OTCQX Requirements, Rules, and Standards

OTCQX Requirements, Rules, and Standards


I am attorney Laura Anthony founding partner
of Legal & Compliance, a full service corporate, securities, and business transactions law
firm. Today is the first segment in a LawCast series
detailing the OTCQX listing requirements. OTC Markets made changes to the quotation
rules and standards for the OTCQX, which changes went effective on June 13, 2016. These most recent amendments accommodate companies
completing an IPO onto the OTCQX and which therefore have no prior trading history. Such entities either have a recently cleared
Form 211 with FINRA or are completing the 211 application process through a market maker,
at the time of their OTCQX application. The newest changes will allow companies that
satisfy the no penny stock rule by meeting the five dollar bid price test to use unaudited
interim financials to meet certain OTCQX financial standards and will provide a phase in compliance
period for U.S. companies to meet the OTCQX corporate governance requirements. The OTCQX previously amended its listing standards
effective January 1, 2016 to increase the quantitative criteria for listing and to add
additional qualitative requirements further aligning the OTCQX with, and an excellent
steppingstone prior to listing on a national stock exchange. In addition, effective May 6, 2016 OTCQX Markets
collaborated with Morningstar, an independent research and equity ratings firm, to provide
research and ratings on all OTCQX companies. The research reports are available on a company’s
quote page on the OTC Markets website. As part of each Morning Star report the company’s
equity is rated as to valuation, illustrating an over or under evaluation, based on the
Morning Star analysis. The Morning Star reports are updated daily. Morning Star reports are also published under
the research section of the oath of each OTCQX companies quote page on the OTC Markets website,
a well-known issue for all small and micro-cap companies as a lack of independent research
or analyst coverage. I have reviewed several of the Morning Star
reports, and they provide very good information. As I wrote about, in my most recent Huffington
Post piece, going public provides a method to access Capital Markets for the growth of
the big companies of tomorrow, but is in and of itself, an expensive and difficult process. For companies that are still relatively young
in their business life cycle, satisfying the regulatory requirements of being an exchange-traded
company is time intensive, and consumes manpower hours that could otherwise be dedicated to
corporate growth and development. However, being viewed as a penny stock can
make the access to capital available for public companies much more challenging. Many institutional investors have mandates
prohibiting or limiting investments or trading in penny stocks, and depositing penny stocks
with brokerage firms is a difficult process for investors in unregistered pipe transactions. Through the OTCQX, the OTC markets has created
a venture exchange platform to become the recognized and respected venue for small and
micro-cap companies. I am securities attorney Laura Anthony, founding
partner of Legal & Compliance, and producer of LawCast. Should you have any questions about today’s
topic, please visit SecuritiesLawBlog.com and LawCast.com, or contact me directly. Inquiries of a technical nature are always
encouraged.

Leave a Reply