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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 qualify for the SEC reporting exemption under Exchange Act Rule 12g3-2(b) may also qualify for the OTCQX, OTCQB and OTC Pink Current Information tiers of OTC Markets if they otherwise meet the listing qualifications.  For more information on OTCQB and OTCQX listing requirements, see HEREHERE, and HERE.

OTCQB Amendments

Effective October 1, 2020, the OTCQB Standards, Version 3.4, went into effect.  To review the last amendments adopted in February 2020, see HERE. The new Version 3.4 modified the prior rules as follows:

Fees.  Effective January 1, 2021, the OTCQB annual fee will increase from $12,000 to $14,000 and the application fee will increase from $2,500 to $5,000.

Corporate Governance Requirements.  Companies that alternatively report to OTC Markets must meet certain corporate governance requirements to be eligible to trade on the OTCQB.  In particular, such companies must have a board of directors that includes at least two independent directors and must have an audit committee the majority of which are independent directors.  The new rules provide that trusts, funds, and other similar companies may be exempted from these corporate governance standards.  A company wishing to be exempted must apply to OTC Markets in writing and such exemption will be granted in the sole and absolute discretion of OTC Markets.

Application Review/Reasons for Denial.  Although OTC Markets has always had broad discretion to deny an application to trade on the OTCQB, the new rules specifically provide that OTC Markets may “[R]efuse the application for any reason, including but not limited to stock promotion, dilution risk, and use of “toxic” financiers if it determines, in its sole and absolute discretion, that the admission of the Company’s securities for trading on OTCQB, would be likely to impair the reputation or integrity of OTC Markets Group or be detrimental to the interests of investors.”

OTCQX Amendments

Effective October 1, 2020, the OTCQX Standards, Version 8.6, went into effect.  To review the last amendments adopted in December 2019, see HERE. The new Version 8.6 modified the prior rules as follows:

Fees.  Effective January 1, 2021, the OTCQX annual fee will increase from $20,000 to $23,000.  The application fee remains unchanged at $5,000.

International Company Upgrade to OTCQX.  A Company with a class of securities currently quoted on the OTCQB market that chooses to upgrade to OTCQX may now be exempt from the requirement to select an OTCQX Sponsor or submit a Letter of Introduction.

Sponsor for International Companies. An OTCQX Sponsor who is an attorney or law firm is no longer required to be headquartered in the U.S. or Canada. Instead, each attorney who provides services as an OTCQX Sponsor must be licensed to practice law and in good standing in the U.S.  As a reminder, I am a qualified OTCQX Sponsor.

The Author

Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
LAnthony@AnthonyPLLC.com

Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service.  The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

Contact Anthony L.G., PLLC. Inquiries of a technical nature are always encouraged.

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Noun

Lawcast is derived from the term podcast and specifically refers to a series of news segments that explain the technical aspects of corporate finance and securities law. The accepted interpretation of lawcast is most commonly used when referring to LawCast.com, the securities law network. Example: “LawCast expounds on NASDAQ listing requirements.”

Anthony L.G., PLLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.

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