Category: Broker-Dealer

Broker-Dealer: A Broker is defined in Section 3(a)(4)(A) of the Exchange Act as any person engaged in the business of effecting transactions in securities for the account of others and, as such, is required to register pursuant to Section 15(a) of the Exchange Act…

Aug232012

The OTCBB – Nearly Extinct, OTCQB is the Micro-Cap Reporting Standard

For the past two years it had appeared that the OTCBB had been replaced by the OTC Link run OTCQB and the OTCQX. For all intents and purposes since the fall of 2010, the industry-wide proliferation of the OTCQB and OTCQX has marginalized the OTCBB to the brink of extinction. It is has now become incredibly apparent that the OTCQB is the new micro-cap reporting standard.

Background

Over the past few years the historical “Pink Sheets” and its online presence has undergone some considerable changes, starting with the creation of several well-defined “tiers” of issuers and culminating in a completely refurbished website and a new URL – www.otcmarkets.com; and new name for the Inter-dealer quotation system – the OTC Link.  The OTC Link divides issuers into three levels: OTCQX; OTCQB and Pink Sheets.  Quotation on both the OTCQB and OTCQX requires that the Issuer be subject to and current with the reporting requirements of the Securities Exchange Act

Jul102012

FINRA Seeks Public Comment in Advance of Crowdfunding Rulemaking

The Financial Industry Regulatory Authority (FINRA) has requested public comment and input in advance of preparing and publishing proposed rules related to the Crowdfunding Act.  The scope of the FINRA rules will be written specifically for registered funding portals and although they will need to be complementary to the SEC rules, it is intended that they not be duplicative.  FINRA has set August 31, 2012 as the deadline for receiving comments.

As Related to Registered Funding Portals

Section 302 of the Crowdfunding Act requires that all Crowdfunding offerings be conducted through an intermediary that is a broker dealer or funding portal that is registered with the SEC. Section 304 of the Crowdfunding Act provides that Funding Portals are exempt from the broker dealer registration requirements, as long as they are registered with the SEC as Funding Portals and follow all such registration and ongoing rule and reporting requirements.  In accordance with Section 304, Funding Portals must be “subject

Jun132012

SEC Approves Revision to FINRA Rule Regarding Broker Dealer FINRA Filing Requirements for Private Placement Offerings

On June 7, 2012 the SEC granted accelerated approval to a FINRA rule change regarding broker dealer FINRA filing requirements for activities associated with private placement offerings.  The rule was originally drafted to address disclosures that must be provided to investors prior to an investment and disclosure that must be provided to FINRA following a sale in a private placement, regarding use of proceeds, the amount and type of offering expenses, and all offering related compensation to be paid to placement agents, finders, associated persons and the like.

Summary of Rule Change

FINRA Rule 5123 (Private Placements of Securities) has been amended to require that each FINRA member firm that participates in a private placement of securities file with FINRA a copy of any private placement memorandum (PPM), term sheet, or other offering document used in connection with a sale, within 15 days of the date of the first sale and any material amendment thereto, or provide a notice to

Mar212012

DTC Chills, Due Process and Rule 22

Back in October and November of 2011 I wrote a series of blogs regarding DTC eligibility for OTC (over the counter) Issuers.  OTC Issuers include all companies whose securities trade on the over the counter market, including the OTCBB, OTCQB and Pink Sheets.  Many OTC Issuers have faced a “DTC chill” without understanding what it is; let alone how to correct the problem.  In technical terms, a DTC chill is the suspension of book-entry clearing and settlement services with respect to an Issuer’s securities.  In layman’s terms it means your stock can’t clear or trade electronically.  Since all trading in today’s world is electronic, it really means your stock doesn’t trade.

The SEC’s Stance

As noted in the SEC opinion:

“…DTC provides clearance, settlement, custodial, underwriting, registration, dividend, and proxy services for a substantial portion of all equities, corporate and municipal debt, exchange traded funds, and money market instruments available for trading in the United States.  In 2010, DTC

Dec162011

Private Capital Market Places – A Second Look

Last week I wrote a blog introducing, at least to me, Private Company Market Places (PCMP).  A PCMP is a trading platform, such as SharePost or SecondMarket that provides a market place for illiquid restricted securities, such as private company securities, 144 stock, debt instruments, warrants, and the like or alternative assets.  It is on a PCMP that Facebook’s shares currently trade and where pre-IPO Groupon and LInkedin received their trading start.

This week I reviewed some of the top PCMP players, including Gate Technologies, SecondMarket, Sharespost and Xpert Financial.  I have no affiliation, have never worked with and maintain no accounts with any of these PCMPs.

PCMP’s are Broker Dealers or Affiliated

Each PCMP is a licensed broker dealer or affiliated with a licensed broker dealer, that has either created or licensed an electronic trading board, available at their respective websites, which allows investors to view, buy, and sell otherwise illiquid, restricted or alternative assets.  These securities are

Dec092011

Private Capital Marketplace – A First Look

As I discussed in a recent blog, the attraction of the small cap and reverse merger market has diminished greatly in the past two years.  The Over the Counter market has become an expensive place to conduct business; the antithesis of the very reason small companies sought to list there to begin with. Accessing capital markets for microcap companies is not as simple as it once was.

In addition to the added expensive of complying with the Securities Exchange Act of 1934 disclosure requirements, the marketplace invites speculators who short sell (bet that the price of a stock will go down) and hedge with derivatives, often creating unpredictable volatility and share prices not indicative of the underlying value of the actual business.

No Automatic Liquidity for Issuers

Being public is no guarantee of liquidity either. It’s fantastic for an issuer to state that their stock is being quoted at $5.00 per share, but if there is no volume (the shares

Feb252011

Gunjumping Restrictions On Communications Related To IPOs

”Gunjumping” is the dissemination of information regarding the Issuer before a complete prospectus has been filed with the Securities and Exchange Commission (“SEC”). Communications prior, during and immediately following the filing of a registration statement are strictly regulated to prevent an Issuer from hyping the market in association with an offering. In addition, the SEC wants to ensure that investors decisions to participate in an offering are based on information that has been reviewed by the SEC and meets the disclosure standards set forth in the securities laws.

Registration Requirements for Sales

During the pre-filing period, Section 5(c) of the Securities Act of 1933, as amended (the “Securities Act”) makes it “unlawful for any person, directly or indirectly, to… offer to sell or offer to buy… any security, unless a registration statement has been filed as to such security.” An offer to sell or offer to buy are broadly defined to include every attempt or offer to dispose of a

Oct032009

Market Makers Rely on Due Diligence in Reverse Mergers

Following approval of the 15c2-11 application by FINRA, and the consistent quotation of a company’s securities, market makers may “piggy back” on the approved and completed 15c2-11. In short, a market maker may quote the share price of the Bulletin Board Shell while relying on the due diligence of other market makers and the company’s current SEC filings.

Although highly technical, the due diligence process can be completed quickly and thoroughly by an experienced securities attorney; the key is knowing where to look and what to look for. For example:

  • All articles and amendments are ordered from the company’s state of domicile and reviewed for procedural correctness and historical understanding.
  • DTC (the Depository Trust Company) is contacted to confirm the company is in a transferable status.
  • In addition to financial statement review, using several proprietary online search services, the firm conducts comprehensive debt and litigation searches to identify any miscellaneous debts as well as pending or past litigation.
  • A tax
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