OTC Markets OTCQB, OTCQX, OTC Pink Quotation, Listing and Disclosure

Public companies with shares traded on OTC Markets OTC Link® ATS are organized into three unique market places. In part, the trading market depends upon whether the issuer is required to comply with the SEC Reporting Requirements. The OTC Markets provides venues for both domestic and foreign issuers and provides a unique platform for foreign issuers seeking to dual listing their securities. The OTCQX Best Market is for established, global, and growth companies. OTC Markets OTCQX companies must meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, and have a professional third-party sponsor. The OTCQB Venture Market is for entrepreneurial and development stage companies that are not yet able to qualify for OTCQX. OTCQB companies must be current in their SEC reporting requirements and must undergo an annual verification and management certification process.

The OTC Markets OTC Pink Open Market is for broker-dealers to trade all types of securities without requiring company involvement.

In contrast to securities listed on U.S. stock exchanges, securities on the OTCQX, OTCQB and Pink markets may trade without filing a registration statement with the SEC if they meet certain disclosure and other requirements.

Companies traded on the OTCQX, OTCQB and Pink markets follow one of the following reporting standards:

The OTC Markets International Reporting Standard

Rule 12g3-2(b) under the Securities Exchange Act (‘Rule 12g3-2(b)’) permits non-U.S. companies with securities listed primarily on a Qualified Foreign Exchange to make publicly available to U.S investors in English the same information that is made publicly available in their home countries as an alternative to the SEC’s reporting requirements. The OTC markets publishes a list of Qualified Foreign Exchanges. 

The OTC Markets SEC Reporting Standard

Companies that are subject to the SEC Reporting Requirements that are in compliance with these requirements qualify to list based upon SEC Reporting Standard.

The OTC Markets Regulation A Reporting Standard

The OTC Markets recognizes the reporting obligations for companies under Tier 2 of Regulation A under the Securities Act. Companies subject to the reporting obligations under Tier 2 of Regulation A must continue to file, on an ongoing basis, all annual, semi-annual and other interim reports required by the rule. Audited annual financial statements must be prepared in accordance with the requirements of Regulation A. Additional disclosure obligations, like quarterly filings and annual certifications must be posted on the OTC Markets website, in order to comply with the eligibility requirements of the OTCQX and OTCQB Markets.

The OTC Markets U.S. Bank Reporting Standard

Banks without SEC-registered securities must follow the disclosure guidelines outlined in the OTCQX Rules for U.S. Banks. Banks are also required to release any news or information which might reasonably be expected to materially affect the market for its securities in a timely manner. Banks with SEC-registered securities must be current in required reporting with the SEC.

The OTC Markets Alternative Reporting Standard

OTC Markets Group offers the Alternative Reporting Standard for companies who choose to make material information publicly available to investors. Public companies must generally make information publicly available pursuant to Federal securities laws, including Rule 10b-5 under the Exchange Act and pursuant Rule 144(c)(2) under the Securities Act even if the issuer is not subject to the SEC’s reporting requirements.

OTCQX and OTCQB companies incorporated in the U.S. that are not subject to SEC reporting requirements, U.S. Banking Regulators or Qualified Foreign Exchanges are permitted to follow the Alternative Reporting Standard. This allows companies to provide disclosure pursuant to the OTC Markets Alternative Reporting Standard Disclosure Guidelines for OTCQX and OTCQB. Investors may view these disclosures at otcmarkets.com. OTCQX companies are also subject to the eligibility requirements and terms of the OTCQX Rules for U.S. Companies and OTCQB companies are subject to OTCQB Standards. Companies provide detailed line item disclosures and other “material” information to enable investors to make an informed investment decision.

OTC Pink companies not subject to SEC Reporting Requirements, U.S. Banking Regulators or a Qualified Foreign Exchange may publish disclosure in accordance with the OTC Pink Basic Disclosure Guidelines. These requirements are designed to give an investor the basic information a broker-dealer must maintain under Exchange Act Rule 15c2-11 in order to initiate a quote in a security on the Pink markets. The Alternative Reporting Standard is available both to U.S. and to international OTC Pink companies.

OTCQX, OTCQB and OTC Pink Market Financial Reporting

Many companies listed on the OTC Markets are not subject to SEC reporting requirements. As a result, these issuers do not filing periodic reports or financial information and other material information with the SEC.  The OTC Markets provides a venue for these companies to provide material information to investors.

Reporting of Corporate Actions to FINRA

SEC Rule 10b-17 requires all OTCQX, OTCQB and OTC Pink companies to provide timely notice to FINRA of certain corporate actions, including dividends, stock splits, reverse splits, name changes, mergers, acquisitions, dissolutions, bankruptcies or liquidations, at least 10 days prior to the record date. Companies who fail to report such corporate actions in the required time may be subject to fines up to $5,000. For more information, see FINRA’s Notice to Member 10-38.

For more information about going public, securities law or our other services please contact a Securities Attorney at Hamilton & Associates Law Group, P.A. 01 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at [email protected].   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. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the Frankfurt Stock Exchange, London Stock Exchange, NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation A/ Regulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1,  Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-Q, Form 10-K and Form 8-K, Form 6-K and SEC Schedule 14CInformation and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India, France, Israel, Canada and throughout the U.S.