Bond bankers and investors cry foul over rule change


After US regulators finalised an amendment to a 50-year-old rule designed to limit fraud in penny stocks, lawyer Bruce Newman at WilmerHale did what lawyers do and went through it with a fine tooth comb.

In a note to his clients in October last year, he detailed the pertinent parts of the rule for those looking to comply with it, mostly around disclosures that dealers must check before quoting prices on a security. Then he noted something that would eventually send tremors through Wall Street trading desks.

“Although market participants may think of Rule 15c2-11 as limited to stocks, it is not, in fact, so limited, and covers all securities other than municipal securities,” he wrote.

Bank compliance officers began asking for clarification from the regulator, the Securities and Exchange Commission, roping in trade associations to get to the bottom of how five decades could have gone by without anyone — bankers or regulators — seemingly…

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