Changes in OTCQB Eligibility Standards

By Lance McKinlay, Senior Counsel

Email: lmckinlay@wilsonoskam.com

As an overview, an over-the-counter (OTC) equity security is generally considered to be any equity security that is not traded on a national securities exchange under the National Market System.

The OTC Markets Group ("OTC Markets") is a privately owned company that permits market participants to quote OTC equity securities and provides a public trading platform for around 10,000 U.S. and global securities.[1] OTC Markets offers three tiered marketplaces, which are summarized below[2]:

  • OTCQX: Companies must meet financial standards (including annual revenue of at least $2 Million and total assets of at least $2 Million), be current in providing disclosures to the market, and be sponsored by a professional third party advisor.
  • OTCQB: While companies must be current in periodic reporting requirements, there are no financial standards, so this marketplace includes many smaller or developing companies.
  • OTCPink: Companies may, but are not required to, make filings publicly available through the OTC Disclosure and News Service. No financial standards apply.

New Eligibility Standards for OTCQB Marketplace

Effective May 1, 2014, the following new eligibility standards will apply to OTCQB:[3]

  • Minimum Price Bid. There will be a new initial and ongoing minimum bid price standard of $0.01. All current OTCQB securities that do not meet the minimum standard as of the close of business for at least one of the previous 30 consecutive calendar days will be removed from OTCQB beginning May 1, 2014 and likely be downgraded to OTCPink.
  • Fees. For new companies, there is a one-time application fee of $2,500, and the annual fee for all OTCQB companies will be $10,000.
  • Initial Application. Each company will need to file an application. This means a new company clearing a Form 211 with FINRA will no longer automatically have its security put on OTCQB; instead, an issuer will need to file an application, pay required fees and follow other procedures for inclusion on OTCQB.
  • Companies will need to submit OTCQB Annual Certifications on the OTC Markets website, which must be signed by the CEO and/or CFO.
  • Companies currently on OTCQB will be required to comply with the new OTCQB procedures within 120 days after its fiscal year end.

OTC Markets Aims to Improve Quality of OTCQB

OTC Markets has stated that the heightened eligibility standards are aimed at improving the information made available to investors. In addition, OTC Markets is making further changes in effort to improve the marketplace, such as the inclusion of real-time Level 2 quotes.[4]

Conclusion

Looking at the larger OTC picture, the OTC Bulletin Board (OTCBB) and OTC Markets are both interdealer quotation services for OTC equity securities. Unlike OTC Markets, FINRA operates the OTC Bulletin Board (OTCBB). FINRA permits to be eligible for quotation on OTCBB any OTC equity security that is current in certain required regulatory filings with the SEC or with their banking or insurance regulators. An OTC equity security can be quoted simultaneously on both OTCBB and OTC Markets.

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[1] http://www.otcmarkets.com/learn/otc-market-tiers

[2] See Id.

[3] For the full description of requirements, please see the OTC Markets website atwww.otcmarkets.com, and the new OTCQB Fact Sheet., available at http://www.otcmarkets.com/content/doc/otcqb-fact-sheet.pdf

[4] See Id.

POSTED BY: Gil Bradshaw
POSTED: 28th April 2014
FILED AS: Capital Markets, Securities