New Regulatory Developments Impacting OTCQX® and OTCQB® Marketplaces

I know there’s been discussion in some LinkedIn groups about a recent regulatory change by the SEC in the way it treats OTCQX® and OTCQB® Marketplaces for the purposes of equity line financings.  OTC Markets Groups recently issued information about this topic.

I think it’s significant enough to post on my website Blog and share with all of the LinkedIn groups of which I’m a member, even if you have already seen information about this topic, because I consider this a very significant change by the SEC which everyone should be aware of.  I think that OTC Markets Group’s lobbying the SEC for changes in Form 13(f) is also interesting and so I’m discussing that here as well.

SEC’s Updated Compliance and Disclosure Interpretation

As reported by OTC Markets Groups, on May 16, 2013, the SEC updated its Compliance and Disclosure Interpretations stating that the OTCQX and OTCQB marketplaces are now considered “established public markets” for the purposes of establishing a public market price when registering securities for resale in equity line financings on SEC Forms S-1 or S-3. As a result, companies may use their OTCQX or OTCQB marketplace trading to complete an equity line financing registration statement, and no longer need to have a quote on FINRA’s OTC Bulletin Board to be considered having an established public market.

OTC Markets Groups has made significant changes and improvements in technology, transparency and regulation in the OTCQX and OTCQB marketplaces which resulted in this SEC position. SEC reporting issuers may now rely on t broker-dealers quoting and trading on the OTCQX and OTCQB marketplaces to establish a public market price when raising capital.

To view the SEC’s May 16 Compliance and Disclosure Interpretation Question 139.13 updating its “established public market” policy, click here.

Form 13(f)

As to Form 13(f), OTC Markets Group also noted in its communication that they have submitted a comment letter to the SEC requesting that the Commission expand the scope of Form 13(f) reporting requirements to include all equity securities traded on the OTCQX, OTCQB and OTC Pink marketplaces.

Under Section 13(f) of the Securities Exchange Act, institutional investment managers with over $100 million under management are required to file a quarterly report of their equity holdings in all exchange-listed securities, but there is no such reporting requirement for securities trading off a national securities exchange. As a result, there are over 9,400 companies that are unable to accurately determine which institutions hold their securities, with no available recourse. That includes over 2,500 foreign companies whose ADRs and foreign ordinary shares trade exclusively on the OTCQX, OTCQB and OTC Pink marketplaces, approximately 700 community banks, 3,800 SEC reporting companies and thousands of smaller U.S. companies.

They stated in their SEC comment letter, “When Congress mandated quarterly reporting under Section 13(f), it noted its intent to ‘create… a central repository of historical and current data about the investment activities of institutional investment managers, in order to improve the body of factual data available and to facilitate consideration of the influence and impact of institutional investment managers on the securities markets and public policy implications of that influence.’ Including securities traded on the OTCQX, OTCQB and OTC Pink marketplaces in 13(f) reporting would shed light on the activities of institutional investment managers working with these securities and support the Congressional intent behind the rule.”

As always, if you want more information about this topic or anything else related to going public, please contact us.

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