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SEC Insights - June 2014

 

OTCQB Markets Group Update

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Effective May 1, 2014 the OTC Markets Group implemented changes to make OTCQB a better venture stage marketplace for early and developing U.S. and international companies. Companies are now required to meet eligibility standards aimed at improving the information available to investors. To be eligible to trade on OTCQB, companies are now required to meet a new bid price test, provide additional information, and submit an annual OTCQB Certification signed by the reporting company’s CEO or CFO.

The OTC Markets Group operates three public marketplaces for approximately 10,000 U.S. and global securities. OTCQX serves established global and growth companies that can meet high financial standards, OTCQB is a venture stage marketplace for early and developmental companies, and OTC Pink is an open marketplace for brokers to trade in all types of securities without requiring involvement of the company. OTCQX and OTCQB are recognized as Established Public Markets by the SEC.

The new changes are designed to create standards to improve transparency and exclude companies that are most likely to be associated with stock promoters and other nefarious operators. These new standards are part of the OTC Markets Group’s strategy to make OTCQB a real venture stage marketplace in the U.S., similar to the entry level markets of the TSX Venture in Canada and the AIM market in London.

Based on executive surveys conducted by the OTC Markets Group, a majority was found to believe that low priced shells and stock promoters make OTCQB a less attractive marketplace for investors and hinder their ability to attract a wider group of potential shareholders. Responses centered on the following improvements: (1) timely disclosure of material information, (2) verification of reporting status, (3) verification of shares outstanding, (4) disclosure of promoters, and (5) disclosure of shareholders.

In response to the aforementioned survey, the OTC Markets Group implemented the new requirements summarized below in 2014.

Effective May 1, 2014:

  • Bid Test: All current OTCQB companies that are in bankruptcy or do not meet the minimum bid test (minimum bid price of $0.01 per share as of the close of business for at least one of the previous thirty consecutive calendar days) will be removed from OTCQB beginning May 1.
  • New Companies: Companies that are not on OTCQB as of April 30, 2014 must submit an application, pay the required fees and follow the new procedures in order to become traded on OTCQB. Accordingly, securities will no longer be automatically listed on OTCQB when a new Form 211 is cleared by FINRA or an OTC Pink company becomes current in its reporting.
  • International Reporting: International Reporting companies on a Qualified Foreign Stock Exchange may now apply to trade on OTCQB.

General Initial and Ongoing Requirements

  • Meet an initial and ongoing bid price test of $0.01 as of the close of business for each of the previous 30 calendar days initially and subsequently as of the close of business for at least one of every 30 calendar days.
  • Companies may not be subject to bankruptcy or reorganization proceedings
  • Complete and submit OTCQB Application and applicable fees

SEC Reporting Companies

Specific Initial and Ongoing Requirements
  • Be current in all periodic reporting requirements on EDGAR (or for companies not required to file on EDGAR, post SEC disclosure on the OTC Markets website)
  • Post on the OTC Markets website: OTCQB Initial Certification and subsequently OTCQB Annual Certification

Bank Reporting Companies

Specific Initial Requirements
  • Post on the OTC Markets website:
    • Previous two years’ disclosure that was filed with the company’s bank regulator (except that information deemed non-public does not need to be posted)
    • OTCQB Initial Certification

Specific Ongoing Requirements

  • Post on the OTC Markets website:
    • Disclosure that is filed with the company’s bank regulator (except that information deemed non-public does not need to be posted)
    • OTCQB Annual Certification

International Reporting Companies

Specific Initial Requirements

  • Be compliant with SEC Rule 12g3-2(b) and be listed on a Qualified Foreign Exchange
  • Submit a “Letter of Introduction” from a qualified PAL which states the PAL has a reasonable belief that the Company is in compliance with 12g3-2(b), is listed on a Qualified Foreign Exchange, and has posted required disclosure on OTC Markets website
  • Post on the OTC Markets website:
  • Previous two years’ of disclosure required under 12g3-2(b) in English (except press releases)
  • OTCQB Initial Certification (see below details on Certification requirements)

Specific Ongoing Requirements

  • Post on the OTC Markets website:
    • Disclosure required under 12g3-2(b) in English, including Quarterly Reports and audited Annual Reports (except press releases)
    • OTCQB Annual Certification

The new procedures for OTCQB will be rolled out over the course of the year. Each company will be required to comply with the new OTCQB procedures 120 days following their 2014 Fiscal Year End. Companies that do not comply with the new procedure within the required timeframe will be downgraded to OTC Pink.

Ed Hackert, Assurance Services Partnercontributed to this article

 
 
 
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