Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Friday, May 2, 2014

New OTCMarkets Rules for OTCQB Companies Take Effect: By Brenda Hamilton Attorney

On May 1, 2014, OTCMarkets’ new rules for OTCQB stocks were implemented, as promised.  The changes were announced a month ago, taking many issuers and investors by surprise adding significant costs to thegoing public process.  OTCMarkets explained that by instituting this new program, it intended to create a “true venture stage marketplace for early and development stage companies.”  The program’s two
most important features are a minimum bid price requirement of $0.01 and an annual fee of $10,000. There was formerly no fee for companies quoted with the OTCQB tier.
OTCMarkets’ original announcement caused suprise with market participants.  Many issuers wrongly believed that the Securities and Exchange Commission (the “SEC”) was somehow involved.  It was not.  As far as SEC regulations are concerned, there are only two types of over-the-counter stocks:  SEC registrants, and SEC non-registrants.  OTCMarkets is not a regulatory agency or a stock exchange; it is a quotation service.  Nonetheless, it established its own rules and regulations.  In the absence of competition—the old OTCBB, run by FINRA, is now dead, for all practical purposes—companies have no choice but to pay attention.  And money if they want to be quoted above the OTC Pink tier.
 A few years ago, OTCMarkets created three principal “tiers”:  OTCQX, OTCQB, and OTCPink.  The OTCQB tier accommodated fully-reporting, non-delinquent SEC filers.  That was easy to understand.  Now, with the introduction of a minimum bid price, the distinction between QB and Pink companies will be less clear to many people.  A Pink Current Information company may be an SEC reporter current in its filing obligations, a delinquent SEC reporter, or a OTC Pink that submits less comprehensive “filings” to OTCMarkets.
On May 1, more than 200 former OTCQB companies trading below one cent were dumped to Pink Current Info.  Although OTCMarkets had said earlier that the new rule would be phased in over the course of a year, what the quotation service really meant was that mimimum quote requirements were almost immediate.  In a fact sheet, it announced that “All current OTCQB companies that do not meet the minimum bid test… will be removed from OTCQB beginning May 1.”  At the same time, it noted that “Each company will be required to comply with the New OTCQB procedures 120 days after its Fiscal Year End.”  Those procedures being the payment of a $10,000 fee. The first companies subject to the new list fee would be those with a March 31 year end; they would be expected to be in compliance by July 31, 2014.
And yet it appears that as of the first of May, all QB companies that failed meet the bid test found themselves on the Pinks, regardless of their fiscal year end.   OTCMarkets sprung its new rules on issuers only a few weeks ago, leaving them very little time in which to evaluate their options.  One of those options would have been a reverse split, but splits are corporate actions that must be submitted to FINRA for processing.  With luck, the process can be completed in ten days, but it’s unlikely that FINRA would be capable of dealing with hundreds of requests at once.  In addition, companies would have to weigh the advantages of staying on the OTCQB against the disadvantages of effecting a reverse split.  If penny investors have learned anything over the past ten years, it’s that reverse splits are don’t sit well with shareholders.  So any issuer choosing that option might well find itself losing shareholder loyalty.
 It would also find itself paying more than double what it paid in the past for the privilege of being named to the OTCQB tier.
OTCMarkets says its objective is to “improve transparency.”  Transparency, as most people think of it, has to do with the kind of complete and accurate disclosure required of SEC reporting companies.  That kind of transparency is not tied to stock price in any meaningful way.  The filings of SEC registrants are periodically reviewed by examiners from the Division of Corporation Finance; OTCMarkets “filings” are not reviewed by anyone.  Yet now, OTC Pink Current Info companies will considered by many investors to be the same as subpenny SEC registrants because are quoted in the sam tier.
Eliminating the important distinction between SEC reporters and non-reporters—at least on the OTCMarkets website—is unlikely to “improve transparency.”  On the contrary, it’s possible that at least some of those subpenny SEC filers will decide to deregister voluntarily, thereby freeing themselves of the expense and responsibility that status as an SEC registrant entails.   This would decrease transparency, and the balance of information provided to investors.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at or visit   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855

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