SEC Trims OTC Rule Back to Stocks, Leaves Crypto on Read

The U.S. Securities and Exchange Commission has taken a surgical knife to its ancient OTC broker-dealer rule, Rule 15c2-11, and is now politely asking the market for its two satoshis.

Born in 1971 to fight penny-stock shenanigans, the rule makes broker-dealers check that current public info is available before they can post OTC quotes. A 2020 update tried to rope in fixed-income securities, a power grab that caused a fuss and, according to Commissioner Hester Peirce, spawned "years of uncertainty"—basically the regulatory version of a never-ending mainnet launch.

In a new plot twist, the SEC wants to rewind the rule to cover only equity securities—stocks, their lookalikes, and convertible securities that scream "I own a piece of this." The amendment's text bluntly declares that Rule 15c2-11 would "refer to only equity securities," a move so focused it almost feels personal.

So, where does that leave crypto? The agency has opened a 60-day comment window to ponder whether the term "equity security" should be elastic enough to snap onto digital assets that might be deemed securities. Peirce explicitly called for feedback on applying the rule to crypto and on the roadmap for an "expert market," which sounds suspiciously like a VIP section nobody asked for.

The proposal also hints at a wider quest for regulatory clarity. Last week, the SEC and the CFTC inked a memo to coordinate oversight of financial markets, crypto included, aiming to stop decades of "regulatory turf wars"—because nothing says progress like two giants agreeing to share the sandbox.

Peirce noted the rule was always meant to be equity-obsessed, pointing out that the Commission had previously offered only short-term (as brief as three months) relief to the fixed-income market, a move that basically handed out regulatory band-aids while the uncertainty bled on.

The industry now has until the 60-day comment period expires to make its case for or against stretching the rule to cover digital assets, or to propose other frameworks, in what is essentially a regulatory suggestion box.

In summary, the SEC is attempting to clean up a rule that's been a source of confusion since the disco era, while still keeping the crypto community in a state of suspense worthy of a cliffhanger season finale.