OTC Markets Group

OTC Markets Group (previously known as Pink Sheets) is an American financial market providing price and liquidity information for almost 10,000 over-the-counter (OTC) securities.[3] The group has its headquarters in New York City. OTC-traded securities are organized into three markets to inform investors of opportunities and risks: OTCQX, OTCQB and Pink.

OTC Markets Group, Inc.
Public company
Traded asOTCQX: OTCM
IndustryFinancial services
PredecessorNational Quotation Bureau, Pink Sheets, Pink OTC Markets
Founded1913 (1913) (as National Quotation Bureau)
Headquarters
New York City, New York
,
U.S.
Key people
R. Cromwell Coulson
(President, Chief Executive Officer and Director)[1]
Revenue US$ 54.6 million (2017)[2]
US$ 18.3 million (2017)[2]
US$ 12.5 million (2017)[2]
Total assets US$ 36.2 million (2015)[2]
Total equity US$ 17.5 million (2015)[2]
DivisionsOTC Link ATS, Market Data Licensing, Corporate Services
Websitewww.otcmarkets.com

History

The company was first established in 1913 as the National Quotation Bureau (NQB). For decades, the NQB reported quotations for both stocks and bonds, publishing the quotations in the paper-based Pink Sheets and Yellow Sheets respectively. The publications were named for the color of paper on which they were printed. NQB was owned by CCH from 1963 to 1993. In September 1999, the NQB introduced the real-time Electronic Quotation Service. The National Quotation Bureau changed its name to Pink Sheets LLC in 2000 and subsequently to Pink OTC Markets in 2008. The company eventually changed to its current name, OTC Markets Group, in 2010.[4] Today, a network of 89 broker-dealers price and trade a wide spectrum of securities on the OTC Markets platform.[5]

To be quoted on the platform, companies are not required to file with the SEC, although many choose to do so.[6] A wide range of companies are quoted on OTC Markets, including firmly established foreign firms, mostly through American depositary receipts (ADRs).[7] In addition, many closely held, extremely small and thinly traded U.S. companies have their primary trading on the OTC Markets platform.

Many foreign issuers adhere to the listing requirements of qualified foreign stock exchanges[8] and make their home country disclosure available in English. There are also a significant number of U.S.-based issuers who are current in their reporting to regulators[9] such as the U.S. Securities and Exchange Commission (SEC) or make available ongoing quarterly and audited annual financial reports through OTC Markets Group. Many companies in the Pink market tier of the OTC categorization system do not meet the United States' listing requirements for trading on a stock exchange such as the New York Stock Exchange or NASDAQ. Many of these issuers do not file periodic reports or make available audited financial statements, making it very difficult for investors to find reliable, unbiased information about those companies. For these reasons the SEC views many of the lower-tier companies traded on OTC Markets as "among the most risky investments" and advises potential investors to heavily research the companies in which they plan to invest.[10]

Securities trading on the OTCQB and higher-tiered OTCQX trading marketplaces have status of Blue Sky secondary trading exemptions in 33 states and brokers may recommend such securities to their clients like securities listed on national stock exchanges.[11]

Markets

OTC Markets Group designates securities in one of three markets to indicate the level of financial and corporate disclosure provided by the companies using its quotation system. Apart from the OTCQX market, which has rules that include financial requirements, the designations do not signify issuer quality or merit of any security. Designation is based on the level and timeliness of a company's disclosure and OTCQB and any of the Pink categories can include both high quality as well as speculative, distressed, or questionable companies. Strict promotion policies have been enacted to flag these companies and deny their application for trading if they engage actively in campaigns marked by misleading information or manipulative promotions.[12]

The OTCQX and OTCQB markets are considered 'Established Public Markets' by the SEC for the purpose of determining the public market price when registering securities for resale with the SEC in equity line financings.[13] OTC Markets Group can facilitate electronic trading with its SEC-registered Alternative Trading System known as OTC Link® ATS.[14]

OTCQX

The OTCQX market includes both multinational companies seeking access to U.S. investors and domestic growth companies.[15] To be traded on this tier, companies must undergo a qualitative review by OTC Markets Group. Companies are not required to be registered with or reporting to the SEC, but they must post financial information with OTC Markets Group. In addition, U.S. companies must be ongoing operations (i.e., no shells) and may not be in bankruptcy, while foreign issuers must meet the requirements of qualified foreign exchanges. Additional oversight of OTCQX securities is provided by requiring every issuer to be sponsored by approved third-party investment banks or law firms, called OTCQX Sponsors.[16][17]

OTCQB

The OTCQB market contains a one penny ($0.01) bid price requirement "intended to remove companies that are most likely to be the subject of dilutive stock fraud schemes and promotions". Each company verifies via an annual OTCQB Certification, signed by the company CEO or CFO, that their company information is current, including information about a company’s reporting status, company profile, information on management and boards, major shareholders, law firms, transfer agents, and IR / PR firms. Investor confidence improves when there is more information about a company’s ownership structure, professional advisors and service providers. This certification will be required for any security newly qualified to be publicly quoted by a broker-dealer under SEC Rule 15c2-11, or when a Pink traded company becomes a current SEC reporting company, beginning May 1, 2014. International Reporting companies are also allowed to upgrade from Pink to OTCQB if they publish their 12g3-2(b) compliant disclosure online and verify their company profile. There is an annual fee for the OTCQB market of $12,000 per year and a one-time $2,500 application fee.[18]

OTC QX/QB Blue Sky Status

As of November 2018, the OTCQX Market has Blue Sky status in 33 states and the OTCQB Market in 30 states. Blue Sky Laws are state regulations established as safeguards for investors against securities fraud. The laws, which may vary by state, typically require sellers of new issues to register their offerings and provide financial details. This allows investors to base their judgments on verifiable information. Since the SEC recognized OTCQX and OTCQB as established public markets, OTC Markets Group has worked collaboratively with state regulators since the 2014 JOBS ACT to apprise them of the easily accessible, free, public online disclosure of current information provided by companies traded on the OTCQX and OTCQB premium markets. As of April 2018, 60% of the 50 states now acknowledging the OTCQX Market for the purposes of secondary trading exemptions. The investor protection and quality control standards of the OTXQX and OTCQB therefore are of Status to meet or exceed the Blue Sky standards of the respective states.[19][20]

Pink

Pink is an open market that has no financial standards or reporting requirements. The stock of companies in the Pink tier are not required to be registered with the SEC. Companies in this category are further categorized by the level and timeliness of information they provide to investors and may have current, limited, or no public disclosure.[21]

Current Information

Companies submitting regular Quarterly and Annual Reports go into the Current category. This category can still include shell companies or development stage companies with little or no operations as well as companies without audited financial statements. Companies in this category must not only have Quarterly reports duly posted every three months, but most have Annual reports for at least the preceding two years on file.[22]

Limited Information

Companies that have submitted information no older than six months to the OTC Markets data and news service or have made a filing on the SEC's EDGAR system in the previous six months are rated as having limited information. Companies that are unwilling or unable to meet OTC Markets' Guidelines for Providing Adequate Current Information with Quarterly and Annual Reports every three months, but which still submit information at least every six months, are in this category. These are often companies with financial reporting problems, economic distress, or in bankruptcy.

No Information

This tier indicates companies that are unwilling or unable to provide disclosure to the public markets. Companies in this category do not make current information available via OTC Markets disclosure and news service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as "dark" companies with questionable management and market disclosure practices. Securities of publicly traded companies that are not willing to provide information to investors are considered highly risky.

Caveat Emptor

There is a public interest concern associated with the company designated as Caveat Emptor. Buyer beware. This may include a spam campaign, stock promotion or known investigation of fraudulent activity committed by the company or through inside information. During a spam campaign, any stock that is not in the Current Information category will also have its quotes blocked on otcmarkets.com.

Other OTC markets
Main article: Over-the-counter (finance)

OTCBB

The OTC Bulletin Board (OTCBB) is only a listing of securities that are also traded "over the counter" similar to the OTC Markets. The OTCBB as an exchange was closed by owner FINRA. OTCBB companies are required to file timely reports to a U.S. regulatory agency. Almost all OTCBB companies are now quoted via OTC Markets' OTC Link ATS because its fully electronic trading platform better meets the needs of automated broker-dealers.

Grey Market

Securities that are not listed on any stock exchange nor formally quoted on OTC Markets or OTCBB are considered to be in the Grey Market. Unsolicited transactions are processed independently and not centrally listed or quoted. Trades are reported to a self-regulatory organization (SRO), which then passes the data on to market data companies. The Grey Market is also called OTOTC or Other OTC.[23]

Compliance Data Products

Compliance Analytics

The Compliance Analytics Product creates a security specific risk score for all OTCQX, OTCQB, Pink and Grey securities. Risk is assessed over 19 parameters including caveat emptor, shell status, penny stock status, price/volume changes and stock promotion data. Recently, the product integrated "Hot Sector" information about cannabis, cryptocurrency and blockchain.[24]

Promotion Data

The Promotion Data Product provides market professionals and investors with active and historical promotion data for OTCQX, OTCQB, Pink and Grey securities.[25]

Index products

The company calculates and licenses indices of securities that trade on one of the top two market tiers, including the OTCM QX ADR 30 Index of OTCQX-traded American depository receipts

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References
  1. "OTC Markets Group Inc: CEO and Executives - Businessweek". Bloomberg Businessweek. Retrieved 8 August 2012.
  2. "OTCM Annual Report". Morningstar. Retrieved 28 October 2018.
  3. PETERSON, KRISTINA (October 20, 2010). "The Pink Sheets Tries to Change Its Colors". The Wall Street Journal. Retrieved 8 August 2012.
  4. "National Quotation Bureau - NQB". Investopedia.
  5. "Broker Dealer Directory".
  6. "OTC Markets 101 - Securities Lawyer 101". Hamilton & Associates Law Group. Retrieved 8 August 2012.
  7. Sharon, Justin (Aug 2, 2012). "In the Pink: OTC Stocks Offer Peril Along With Potential Profit". Minyanville. Archived from the original on 7 May 2019. Retrieved 8 August 2012.
  8. "NEO Receives Qualified Foreign Exchange Designation by OTC Markets Group". OTCQX INTERNATIONAL.
  9. "Understanding the OTC Market Tiers". The Bowser Report. Retrieved 28 October 2018.
  10. "OTC Markets Group Inc. (formerly known as Pink OTC Markets Inc.)". U.S. Securities and Exchange Commission. Retrieved 8 August 2012.
  11. https://www.otcmarkets.com/corporate-services/products/blue-sky
  12. "Stricter Promotion Policies and Best Practice Guidelines Fuel OTC Markets Group's Embrace of More Disclosure and Greater Investor Confidence". Retrieved 3 June 2019.
  13. "The OTCQX and OTCQB are finally recognized as "Established Public Markets" by the SEC". Legal and Compliance LLC. Retrieved 8 March 2016.
  14. "OTCBB and OTC Markets Group". Investopedia. Retrieved 29 January 2019.
  15. AVERY, SIMON (November 24, 2011). "Canadian firms try different route to U.S. investors". The Globe and Mail. Retrieved 28 October 2018.
  16. "Deep Yellow Limited (ASX:DYL) Upgrades to Trade on the OTCQX Market in the U.S." 8 October 2018. Retrieved 27 November 2018.
  17. "Innovest Global, Inc. Announces LOI Acquiring 20% Stake In StemVax, LLC, Entering Into Cancer Vaccine Market - Spotlight Growth". 21 March 2018. Retrieved 27 November 2018.
  18. "OTCQB Standards" (PDF). OTC Markets. 20 May 2018. Retrieved 21 November 2018.
  19. https://www.investopedia.com/terms/b/blueskylaws.asp
  20. https://www.prnewswire.com/news-releases/otc-markets-group-achieves-blue-sky-exemptions-in-30-states-300626613.html
  21. "Introducing Pink Sheets". Investopedia.
  22. "What is the OTC Pink Current Tier?". Securities Lawyer 101.
  23. "Glossary of Income Investing Terms". Quantum Online. Archived from the original on June 23, 2012. Retrieved February 14, 2019.
  24. "OTC Markets Group Introduces "Hot Sector" Information to its Compliance Analytics Product". 19 December 2018. Retrieved 3 January 2019.
  25. "OTC Markets Group Reports 2018 Trading Statistics and Highlights". 18 January 2019. Retrieved 29 January 2019.
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