I Wrote and the SEC Listened
SEC Rule 15c2-11 provides that before a broker-dealer can quote a security in the market it has to have reasonably current publicly available information about the subject company. The broker-dealer has to have specified information if the company is not traded on a securities exchange.
Rule 15c2-11(f)(3) is an exception to this requirement—the piggyback exception. It allows quotations if the security was quoted in an inter-dealer quotation system during the last 30 days, with no more than four business days without a quotation. The exception has swallowed the rule. It allows quotations for companies which are no longer doing business. The SEC’s answer to this has been to bring hundreds of administrative proceedings to revoke the registration of these companies. According to the enforcement staff this was to protect public investors from trading in securities of non-existent companies.
My December 2011 article, The SEC: Killing Dead Flies with a SledgeHammer (New York Law Journal, December 7, 2011), pointed out this was a waste of time and money by the SEC. It could easily solve the problem by changing the piggy back rule to prevent quotations for dead companies’ securities. I outlined three different ways to do so.
Former SEC Commissioner Luis A. Aguilar spoke to this same point in three different speeches while on the SEC.
Finally, the SEC listened. On September 25, 2019 it proposed amending the piggy back rule to prohibit its availability for companies in which the SEC suspended trading within the prior 60 days. This proposal fails to deal fully with the problem. But it is a start, and hopefully the SEC will act on this.
Please feel free to contact me(phone 212 455 0476; cell 914 646 8035; email msimkin@securitiesregslawyer.com) if you have any questions, comments or would like to discuss this further.