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OTCQB

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

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
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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

OTC PINK Companies Now Qualify For Equity Line Financing

Without fanfare, the issuance of guidance, or any other formal notice, the SEC quietly changed its policy related to the filing of an at-the-market resale registration statement for an equity line financing by OTC Pink listed companies.  To be clear, an OTC Pink listed company may now utilize a re-sale registration statement on Form S-1 for an equity line financing transaction, pursuant to which the securities may be sold by the investor, into the market, at market price.  This results in a dramatic shift, for the better, for OTC Pink companies in the world of capital markets.

Background

Rule 415 sets forth the requirements for engaging in a delayed offering or offering on a continuous basis.  Under Rule 415 a re-sale offering may be made on a delayed or continuous basis other than at a fixed price (i.e., it may be priced at the market).  It is axiomatic that for a security to be sold at market price, there must

OTC Markets; Rule 144; The SPCC

Small public companies are in trouble and they need help now!  Once in a while there is a perfect storm forming that can only result in widespread damage and that time is now for small public companies, especially those that trade on the OTC Markets.  The trains on track to collide include a combination of (i) the impending amended Rule 15c2-11 compliance deadline (which alone would be and is a clear positive); (ii) the proposed Rule 144 rule changes to eliminate tacking upon the conversion of market adjustable securities; (iii) the SEC onslaught of litigation against micro-cap convertible note investors claiming unlicensed dealer activity; (iv) the OTC Markets new across the board unwillingness to allow companies to move from the Pink to the QB if they have outstanding convertible debt; and (v) the SEC’s unwillingness to recognize the OTC Pink as a trading market and its implications on re-sale registration statements.

Any one of these factors alone would not

OTCQB And OTCQX Rule Changes

Effective October 1, 2020, the OTCQB and OTCQX tiers of OTC Markets have instituted amendments to their rules, including an increase in fees.

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 Current Information 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.

As an aside, companies that report to the SEC under Regulation A and foreign companies that

The SEC Has Adopted Final Amendments To Rule 15C2-11; Major Change For OTC Markets Companies

Despite an unusual abundance of comments and push-back, on September 16, 2020, one year after issuing proposed rules (see HERE), the SEC has adopted final rules amending Securities Exchange Act (“Exchange Act”) Rule 15c2-11.   The primary purpose of the rule amendment is to enhance retail protection where there is little or no current and publicly available information about a company and as such, it is difficult for an investor or other market participant to evaluate the company and the risks involved in purchasing or selling its securities.  The SEC believes the final amendments will preserve the integrity of the OTC market, and promote capital formation for issuers that provide current and publicly available information to investors.

From a high level, the amended rule will require that a company have current and publicly available information as a precondition for a broker-dealer to either initiate or continue to quote its securities; will narrow reliance on certain of the rules

NYSE, Nasdaq And OTC Markets Offer Relief For Listed Companies Due To COVID-19

In addition to the SEC, the various trading markets, including the Nasdaq, NYSE and OTC Markets are providing relief to trading companies that are facing unprecedented challenges as a result of the worldwide COVID-19 crisis.

NYSE

The NYSE has taken a more formal approach to relief for listed companies.  On March 20, 2020 and again on April 6, 2020 the NYSE filed a notice and immediate effectiveness of proposed rule changes to provide relief from the continued listing market cap requirements and certain shareholder approval requirements.

Recognizing the extremely high level of market volatility as a result of the COVID-19 crisis, the NYSE has temporarily suspended until June 30, 2020 its continued listing requirement that companies must maintain an average global market capitalization over a consecutive 30-trading-day period of at least $15 million.  Likewise, the NYSE is suspending the requirement that a listed company maintain a minimum trading price of $1.00 or more over a consecutive 30-trading-day period,

OTCQB And OTC Pink Rule Changes

In December 2019 the OTC Markets updated its Pink Disclosure Guidelines and Attorney Letter Agreement and Guidelines.  The Pink disclosure guidelines and attorney letter apply to companies that elect to report directly to OTC Markets pursuant to its Alternative Reporting Standard.  Furthermore, in January 2020 OTC Markets amended the OTCQB standards related to the disclosure of convertible debt and notification procedures for companies undergoing a change in control.  The OTCQB also updated its criteria for determining independence of directors, and added additional transfer agent requirements for Canadian Companies.

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 Current Information tiers of OTC Markets have the option of reporting directly to OTC Markets under its Alternative

OTCQX Rule Changes

Effective December 12, 2019, the OTC Markets has implemented changes to the initial and continued quotation requirements for companies listed on the OTCQX.  The amendments (i) allow certain qualifying companies to use their regular securities counsel for a letter of introduction in place of an OTCQX sponsor; (ii) establish procedures for a company effecting a change of control; (iii) enhance corporate governance requirements, refine the definition of an “independent director,” and provide for a phase in for compliance with these new provisions; (iv) require Canadian companies to utilize a transfer agent participating in the Transfer Agent Verified Shares Program by April 1, 2020, and (iv) require U.S. companies to disclose all convertible debt.  The last rule changes were implemented in May, 2019 – see HERE.

Amended Rules for U.S. Companies

OTC Sponsor

An SEC reporting company with a class of securities that has been publicly traded for at least one year may submit a written application to

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