TheCorporateCounsel.net

March 22, 2011

Big Changes in the OTC Marketplace Dynamics

Here’s news from Bob Dow of Arnall Golden Gregory:

During this February and March, a large number of companies have exited from the OTC Bulletin Board (OTCBB). Many of these have shifted to the OTCQB platform operated by the organization formerly known as “Pink Sheets,” which is now called “OTC Markets.”

The companies were frequently caught by surprise because the move was involuntary and not well publicized by OTCBB or the market makers. Unbeknownst to the company, the sponsoring market maker ceased quotation on OTCBB and began anew on OTCQB. Without a market maker on OTCBB the company’s stock would no longer be eligible to be quoted on OTCBB. In some cases, the reporting of trades on popular financial web sites was not transitioned smoothly due to the sudden unannounced change. Initially, OTCBB reported some of the stocks’ deletion as due to “Failure to comply with Rule 15c-2,” which could have been taken to imply some sort of intentional violation of the securities laws by the company. In mid-February, the OTCBB started reporting the deletions as “Ineligible for quotation due to quotation inactivity.” Here’s a listing of deletions.

Since the 1990s, OTCBB has been a popular medium for trading stocks that were not listed on a stock exchange. Companies are not really “listed” on OTCBB. Each company’s stock is quoted on the OTCBB if a market maker begins posting quotes for the stock there. OTCBB is operated by FINRA, but in September 2010, FINRA entered into an agreement to sell the OTCBB to the investment banking firm Rodman & Crenshaw. In 2010 FINRA also increased the fees it charges market makers to quote stocks on OTCBB, to $6.00 per security per month. OTCQB does not charge any such fee.

So early in 2011, a few market makers began quietly moving their quotations to OTCQB. At some point a critical mass was achieved and the herd started moving rapidly in February. By some accounts, more than 800 companies have left the OTCBB so far in 2011. One wonders if this is what FINRA and the Rodman firm had in mind when they agreed to the sale. It seems like the value of the franchise could be diminished if there is a sufficient run-off. Here are others that have commented on this development: Reverse Merger Report and RedChip Companies Blog.

Pre-Proposal Comment Submission: If the SEC Builds It, Will They Come?

It’s been a while since the SEC made it as simple as an email to submit a comment letter on a rule proposal, which in turn have raised the number of “casual” comments submitted from the men & women “on the street.” Lately, I have been wondering if the Dodd-Frank proposals got more of these types of comments than usual because of their high profile nature? Particularly since the SEC took the unusual step soon after Dodd-Frank was enacted to allow for comment on its upcoming rulemakings, even before actual proposals were out.

The answer is “not really.” Although a high percentage of comments posted in the SEC’s pre-proposal portal are from individuals, there are only a handful for most of topics as many of the “regulars” who submit comments didn’t bother at such an early stage (with some exceptions such as conflict minerals).

I do note that one person – Robin McLeish – submitted a comment letter on a majority of the topics in the portal. Her comment letters vary but here are two of them as examples:

1. On the “Office of Minority and Women Inclusion“: “Hi and thanks for the chance to comment. I saw this article on CNN Money website. I feel that the Treasury should be in charge of the money and it should be backed by mineral assets. The fed can set interest rates.”

2. On “Exemptions for Certain Advisors“: “Hi and thanks for the chance to comment. I saw this article on CNN Money website. I feel that no one should be exempt from following the laws of the constitution. Those that do not in this one nation under God will have to answer to him on judgment day and I will be there pointing my finger at them.”

Conduct of the Annual Meeting

We have posted the transcript from our recent webcast: “Conduct of the Annual Meeting.”

- Broc Romanek