The U.S. Securities and Exchange Commission has put forward a proposal which, according to SEC commissioner Hester Peirce, could help clear up years of confusion around how a key broker-dealer rule applies across markets.

On Monday, the SEC proposed an amendment to Rule 15c2-11 that would limit reporting requirements for broker-dealers in the over-the-counter market to equity securities only, effectively reversing the broader interpretation introduced in 2021.

The SEC Rule 15c2-11 was first introduced in 1971 to ensure broker-dealers maintain up-to-date issuer information before they can publish over-the-counter quotes.

By placing obligations for firms to review and maintain current information about an issuer, the rule was designed to reduce risks in thinly traded markets, particularly in penny stocks.

Without this information, a broker-dealer is not allowed to initiate or resume quotations for a security in OTC markets.

However, the rule was reinterpreted in 2021 to extend beyond equities into other asset classes, and as a result, there have been questions around whether it can apply to crypto assets if they are classified as securities.

How will this impact crypto brokers?

The SEC’s proposal would limit the rule’s scope to equity securities.

As such, broker-dealers won’t be required to apply these reporting requirements to crypto assets, even in cases where questions around their classification as securities remain unresolved.

This could make it easier for broker-dealers to support crypto trading and quote digital assets without having to rely on disclosure standards that do not align with how these assets function.

A public comment period has been opened where the commission is seeking feedback on whether the definition of equity securities should extend to crypto assets and how the rule should apply going forward.

According to Commissioner Peirce, who also leads the agency’s crypto task force, the proposal could help address confusion created by the earlier interpretation.

“By its terms, the text of Rule 15c2-11 always has applied to quotations of a ‘security.’ Market participants and other observers including me, however, understood the rule to apply only to quotations of over-the-counter (‘OTC’) equity securities,”

However, it must be noted that there is still no final decision on whether “equity securities” could include crypto assets.

Peirce said she would closely watch “questions about the definition of ‘equity security,’ the rule’s application to crypto assets, and the appropriate next steps with respect to the formation of an ‘expert market.’”