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
As the compliance date for the new 15c2-11 rules looms near, on August 2, 2021, in a very short statement, the SEC shot down any near-term hope for an OTC Markets operated “expert market.” The SEC short statement indicated that a review of the proposed exemptive order that would allow the expert market is not on its agenda in the short term. The SEC continued that “[A]ccordingly, on September 28, 2021, the compliance date for the amendments to Rule 15c2-11, we expect that broker-dealers will no longer be able to publish proprietary quotations for the securities of any issuer for which there is no current and publicly available information, unless an existing exception to Rule 15c2-11 applies.”
The statement acts as a great segue for a review as to just what those exceptions may be. In addition, this blog will discuss the OTC Markets proposed expert market and finish with a broader refresher on the new 211 rules including the
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
In early April, the SEC Office of Small Business Policy published the 2016 Final Report on the SEC Government-Business Forum on Small Business Capital Formation, a forum I had the honor of attending and participating in. As required by the Small Business Investment Incentive Act of 1980, each year the SEC holds a forum focused on small business capital formation. The goal of the forum is to develop recommendations for government and private action to eliminate or reduce impediments to small business capital formation.
The forum is taken seriously by the SEC and its participants, including the NASAA, and leading small business and professional organizations. The forum began with short speeches by each of the SEC commissioners and a panel discussion, following which attendees, including myself, worked in breakout sessions to drill down on specific issues and suggest changes to rules and regulations to help support small business capital formation, as well as the related, secondary trading markets. In
A. S-1 Proceedings
On February 3, 2014, the SEC initiated administrative proceedings against 19 companies that had filed S-1 registration statements. The 19 registration statements were all filed with an approximate 2-month period around January 2013. Each of the companies claimed to be an exploration-stage entity in the mining business without known reserves, and each claimed they had not yet begun actual mining. The 19 entities used the same attorney, who is the subject of a separate SEC action filed in August 2013 alleging involvement in a pump-and-dump scheme. Each of the entities was incorporated at around the same time using the same registered agent service. The 19 S-1’s read substantially the same.
Importantly, each of the 19 S-1’s lists a separate officer, director and sole shareholder, and each claims that this person is the sole control person. The SEC complains that contrary to the representations in the S-1, a separate single individual is the actual control person behind each
For at least the last twelve months, I have received calls daily from companies wanting to go public. This interest in going public transactions signifies a big change from the few years prior.
Beginning in 2009, the small-cap and reverse merger, initial public offering (IPO) and direct public offering (DPO) markets diminished greatly. I can identify at least seven main reasons for the downfall of the going public transactions. Briefly, those reasons are: (1) the general state of the economy, plainly stated, was not good; (2) backlash from a series of fraud allegations, SEC enforcement actions, and trading suspensions of Chinese companies following reverse mergers; (3) the 2008 Rule 144 amendments including the prohibition of use of the rule for shell company and former shell company shareholders; (4) problems clearing penny stock with broker dealers and FINRA’s enforcement of broker-dealer and clearing house due diligence requirements related to penny stocks; (5) DTC scrutiny and difficulty in obtaining clearance following
The Securities and Exchange Commission (SEC) today suspended the trading in 61 dormant shell companies. The trading suspensions are part of an SEC initiative tabbed Operation Shell-Expel by the SEC’s Microcap Fraud Working Group. In May 2012, the SEC suspended the trading on 379 shell companies as part of the initiative. Each of the companies were dormant shells that were not current in public disclosures. Each of the companies failed to have adequate current public information available either through the news service on OTC Markets or filed with the SEC via EDGAR.
The federal securities laws allow the SEC to suspend trading in any stock for up to 10 business days. Once a company is suspended from trading, it cannot be quoted again until it provides updated information including complete disclosure of its business and accurate financial statements. In addition to providing the necessary information, to begin to trade again, a company must enlist a market maker to file a
For the past two years it had appeared that the OTCBB had been replaced by the OTC Link run OTCQB and the OTCQX. For all intents and purposes since the fall of 2010, the industry-wide proliferation of the OTCQB and OTCQX has marginalized the OTCBB to the brink of extinction. It is has now become incredibly apparent that the OTCQB is the new micro-cap reporting standard.
Over the past few years the historical “Pink Sheets” and its online presence has undergone some considerable changes, starting with the creation of several well-defined “tiers” of issuers and culminating in a completely refurbished website and a new URL – www.otcmarkets.com; and new name for the Inter-dealer quotation system – the OTC Link. The OTC Link divides issuers into three levels: OTCQX; OTCQB and Pink Sheets. Quotation on both the OTCQB and OTCQX requires that the Issuer be subject to and current with the reporting requirements of the Securities Exchange Act