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Securities and Exchange Commission ( SEC) Rule 15c2-11
Chapman, Spira & Carson - Disscusion

From: Robert Spira
Date: 2/22/99
Time: 11:35:26 AM
Remote User:


On February 19th, 1999, the SEC discussed the possible revision of Rule 15c2-11, which deals with market makers awareness of the issues in which they are dealing.

The problem as they saw it was that "Quotations can be integral to fraudulent schemes involving microcap securities. Retail brokers "hyping" a microcap security may point to a market maker's quotation as indicating the security's value to a potential customer. The Commission is concerned about the role of these quotations because most market makers for unlisted securities may publish quotations without reviewing information about the issuer".

The SEC went on to say that "Microcap securities often are thinly-traded and there issuers have minimal or no assets. Many of these securities trade in the unlisted over-the-counter market, i.e., they are not listed on an exchange or NASDAQ, but are quoted in systems like the NASD's OTC Bulletin Board or the National Quotation Bureau's "Pink Sheets".

The SEC now proposes or as they say reproposes reproposed, "The reproposed amendments will require market makers to review issuer information before initiation priced quotes for unlisted securities (i.e., "piggybacking" would be eliminated). In short, they will have to "stop, look and listen" before starting to place priced quotes for an unlisted security in a quotation system. In addition, market makers publishing priced quotations will have to review updated information annually. Market makers will also have to document their review and record information regarding any significant relationships that they have with the issuer or others, including the receipt of any compensation to make a market. In on respect, the reproposal does not differ from the current Rule; the first market maker to publish a quote, priced or unpriced, will have to review the specified issuer information.

The Securities and Exchanged Commission has issued a number of exemptions, 1. Securities with a worldwide average daily trading volume value of at least $100,000 during each of the six full calendar months immediately preceding the date of publication of a quotation, and convertible securities where the underlying security satisfies this threshold; 2. Securities with a bid price of at least $50 per share; 3. Securities of issuers with net tangible assets in excess of $10,000,000 based on audited financial statements; and 4. non-convertible debt, non-participatory preferred stock and investment grade asset-backed securities.

The first broker in can literally become an underwriter in these situations and to that degree assumes a fair degree of culpability in these situations if he is not carefully in his choice of companies. That is how it works today, tomorrow, from the way it looks, the second and third brokers in will be sharing the liability with the first guy in.

We think that these regulations for the most part are fair and address the situation that the SEC is dealing with.

How Do You Feel About The Above?

Last changed: March 17, 2000