such
security would have to commence within the first
four business days from the date on which it loses
eligibility to be quoted in reliance on the piggyback
exception.
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as a shell company, or a failure to meet
the frequency-of-quotation
requirement; 20 and (3) any security that
is issued in conjunction with a Chapter
11 bankruptcy plan confirmed pursuant
to Section 1129 of the U.S. Bankruptcy
Code (the ‘‘Code’’) 21 and is exempt from
registration in accordance with Section
1145 of the Code.22
In addition, OTC Link LLC would
remove from the Expert Market
quotations for any security that fits
within the following two categories: (1)
Any security of an issuer that is the
subject of a registration revocation or
trading suspension order issued by the
Commission pursuant to Section 12(j) or
12(k) of the Exchange Act, respectively;
and (2) any security of an issuer that
OTC Link LLC has identified as
‘‘defunct’’ (i.e., it has ceased operations,
ceased to exist, or has failed to respond
to inquiries by OTC Link LLC). Once the
applicable Section 12(k) trading
suspension order terminates or the
subject security is re-registered with the
Commission following an applicable
Section 12(j) revocation order, in order
to be quoted on the Expert Market, the
subject security must either (1) gain and
then lose eligibility to be quoted in
reliance on the piggyback exception or
(2) be issued in conjunction with a
Chapter 11 bankruptcy plan and be
quoted on the Expert Market in
accordance with the timing
requirements discussed above.23
In addition, OTC Link LLC would flag
on its website any ‘‘formerly’’
suspended security for such period of
time as set forth in OTC Link LLC’s
policies and procedures, which OTC
Link LLC represents would be for two
years following the applicable trading
suspension.24
II. Discussion of Proposed Relief
As a result of the amendments to Rule
15c2–11, after the Compliance Date,
broker-dealers must withdraw from
publishing or submitting quotations in a
quotation medium for securities of
issuers for which information is not
20 A quoted market on the Expert Market for such
security would have to commence within the first
four business days from the date on which it loses
eligibility to be quoted in reliance on the piggyback
exception.
21 The issuers of such securities would be subject
to oversight of the bankruptcy court. After
confirmation of the bankruptcy plan, the
bankruptcy courts may direct the company and
others to carry out the plan. See 28 U.S.C. 1142.
22 A quoted market on the Expert Market for such
security must commence within 90 calendar days
from the date on which it is issued.
23 See supra notes 19 and 20.
24 OTC Link LLC would remove any such flag if
it becomes aware of a Commission or court order
finding for the successful challenge of the
applicable trading suspension.
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current and publicly available, and such
securities may migrate to the grey
market, where no quoted prices are
published in a quotation medium for
buyers and sellers to access and
transact. As the Commission stated in
the Adopting Release, this may impose
costs on potential and existing investors
by reducing liquidity for these securities
and potentially resulting in less efficient
pricing. Further, the loss of a quoted
market and the information embedded
in share prices may adversely impact an
issuer’s ability to raise capital through
stock issuances or through other
channels of finance, such as debt. The
Commission also noted that investors in
securities in the grey market may be
more susceptible to fraud.25
As described above, the Commission
also stated in the Adopting Release that
it could be beneficial to establish an
‘‘expert market’’ that would enhance
liquidity for sophisticated or
professional investors and promote
growth opportunities for certain small
companies, although the comments
received on the proposal provided
insufficient detail as to how that market
would function, safeguard retail
investors from fraud and manipulation,
and facilitate regulatory oversight.26 In
its December 21, 2020 request, OTC
Link LLC made certain representations
regarding how the Expert Market would
function with safeguards to reduce the
potential for certain retail investors to
be harmed by fraud and manipulation,
as well as representations regarding how
OTC Link LLC would establish,
maintain, and enforce written policies
and procedures reasonably designed to
facilitate the integrity and Commission
oversight of the Expert Market. Based on
these and other facts and
representations made in OTC Link
LLC’s December 21, 2020 request, the
Commission preliminarily believes that
it is necessary or appropriate in the
public interest, and is consistent with
the protection of investors, to grant,
subject to the conditions described
below, exemptive relief pursuant to
Section 36(a)(1) of the Exchange Act and
Rule 15c2–11 to permit Subscribers to
publish or submit proprietary
quotations on the Expert Market, on a
continuous basis, without complying
with the requirements of Amended Rule
15c2–11(a)(1)(i) and (d)(1)(i)(A). The
Commission notes that OTC Link LLC
may implement additional conditions,
criteria, or noticing mechanisms for
certain quotations on its platform by
Subscribers as it may find appropriate,
including as to whether additional
25 See
26 Id.
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Adopting Release at 68145, 68198.
at 68145.
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A. Permitted Recipients of Quotations
Published or Submitted on the Expert
Market
The Commission is proposing to limit
the universe of market participants to
whom real-time and delayed quotations
published or submitted on the Expert
Market are distributed. Accordingly,
with one exception discussed below,
real-time or delayed quotations
published or submitted on the Expert
Market may not be distributed, whether
directly or indirectly from another
source,27 to any person that is not a
Qualified Expert. The Commission
preliminarily believes that the inability
of the general public to view real-time
and delayed quotations published or
submitted on the Expert Market should
help protect investors from incidents of
fraud and manipulation in OTC
securities for which no or limited
publicly available information about the
issuers exists to help counteract
misinformation, while also allowing
Subscribers to maintain a market in
certain securities for certain qualified
investors to interact.28
The Commission preliminarily
believes that including in the list of
Qualified Experts (1) any qualified
institutional buyer, as defined in Rule
144(A)(a)(1) under the Securities Act,
and (2) any accredited investor, as
defined in Rule 501(a) of Regulation D,
would appropriately capture the types
of investors who have, among other
things, demonstrated the ability to
assess an investment opportunity
(including the ability to analyze risks
and rewards), or the ability to gain
access to information about an issuer or
about an investment opportunity.29
Such persons should be able to view
quotations published or submitted on
the Expert Market because they may not
need the same investor protections that
are afforded, in part, by current and
publicly available issuer information in
the same way that the general public
may need it to analyze an investment
opportunity or to counteract
misinformation. In addition, the
Commission preliminarily believes that
it is appropriate to include qualified
purchasers, as defined in Section
2(a)(51)(A) of the Investment Company
Act and the rules thereunder, in the list
of Qualified Experts because qualified
purchasers are investors that have a
high degree of financial sophistication
who are in a position to appreciate the
risks associated with investing in
securities that would be quoted on the
Expert Market without the protections
afforded by the Amended Rule.
Notably, this list of Qualified Experts
would exclude customers of brokerdealers and investment advisers (that do
not fit into any of the three categories of
Qualified Experts) because this market
is not available to the general public.30
In addition, as an exception to the
Qualified Expert requirement, the
Commission preliminarily believes that
it is appropriate for an issuer to be able
to view quotations published or
submitted on the Expert Market for its
own security, if the issuer agrees not to
distribute such quotations, directly or
indirectly, to any person that is not a
current officer, director, or employee of
the issuer, as described above. This is
because such information could inform
the issuer about the liquidity and
market price of the security and allow
the issuer to make informed decisions
regarding future offerings to raise
capital. In order for an issuer to view
these quotations, the issuer would need
to contractually agree not to distribute
such quotations, directly or indirectly,
to any person that is not a current
officer, director, or employee of the
issuer.
27 As discussed above in Part I.B, quotations
published or submitted on the Expert Market would
be accessible to market data distributors, including
Subscribers, that have contractually agreed to not
distribute quotations published or submitted on the
Expert Market to persons who are ineligible to
access such information (i.e., non-Qualified
Experts), including to the general public.
28 See, e.g., Adopting Release at 68145.
29 See, e.g., Amending the ‘‘Accredited Investor’’
Definition, Securities Act Release No. 10824 (Aug.
26, 2020), 85 FR 64234 (Oct. 9, 2020) (‘‘Accredited
Investor Release’’).
30 Any Subscriber that distributes quotations
published or submitted on the Expert Market to any
person that is not a Qualified Expert would not be
eligible for the relief proposed herein and may
violate Rule 15c2–11.
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quotations for securities of certain
issuers should be transferred to the
Expert Market because they may present
more risk to certain retail investors.
The proposed conditional exemptive
relief would allow the Expert Market to
serve as a centralized location for
published quotations in certain
securities—that otherwise would
migrate to the grey market following the
Compliance Date—to be viewed
exclusively by specified categories of
sophisticated or professional investors.
Such relief, therefore, could help to
advance opportunities for more efficient
pricing in such securities, enhance
liquidity for sophisticated or
professional investors in such securities,
and promote capital formation for
companies seeking growth opportunities
that might prefer to be quoted in a
market limited to such persons.
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B. Expert Market Securities
The Commission preliminarily
believes that it is appropriate for the
following categories of securities to be
eligible to be the subject of Subscribers’
proprietary quotations on the Expert
Market.
The first category is securities that
lose eligibility to be quoted in reliance
on the piggyback exception—either (1)
upon the Compliance Date due to a lack
of current and publicly available
information about an issuer, or (2)
following the Compliance Date due to (i)
a lack of current and publicly available
information about the issuer, (ii) the
issuer’s status as a shell company, or
(iii) a failure to meet the frequency-ofquotation requirement—so long as
quotations on the Expert Market
commence within four business days of
such loss of eligibility.31 As stated in the
Adopting Release, the Commission
recognizes that holders of such
securities may incur costs related to a
loss of liquidity when broker-dealers
cannot rely on the piggyback
exception.32 The ability of brokerdealers (i.e., Subscribers) to publish or
submit proprietary quotations for those
securities on the Expert Market could
help to facilitate liquidity for such
securities because the availability of
quotations could reduce trading costs
and facilitate pricing efficiency. This is
because investors that are Qualified
Experts would be able to view those
quotations and use such information in
the mix of information (e.g., in addition
to their own due diligence or issuer
disclosures that might not be publicly
available but to which they otherwise
have access) that they take into account
as part of a meaningful investment
analysis when making investment
decisions.33 Without the proposed
exemption, as discussed above, these
securities may migrate to the grey
market, to which retail investors and the
general public have access, without
access to information embedded in
prices published in a quotation
medium. The ability of Subscribers to
publish or submit quotations in a
quotation medium for such securities
could help protect retail investors and
31 This four-business-day window mirrors the
time frame provided in the piggyback exception
that quotations occur with no more than four
business days in succession without a priced
quotation. See Amended Rule 15c2–11(f)(3)(i). As
an example, if eligibility to be quoted in reliance
on the piggyback exception were lost on Monday,
January 4, 2021, a Subscriber’s quotations on the
Expert Market must commence no later than Friday,
January 8, 2021 to be eligible for this proposed
exemption.
32 Adopting Release at 68141.
33 See, e.g., Accredited Investor Release at 64269–
70.
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the general public from potential
incidents of fraud and manipulation in
the grey market and facilitate liquidity
for such securities.
The second category captures
securities issued in conjunction with a
Chapter 11 bankruptcy plan that is
confirmed pursuant to Section 1129 of
the Code and are exempt from
registration in accordance with Section
1145 of the Code, so long as quotations
on the Expert Market commence within
90 calendar days from the date on
which any such security is issued.34 A
bankruptcy proceeding is a significant
event involving an issuer that a brokerdealer should carefully consider before
it publishes or submits a quotation for
the issuer’s security in a quotation
medium.35 But, the Commission
preliminarily believes that the inclusion
of this category of securities as eligible
to be the subject of Subscribers’
quotations published or submitted on
the Expert Market is appropriate given
that Qualified Experts are more likely
than the general public to possess the
ability to evaluate the merits and risks
of a prospective investment opportunity
and, therefore, it would provide an
efficient means to liquidate positions
acquired through a bankruptcy
proceeding. The inclusion of this
second category could help promote
capital formation opportunities for
certain companies in limited
circumstances while ensuring, for
investor protection, that the distribution
of quotations for the securities of such
companies is limited to investors that
have a demonstrated ability to assess
such an investment opportunity.
The Commission believes that it
would be appropriate for OTC Link LLC
to remove from the Expert Market
quotations published or submitted for
any security of an issuer that is the
subject of a registration revocation or
trading suspension order issued by the
Commission pursuant to Section 12(j) or
12(k) of the Exchange Act, respectively.
Pursuant to any such registration
34 This 90-calendar-day window is consistent
with the Amended Rule’s requirement for the
information of prospectus issuers (i.e., issuers that
filed a registration statement under the Securities
Act) to be ‘‘current’’ for broker-dealers to commence
a quoted market in these issuers’ securities in a
quotation medium. See Amended Rule 15c2–
11(b)(1). The Commission preliminarily believes
that it is appropriate to use a measurement of time
that is consistent with the Amended Rule’s
requirement for prospectus issuers’ information
because both requirements pertain to the
commencement of a quoted market in securities of
an issuer with which the market is unfamiliar and
are designed to ensure that the Amended Rule’s
specified information about the issuers of these
securities is not stale or outdated with respect to
such issuance.
35 See Adopting Release at 68171.
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revocation or trading suspension order
and the Commission’s finding that it is
in the public interest and for the
protection of investors,36 Subscribers
would not be able to effect transactions
in such securities. Therefore, such
quotations must be removed.
In addition, the Commission
preliminarily believes that it is
appropriate for OTC Link LLC to remove
from the Expert Market quotations
published or submitted for any security
of an issuer that OTC Link LLC has
identified as ‘‘defunct,’’ to prevent the
publication or submission of quotations
for securities of issuers that have ceased
operations, ceased to exist, or have
failed to respond to inquiries by OTC
Link LLC. Furthermore, the issuer of
such security may not have a transfer
agent to allow investors to receive or
transfer their stock certificates. Thus,
the quotations for such securities should
be removed from the Expert Market to
help prevent such securities from
becoming vehicles for fraud and
manipulation.
Further, the Commission
preliminarily believes that requiring
OTC Link LLC to flag on its website any
‘‘formerly suspended’’ security for such
period of time as set forth in OTC Link
LLC’s policies and procedures (which
would be for two years following the
applicable trading suspension) would
help to promote investor protection.37
Such a flag would serve as a notice to
market participants that there was, in
the recent past, the presence of any
number of factors (such as uncertainty
about the accuracy of publicly available
issuer information or questions about
trading in the issuer’s security) that led
the Commission to conclude that it was
in the public interest and for the
protection of investors to suspend
trading in the security.38 Accordingly,
the Commission preliminarily believes
that this flag requirement would
improve the overall mix of information
about issuers and their securities and
36 See Exchange Act Section 12(j) (‘‘The
Commission is authorized, by order, as it deems
necessary or appropriate for the protection of
investors to . . . revoke the registration of a
security, if the Commission finds . . . that the
issuer of such security has failed to comply with
any provision of this chapter or the rules and
regulations thereunder.’’); Exchange Act Section
12(k)(1)(A) (‘‘If in its opinion the public interest and
the protection of investors so require, the
Commission is authorized by order—summarily to
suspend trading in any security . . . for a period
not exceeding 10 business days . . . .’’).
37 As discussed above in Part I.B.3, this period of
time would be for two years following the
applicable trading suspension, unless the trading
suspension is successfully challenged.
38 See, e.g., Adopting Release at 68151.
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would help investors make betterinformed investment decisions.39
C. Policies and Procedures
The Commission is proposing to
condition the exemptive relief upon
OTC Link LLC establishing,
maintaining, and enforcing reasonably
designed written policies and
procedures to operate the Expert Market
in a manner that is consistent with how
the Expert Market is described herein.
Such policies and procedures would
account for the following: (1) The
manner in which the distribution of
real-time and delayed quotations on the
Expert Market is limited, directly and
indirectly, only to Qualified Experts
and, as applicable, issuers of securities
for which quotations are published or
submitted on the Expert Market with
respect to their own securities; (2)
specific actions that will be taken if
OTC Link LLC becomes aware that any
Subscriber or market data distributor or
user has violated the contractual
obligations described above, and
specific actions that will be taken if
OTC Link LLC becomes aware that an
issuer has violated its contractual
obligation not to distribute, directly or
indirectly, quotations published or
submitted on the Expert Market for its
security to any person that is not a
current officer, director, or employee of
the issuer; and (3) the regular
surveillance of the Expert Market data
feed and quotation activity on the
Expert Market to determine whether a
Subscriber or market data distributor or
user has facilitated access, directly or
indirectly, to quotations published or
submitted on the Expert Market to any
person that is not a Qualified Expert or,
as applicable, an issuer of a security for
which quotations are published or
submitted on the Expert Market with
respect to its own security.
The Commission preliminarily
believes that the obligation to establish,
maintain, and enforce such written
policies and procedures as part of the
proposed exemptive relief would help
to prevent the general public from
accessing quote information, promote
the integrity of the Expert Market, and
facilitate Commission oversight of the
Expert Market. In particular, OTC Link
LLC’s reasonably designed written
policies and procedures would provide
transparency of, and set expectations
for, the manner in which OTC Link LLC
operates the Expert Market; would
encompass compliance considerations
relevant to the operations of the Expert
Market; and would assist Commission
staff in examining the Expert Market.
39 See
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D. Recordkeeping Requirement
Finally, the Commission is proposing
to require as part of the exemptive relief
that OTC Link LLC preserve, for a
period of not less than three years, the
first two years in an easily accessible
place, the following records:
1. Documents and information
regarding OTC Link LLC’s written
policies and procedures related to the
Expert Market, including records related
to the implementation of such written
policies and procedures;
2. Documents and information
regarding any processes undertaken by
OTC Link LLC that analyze information
over time to identify whether the
distribution of quotations published or
submitted on the Expert Market is
limited only to Qualified Experts and, as
applicable, issuers of securities for
which quotations are published or
submitted on the Expert Market with
respect to their own securities; and
3. Documents and information
regarding OTC Link LLC’s ongoing
surveillance of the quoting activity and
distribution of quotations published or
submitted on the Expert Market,
including any reports that identify
exceptions to compliance with the
written policies and procedures and the
resolution of such exceptions.
The Commission preliminarily
believes that this recordkeeping
condition will help facilitate the
Commission’s oversight of the Expert
Market, including of Subscribers that
publish or submit quotations on the
Expert Market and the distribution of
such quotations. In particular, the
documents and information that would
be required to be maintained will
provide the Commission with a record
of how OTC Link LLC has (1)
implemented its reasonably designed
written policies and procedures
described above; (2) conducted its
ongoing maintenance of such written
policies and procedures in response to
analysis of whether quotations
published or submitted on the Expert
Market are distributed only to market
data distributors (including
Subscribers), Qualified Experts, and, as
applicable, issuers of securities for
which quotations are published or
submitted on the Expert Market with
respect to their own securities; and (3)
enforced such written policies and
procedures as part of its ongoing
surveillance of exceptions to
compliance with those written policies
and procedures. The Commission also
preliminarily believes that these
proposed recordkeeping conditions
would aid the Commission’s oversight
of OTC Link LLC’s limitation on the
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distribution of quotations published or
submitted on the Expert Market only to
Qualified Experts (and, as applicable,
issuers of securities for which
quotations are published or submitted
on the Expert Market with respect to
their own securities).
E. Additional Considerations for Market
Participants Relying on the Proposed
Exemption
In addition, Subscribers that publish
or submit quotations in compliance
with this proposed exemption remain
subject to liability under the antifraud
provisions of the federal securities laws.
Further, the proposed exemption would
not create an exemption or change
existing exemptions from the
registration requirements or any other
requirements under the federal
securities laws, including the Securities
Act, for any party. Accordingly, for
example, if a Subscriber were to publish
or submit a quotation on the Expert
Market in reliance on the proposed
exemption, the Subscriber would need
to determine whether the security, or
any offer or sale of such security, is
registered in accordance with any
applicable requirement under federal
securities laws or whether an exemption
from any such registration requirement
exists.
III. Request for Comments
The Commission is seeking comment
on all aspects of the proposed
exemption. In particular, the
Commission requests comment on the
following questions about the proposed
exemption. When responding to the
request for comment, please explain
your reasoning. Additionally, the
Commission requests that commenters
identify sources of data and information
as well as provide data and information
to assist the Commission in analyzing
the impact of the proposed relief.
1. Are there any other categories of
securities that should be eligible for
Subscribers’ proprietary quotations on
the Expert Market? Are there any other
categories of securities that should be
excluded from Subscribers’ proprietary
quotations on the Expert Market? For
example, should only those securities
that meet certain reported trade
thresholds be eligible for quoting?
Please explain, including how this
suggestion would be necessary or
appropriate in the public interest and
consistent with the protection of
investors.
2. Are there categories of investors
included in the proposed list of
Qualified Experts who should be
excluded? For example, should all
accredited investors, as defined in Rule
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2317
501(a) of Regulation D, be considered
Qualified Experts, or should the list be
limited to a narrower set of
sophisticated investors? What steps
should broker-dealers and investment
advisers be required to take, if any, to
verify the accredited investor status of
customers before providing them access
to quotations published or submitted on
the Expert Market? Should all
employees of an issuer, including those
who would not otherwise qualify as
Qualified Experts, be allowed to view
quotations published or submitted on
the Expert Market? Please explain,
including how this suggestion would be
necessary or appropriate in the public
interest and consistent with the
protection of investors.
3. Are there any other categories of
persons or entities that should be
eligible to view real-time or delayed
quotations published or submitted on
the Expert Market? The Commission
understands that foreign broker-dealers,
as defined in Exchange Act Rule 15a–
6(b)(3), similar to broker-dealers
registered under Section 15 of the
Exchange Act—an entity included in the
definition of ‘‘accredited investor’’—
may demonstrate the ability to assess an
investment opportunity, the capacity to
allocate investments in such a way as to
mitigate or avoid risks of unsustainable
loss, the ability to gain access to
information about an issuer or about an
investment opportunity, or the ability to
bear the risk of a loss. OTC Link LLC
has requested that such foreign brokerdealers be included in the list of
Qualified Experts. Should foreign
broker-dealers, as defined in Exchange
Act Rule 15a–6(b)(3), be added to the
list of Qualified Experts? Please explain
why or why not, including how this
suggestion would be necessary or
appropriate in the public interest and
consistent with the protection of
investors.
4. What costs would be associated
with the proposed Expert Market
exemption? Please specify the market
participant(s) that would incur such
costs (e.g., issuers, broker-dealers, etc.),
if any. Would the cost of the proposed
policies and procedures and
recordkeeping conditions prevent the
formation of an ‘‘expert market’’ for any
eligible securities? Would the ability for
issuers’ securities to be quoted on the
Expert Market reduce incentives for
relevant issuers to provide public
information?
5. How active would quotations in
these securities likely be if the proposed
exemptive relief were granted? What
degree of liquidity and price discovery
would likely be facilitated by the ability
of Subscribers to publish or submit
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quotations on the Expert Market? Where
possible, please provide data or identify
sources of information the Commission
could use to analyze the impact of the
relief on liquidity and price discovery.
6. Does the proposed policies and
procedures condition provide
appropriate assurance that real-time and
delayed quotations published or
submitted on the Expert Market would
not be accessible to the general public,
including retail investors, other than the
Qualified Experts? Please explain why
or why not. If not, please explain how
the condition should be modified,
including the minimum requirements
that should be included in OTC Link’s
policies and procedures to (1) ensure
that only Qualified Experts can view
quotations published or submitted on
the Expert Market and (2) address
concerns about fraud and manipulation?
7. Does the proposed recordkeeping
condition for OTC Link LLC provide
appropriate means to facilitate the
Commission’s oversight of the Expert
Market, including of Subscribers that
publish or submit quotations on the
Expert Market and the distribution of
such quotations? Please explain why or
why not. If not, please explain how the
condition should be modified.
8. Are the proposed safeguards
appropriate to ensure that only investors
who are able to assess the risks and
merits of investment in the categories of
securities proposed to be included in
the Expert Market are able to access
quotations? Are the proposed conditions
of this exemptive order (in conjunction
with FINRA rules that govern this
market) sufficient to prevent the general
public from accessing quotations
published or submitted in the Expert
Market, or should the Commission
impose additional conditions? Are there
any other safeguards that should be
implemented in the Expert Market to
protect investors?
9. Are there additional conditions that
the exemptive order providing the relief
proposed herein should include to help
prevent persons who are not Qualified
Experts from accessing quotations
published or submitted on the Expert
Market? If yes, please specify such
condition and explain how this
suggestion would be necessary or
appropriate in the public interest and
consistent with the protection of
investors.
10. Should the exemptive order
providing the relief proposed herein
include a sunset provision so that the
relief would expire on a particular date?
If yes, what would be an appropriate
date on which the relief should expire
(e.g., one year after the issuance of the
exemptive order, etc.) and why? Please
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discuss the costs and benefits of
including such a sunset provision in the
exemptive order. Additionally, please
explain why such a sunset provision
would be necessary or appropriate in
the public interest and consistent with
the protection of investors.
Alternatively, please explain why the
exemptive order should omit a sunset
provision, including a discussion of the
benefits and costs of such omission or
any distortive effects on the market.
Lastly, please discuss whether there are
alternative means of achieving any
benefits of a sunset provision.
By the Commission.
Dated: December 22, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–28700 Filed 1–11–21; 8:45 am]
BILLING CODE 8011–01–P
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R09–OAR–2019–0440; FRL–10018–
44–Region 9]
Clean Air Plans; 2008 8-Hour Ozone
Nonattainment Area Requirements;
Western Nevada County, California
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
The Environmental Protection
Agency (EPA) is proposing to approve,
or conditionally approve, all or portions
of a state implementation plan (SIP)
revision submitted by the State of
California to meet Clean Air Act (CAA
or ‘‘Act’’) requirements for the 2008 8hour ozone national ambient air quality
standards (NAAQS or ‘‘standards’’) in
the Nevada County (Western part),
California ozone nonattainment area
(‘‘Western Nevada County’’). The SIP
revision is the ‘‘Ozone Attainment Plan,
Western Nevada County, State
Implementation Plan for the 2008
Primary Federal 8-Hour Ozone Standard
of .075 ppm’’ (‘‘2018 Western Nevada
County Ozone Plan’’ or ‘‘Plan’’). The
2018 Western Nevada County Ozone
Plan addresses the Serious
nonattainment area requirements for the
2008 ozone NAAQS, including the
requirements for emissions inventories,
attainment demonstration, reasonable
further progress, reasonably available
control measures, and contingency
measures, among others; and establishes
motor vehicle emissions budgets. The
EPA is proposing to approve the 2018
Western Nevada County Ozone Plan as
SUMMARY:
PO 00000
Frm 00020
Fmt 4702
Sfmt 4702
meeting all the applicable ozone
nonattainment area requirements except
for the contingency measures
requirement, for which the EPA is
proposing conditional approval. In
addition, the EPA is beginning the
adequacy process for the 2020 motor
vehicle emissions budgets in the 2018
Western Nevada County Ozone Plan
through this proposed rulemaking.
DATES: Written comments must arrive
on or before February 11, 2021.
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA–R09–
OAR–2019–0440 at https://
www.regulations.gov. For comments
submitted at Regulations.gov, follow the
online instructions for submitting
comments. Once submitted, comments
cannot be edited or removed from
Regulations.gov. The EPA may publish
any comment received to its public
docket. Do not submit electronically any
information you consider to be
Confidential Business Information (CBI)
or other information whose disclosure is
restricted by statute. Multimedia
submissions (audio, video, etc.) must be
accompanied by a written comment.
The written comment is considered the
official comment and should include
discussion of all points you wish to
make. The EPA will generally not
consider comments or comment
contents located outside of the primary
submission (i.e., on the web, cloud, or
other file sharing system). For
additional submission methods, please
contact the person identified in the FOR
FURTHER INFORMATION CONTACT section.
For the full EPA public comment policy,
information about CBI or multimedia
submissions, and general guidance on
making effective comments, please visit
https://www.epa.gov/dockets/
commenting-epa-dockets. If you need
assistance in a language other than
English or if you are a person with
disabilities who needs a reasonable
accommodation at no cost to you, please
contact the person identified in the FOR
FURTHER INFORMATION CONTACT section.
FOR FURTHER INFORMATION CONTACT: T.
Khoi Nguyen, Air Planning Office (AIR–
2), EPA Region IX, 75 Hawthorne Street,
San Francisco, CA 94105, (415) 947–
4120, or by email at nguyen.thien@
epa.gov.
SUPPLEMENTARY INFORMATION:
Throughout this document, ‘‘we,’’
‘‘us,’’ and ‘‘our’’ refer to the EPA.
Table of Contents
I. Regulatory Context
A. Ozone Standards, Area Designations,
and SIPs
B. The Western Nevada County Ozone
Nonattainment Area
E:\FR\FM\12JAP1.SGM
12JAP1
]]>Agencies
[Federal Register Volume 86, Number 7 (Tuesday, January 12, 2021)]
[Proposed Rules]
[Pages 2311-2318]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28700]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-90769; File No. S7-23-20]
Notice of Proposed Conditional Exemptive Order Granting a
Conditional Exemption From the Information Review Requirement and the
Recordkeeping Requirement Under the Securities Exchange Act of 1934 for
Certain Publications or Submissions of Broker-Dealer Quotations on an
Expert Market
AGENCY: Securities and Exchange Commission.
ACTION: Notice of proposed conditional exemptive order; request for
comment.
-----------------------------------------------------------------------
SUMMARY: Pursuant to Section 36(a)(1) of the Securities Exchange Act of
1934 (the ``Exchange Act'') and Rule 15c2-11 under the Exchange Act (as
published in the Federal Register on October 27, 2020, ``Amended Rule
15c2-11'' or the ``Amended Rule''), the Securities and Exchange
Commission (the ``SEC'' or the ``Commission'') is proposing to grant
exemptive relief, subject to certain conditions, to permit broker-
dealers to publish or submit proprietary quotations for securities, on
a continuous basis, in a market where the distribution of such
quotations is restricted to sophisticated or professional investors,
without complying with the information review and recordkeeping
requirements of Amended Rule 15c2-11(a)(1)(i) and (d)(1)(i)(A),
respectively.
DATES: Comments should be received on or before February 11, 2021.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/exorders.shtml); or
Send an email to [email protected].
Paper Comments
Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
[[Page 2312]]
All submissions should refer to File Number S7-23-20. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (https://www.sec.gov/rules/exorders.shtml). Comments
are also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549-1090 on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change. Persons submitting
comments are cautioned that the Commission does not redact or edit
personal identifying information from comment submissions. Commenters
should submit only information that they wish to make available
publicly.
FOR FURTHER INFORMATION CONTACT: John Guidroz, Branch Chief, James
Curley, Laura Gold, Theresa Hajost, Patrice Pitts, Special Counsels,
Elizabeth Sandoe, Senior Special Counsel, Josephine Tao, Assistant
Director, or Mark Wolfe, Associate Director, at (202) 551-5777, in the
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549-1090.
SUPPLEMENTARY INFORMATION:
I. Background
A. Adoption of Amendments to Rule 15c2-11
Rule 15c2-11 specifies key, basic issuer information that must be
obtained and reviewed before a broker-dealer may initiate (or resume)
quotations for a security in a market other than a national securities
exchange, subject to certain exceptions.\1\ The Amended Rule becomes
effective on December 28, 2020. Except for paragraph (b)(5)(i)(M) of
the Amended Rule, compliance is required nine months following the
effective date, on September 28, 2021 (the ``Compliance Date'').\2\
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\1\ The ``information review requirement'' refers to the Amended
Rule's requirement to obtain and review specified issuer
information, and to have a reasonable basis under the circumstances
for believing, based on a review of such information, together with
any applicable supplemental information also specified under the
Amended Rule, that the issuer information is accurate in all
material respects and is from reliable sources, before a broker-
dealer may publish or submit a quotation to initiate or resume a
quoted market in the issuer's security.
\2\ See Publication or Submission of Quotations Without
Specified Information, Exchange Act Release No. 89891 (Sept. 16,
2020), 85 FR 68124, 68172 (Oct. 27, 2020) (``Adopting Release'').
The compliance date that is nine months after the effective date of
the Rule is referred to herein as the ``Compliance Date.'' Between
the effective date and the Compliance Date, broker-dealers must
comply with the provisions of Rule 15c2-11 prior to amendment. The
compliance date for paragraph (b)(5)(i)(M) of the Amended Rule is
two years after the effective date of the Amended Rule.
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Under the Amended Rule, certain applicable issuer information must
be ``current'' and ``publicly available,'' as those terms are defined
in the Amended Rule,\3\ for a broker-dealer to initiate (or resume) a
quoted market in the issuer's security after complying with the
information review requirement.\4\ Further, with respect to the
``piggyback'' exception, which allows a broker-dealer to rely on the
quotations of the broker-dealer that initially complied with the
information review requirement to maintain continuous quotations for
the security in an interdealer quotation system (an ``IDQS''), the
amendments require that applicable issuer information also must be
current and publicly available, timely filed, or filed within 180
calendar days from the end of the issuer's most recent fiscal year or
any quarterly reporting period that is covered by a report required by
Section 13 or 15(d) of the Exchange Act, as applicable.\5\ As a result,
on the Compliance Date, broker-dealers may not rely on the piggyback
exception to maintain a quoted market in the securities of issuers for
which information is not current and publicly available.
---------------------------------------------------------------------------
\3\ See Amended Rule 15c2-11(e)(2) (defining the term
``current''), (e)(5) (defining the term ``publicly available'').
\4\ See Amended Rule 15c2-11(a)(1)(i)(B). The Rule's
recordkeeping requirement is unchanged under the amendments, except
broker-dealers no longer have to preserve documents that are
available on the Commission's Electronic Data Gathering, Analysis
and Retrieval System (``EDGAR''). See Amended Rule 15c2-
11(d)(1)(i)(A).
\5\ See Amended Rule 15c2-11(f)(3)(i)(C) (requiring an issuer's
specified information to be, depending on the regulatory status of
the issuer, one of the following: (1) Current and publicly
available; (2) timely filed (i.e., filed by the prescribed due date
for a report or statement as required by an Exchange Act or
Securities Act of 1933 (the ``Securities Act'') reporting
obligation); or (3) filed within 180 calendar days from a specified
period); see also Amended Rule 15c2-11(e)(3) (defining the term
``interdealer quotation system''). For purposes of this proposed
exemptive order, these requirements with respect to the piggyback
exception are referred to as the requirement to be ``current and
publicly available.'' The amendments also (1) modify the piggyback
exception's frequency-of-quotation requirement by eliminating both
the 12-business-day requirement and the 30-calendar-day window while
still requiring that no more than four business days in succession
elapse without a quotation, see Amended Rule 15c2-11(f)(3)(i)(A),
and (2) limit the amount of time during which broker-dealers may
rely on the exception to quote securities of issuers that they have
a reasonable basis under the circumstances for believing are shell
companies, see Amended Rule 15c2-11(f)(3)(B)(2).
---------------------------------------------------------------------------
The Commission received comments on the proposed amendments to Rule
15c2-11 that expressed interest in the formation of an ``expert
market'' for certain securities that become ineligible for quotation
after the Compliance Date because the information required by the Rule
is not current and publicly available for the issuers of those
securities.\6\ In response to comments, the Commission stated that,
under certain conditions and circumstances, an ``expert market'' could
enhance liquidity for sophisticated or professional investors in grey
market securities,\7\ as well as for small companies seeking growth
opportunities that might prefer to be quoted in a market that is
limited to such persons.\8\ The Commission stated that it
``preliminarily believes that any such expert market must not have the
potential to develop into a parallel market for which quotations are
accessible by retail investors and the general public.'' \9\
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\6\ Comments are available on the Commission's website at
https://www.sec.gov/comments/s7/14/19/s71419.htm.
\7\ Grey market securities are securities that trade over-the-
counter but for which no quoted prices are published or submitted in
a quotation medium for buyers and sellers to access.
\8\ See Adopting Release at 68145.
\9\ Id.
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The Commission stated that it has the authority to issue exemptive
relief by order, under Section 36 of the Exchange Act and under the
Amended Rule,\10\ to facilitate the formation and implementation of
such an expert market. The Commission also stated that, in doing so, it
may consider certain safeguards to protect retail investors, such as
(1) the types of investors who may access quotations in this market
(e.g., sophisticated investors that have the ability to assess an
investment opportunity, including the ability to analyze its risks and
rewards), and (2) the types of securities that may be quoted in such a
market (e.g., those that were quoted in reliance on the piggyback
exception on the business day preceding the initial quotation that is
published or submitted in any such market).\11\
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\10\ The exemptive authority provision of Rule 15c2-11 has been
re-lettered from paragraph (h) to paragraph (g) under the Amended
Rule. In addition, the standard for exemptive authority under the
Amended Rule conforms to the provision for exemptive authority in
Section 36 of the Exchange Act. See id. at 68167.
\11\ See id. at 68145.
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B. Request for Exemptive Relief by OTC Link LLC
In response to the Commission's discussion, OTC Link[supreg] LLC
(``OTC Link LLC''), a wholly owned subsidiary of OTC Markets Group Inc.
(``OTC Markets Group''), has submitted a request on
[[Page 2313]]
behalf of certain broker-dealers for an exemption from the Amended
Rule's information review requirement and recordkeeping requirement to
permit such broker-dealers to publish or submit, on a continuous basis,
proprietary quotations for certain securities of issuers for which
there is no current and publicly available information, and in other
specified circumstances, on one of its electronic platforms where the
distribution of such quotations is limited to sophisticated or
professional investors.
OTC Link LLC operates trading platforms on which broker-dealers
provide liquidity and execution services for over 11,000 U.S. and
global securities. One such platform is OTC Link ATS, an alternative
trading system (``ATS'') that meets the definition of a ``qualified
interdealer quotation system'' under paragraph (e)(6) of the Amended
Rule. The securities that are quoted on OTC Link ATS are organized into
market tiers based on several factors, including the public
availability of current issuer information and whether an issuer meets
minimum financial thresholds. These market tiers include the
OTCQX[supreg] Best Market, the OTCQB[supreg] Venture Market, the Pink
Open Market, and the Expert Market. The Expert Market is a distinct
market tier on which OTC Link LLC's broker-dealer subscribers (each, a
``Subscriber'' and collectively, the ``Subscribers'') \12\ can, among
other things, find price transparency in certain securities that may
not be eligible or suitable for retail investors. Currently, the
distribution of quotations for securities that are published or
submitted on the Expert Market is limited to broker-dealers, and OTC
Link ATS does not make such quotations available to the general public.
In requesting exemptive relief on behalf of the Subscribers, OTC Link
LLC plans to modify the Expert Market to include the safeguards
described below.\13\
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\12\ All Subscribers to OTC Link ATS are required to be broker-
dealer members of the Financial Industry Regulatory Authority
(``FINRA'') and must enter into a subscription agreement with OTC
Link LLC that outlines the terms and conditions of their use of OTC
Link ATS. All OTC Link ATS Subscribers can access all market tiers,
including the Expert Market. Under the proposed conditional
exemptive order, all quotations published or submitted on the Expert
Market would be attributable to Subscribers at prices at which such
Subscribers are prepared to trade. See, e.g., FINRA Rule 5220.
\13\ Although OTC Link LLC is requesting relief on behalf of its
Subscribers using the Expert Market on OTC Link ATS, OTC Link LLC is
not requesting the same relief for OTC Link ATS, as a quotation
medium, because OTC Link ATS does not publish or submit quotations
on the Expert Market and, thus, does not engage in activity that is
subject to the provisions of Amended Rule 15c2-11.
---------------------------------------------------------------------------
The Commission is proposing to grant OTC Link LLC's request for
exemptive relief and issue a conditional exemptive order as outlined
below.
1. Distribution of Expert Market Quotes and Data
Quotations published or submitted on the Expert Market are clearly
identified in a data feed to which OTC Markets Group controls which
Subscribers, market data distributors, and users have access. OTC
Markets Group currently limits the distribution of quotations published
or submitted on the Expert Market solely to broker-dealers. Under the
proposed conditional exemptive order, OTC Markets Group would authorize
market data distributors, including Subscribers, to be eligible to
receive quotations published or submitted on the Expert Market and to
distribute such data to Subscribers who comply with certain obligations
and restrictions on data access. As Expert Market quotations are
clearly identified in the data feed, recipients would be able to
control their distribution and display.
Under the proposed exemptive relief, all entities that distribute
OTC Markets Group's market data, including Subscribers, would be
required to enter into a Market Data Distribution Agreement (``MDDA'')
directly with OTC Markets Group. OTC Markets Group would control which
market data distributors are permitted to receive market data, and the
MDDA would require each such market data distributor to report all end-
users to OTC Markets Group. OTC Markets Group would distribute
quotations published or submitted on the Expert Market to market data
distributors that agree to the MDDA's contractual and data access
restrictions that limit the distribution and display of quotations to
certain eligible investors, as described below. Accordingly, real-time
and delayed quotations \14\ published or submitted on the Expert Market
would not be permitted to be distributed or displayed to the general
public. Further, pursuant to the MDDA, market data distributors must
require any person to whom they distribute quotations published or
submitted on the Expert Market that is not party to the MDDA to agree,
by contract, not to distribute such quotations to any person that is
not a permitted recipient as described herein.
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\14\ ``Delayed'' quotations, for the purpose of this proposal,
do not include ``end-of-day'' quotation information, which is
defined in the MDDA, and is generally understood to mean information
consisting of a snapshot of the best bid price and size and the best
ask price and size for a security, taken at the close of regular
trading hours. End-of-day quotation information does not include the
identity of the broker-dealer(s) that published or submitted the
quotation(s) that make up the ``end-of-day'' quotation. End-of-day
information is used by broker-dealers, custodian banks, clearing
firms, prime brokers and service bureaus for valuation, settlement,
accounting, clearing and custody purposes because it can be more
accurate, than last transaction information. Thus, end-of-day
quotation information that is used by broker-dealers in providing
valuation, settlement, accounting, clearing, and custody information
to its customers may be viewed by retail investors and the general
public; however, it is not actionable for the purposes of effecting
transactions.
---------------------------------------------------------------------------
In operating the Expert Market under the proposed exemptive relief,
OTC Link LLC would establish, maintain, and enforce written policies
and procedures that are reasonably designed to allow only permitted
recipients to view, and to prevent the general public from viewing,
quotations published or submitted on the Expert Market. OTC Link LLC
also would establish, maintain, and enforce policies and procedures to
regularly surveil the use of the Expert Market data feed. Further,
under its written policies and procedures, OTC Link LLC would determine
whether market data distributors, including Subscribers, are complying
with the terms of the MDDA. OTC Link LLC would regularly review
activity on the Expert Market and would establish, maintain, and
enforce policies and procedures that provide for further review and
escalation of issues, including irregular quotation activities that may
indicate fraudulent behavior (e.g., unusually high volumes) and non-
compliance with the MDDA. Escalation of issues may include a
determination of whether any market data distributor or Subscriber
should be denied further access to the Expert Market or whether a
detailed referral should be made to FINRA or Commission staff, or both.
2. Permitted Recipients of Quotations Published or Submitted on the
Expert Market
As described above, the distribution of real-time and delayed
quotations published or submitted on the Expert Market would be limited
exclusively to market data distributors, including Subscribers, and
certain types of sophisticated or professional investors, specifically,
the following categories of market participants (each, a ``Qualified
Expert'' and collectively, the ``Qualified Experts''): (1) Any
qualified institutional buyer, as defined in Rule 144(A)(a)(1) under
the Securities Act; and (2) any accredited investor, as defined in Rule
501(a) of Regulation D; \15\ and (3) any
[[Page 2314]]
qualified purchaser, as defined in Section 2(a)(51)(A) of the
Investment Company Act of 1940 (the ``Investment Company Act'') and the
rules thereunder.\16\ Qualified Experts may receive quotations
published or submitted on the Expert Market directly from OTC Markets
Group, from any market data distributor or Subscriber that has entered
into the MDDA with OTC Markets Group, or from both.\17\
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\15\ The term ``accredited investor'' includes, among other
things, any bank as defined in Section 3(a)(2) of the Securities
Act, broker or dealer registered pursuant to Section 15 of the
Exchange Act, investment adviser registered pursuant to Section 203
of the Investment Advisers Act of 1940, and investment company
registered under the Investment Company Act of 1940. See Rule
501(a)(1) of Regulation D. The term ``accredited investor'' also
includes any entity of a type not listed in Rule 501(a)(1), that is
not formed for the specific purpose of acquiring the securities
offered, that own investments in excess of $5,000,000, which could
include a foreign bank or other non-U.S. financial institution. See
Rule 501(a)(9) of Regulation D.
\16\ OTC Link LLC has requested that foreign broker-dealers, as
defined in Exchange Act Rule 15a-6(b)(3), be included in the list of
Qualified Experts. The Commission is seeking comment, below,
regarding whether foreign broker-dealers, as defined in Exchange Act
Rule 15a-6(b)(3), should be included in the list of Qualified
Experts.
\17\ Qualified Experts that receive Expert Market data directly
from OTC Markets Group would be subject to a subscriber agreement
that contractually limits any further distribution.
---------------------------------------------------------------------------
OTC Markets Group would also distribute quotations for an issuer's
security published or submitted on the Expert Market to the issuer of
any such security if the issuer contractually agrees not to distribute
such quotations, directly or indirectly, to any person that is not a
current officer, director, or employee of the issuer.\18\
---------------------------------------------------------------------------
\18\ As described above in Part I.B.1, market data distributors,
including Subscribers, would be contractually required to ensure
that the recipients of quotations published or submitted on the
Expert Market meet the definition of a Qualified Expert.
---------------------------------------------------------------------------
3. Categories of Expert Market Securities
The subject of Subscribers' proprietary quotations that can be
published or submitted on the Expert Market would be restricted to the
following categories of securities: (1) Any security that is quoted in
reliance on the piggyback exception prior to the Compliance Date and
loses such eligibility upon the Compliance Date due to a lack of
current and publicly available information about the issuer of the
security; \19\ (2) any security that is quoted in reliance on the
piggyback exception following the Compliance Date and subsequently
loses such eligibility due to a lack of current and publicly available
information about the issuer of the security, the issuer's status as a
shell company, or a failure to meet the frequency-of-quotation
requirement; \20\ and (3) any security that is issued in conjunction
with a Chapter 11 bankruptcy plan confirmed pursuant to Section 1129 of
the U.S. Bankruptcy Code (the ``Code'') \21\ and is exempt from
registration in accordance with Section 1145 of the Code.\22\
---------------------------------------------------------------------------
\19\ A quoted market on the Expert Market for such security
would have to commence within the first four business days from the
date on which it loses eligibility to be quoted in reliance on the
piggyback exception.
\20\ A quoted market on the Expert Market for such security
would have to commence within the first four business days from the
date on which it loses eligibility to be quoted in reliance on the
piggyback exception.
\21\ The issuers of such securities would be subject to
oversight of the bankruptcy court. After confirmation of the
bankruptcy plan, the bankruptcy courts may direct the company and
others to carry out the plan. See 28 U.S.C. 1142.
\22\ A quoted market on the Expert Market for such security must
commence within 90 calendar days from the date on which it is
issued.
---------------------------------------------------------------------------
In addition, OTC Link LLC would remove from the Expert Market
quotations for any security that fits within the following two
categories: (1) Any security of an issuer that is the subject of a
registration revocation or trading suspension order issued by the
Commission pursuant to Section 12(j) or 12(k) of the Exchange Act,
respectively; and (2) any security of an issuer that OTC Link LLC has
identified as ``defunct'' (i.e., it has ceased operations, ceased to
exist, or has failed to respond to inquiries by OTC Link LLC). Once the
applicable Section 12(k) trading suspension order terminates or the
subject security is re-registered with the Commission following an
applicable Section 12(j) revocation order, in order to be quoted on the
Expert Market, the subject security must either (1) gain and then lose
eligibility to be quoted in reliance on the piggyback exception or (2)
be issued in conjunction with a Chapter 11 bankruptcy plan and be
quoted on the Expert Market in accordance with the timing requirements
discussed above.\23\
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\23\ See supra notes 19 and 20.
---------------------------------------------------------------------------
In addition, OTC Link LLC would flag on its website any
``formerly'' suspended security for such period of time as set forth in
OTC Link LLC's policies and procedures, which OTC Link LLC represents
would be for two years following the applicable trading suspension.\24\
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\24\ OTC Link LLC would remove any such flag if it becomes aware
of a Commission or court order finding for the successful challenge
of the applicable trading suspension.
---------------------------------------------------------------------------
II. Discussion of Proposed Relief
As a result of the amendments to Rule 15c2-11, after the Compliance
Date, broker-dealers must withdraw from publishing or submitting
quotations in a quotation medium for securities of issuers for which
information is not current and publicly available, and such securities
may migrate to the grey market, where no quoted prices are published in
a quotation medium for buyers and sellers to access and transact. As
the Commission stated in the Adopting Release, this may impose costs on
potential and existing investors by reducing liquidity for these
securities and potentially resulting in less efficient pricing.
Further, the loss of a quoted market and the information embedded in
share prices may adversely impact an issuer's ability to raise capital
through stock issuances or through other channels of finance, such as
debt. The Commission also noted that investors in securities in the
grey market may be more susceptible to fraud.\25\
---------------------------------------------------------------------------
\25\ See Adopting Release at 68145, 68198.
---------------------------------------------------------------------------
As described above, the Commission also stated in the Adopting
Release that it could be beneficial to establish an ``expert market''
that would enhance liquidity for sophisticated or professional
investors and promote growth opportunities for certain small companies,
although the comments received on the proposal provided insufficient
detail as to how that market would function, safeguard retail investors
from fraud and manipulation, and facilitate regulatory oversight.\26\
In its December 21, 2020 request, OTC Link LLC made certain
representations regarding how the Expert Market would function with
safeguards to reduce the potential for certain retail investors to be
harmed by fraud and manipulation, as well as representations regarding
how OTC Link LLC would establish, maintain, and enforce written
policies and procedures reasonably designed to facilitate the integrity
and Commission oversight of the Expert Market. Based on these and other
facts and representations made in OTC Link LLC's December 21, 2020
request, the Commission preliminarily believes that it is necessary or
appropriate in the public interest, and is consistent with the
protection of investors, to grant, subject to the conditions described
below, exemptive relief pursuant to Section 36(a)(1) of the Exchange
Act and Rule 15c2-11 to permit Subscribers to publish or submit
proprietary quotations on the Expert Market, on a continuous basis,
without complying with the requirements of Amended Rule 15c2-
11(a)(1)(i) and (d)(1)(i)(A). The Commission notes that OTC Link LLC
may implement additional conditions, criteria, or noticing mechanisms
for certain quotations on its platform by Subscribers as it may find
appropriate, including as to whether additional
[[Page 2315]]
quotations for securities of certain issuers should be transferred to
the Expert Market because they may present more risk to certain retail
investors.
---------------------------------------------------------------------------
\26\ Id. at 68145.
---------------------------------------------------------------------------
The proposed conditional exemptive relief would allow the Expert
Market to serve as a centralized location for published quotations in
certain securities--that otherwise would migrate to the grey market
following the Compliance Date--to be viewed exclusively by specified
categories of sophisticated or professional investors. Such relief,
therefore, could help to advance opportunities for more efficient
pricing in such securities, enhance liquidity for sophisticated or
professional investors in such securities, and promote capital
formation for companies seeking growth opportunities that might prefer
to be quoted in a market limited to such persons.
A. Permitted Recipients of Quotations Published or Submitted on the
Expert Market
The Commission is proposing to limit the universe of market
participants to whom real-time and delayed quotations published or
submitted on the Expert Market are distributed. Accordingly, with one
exception discussed below, real-time or delayed quotations published or
submitted on the Expert Market may not be distributed, whether directly
or indirectly from another source,\27\ to any person that is not a
Qualified Expert. The Commission preliminarily believes that the
inability of the general public to view real-time and delayed
quotations published or submitted on the Expert Market should help
protect investors from incidents of fraud and manipulation in OTC
securities for which no or limited publicly available information about
the issuers exists to help counteract misinformation, while also
allowing Subscribers to maintain a market in certain securities for
certain qualified investors to interact.\28\
---------------------------------------------------------------------------
\27\ As discussed above in Part I.B, quotations published or
submitted on the Expert Market would be accessible to market data
distributors, including Subscribers, that have contractually agreed
to not distribute quotations published or submitted on the Expert
Market to persons who are ineligible to access such information
(i.e., non-Qualified Experts), including to the general public.
\28\ See, e.g., Adopting Release at 68145.
---------------------------------------------------------------------------
The Commission preliminarily believes that including in the list of
Qualified Experts (1) any qualified institutional buyer, as defined in
Rule 144(A)(a)(1) under the Securities Act, and (2) any accredited
investor, as defined in Rule 501(a) of Regulation D, would
appropriately capture the types of investors who have, among other
things, demonstrated the ability to assess an investment opportunity
(including the ability to analyze risks and rewards), or the ability to
gain access to information about an issuer or about an investment
opportunity.\29\ Such persons should be able to view quotations
published or submitted on the Expert Market because they may not need
the same investor protections that are afforded, in part, by current
and publicly available issuer information in the same way that the
general public may need it to analyze an investment opportunity or to
counteract misinformation. In addition, the Commission preliminarily
believes that it is appropriate to include qualified purchasers, as
defined in Section 2(a)(51)(A) of the Investment Company Act and the
rules thereunder, in the list of Qualified Experts because qualified
purchasers are investors that have a high degree of financial
sophistication who are in a position to appreciate the risks associated
with investing in securities that would be quoted on the Expert Market
without the protections afforded by the Amended Rule.
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\29\ See, e.g., Amending the ``Accredited Investor'' Definition,
Securities Act Release No. 10824 (Aug. 26, 2020), 85 FR 64234 (Oct.
9, 2020) (``Accredited Investor Release'').
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Notably, this list of Qualified Experts would exclude customers of
broker-dealers and investment advisers (that do not fit into any of the
three categories of Qualified Experts) because this market is not
available to the general public.\30\
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\30\ Any Subscriber that distributes quotations published or
submitted on the Expert Market to any person that is not a Qualified
Expert would not be eligible for the relief proposed herein and may
violate Rule 15c2-11.
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In addition, as an exception to the Qualified Expert requirement,
the Commission preliminarily believes that it is appropriate for an
issuer to be able to view quotations published or submitted on the
Expert Market for its own security, if the issuer agrees not to
distribute such quotations, directly or indirectly, to any person that
is not a current officer, director, or employee of the issuer, as
described above. This is because such information could inform the
issuer about the liquidity and market price of the security and allow
the issuer to make informed decisions regarding future offerings to
raise capital. In order for an issuer to view these quotations, the
issuer would need to contractually agree not to distribute such
quotations, directly or indirectly, to any person that is not a current
officer, director, or employee of the issuer.
B. Expert Market Securities
The Commission preliminarily believes that it is appropriate for
the following categories of securities to be eligible to be the subject
of Subscribers' proprietary quotations on the Expert Market.
The first category is securities that lose eligibility to be quoted
in reliance on the piggyback exception--either (1) upon the Compliance
Date due to a lack of current and publicly available information about
an issuer, or (2) following the Compliance Date due to (i) a lack of
current and publicly available information about the issuer, (ii) the
issuer's status as a shell company, or (iii) a failure to meet the
frequency-of-quotation requirement--so long as quotations on the Expert
Market commence within four business days of such loss of
eligibility.\31\ As stated in the Adopting Release, the Commission
recognizes that holders of such securities may incur costs related to a
loss of liquidity when broker-dealers cannot rely on the piggyback
exception.\32\ The ability of broker-dealers (i.e., Subscribers) to
publish or submit proprietary quotations for those securities on the
Expert Market could help to facilitate liquidity for such securities
because the availability of quotations could reduce trading costs and
facilitate pricing efficiency. This is because investors that are
Qualified Experts would be able to view those quotations and use such
information in the mix of information (e.g., in addition to their own
due diligence or issuer disclosures that might not be publicly
available but to which they otherwise have access) that they take into
account as part of a meaningful investment analysis when making
investment decisions.\33\ Without the proposed exemption, as discussed
above, these securities may migrate to the grey market, to which retail
investors and the general public have access, without access to
information embedded in prices published in a quotation medium. The
ability of Subscribers to publish or submit quotations in a quotation
medium for such securities could help protect retail investors and
[[Page 2316]]
the general public from potential incidents of fraud and manipulation
in the grey market and facilitate liquidity for such securities.
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\31\ This four-business-day window mirrors the time frame
provided in the piggyback exception that quotations occur with no
more than four business days in succession without a priced
quotation. See Amended Rule 15c2-11(f)(3)(i). As an example, if
eligibility to be quoted in reliance on the piggyback exception were
lost on Monday, January 4, 2021, a Subscriber's quotations on the
Expert Market must commence no later than Friday, January 8, 2021 to
be eligible for this proposed exemption.
\32\ Adopting Release at 68141.
\33\ See, e.g., Accredited Investor Release at 64269-70.
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The second category captures securities issued in conjunction with
a Chapter 11 bankruptcy plan that is confirmed pursuant to Section 1129
of the Code and are exempt from registration in accordance with Section
1145 of the Code, so long as quotations on the Expert Market commence
within 90 calendar days from the date on which any such security is
issued.\34\ A bankruptcy proceeding is a significant event involving an
issuer that a broker-dealer should carefully consider before it
publishes or submits a quotation for the issuer's security in a
quotation medium.\35\ But, the Commission preliminarily believes that
the inclusion of this category of securities as eligible to be the
subject of Subscribers' quotations published or submitted on the Expert
Market is appropriate given that Qualified Experts are more likely than
the general public to possess the ability to evaluate the merits and
risks of a prospective investment opportunity and, therefore, it would
provide an efficient means to liquidate positions acquired through a
bankruptcy proceeding. The inclusion of this second category could help
promote capital formation opportunities for certain companies in
limited circumstances while ensuring, for investor protection, that the
distribution of quotations for the securities of such companies is
limited to investors that have a demonstrated ability to assess such an
investment opportunity.
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\34\ This 90-calendar-day window is consistent with the Amended
Rule's requirement for the information of prospectus issuers (i.e.,
issuers that filed a registration statement under the Securities
Act) to be ``current'' for broker-dealers to commence a quoted
market in these issuers' securities in a quotation medium. See
Amended Rule 15c2-11(b)(1). The Commission preliminarily believes
that it is appropriate to use a measurement of time that is
consistent with the Amended Rule's requirement for prospectus
issuers' information because both requirements pertain to the
commencement of a quoted market in securities of an issuer with
which the market is unfamiliar and are designed to ensure that the
Amended Rule's specified information about the issuers of these
securities is not stale or outdated with respect to such issuance.
\35\ See Adopting Release at 68171.
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The Commission believes that it would be appropriate for OTC Link
LLC to remove from the Expert Market quotations published or submitted
for any security of an issuer that is the subject of a registration
revocation or trading suspension order issued by the Commission
pursuant to Section 12(j) or 12(k) of the Exchange Act, respectively.
Pursuant to any such registration revocation or trading suspension
order and the Commission's finding that it is in the public interest
and for the protection of investors,\36\ Subscribers would not be able
to effect transactions in such securities. Therefore, such quotations
must be removed.
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\36\ See Exchange Act Section 12(j) (``The Commission is
authorized, by order, as it deems necessary or appropriate for the
protection of investors to . . . revoke the registration of a
security, if the Commission finds . . . that the issuer of such
security has failed to comply with any provision of this chapter or
the rules and regulations thereunder.''); Exchange Act Section
12(k)(1)(A) (``If in its opinion the public interest and the
protection of investors so require, the Commission is authorized by
order--summarily to suspend trading in any security . . . for a
period not exceeding 10 business days . . . .'').
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In addition, the Commission preliminarily believes that it is
appropriate for OTC Link LLC to remove from the Expert Market
quotations published or submitted for any security of an issuer that
OTC Link LLC has identified as ``defunct,'' to prevent the publication
or submission of quotations for securities of issuers that have ceased
operations, ceased to exist, or have failed to respond to inquiries by
OTC Link LLC. Furthermore, the issuer of such security may not have a
transfer agent to allow investors to receive or transfer their stock
certificates. Thus, the quotations for such securities should be
removed from the Expert Market to help prevent such securities from
becoming vehicles for fraud and manipulation.
Further, the Commission preliminarily believes that requiring OTC
Link LLC to flag on its website any ``formerly suspended'' security for
such period of time as set forth in OTC Link LLC's policies and
procedures (which would be for two years following the applicable
trading suspension) would help to promote investor protection.\37\ Such
a flag would serve as a notice to market participants that there was,
in the recent past, the presence of any number of factors (such as
uncertainty about the accuracy of publicly available issuer information
or questions about trading in the issuer's security) that led the
Commission to conclude that it was in the public interest and for the
protection of investors to suspend trading in the security.\38\
Accordingly, the Commission preliminarily believes that this flag
requirement would improve the overall mix of information about issuers
and their securities and would help investors make better-informed
investment decisions.\39\
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\37\ As discussed above in Part I.B.3, this period of time would
be for two years following the applicable trading suspension, unless
the trading suspension is successfully challenged.
\38\ See, e.g., Adopting Release at 68151.
\39\ See id. at 68144.
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C. Policies and Procedures
The Commission is proposing to condition the exemptive relief upon
OTC Link LLC establishing, maintaining, and enforcing reasonably
designed written policies and procedures to operate the Expert Market
in a manner that is consistent with how the Expert Market is described
herein. Such policies and procedures would account for the following:
(1) The manner in which the distribution of real-time and delayed
quotations on the Expert Market is limited, directly and indirectly,
only to Qualified Experts and, as applicable, issuers of securities for
which quotations are published or submitted on the Expert Market with
respect to their own securities; (2) specific actions that will be
taken if OTC Link LLC becomes aware that any Subscriber or market data
distributor or user has violated the contractual obligations described
above, and specific actions that will be taken if OTC Link LLC becomes
aware that an issuer has violated its contractual obligation not to
distribute, directly or indirectly, quotations published or submitted
on the Expert Market for its security to any person that is not a
current officer, director, or employee of the issuer; and (3) the
regular surveillance of the Expert Market data feed and quotation
activity on the Expert Market to determine whether a Subscriber or
market data distributor or user has facilitated access, directly or
indirectly, to quotations published or submitted on the Expert Market
to any person that is not a Qualified Expert or, as applicable, an
issuer of a security for which quotations are published or submitted on
the Expert Market with respect to its own security.
The Commission preliminarily believes that the obligation to
establish, maintain, and enforce such written policies and procedures
as part of the proposed exemptive relief would help to prevent the
general public from accessing quote information, promote the integrity
of the Expert Market, and facilitate Commission oversight of the Expert
Market. In particular, OTC Link LLC's reasonably designed written
policies and procedures would provide transparency of, and set
expectations for, the manner in which OTC Link LLC operates the Expert
Market; would encompass compliance considerations relevant to the
operations of the Expert Market; and would assist Commission staff in
examining the Expert Market.
[[Page 2317]]
D. Recordkeeping Requirement
Finally, the Commission is proposing to require as part of the
exemptive relief that OTC Link LLC preserve, for a period of not less
than three years, the first two years in an easily accessible place,
the following records:
1. Documents and information regarding OTC Link LLC's written
policies and procedures related to the Expert Market, including records
related to the implementation of such written policies and procedures;
2. Documents and information regarding any processes undertaken by
OTC Link LLC that analyze information over time to identify whether the
distribution of quotations published or submitted on the Expert Market
is limited only to Qualified Experts and, as applicable, issuers of
securities for which quotations are published or submitted on the
Expert Market with respect to their own securities; and
3. Documents and information regarding OTC Link LLC's ongoing
surveillance of the quoting activity and distribution of quotations
published or submitted on the Expert Market, including any reports that
identify exceptions to compliance with the written policies and
procedures and the resolution of such exceptions.
The Commission preliminarily believes that this recordkeeping
condition will help facilitate the Commission's oversight of the Expert
Market, including of Subscribers that publish or submit quotations on
the Expert Market and the distribution of such quotations. In
particular, the documents and information that would be required to be
maintained will provide the Commission with a record of how OTC Link
LLC has (1) implemented its reasonably designed written policies and
procedures described above; (2) conducted its ongoing maintenance of
such written policies and procedures in response to analysis of whether
quotations published or submitted on the Expert Market are distributed
only to market data distributors (including Subscribers), Qualified
Experts, and, as applicable, issuers of securities for which quotations
are published or submitted on the Expert Market with respect to their
own securities; and (3) enforced such written policies and procedures
as part of its ongoing surveillance of exceptions to compliance with
those written policies and procedures. The Commission also
preliminarily believes that these proposed recordkeeping conditions
would aid the Commission's oversight of OTC Link LLC's limitation on
the distribution of quotations published or submitted on the Expert
Market only to Qualified Experts (and, as applicable, issuers of
securities for which quotations are published or submitted on the
Expert Market with respect to their own securities).
E. Additional Considerations for Market Participants Relying on the
Proposed Exemption
In addition, Subscribers that publish or submit quotations in
compliance with this proposed exemption remain subject to liability
under the antifraud provisions of the federal securities laws. Further,
the proposed exemption would not create an exemption or change existing
exemptions from the registration requirements or any other requirements
under the federal securities laws, including the Securities Act, for
any party. Accordingly, for example, if a Subscriber were to publish or
submit a quotation on the Expert Market in reliance on the proposed
exemption, the Subscriber would need to determine whether the security,
or any offer or sale of such security, is registered in accordance with
any applicable requirement under federal securities laws or whether an
exemption from any such registration requirement exists.
III. Request for Comments
The Commission is seeking comment on all aspects of the proposed
exemption. In particular, the Commission requests comment on the
following questions about the proposed exemption. When responding to
the request for comment, please explain your reasoning. Additionally,
the Commission requests that commenters identify sources of data and
information as well as provide data and information to assist the
Commission in analyzing the impact of the proposed relief.
1. Are there any other categories of securities that should be
eligible for Subscribers' proprietary quotations on the Expert Market?
Are there any other categories of securities that should be excluded
from Subscribers' proprietary quotations on the Expert Market? For
example, should only those securities that meet certain reported trade
thresholds be eligible for quoting? Please explain, including how this
suggestion would be necessary or appropriate in the public interest and
consistent with the protection of investors.
2. Are there categories of investors included in the proposed list
of Qualified Experts who should be excluded? For example, should all
accredited investors, as defined in Rule 501(a) of Regulation D, be
considered Qualified Experts, or should the list be limited to a
narrower set of sophisticated investors? What steps should broker-
dealers and investment advisers be required to take, if any, to verify
the accredited investor status of customers before providing them
access to quotations published or submitted on the Expert Market?
Should all employees of an issuer, including those who would not
otherwise qualify as Qualified Experts, be allowed to view quotations
published or submitted on the Expert Market? Please explain, including
how this suggestion would be necessary or appropriate in the public
interest and consistent with the protection of investors.
3. Are there any other categories of persons or entities that
should be eligible to view real-time or delayed quotations published or
submitted on the Expert Market? The Commission understands that foreign
broker-dealers, as defined in Exchange Act Rule 15a-6(b)(3), similar to
broker-dealers registered under Section 15 of the Exchange Act--an
entity included in the definition of ``accredited investor''--may
demonstrate the ability to assess an investment opportunity, the
capacity to allocate investments in such a way as to mitigate or avoid
risks of unsustainable loss, the ability to gain access to information
about an issuer or about an investment opportunity, or the ability to
bear the risk of a loss. OTC Link LLC has requested that such foreign
broker-dealers be included in the list of Qualified Experts. Should
foreign broker-dealers, as defined in Exchange Act Rule 15a-6(b)(3), be
added to the list of Qualified Experts? Please explain why or why not,
including how this suggestion would be necessary or appropriate in the
public interest and consistent with the protection of investors.
4. What costs would be associated with the proposed Expert Market
exemption? Please specify the market participant(s) that would incur
such costs (e.g., issuers, broker-dealers, etc.), if any. Would the
cost of the proposed policies and procedures and recordkeeping
conditions prevent the formation of an ``expert market'' for any
eligible securities? Would the ability for issuers' securities to be
quoted on the Expert Market reduce incentives for relevant issuers to
provide public information?
5. How active would quotations in these securities likely be if the
proposed exemptive relief were granted? What degree of liquidity and
price discovery would likely be facilitated by the ability of
Subscribers to publish or submit
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quotations on the Expert Market? Where possible, please provide data or
identify sources of information the Commission could use to analyze the
impact of the relief on liquidity and price discovery.
6. Does the proposed policies and procedures condition provide
appropriate assurance that real-time and delayed quotations published
or submitted on the Expert Market would not be accessible to the
general public, including retail investors, other than the Qualified
Experts? Please explain why or why not. If not, please explain how the
condition should be modified, including the minimum requirements that
should be included in OTC Link's policies and procedures to (1) ensure
that only Qualified Experts can view quotations published or submitted
on the Expert Market and (2) address concerns about fraud and
manipulation?
7. Does the proposed recordkeeping condition for OTC Link LLC
provide appropriate means to facilitate the Commission's oversight of
the Expert Market, including of Subscribers that publish or submit
quotations on the Expert Market and the distribution of such
quotations? Please explain why or why not. If not, please explain how
the condition should be modified.
8. Are the proposed safeguards appropriate to ensure that only
investors who are able to assess the risks and merits of investment in
the categories of securities proposed to be included in the Expert
Market are able to access quotations? Are the proposed conditions of
this exemptive order (in conjunction with FINRA rules that govern this
market) sufficient to prevent the general public from accessing
quotations published or submitted in the Expert Market, or should the
Commission impose additional conditions? Are there any other safeguards
that should be implemented in the Expert Market to protect investors?
9. Are there additional conditions that the exemptive order
providing the relief proposed herein should include to help prevent
persons who are not Qualified Experts from accessing quotations
published or submitted on the Expert Market? If yes, please specify
such condition and explain how this suggestion would be necessary or
appropriate in the public interest and consistent with the protection
of investors.
10. Should the exemptive order providing the relief proposed herein
include a sunset provision so that the relief would expire on a
particular date? If yes, what would be an appropriate date on which the
relief should expire (e.g., one year after the issuance of the
exemptive order, etc.) and why? Please discuss the costs and benefits
of including such a sunset provision in the exemptive order.
Additionally, please explain why such a sunset provision would be
necessary or appropriate in the public interest and consistent with the
protection of investors. Alternatively, please explain why the
exemptive order should omit a sunset provision, including a discussion
of the benefits and costs of such omission or any distortive effects on
the market. Lastly, please discuss whether there are alternative means
of achieving any benefits of a sunset provision.
By the Commission.
Dated: December 22, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-28700 Filed 1-11-21; 8:45 am]
BILLING CODE 8011-01-P
