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OTC Markets

FINRA Approves OTC Markets To Trade Digital Securities

As the SEC continues its onslaught against the crypto industry, including the filing of high-profile actions against Binance, which operates the largest crypto asset trading platform in the world, and Coinbase, a multi-billion-dollar crypto trading platform, FINRA has quietly approved OTC Markets to provide trading services for digital asset securities.

OTC Markets announced the approval in early May but don’t expect any activity in the near future.  Concurrent with announcing the approval, OTC Markets CEO, R. Cromwell Coulson, stated:

We also recently received FINRA approval to permit digital asset securities to be traded by broker-dealers on OTC Link ATS. This approval furthers our mission of operating regulated markets for broker-dealers and issuers of securities. While it will be some time until the regulatory framework and infrastructure develop, we believe our markets are well-positioned to be part of new trading, data, and disclosure solutions for these securities.

OTC Markets is clearly putting itself in a position to

Nasdaq Amends Pricing Limitations Rules In A Direct Listing

The rules related to direct listings continue to evolve, with the latest Nasdaq rule change being approved on December 2, 2022, although their utilization has been slow to gain traction.  Despite the Exchange’s efforts to make the process more attractive and viable, based on a few articles on the subject, only 10 companies had gone public via direct listing as of December 31, 2021, and I could not find a single example of any others since that time.  Moreover, and certainly due to the elevated listing standards and arduous process, each of the companies have been much more mature such as Spotify, Slack, Palantir and Coinbase.

In any event, both Nasdaq and the NYSE continue with an “if we build it they will come” approach.  After multiple iterations with the SEC, both Nasdaq and the NYSE approved rules that allow a company to raise capital concurrently with a direct listing (see HERE).  The very handy Nasdaq Initial Listing Guide

Changes To FINRA’S Corporate Action Notification Process

Effective June 3, 2023, FINRA will be replacing and updating the system for filing a Company Related Action Notification form, which form begins the process with FINRA to effectuate a corporate action initiated by a company trading on OTC Markets.  The new process allows companies to submit forms, get updates and respond to comments through an electronic FINRA gateway.

Background/Rule 6490

Effective September 27, 2010, the SEC approved FINRA Rule 6490 (Processing of Company Related Actions).  Rule 6490 requires that corporations whose securities are trading on the OTC Markets notify FINRA in a timely manner of certain corporate actions, such as dividends, forward or reverse splits, rights or subscription offerings, symbol changes and name changes.  The Rule grants FINRA discretionary power when processing documents related to the announcements.

Rule 6490 works in conjunction with Exchange Act Rule 10b-17. Rule 10b-17 states that “it shall constitute a manipulative or deceptive device or contrivance as used in section 10(b) of

SEC Continues It’s Crypto Focus

In the year and a half since Gary Gensler made it clear to the world that he intends to focus on the crypto “wild west” (see HERE) things have gone from bad to worse for the industry.  Of course, it is not all the SEC’s extreme crypto scrutiny that is causing problems, but the very real crypto winter including the collapse of the FTX exchange and its FTX Future Fund, and the realization that the metaverse of tomorrow, will actually not be here until… tomorrow have all added to industry problems.   Not to mention a slew of bankruptcy filings (FTX, Blockfi, Celsius and Voyager) and several other precarious financial positions (Blockchain.com, Coinbase, Crypto.com and Genesis, to name a few).

However, putting aside the crypto industry financial crisis, the U.S. regulators, including the SEC, FINRA and national exchanges, are scrutinizing any business with even a modicum of crypto focus to the point where it is almost impossible to move

The 211 Rules And Shell Companies

In September 2020, the SEC adopted a complete overhaul of the 15c2-11 rules, the new rules of which went into effect on September 28, 2021.  From a very high level, the new 211 rules: (i) require that information about the company and the security be current and publicly available in order to initiate or continue to quote a security; (ii) limit certain exceptions to the rule including the piggyback exception where a company’s information becomes unavailable to the public or is no longer current; (iii) limit certain exceptions to the rule including the piggyback exception where a company becomes and remains a shell company for a period of 18 months; (iv) reduce regulatory burdens to quote securities that may be less susceptible to potential fraud and manipulation; (v) allow OTC Markets itself to evaluate and confirm eligibility to rely on the rule; and (vi) streamline the rule and eliminate obsolete provisions.  For an in-depth discussion on the 15c2-11 rules,

Compliance Deadlines For Nasdaq Board Diversity Rules

On August 6, 2021, the SEC approved Nasdaq’s board diversity listing standards proposal.  Nasdaq Rule 5605(f) requires Nasdaq listed companies, subject to certain exceptions, to: (i) to have at least one director who self-identifies as a female, and (ii) have at least one director who self-identifies as Black or African American, Hispanic or Latino, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (iii) explain why the company does not have at least two directors on its board who self-identify in the categories listed above.  The rule changes also made headlines in most major publications.  One of the most common themes in the press was the lack of inclusion of people with disabilities in the definition of an “underrepresented minority” for purposes of complying with the new rules.

The original rules had tiered compliance deadlines which Nasdaq (and practitioners) found confusing and unnecessarily complicated.  On December 14,

Cannabis Trade Association Makes Plea For National Exchange Listings

The American Trade Association for Cannabis and Hemp (ATACH) has published a policy paper urging the Nasdaq and New York Stock Exchange to allow U.S. cannabis operators that “touch the plant” to list on their respective Exchanges.  The current prohibition to listing is purely discretionary and not because of any regulatory action by the SEC or any other U.S. regulatory authority.  The policy paper, published November 7, 2022, outlines very convincing arguments for allowing U.S. operators to list on the National Exchanges.

The policy paper notes that up until now, the National Exchanges have refused to list these companies while cannabis remains federally illegal out of concerns that they could be charged with aiding and abetting violations of the U.S. Controlled Substances Act (“CSA”) or with money laundering by the receipt of listing fees.  As of the time of the publication of the policy paper, cannabis is legal in 37 states, D.C. and U.S. territories.  The ATACH rightfully asserts that

Public Market Listing Standards

One of the bankers that I work with often once asked me if I had written a blog with a side-by-side comparison of listing on Nasdaq vs. the OTC Markets and I realized I had not, so it went on the list and with the implementation of the new 15c2-11 rules, now seems a very good time to tackle the project.  I’ve added NYSE American to the list as well.

Quantitative and Liquidity Listing Standards

Nasdaq Capital Markets

To list its securities on Nasdaq Capital Markets, a company is required to meet: (a) certain initial quantitative and qualitative requirements and (b) certain continuing quantitative and qualitative requirements.  The quantitative listing thresholds for initial listing are generally higher than for continued listing, thus helping to ensure that companies have reached a sufficient level of maturity prior to listing.  NASDAQ also requires listed companies to meet stringent corporate governance standards.

Requirements Equity Standard  Market Value of

Listed Securities

Standard

Net
Read More »

OTCQX And OTCQB Rule Changes

In September 2021, the OTCQB and OTCQX tiers of OTC Markets instituted amendments to their rules, to, among other things, align with the market changes resulting from amended Rule 15c2-11.

The OTC Markets divide issuers into three (3) levels of quotation marketplaces: OTCQX, OTCQB and OTC Pink Open Market. The OTC Pink Open Market, which involves the highest-risk, highly speculative securities, is further divided into three tiers: Current Information, Limited Information and No Information. Companies trading on the OTCQX, OTCQB and OTC Pink tiers of OTC Markets have the option of reporting directly to OTC Markets under its Alternative Reporting Standards.  The Alternative Reporting Standards are more robust for the OTCQB and OTCQX in that they require audited financial statements prepared in accordance with U.S. GAAP and audited by a PCAOB qualified auditor in the same format as would be included in SEC registration statements and reports.

Companies that report to the SEC under Regulation A and foreign companies that

FINRA Granted Oversight Of OTC Markets In The 211 Process

Clearly not completely pleased with the power bestowed on OTC Markets as part of the amended Rule 15c2-11, on June 9, 2021, FINRA filed a request for a rule change to increase its regulatory oversight and require OTC Markets to file a Form 211 as part of the new process. The SEC published the proposal on June 15 and sought comments.  Only one comment letter was received, and that was from OTC Markets itself.  On September 10, 2021, SEC approved the rule change with an effective date of September 28, 2021, the same day as the compliance date for the amended Rule 15c2-11.  On that date, any company that does not comply with the current publicly available information requirements in the amended 15c2-11 rules (see HERE and HERE for in-depth discussions on the new rules), will cease to trade and become what the industry refers to as “grey market.”

Amended Rule 6432 will: (i) require OTC Markets to submit a

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