Smaller Cap Issuer Valuations Crushed by Dodd-Frank?

The chart above, excerpted from an article by noted financial analyst Michael Markowski, who predicted the demise of Lehman, Bear Stearns and Merrill Lynch, appears to illustrate that the Dodd-Frank legislation crushed the values of smaller cap companies. Mr. Markowski’s article appears at this link: https://www.equities.com/news/dodd-frank-boon-for-large-caps-bust-for-micro-caps

Is this causation, or merely correlation? We don’t know for sure.

What we do know is that smaller cap public company valuations have diverged markedly from larger cap public company valuations, regardless of the proximate cause. As an investment asset class, they appear to have performed poorly.

Further, to add to the woes of the smaller cap public companies, we also know that the US public markets are generally* inhospitable to smaller cap companies. This inhospitability manifests itself as follows:

(1) Smaller-cap stocks are illiquid

(2) Institutional investors avoid investing in illiquid smaller cap stocks

(3) Smaller-cap companies have little-to-no investment analyst coverage

(4) Smaller-cap companies are starving for capital

(5) Much of the available capital to smaller-cap companies is “toxic”

(5) Gaps in SEC “short” selling regulations enable short sellers unfairly to damage smaller-cap company valuations and the companies themselves

We will review each of these elements of inhospitabililty in subsequent articles.

* Of course, there will be exceptions to the above general principles, particularly if the company is in the biotech or cannabis space.

Entrepreneurship in the US is an Endangered Species – reprinted by Ronald Woessner

Image: Amur leopard, a critically endangered species. Source: World Wildlife Fund

According to a recent Forbes article, America ranks as the best country for female entrepreneurship. That’s “good.” On the other hand, the “bad” is that companies founded by women entrepreneurs are less likely to be funded by a venture capital firm than the Earth being struck by an asteroid, as I discussed previously in this space.

That’s “not so bad,” though. Women entrepreneurs are not missing out on much by not being funded by venture capital firms => since venture capital firms fund only approximately five of every 10,000 startups in America, according to Entrepreneur.com.

The “worst,” news, however, is that women entrepreneurs will join their male counterparts in struggling to raise capital to keep their businesses alive because of the lack of investment capital for start-up businesses in America as a whole.

This lack of investment capital for US start-up businesses is an endemic problem. Like an invisible chain, it extends across the length and breadth of the US and restrains an entire ecosystem, beginning with startups in a garage, and extending to OTC Markets traded companies, and further extending to smaller-cap publicly listed companies.

Without sufficient capital, these businesses fail.

Predictably, many would-be entrepreneurs decide to keep their day jobs rather than taking the entrepreneurial leap when they see the businesses of their friends, neighbors, or relatives go “out of business” and the often-consequent loss of life savings and the family home.

With this background in mind, you might be thinking that fewer and fewer Americans want to become entrepreneurs today than in previous years. You are correct.

The data demonstrates that entrepreneurship in America is dying. In February of this year, Mr. David Weild IV, “Father of JOBS Act 1.0,” former Vice Chairman of NASDAQ and New York investment banker, gave a presentation at The Yale Club of NYC. The JOBS Act, signed into law by President Obama in 2012, was a great start for the movement to level the playing field for emerging growth companies, but even Mr. Weild will tell you that more needs to be done.

The presentation included a “heat” map, derived from Census Bureau statistics of US business formations by state per capita. The heat map shows business startups by state, per capita, in 2006 versus 2017. In 2006, the map shows much of the US as dark red, connoting high numbers of startups per capita. Disturbingly, in 2017, the map shows much of the US as pale pink, connoting a paucity of startups.

Business Formations within 4 Quarters by State – Per 1,000 People

And, while entrepreneurship in America is dying, so are the US public markets according to some. Others say the public markets are inhospitable to smaller cap companies or that the public markets are “broken.” Regardless of the choice of words, the US public capital markets are no longer the envy of the world, as they once were. To wit:

(1) 3,500 (40%) of the approximate 8,700 NASDAQ/NYSE trading symbols (mainly smaller-cap issuers) have average daily trading volumes under 50,000 shares per day, and approximately 50% had volumes under 100,000 per day, according to the SEC.

(2) There are approximately 50% fewer public companies today than 20 years ago.

(3) The number of book runners for smaller IPOs (<$100 million in proceeds) has decreased from 162 in 1994 to 31 in 2014.

Americans are struggling. The US public markets are dying. Entrepreneurship is dying. It’s time for Congress or the SEC, or both, to adopt pro-capital formation policies before matters continue to get worse. If not remediated, the US will forfeit its position as the financial capital of the world. And, that would be really, really bad.

More on this topic to follow.

Article originally published on November 25, 2019 by equities. com here.

Smaller-Cap Companies: Beware the Short Seller! – reprinted by Ronald Woessner

 This is a reprint of an article of mine originally published by equities.com at the link here.

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Ronald Woessner   | 

Smaller-cap companies with thinly-traded stocks need to beware the short seller.  

This article illuminates how smaller-cap companies (particularly OTC-traded companies) are getting the “short end of the stick”[1] due to inadequate legal protections against abusive short-selling practices.Investors can either participate in the market by going “long” a stock or by going “short” a stock. Investors that are “long” a stock believe it will increase in value. Investors that are “short” a stock believe it will decrease in value.A short sale occurs when an investor sells a security the investor does not own. If the price of the security drops, the short seller buys the security at the lower price and makes a profit.[2]A sudden influx of short sales in a thinly-traded stock can cause an immediate and material decrease in the stock price. This results from the temporary imbalance between sales and purchases.[3]

The SEC and the courts have said there is nothing inherently wrong with short sales because short selling contributes to price efficiency and market liquidity. For example, in a 2014 short selling study, the SEC noted, “Short selling as employed by a variety of market participants can contribute substantially to overall market quality through its positive effects on price efficiency and market liquidity.”

While short selling, even in large volumes, is not inherently illegal, the following is illegal:

  • “Naked” short selling: This occurs when the short seller sells short but does not borrow the stock sold short or make arrangements to borrow the stock before the sale. SEC regulations require the short seller’s broker, prior to executing a short sale, to either borrow the security being sold, enter into a bona-fide arrangement to borrow the security, or have reasonable grounds to believe that the security can be borrowed so that it can be delivered to the buyer’s broker within the required two day (“T + 2”) settlement period.
  • “Short and distort” campaigns: This occurs when a stock manipulator shorts the stock of a particular company, then spreads false or unverified rumors about the company for the purpose of driving down its stock price. Once the stock price has fallen on these rumors, the stock manipulator purchases shares at the lower price to cover the manipulator’s short position and pockets the profit. Given the speed with which information (including false information) moves throughout the investment community via social media channels, these short and distort campaigns can gather momentum very quickly and cause material downward spikes in an issuer’s stock price within a short period of time during one day.

Those of us that operate in the public company ecosphere are grateful that the law protects issuers against the two abusive short-seller tactics noted above. We are relying on the SEC to be vigilant in monitoring for these abuses and aggressively move to stamp them out. Notwithstanding, there are at least four “gaps” where the law does not adequately protect issuers, as discussed below.

Gap No. 1: No Required Disclosure of Short Position

There is no public reporting requirement for investors who go “short” a company’s stock. In contrast, there are extensive public disclosure obligations for investors who go “long” a company’s stock. For example, Section 13(d) of the Securities Exchange Act of 1934 and the regulations thereunder require persons owning more than 5% of the outstanding stock of a ’34 Exchange Act listed company to report their stock ownership with the SEC.

NASDAQ recognizes that not requiring public disclosure of short positions is poor public policy, according to Mr. Edward S. Knight, chief legal officer for NASDAQ. In his testimony before the Capital Markets Subcommittee of the House Financial Services Committee in May 2018, Mr. Knight testified that there is material harm to the efficacy of the public markets without short position disclosures. He made the following specific points:

  • Short sellers can amass short positions secretly
  • This is “untenable” since short sellers have in recent years taken an activist role in corporate policy and governance
  • Because short sellers are not required to disclose their short position, neither the public nor companies know that the short seller may have a “hidden agenda” with respect to the activist positions it is pushing
  • Lack of information regarding short positions is detrimental to market efficiency

Biotech companies are particularly vulnerable to manipulative short-selling practices, according to testimony the same day, also before the Capital Markets Subcommittee, by Mr. Brian Hahn, chief financial officer of the bio-tech firm GlycoMimetics, Inc. Mr. Hahn testified on behalf of the Biotechnology Innovation Organization, a trade association for biotech companies. According to Mr. Hahn’s testimony:

  • Biotech companies often face attack by short sellers who spread online rumors or publish false or misleading data about clinical trials
  • Short sellers use the auspices of the US Patent and Trademark Office (“USPTO”) to drive biotech company stock prices down. After shorting a company’s stock, the short sellers then file spurious patent challenges through the USPTO. The company’s stock price is driven down as false rumors spread that the company’s patents may be in jeopardy.

In sum, these commentators (and our common sense) informs that short sale position disclosures would shine a “light” on short seller stock manipulation. Moreover, if short sale positions were disclosed, the SEC will know the identities of those who are potentially benefiting from stock price declines linked to false rumors and other manipulative behavior — and can start their investigation with those folks!

Gap No. 2: Holders of Convertible Notes Are Permitted to Short Prior to Note Conversion

Holders of convertible promissory notes are legally permitted to short the stock of the company that issued the convertible note and thereby drive the stock price down and receive more shares pursuant to the note conversion.

Here is a typical scenario where this could occur: a company issues a convertible promissory note to evidence a loan. Amounts owing under the note may be converted into the company’s common stock at the noteholder’s discretion. The conversion price is typically at a discount (often 15-20%) to the then-current trading price of the company’s common stock. (Convertible notes issued by OTC-traded companies often have “floorless” convert provisions, meaning there is no “floor price” that limits how low the conversion price can go. Floorless convert provisions are not permitted under NASDAQ rules for NASDAQ-traded companies.)

The convertible note holder could then legally short the company’s stock to drive the share price down. The note holder then coverts the note at the lower share price and receives more shares in the conversion.[4] While many CEOs and CFOs are shocked to learn that this abusive and manipulative tactic is legal — indeed it is! See the case of ATSI Communications Fund, Ltd. (2d Cir. 2009), where shorting prior to note conversions was alleged to have occurred. The court said it was perfectly legal for the convertible note holder to short the company’s stock prior to initiating a note conversion. The court stated, “Purchasing a floorless convertible security is not, by itself or when coupled with short selling, inherently manipulative.” (emphasis added.)

PRACTICE TIP: The above discussion should not be interpreted as suggesting that every convertible note holder will engage in this abusive, manipulative behavior. Nevertheless, as CEO or CFO it is prudent to attempt to protect your company against this manipulation by ensuring that the definitive agreements prohibit this behavior.

Gap No. 3: Short Selling Prior to Purchasing Shares in a PIPE

A “PIPE” is a Wall Street acronym for Private Issuance of Public Equity, meaning a transaction whereby a publicly-traded company issues shares in a private offering, typically via Regulation D.

The SEC short selling rules permit an investor who is purchasing stock in a PIPE transaction to short the issuer’s shares before purchasing the issuer’s shares in the transaction. The short seller/PIPE investor then uses the shares it purchased in the PIPE (which shares are typically priced at a 5% – 20% discount to the market price) to cover its short position!

Here is a typical scenario where this could occur: An issuer hires an investment banking firm to help the issuer raise $X by selling shares of its common stock in a PIPE transaction. The shares in the transaction will typically be sold at a 5-20% discount to the share market price on the day the deal closes.[5]

The investment banking firm approaches a number of potential investors to determine if they are interested in investing in the PIPE transaction. (This is considered “soliciting indications of interest” in Wall Street jargon.) Once indications of interest for the $X sought to be raised have been collected, the deal is “priced” and closed (i.e., the discounted price at which the company’s shares are to be sold is determined), the definitive agreements are signed, and the deal closes.

During the period between learning of the PIPE and the deal closing, an investor is legally permitted to short the issuer’s stock and then use the discounted shares it acquires in the PIPE to cover its short position. For example, if the market price of the issuer’s stock is $10 per share and the PIPE discount is 20%, the investor will be entitled to purchase the issuer’s shares at $8 per share. The investor legally could sell the issuer’s shares at the market price of $10 per share and then cover its short position using the $8 shares purchased in the PIPE transaction. The investor realizes a $2 gain per share in an apparently legal, riskless transaction.

The SEC has pursued legal claims, with limited success, against investors who have engaged in this manipulative behavior. See the May 2014 article, “SEC Enforcement in the PIPE Market: Actions and Consequences” in the Journal of Banking and Finance for more information on this topic.

Again, many readers — not surprisingly — are shocked to learn that this abusive and manipulative tactic is apparently legal.

PRACTICE TIP: The above discussion should not be interpreted as suggesting that every PIPE investor will engage in this abusive, manipulative behavior. Nevertheless, as CEO or CFO it is prudent to attempt to protect your company against this manipulation by ensuring that the definitive agreements prohibit this behavior.

Gap No. 4: The “Alternative Uptick Rule” Does Not Protect OTC Companies from Bear Raids

SEC Rule 201 (the “alternative uptick rule”) restricts short sellers from driving down the price of shares of NYSE- and NASDAQ-listed companies whose shares have experienced a price decline of 10% or more in one day. Once this “circuit breaker” price decline occurs, short sale orders for the remainder of the day and the following day must occur at a price above the current national best bid, subject to certain exceptions.

The purpose and effect of the Rule is to protect the company from short-seller attack by impeding a short seller’s ability to drive down the price of a stock that has experienced such a one-day price decline.

The Rule does not protect OTC-traded companies. This makes them vulnerable to “bear raids,” where a gang of short sellers collaborate and sell short shares of a particular company in an effort to drive down the price of the shares by creating a temporary imbalance of sellers versus buyers or creating the perception that the share price is falling for fundamental reasons. These “bears” then cover their short positions by purchasing the company shares at the manipulated, lower price and pocketing the gain between the higher price at which they sold the shares and the lower price at which they purchased the shares back.

In sum:

  • Smaller-cap companies with thinly-traded stocks, particularly OTC companies and biotech companies, are especially vulnerable to “bear attacks” and stock manipulation from short sellers because of these legal “gaps.”
  • Gaps 2 and 3 are disproportionately harmful to smaller-cap OTC companies because PIPE and convertible note financings are common sources of financings for OTC-traded companies.

Bottom line: CEOs and CFOs — be wary of short sellers!

©Ronald A. Woessner

January 9, 2019

Mr. Woessner mentors and advises companies in the start-up and smaller-cap company ecosphere and helps them raise capital. He also advocates in Washington DC for policies that create a more hospitable public company environment for smaller-cap companies, enhance capital formation, support small business, promote entrepreneurship, and increase upward mobility for all Americans, particularly minorities. For more information on Mr. Woessner’s background, see https://www.linkedin.com/in/ronald-woessner-3645041a/.

[1] To get the “short end of the stick” is getting the bad end of a deal or receiving the least desirable outcome from something. The origin of the phrase dates back to the 1500s and appears to be a reference to carrying loads mounted on rods (sticks). When carrying a load, the person who has the shorter end of the supporting rods carries more of the load and, hence, they are getting the worst aspect of the situation.

[2] If the price of the security increases, the investor loses money. The higher the price goes, the more money the investor loses.

[3] It’s more difficult to drive down the price of liquid stocks by short selling because there is more order depth (demand) on the buy-side to absorb the short sales. The more liquid the stock, the more shares required to be sold short to create a material price drop. The more illiquid the stock, the fewer shares required to be sold short to create a material price drop.

[4] Some have asked me why it would benefit a convertible note holder to obtain more shares at a lower stock price. The answer is that the lower stock price caused by the short selling is typically temporary, having been caused by an artificial imbalance between sales and purchases caused by the influx of the suddenly-introduced short sales. Once the normal equilibrium between purchases and sales is re-established, the stock price typically rebounds.

[5] The share purchase price is at a discount to the market price because the shares being issued are “restricted” and cannot be sold until the earlier of six months after purchase or such time as they are publicly registered for resale with the SEC.

 

Understanding Short Sale Activity by Cromwell Coulson OTC Markets — reprinted by Ronald Woessner

See below for an article by Cromwell Coulson, President, CEO and Director of OTC Markets Group, regarding “Understanding Short Sale Activity.”

Quality data is essential to well-functioning markets. Improving the availability, relevance and usefulness of data aligns with OTC Market Group’s mission to create better informed, more efficient financial markets.  In our experience, short selling remains one of the most highly-debated topics among academics, companies, investors, market makers and broker-dealers. As a market operator and company CEO, I believe it’s critical to address the misconceptions that still exist around short sale data and the correlation to a stock’s fundamental value.

Short selling, the sale of a security that the seller does not own, has long been a controversial practice in public markets.  Advocates for short selling believe it builds price efficiency, enhances liquidity and helps improve the public markets, while critics are concerned that it can facilitate illegal market manipulation and is detrimental to investors and public companies.  Given the diverse range of opinions and opposing views, we believe the first step is to take a deeper dive into the data and help separate out the noise.

“The Reliable” – FINRA Equity Short Interest Data

The most accurate measure of short selling is the data reported by all broker-dealers to FINRA on a bi-weekly basis.   These numbers reflect the total number of shares in the security sold short, i.e. the sum of all firm and customer accounts that have short positions.

This information is available on www.otcmarkets.com on the company quote pages.  As an example, OTC Markets Group has a few hundred shares sold short on average, which represents a fraction of our daily trading volume and shares outstanding.

OTC Markets Group (OTCQX: OTCM) SHORT INTEREST Data

DATE SHORT INTEREST PERCENTAGE CHANGE AVG. DAILY SHARE VOL DAYS TO COVER SPLIT NEW ISSUE
9/28/2018 97 11.49 5,551 1 No No
9/14/2018 87 8.75 4,423 1 No No
8/31/2018 80 100.00 6,818 1 No No
7/31/2018 103 -48.24 3,197 1 No No
7/13/2018 199 -27.64 2,124 1 No No
6/29/2018 275 166.99 3,239 1 No No
6/15/2018 103 24.10 2,739 1 No No
5/31/2018 83 -72.33 3,925 1 No No
5/15/2018 300 1.69 3,944 1 No No
4/30/2018 295 100.00 4,278 1 No No

FINRA Rule 4560 requires FINRA member firms to report their total short positions in all over-the-counter (“OTC”) equity securities that are reflected as short as of the settlement date. In 2012 FINRA clarified that firms must report short positions in each individual firm or customer account on a gross basis under FINRA Rule 4560. Therefore, firms that maintain positions in master/sub-accounts or parent/child accounts must calculate and report short interest based on the short position in each sub- or child account.

Since this data is part of a clearing firm’s books and records, it is of high quality and FINRA regularly inspects broker-dealer compliance with the rule.  Of course, it would be great if this data was collected and published daily (with an appropriate delay).

“The Misleading” – Daily Short Volume

In contrast, the most frequently misinterpreted data is the Daily Short Volume, sometimes referred to as Naked Short Interest.  This data shows the percentage of published trade reports (called media transactions in FINRA Rules) that were marked short.   As an example, the recent data for OTC Markets Group shows that up to 90% of the trading volume comes from short

selling on some days.   If we did not carefully track our bi-weekly Short Interest, we could easily be led to believe that short selling is rampant in our stock.

Historical Short Volume Data for OTC Markets Group (OTCQX: OTCM)

DATE VOLUME SHORT VOLUME PERCENTAGE of VOL SHORTED
Oct 18 3,341 1,399 41.87
Oct 17 5,989 3,198 53.40
Oct 16 16,120 7,509 46.58
Oct 15 24,155 12,991 53.78
Oct 12 6,297 4,914 78.04
Oct 11 4,059 1,553 38.26
Oct 10 2,185 999 45.72
Oct 9 7,473 4,556 60.97
Oct 5 880 525 59.66
Oct 4 492 200 40.65
Oct 3 2,041 801 39.25
Oct 2 4,786 1,560 32.60
Oct 1 3,973 2,607 65.62
Sep 28 244 23 9.43
Sep 27 882 805 91.27
Sep 26 259 189 72.97
Sep 25 3,085 2,250 72.93
Sep 24 967 571 59.05
Sep 21 2,350 825 35.11
Sep 20 7,164 6,453 90.08
Sep 19 297 202 68.01

 

Seeing the above data can be alarming for public companies and their investors, until they understand the inner workings of how dealer markets function and broker trades are reported—which render the data virtually meaningless.

Since this data also comes from FINRA, what gives?  The daily short selling volume is misleading because market makers and principal trading firms report a large number of trades as short sales in positions that they quickly cover. For market makers with a customer order to sell, they will temporarily sell short (which gets published to the tape as a media transaction for public dissemination) and then immediately buy from their customer in a non-media transaction that is not publicly disseminated to avoid double counting share volumes.  SEC guidance also mandates that almost all principal trading firms that provide liquidity at multiple price levels, or arbitrage international securities, must mark orders they enter as short, even though those firms might also have strategies that tend to flatten by end of day. Since the trade reporting process for market makers and principal trades makes the Daily Short Volume easily misleading, we do not display it on www.otcmarkets.com.

Making daily short reporting data easily-digestible and relevant is not hard. On the contrary, it should be easy to aggregate all of the short selling that is reported as agency trades, as well as all of the net sum of buying and selling by each market maker and principal trading firm.  This would paint a clear picture for investors of overall daily short selling activity. Fixing the misleading daily short selling data would bring greater transparency and trust to the market.

 “The Missing Piece”– Short Position Reporting by Large Investors

There is ample evidence that short selling contributes to efficient price formation, enhances liquidity and facilitates risk management.  Experience shows that short sellers provide benefits to the overall market and investors in other important ways which include identifying and ferreting out instances of fraud and other misconduct taking place at public companies.  That said, we


agree with the New York Stock Exchange and National Investor Relations Institute that there is a serious gap in the regulation of short sellers related to their disclosure obligations.   We understand that well-functioning markets rely on powerful players who cannot be allowed to hide in the shadows.  Since we require large investors, who accumulate long positions, to publicly disclose their holdings, why aren’t there disclosure obligations for large short sellers?   This asymmetry deprives companies of insights into their trading activity and limits their ability to engage with investors.  It also harms market functions and blocks investors from making meaningful investment decisions.

One point is clear, we all need to continue to work collaboratively with regulators to improve transparency, modernize regulations and provide investors with straightforward, understandable information about short selling activity.  We want good public data sources that bring greater transparency to legal short selling activity as well as shine a light on manipulative activities.  All while not restricting bona fide market makers from providing short-term trading liquidity that reduces volatility.

See Mr. Woessner’s bio at the link here.

OTC Markets Group Participation in October 2018 SEC Roundtable – by Ronald Woessner

 

OTC Markets Group Participates in SEC Roundtable Sponsored by the Division of Trading and Markets
On September 26, OTC Markets Group was pleased to take part in the SEC’s Roundtable on Regulatory Approaches to Combating Retail Investor Fraud, hosted by the Division of Trading and Markets. OTC Markets Group CEO Cromwell Coulson participated in a panel discussion on Trading Halts and General Counsel Dan Zinn spoke on a panel focused on Rule 15c2-11 and enhancing public disclosure requirements.

“Fraudulent and manipulative promotion schemes corrupt the efficient market pricing process, hinder small company capital formation, and harm retail investors,” said Cromwell Coulson, CEO. “Because regulation alone cannot address all sources of fraud, we must empower individuals with the information they need to make better-informed investment decisions. Shining the electric light of data-driven markets that incentivize corporate disclosure, combined with common-sense regulation, are the most effective investor protection tools.”

In conjunction with their participation in the Roundtable, OTC Markets Group submitted a list of targeted Regulatory Recommendations that would help to combat retail investor fraud, improve market efficiency and bring greater transparency to our public markets.

Mr. Woessner’s bio appears here.

OTC Markets Proposed OTCQX Listing Requirements Relating to Stock Transfer Agents by Ronald Woessner

OTC Markets Group has published a proposed amendment to the OTCQX Rules for U.S. Companies, and OTCQX Rules for U.S. Banks.

Proposed Amendment

 As of January 1, 2019, OTC Markets Group plans to require all U.S. companies and U.S. Banks trading on OTCQX to provide verified share data through a transfer agent that participates in the Transfer Agent Verified Shares Program. You may find a list of participating transfer agents at Transfer Agent Verified Shares Program.

Background for Proposed Amendment

OTC Markets Group launched the Transfer Agent Verified Shares Program to provide investors with current and reliable share data. The program enables eligible stock transfer agents to report their clients’ share information, including shares authorized and outstanding, to OTC Markets Group on a regular basis via a secure, electronic file transfer.

Share data provided by transfer agents is displayed on www.otcmarkets.com alongside a “Verified by Transfer Agent” logo. OTC Markets Group will use this data to confirm compliance with the OTCQX Rules. This data is also disseminated through OTC Markets Group’s market data feeds and is available to investors and broker-dealers.

OTCQX Rules for U.S. Companies:

  • All U.S. companies shall retain and maintain a transfer agent that participates in the Transfer Agent Verified Shares Program at all times. (see proposed rules OTCQX Rules for U.S. Companies)

 OTCQX Rules for U.S. Banks: 

  • All U.S. Banks shall retain and maintain a transfer agent that participates in the Transfer Agent Verified Shares Program at all times. (see proposed rules OTCQX Rules for U.S. Banks)

 Determine Compliance

 If a company profile on otcmarkets.com displays a “Verified by Transfer Agent” logo, then the company is already compliant with the proposed

  • If there is no logo displayed, but the company’s transfer agent’s name is on the list of participating transfer agents, then the issuer may contact its transfer agent to request that they send the company’s data to OTC Markets
  • If  the company’s transfer agent is not on the list of participating transfer agents or the list of those in the process of onboarding, then the issuer may contact its transfer agent to discuss their plans to participate.  Alternatively,  issuers may also contact Bob Power bob@otcmarkets.com (212) 896- 4406 at OTC Markets Group for further information.

Comments on the proposed rules were originally due OTC Markets Group by October 4, 2018.

Effective Date of Proposed Amendment:

The proposed rules are scheduled to become effective for all OTCQX U.S. companies and OTCQX U.S. Banks on January 1, 2019.

Mr. Woessner’s bio appears here.