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 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 the OTCQB and OTCQX listing requirements, see HERE, HERE and HERE.
On September 28, 2021, amended Rule 15c2-11 became effective. From a high level, the amended rule requires 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; narrows reliance on certain of the rules exceptions, including the piggyback exception; adds new exceptions for lower risk securities; and adds the ability of OTC Markets itself to confirm that the requirements of Rule 15c2-11 or an exception have been met, and allows for broker-dealer to rely on that confirmation. See HERE and HERE for an in-depth discussion of the new rules.
OTCQB Amendments
Effective September 26, 2021, the OTCQB Standards, Version 4.0, went into effect. The new Version 4.0 modified the prior rules as follows:
Bid Price Rule. Companies applying to the OTCQB in conjunction with an initial review for quotation eligibility under Rule 15c2-11 shall have three (3) business days to meet the requirement for proprietary priced quotations to be entered. That is, a company will need to coordinate with a market maker to enter a quotation within three business days of OTC Markets determination that the 211 information requirements have been satisfied. Upon application, OTC Markets may exempt these companies from the general requirement of having a minimum bid price of $.01 per share as of the close of business for the prior 30 consecutive calendar days.
Disclosure Requirements – Alternative Reporting Companies. – A Company that follows the Alternative Reporting Standard must have posted audited financials dated within 16 months at all times in order to maintain compliance with Rule 15c2-11.
Disclosure Requirements for International and Insurance Companies. Foreign issuers that report to the SEC using Forms 20-F and 40-F must also file an interim Form 6-K containing, at minimum, an interim balance sheet and an income statement as of the end of its second quarter. The Form 6-K must be filed within six months from the company’s second quarter end. International companies relying on Rule 12g3-2(b) must provide annual confirmation of 12g3-2(b) compliance through the Add Financial Report link in www.otciq.com using the report type titled “12g3-2(b) Confirmation.” For more on Rule 12g3-2(b), see HERE.
All insurance companies must post their most recent “Insurance Company Annual Regulatory Statement” per Securities Exchange Act Section 12(g)(2)(G)(I), through the OTC Disclosure & News Service, initially and annually.
Application Process. The OTCQB application and supporting materials must be submitted through the new online application portal at https://gateway.otcmarkets.com.
OTCQX Amendments
Effective September 23, 2021, the OTCQX Standards, Version 9.0, went into effect. The new Version 9.0 modified the prior rules as follows:
Bid Price Rule. Companies applying to the OTCQX in conjunction with an initial review for quotation eligibility under Rule 15c2-11 shall have three (3) business days to meet the requirement for proprietary priced quotations to be entered. That is, a company will need to coordinate with a market maker to enter a quotation within three business days of OTC Markets determination that the 211 information requirements have been satisfied. Upon application, OTC Markets may exempt these companies from the general requirement of having a minimum bid price of $.25 per share as of the close of business for the prior 30 consecutive calendar days. This same rule change applies to U.S., International and U.S. Bank issuers.
SPACs. SPACs with at least $20 million public float and a bid price of at least $5.00 can qualify to trade on the OTCQX. A company formerly operating as a SPAC that has effected or is in the process of effecting a business combination and becoming an operating company may request a 90-day exemption to the float requirement in Section 2.1(i) (i.e., minimum float of $10 million). A qualifying company must meet all other OTCQX eligibility criteria and must have been publicly traded prior to the business combination.
Insurance Companies. All insurance companies must post their most recent “Insurance Company Annual Regulatory Statement” per Securities Exchange Act Section 12(g)(2)(G)(I), through the OTC Disclosure & News Service, initially and annually.
Disclosures. All companies must verify their Company Profile through the OTCIQ.com web portal as an initial disclosure obligation. A Company that follows the Alternative Reporting Standard must have posted audited financials dated within 16 months at all times in order to maintain compliance with Rule 15c2-11.
Fees. Companies may be removed for non-payment of outstanding fees to OTC Markets, including fees for services such as press releases.
International Companies. All companies must either be listed on a Qualified Foreign Stock Exchange and eligible to rely on the exemption from registration provided by Rule 12g3-2(b), be an SEC Reporting Company or be a Regulation A Reporting Company. Exemptions for companies listed on a foreign exchange that is not a Qualified foreign Exchange and for companies that cannot rely on the exemption provided by 12g3-2(b) because they do not meet the definition of “foreign private issuer” have been eliminated from the rules.
International companies that are SEC or Regulation A reporting and not listed on a qualified foreign exchange must have a public float of at least 10%.
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.
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