OTC Markets has announced the launch of a new market tier. Effective July 2025, Pink Current will become the OTCID, a basic reporting market requiring companies to meet minimal current information disclosures and provide management certifications. OTC Markets will still maintain the Pink Limited and Expert Market tiers for companies that do not qualify for the OTCID. OTC Markets has not yet published all of the requirements for the OTCID, but I suspect they will be similar to the existing Pink Current, with the addition of the management certifications.
I support the change and new branding opportunity. OTC Markets have struggled in recent years, primarily as a result of an inability for OTC Markets traded companies to obtain institutional financing or underwriter/placement agent banker support. Forever the optimist, the change could be just what is needed to revitalize the OTC Markets as a venture market place for U.S. micro-cap companies.
OTCID
Currently, the OTC Markets divides issuers into three levels of quotation marketplaces: OTCQX, OTCQB and OTC Pink with progressively higher listing standards. The OTC Pink is then further divided into three levels: OTC Pink Current, Pink Limited and Expert Market. For a review of the listing standards for the OTCQX and OTCQB see HERE. The historical “Pink Sheets” divided itself into these market tiers in approximately 2011, and although there have been many listing rule changes, this is the first major renovation since that time.
OTC Pink Current is comprised of companies that “alternatively report” to OTC Markets by filing quarterly and annual disclosure reports, including financial statements. The financial statements are not audited or reviewed by a PCAOB qualified independent accountant, but they must be prepared in accordance with GAAP by a person or accounting firm qualified to do so. The new OTCID will also require management certifications as to the disclosures.
In a blog related to the new OTCID, OTC Markets CEO, Cromwell Coulson points out that the “OTC” prefix on the three market tiers, relays to the investment community that these companies provide disclosures, meet various levels of corporate governance and for the OTCQX, are penny stock exempt. Likewise, the lack of the “OTC” prefix will communicate to the capital markets, that those companies have “no ongoing relationship with OTC Markets” warning investors “of the potential for market imperfections, issuer information asymmetries and other risks.”
Change is Good
Over the past several years, OTC Markets has taken a series of hits that have made it very difficult for U.S. companies to raise capital, gain liquidity and grow while trading on the OTC Markets. At the same time, OTC Markets has become a flourishing marketplace for foreign companies seeking to dual list on a U.S. trading platform. According to OTC Markets, trading in international companies now represents more than 90% of its total dollar value.
However, there remains a need for a viable U.S. venture marketplace – and in fact, that need is growing more than ever. Nasdaq has seen an unprecedented number of small and micro-cap companies that are failing to maintain the minimum continued listing requirements, hundreds of which are being delisted or voluntarily moving to OTC Markets. These delistings are likely to increase as Nasdaq implements rule changes to accelerate the process (see HERE). The NYSE American has a lower minimum bid price requirement for continued listings so has had fewer delistings but has taken steps to decrease the number of new micro-cap listings by requiring higher capital raises (and thus companies that can support a higher valuation) in its initial listing process.
Moreover, Regulation A continues to grow and provides an excellent capital raising option. Although Regulation A can be used for a Nasdaq or NYSE/NYSE American IPO, many companies that avail themselves of a Regulation A offering are too small for a national exchange but want to provide their investors with liquidity through a trading platform.
That leaves OTC Markets.
As mentioned, OTC Markets has taken a series of hits in recent years, but the tide could be turning. It has become increasingly difficult to raise money on the OTC Markets primarily stemming from the SEC’s onslaught of litigation against OTC Markets investors claiming unlicensed dealer activity. I have written about this issue on numerous occasions, including recently (see HERE). The SEC’s litigation effectively eliminated the availability of institutional money for OTC Markets entities.
Although the SEC has had a series of wins in these cases, that could be changing. In particular, the U.S. Supreme Court recently struck down the Chevron doctrine as giving too much power and authority to governmental agencies in interpreting the law (see HERE). Following that case, SEC Commissioner Mark T. Uyeda made a public statement calling the SEC’s enforcement proceedings in the dealer litigation cases an arbitrary interpretation of the dealer definition. He also challenged the SEC’s position as violating the “void for vagueness” doctrine. Notably, this is the first time a high-level SEC official discussed the dealer litigation issue – and did so in opposition.
If the courts stop siding with the SEC on this issue, institutional investors will return to the OTC Markets breathing a new life into the marketplace.
Another deterrent to institutional investors was the proposed Rule 144 rule change that would eliminate a tacking period upon conversion of a market adjustable security (such as a convertible note that converts at a discount to market price) that is not traded on a national exchange. For more on the proposed amendment see HERE. However, it has now been four years since the proposal with no action. Although the proposal remains on the SEC’s regulatory agenda, the responsive comments were overwhelmingly opposed to the change and over time, it is increasingly unlikely that the rule will be affected as proposed. A resolution of this cloud would also help ease institutional concerns with OTC Markets investments.
Bottom line is that U.S. companies need a real venture marketplace where they can access capital market investors and gain liquidity in their stock. OTC Markets once again has a chance of becoming just that.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, 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, Linder & Cacomanolis, 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 ALC 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 the American Red Cross for Palm Beach and Martin Counties, 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.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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