The SEC has recently approved the NASDAQ OMX Group, Inc.’s application to form the BX Venture Market (“BX Market”) as an alternative quotation medium to the OTCBB and OTC Markets, Inc. (including PinkSheets, OTCQB and OTCQX).  The new BX Market will provide companies that do not otherwise qualify for an exchange listing, an opportunity to list their shares.  The BX Market will compete with the OTCBB and the OTC Markets OTCQB and OTCQX (interestingly and as an aside, NASDAQ sold the OTCBB last year to a private buyer).  The SEC has issued an in-depth order approving the application.

The OTCBB, OTCQB and OTCQX Alternative

The BX Market is marketing itself as a more transparent, better regulated, listing alternative to both the OTCBB and OTCQB and OTCQX.  Presumably this means that companies trading on the BX Market would appear to have greater credibility than those on the OTCBB or OTCQB/QX.  The BX Market will be run through joint ventures with NASDAQ and FINRA for application review and maintaining listing requirements.  The BX Market is also touting its technological advances in real time trading and tech services for companies that choose to list their securities for trading on its platform.  Like the OTCBB and OTCQB, the BX Market will not be an exchange but rather a trading platform for the trading of over the counter securities, albeit with new rules related to listing requirements and corporate governance.

Since the BX Market is not an exchange, listed companies will still be required to comply with the various state securities laws and be subject to their review and enforcement.  Currently, exchange listed companies are subject to the federal Private Securities Litigation Reform Act which states that federal law pre-empts (over rules) exchange listed securities. In short, state power is eliminated as to exchange listed securities.

BX Market Listing Requirements

The BX Market will have listing requirements.  According to the BX Venture website the requirements include: (i) a public float of 200,000 shares; (ii) 200 public shareholders each with a minimum of 100 shares; (iii) a market value of listed shares of $2 million; (iv) a minimum of 2 market makers; (v) a minimum bid price of $1.00 for companies not previously listed on an exchange and $0.25 for companies previously exchange traded; (vi) $1 million in equity or $5 million in assets; (vii) a one year operating history; (viii) a 12 month plan to maintain sufficient working capital; (ix) proper corporate governance; (x) prohibition of “bad boy” officers and directors; and (xi) current in its Exchange Act reporting requirements.  There are additional, which can be found on the SEC website in its approval order.

The one year operating history requirement obviously eliminates shell companies from qualifying for listing.  The corporate governance standards will include the requirements to have an independent audit committee; independent directors; compensation committee, code of conduct for officers and directors and holding an annual shareholders meeting.

Neither the OTCBB nor OTCQB have actual listing standards, other than being current with Securities Exchange Act of 1934 reporting requirements.  Moreover, neither the OTCBB or OTCQB require company applications, but rather just market maker applications to FINRA on Form 211 complying with the standards set forth in SEC Rule 15c2-11.

New Motivation for Venture Capitalists

Bob McCooey, Senior Vice President of NASDAQ OMX Group has gone so far as to state that “…the BX Venture Market can provide a new exit opportunity for the long-term investments made by venture capitalists who support job creation and ongoing U.S. competitiveness.”  Presumably the exit strategy he is referring to is the fact that securities listed with the BX Markets will be able to be quoted and traded and that market makers will be on the bid and offer.  Of course, this ability exists now with the OTCBB and OTCQB.  It will remain to be seen if long term venture capitalists will find the idea of future trading on the BX Market more enticing than the current exit strategies available with the OTCBB and OTCQB.

One thing is for sure, the BX Markets will have some power and money behind it.  Currently the NASDAQ OMX Group is the world’s largest exchange company, offering trading technology and platforms over 6 continents and to over 70 exchanges.  Let’s not forget the NASDAQ name.  In fact, the NASDAQ name gave the SEC concern (among other things) in accepting the proposal.  Investors could be easily confused, thinking they were investing in a NASDAQ exchange listed company and not an over the counter security.

Protecting the NASDAQ Name

To counter this concern the BX Market has indicated that companies that refer to themselves as listed on the NASDAQ or NASDAQ exchange will be subject to immediate de-listing from the BX Market.  Still just stating the true fact that the BX Market is owned by and supported by the NASDAQ OMX Group and that is the NASDAQ Listing department that will review and process listing applications for the BX Market, can, and probably will, create confusion.

In summary, the BX Markets will serve as a much needed middle ground between exchange listing and the existing over the counter markets. Since this particular market venue has never existed before, the formative stages should be of particular interest to investors, issuers, securities attorneys, PCAOB auditors and pretty much everyone else in the industry.

Generally speaking, more competition is usually a good thing. Let’s see how this one is received.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

It should be noted that this article focuses specifically on non-accelerated filers.

Companies subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to file quarterly reports on Form 10-Q and annual reports on Form 10-K.  In additional articles, I will discuss in depth the contents and specific disclosure requirements of both forms.  However, in summary, the quarterly report on 10-Q contains unaudited reviewed quarterly financial statements together with management discussion and analysis of those statements.

Form 10-K

The annual report on Form 10-K contains audited annual financial statements, together with management discussion and analysis of those statements as well as other disclosures including but not limited to management bios, management compensation, unregistered issuances of stock, generally background on the registrant, internal control reports, litigation matters and more.

Quarterly reports on form 10-Q are due 45 days from the end of the quarter and annual reports on Form 10-K are due 90 days from the end of the filers fiscal year end.  Each filer has the right to file for an extension on Form 12b-25 which will not result in the filing being deemed delinquent.

Filing Extensions

Extensions must be filed no later than the due date of the 10-Q or 10-K for which the extension is filed.  An extension of up to 15 calendar days is available for Form 10-K and up to 5 calendar days for Form 10-Q. In the event that the extension deadline ends on a weekend or holiday, the filing deadline is extended to the next business day.  The extension period begins to run the day after the report was due. No further extensions are available.  For example if a 10-Q is due on a Monday and a 12b-25 is filed on that Monday, the 10-Q would be due Saturday, however, since that is a weekend, the 10-Q could be filed the next Monday and not be deemed delinquent.

The Impact on Delinquent Filers

Failure to timely file a report will make the registrant a delinquent filer.  The ramifications of being a delinquent filer vary depending on where the registrant’s stock is quoted (over the counter market OTCBB or OTCQB or an exchange such as NASDAQ).  Delinquent filers trading on an exchange, generally face delisting from that exchange and are automatically quoted on the over the counter market.  The exchange, such as NASDAQ, has broad discretion and authority in working with filers to maintain their exchange listing.  The particular rules and regulations of each exchange, and effect of delinquent filing on a registrant’s stock quotation on that exchange, is beyond the scope of this article.

FINRA Rule 6530

FINRA Rule 6530 related to OTCBB eligible securities require that an OTCBB security be current in its Exchange Act reporting requirements.  Filing a report within the extension period following the filing of a 12b-25 is deemed current.  FINRA allows a 30 day grace period prior to removing a registrant from the OTCBB.  However, if a registrant is late in filing its reports 3 times in any 2 year period, it will become ineligible to quote on the OTCBB, without benefit of a grace period.  The registrant can re-apply for quotation after 12 months. The registrant will become ineligible regardless of whether it becomes current thereafter.  This is a bright line rule – one day late, is late!

OTC Markets and the OTCQB

The OTC Markets, which operates the OTCQB, is not a self regulatory organization, but rather is a privately owned and run, for profit, quotation platform.  Accordingly, it is not subject to legislative rules and regulations, its rules are not approved by the SEC, and are not subject to legislative review prior to change.  Quotation on the OTCQB requires that registrants be “current in their SEC reporting requirements.”  A search of the OTC Markets website did not provide any information as to any grace periods or particular standards related to late or delinquent filers.

All delinquent filers, regardless of where quoted, are subject to SEC enforcement proceedings for deregistration.  A deregistered security may not be quoted anywhere or by any medium or by any broker or dealer until re-qualified, either through registration or a new 15c2-11 application. Deregistration is separate and distinct from delisting.  Delisting is the removal of the stock from quotation from a specific exchange (such as NASDAQ or AMEX) or quotation service (such as OTC Markets).  A delisted security may still be quoted by other quotation mediums.  Deregistration is an action by the SEC.  A deregistered security may not be quoted by any medium.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.