OTCQB And OTCQX Rule Changes

by Laura Anthony, Esq. on December 18, 2020 in Uncategorized

Effective October 1, 2020, the OTCQB and OTCQX tiers of OTC Markets have instituted amendments to their rules, including an increase in fees.

The OTC Markets divide issuers into three (3) levels of quotation marketplaces: OTCQX, OTCQB and OTC Pink Open Market. The OTC Pink Open Market, which involves the highest-risk, highly speculative securities, is further divided into three tiers: Current Information, Limited Information and No Information. Companies trading on the OTCQX, OTCQB and OTC Pink Current Information tiers of OTC Markets have the option of reporting directly to OTC Markets under its Alternative Reporting Standards.  The Alternative Reporting Standards are more robust for the OTCQB and OTCQX in that they require audited financial statements prepared in accordance with U.S. GAAP and audited by a PCAOB qualified auditor in the same format as would be included in SEC registration statements and reports.

As an aside, companies that report to the SEC under Regulation A and foreign companies that qualify for the SEC reporting exemption under Exchange Act Rule 12g3-2(b) may also qualify for the OTCQX, OTCQB and OTC Pink Current Information tiers of OTC Markets if they otherwise meet the listing qualifications.  For more information on OTCQB and OTCQX listing requirements, see HERE,  HERE, and HERE.

OTCQB Amendments

Effective October 1, 2020, the OTCQB Standards, Version 3.4, went into effect.  To review the last amendments adopted in February 2020, see HERE. The new Version 3.4 modified the prior rules as follows:

Fees.  Effective January 1, 2021, the OTCQB annual fee will increase from $12,000 to $14,000 and the application fee will increase from $2,500 to $5,000.

Corporate Governance Requirements.  Companies that alternatively report to OTC Markets must meet certain corporate governance requirements to be eligible to trade on the OTCQB.  In particular, such companies must have a board of directors that includes at least two independent directors and must have an audit committee the majority of which are independent directors.  The new rules provide that trusts, funds, and other similar companies may be exempted from these corporate governance standards.  A company wishing to be exempted must apply to OTC Markets in writing and such exemption will be granted in the sole and absolute discretion of OTC Markets.

Application Review/Reasons for Denial.  Although OTC Markets has always had broad discretion to deny an application to trade on the OTCQB, the new rules specifically provide that OTC Markets may “[R]efuse the application for any reason, including but not limited to stock promotion, dilution risk, and use of “toxic” financiers if it determines, in its sole and absolute discretion, that the admission of the Company’s securities for trading on OTCQB, would be likely to impair the reputation or integrity of OTC Markets Group or be detrimental to the interests of investors.”

OTCQX Amendments

Effective October 1, 2020, the OTCQX Standards, Version 8.6, went into effect.  To review the last amendments adopted in December 2019, see HERE. The new Version 8.6 modified the prior rules as follows:

Fees.  Effective January 1, 2021, the OTCQX annual fee will increase from $20,000 to $23,000.  The application fee remains unchanged at $5,000.

International Company Upgrade to OTCQX.  A Company with a class of securities currently quoted on the OTCQB market that chooses to upgrade to OTCQX may now be exempt from the requirement to select an OTCQX Sponsor or submit a Letter of Introduction.

Sponsor for International Companies. An OTCQX Sponsor who is an attorney or law firm is no longer required to be headquartered in the U.S. or Canada. Instead, each attorney who provides services as an OTCQX Sponsor must be licensed to practice law and in good standing in the U.S.  As a reminder, I am a qualified OTCQX Sponsor.


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