OTCQX And OTCQB Rule Changes

by Laura Anthony, Esq. on October 21, 2021 in Uncategorized

In September 2021, the OTCQB and OTCQX tiers of OTC Markets instituted amendments to their rules, to, among other things, align with the market changes resulting from amended Rule 15c2-11.

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 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.

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 the OTCQB and OTCQX listing requirements, see HEREHERE and HERE.

On September 28, 2021, amended Rule 15c2-11 became effective.  From a high level, the amended rule requires that a company have current and publicly available information as a precondition for a broker-dealer to either initiate or continue to quote its securities; narrows reliance on certain of the rules exceptions, including the piggyback exception; adds new exceptions for lower risk securities; and adds the ability of OTC Markets itself to confirm that the requirements of Rule 15c2-11 or an exception have been met, and allows for broker-dealer to rely on that confirmation.  See HERE and HERE for an in-depth discussion of the new rules.

OTCQB Amendments

Effective September 26, 2021, the OTCQB Standards, Version 4.0, went into effect.  The new Version 4.0 modified the prior rules as follows:

Bid Price Rule.  Companies applying to the OTCQB in conjunction with an initial review for quotation eligibility under Rule 15c2-11 shall have three (3) business days to meet the requirement for proprietary priced quotations to be entered.  That is, a company will need to coordinate with a market maker to enter a quotation within three business days of OTC Markets determination that the 211 information requirements have been satisfied.  Upon application, OTC Markets may exempt these companies from the general requirement of having a minimum bid price of $.01 per share as of the close of business for the prior 30 consecutive calendar days.

Disclosure Requirements – Alternative Reporting Companies.  – A Company that follows the Alternative Reporting Standard must have posted audited financials dated within 16 months at all times in order to maintain compliance with Rule 15c2-11.

Disclosure Requirements for International and Insurance Companies.  Foreign issuers that report to the SEC using Forms 20-F and 40-F must also file an interim Form 6-K containing, at minimum, an interim balance sheet and an income statement as of the end of its second quarter.  The Form 6-K must be filed within six months from the company’s second quarter end.  International companies relying on Rule 12g3-2(b) must provide annual confirmation of 12g3-2(b) compliance through the Add Financial Report link in www.otciq.com using the report type titled “12g3-2(b) Confirmation.”  For more on Rule 12g3-2(b), see HERE.

All insurance companies must post their most recent “Insurance Company Annual Regulatory Statement” per Securities Exchange Act Section 12(g)(2)(G)(I), through the OTC Disclosure & News Service, initially and annually.

Application Process.  The OTCQB application and supporting materials must be submitted through the new online application portal at https://gateway.otcmarkets.com.

OTCQX Amendments

Effective September 23, 2021, the OTCQX Standards, Version 9.0, went into effect.  The new Version 9.0 modified the prior rules as follows:

Bid Price Rule.  Companies applying to the OTCQX in conjunction with an initial review for quotation eligibility under Rule 15c2-11 shall have three (3) business days to meet the requirement for proprietary priced quotations to be entered.  That is, a company will need to coordinate with a market maker to enter a quotation within three business days of OTC Markets determination that the 211 information requirements have been satisfied.  Upon application, OTC Markets may exempt these companies from the general requirement of having a minimum bid price of $.25 per share as of the close of business for the prior 30 consecutive calendar days.  This same rule change applies to U.S., International and U.S. Bank issuers.

SPACs.  SPACs with at least $20 million public float and a bid price of at least $5.00 can qualify to trade on the OTCQX.  A company formerly operating as a SPAC that has effected or is in the process of effecting a business combination and becoming an operating company may request a 90-day exemption to the float requirement in Section 2.1(i) (i.e., minimum float of $10 million). A qualifying company must meet all other OTCQX eligibility criteria and must have been publicly traded prior to the business combination.

Insurance Companies. All insurance companies must post their most recent “Insurance Company Annual Regulatory Statement” per Securities Exchange Act Section 12(g)(2)(G)(I), through the OTC Disclosure & News Service, initially and annually.

Disclosures.  All companies must verify their Company Profile through the OTCIQ.com web portal as an initial disclosure obligation.  A Company that follows the Alternative Reporting Standard must have posted audited financials dated within 16 months at all times in order to maintain compliance with Rule 15c2-11.

Fees.  Companies may be removed for non-payment of outstanding fees to OTC Markets, including fees for services such as press releases.

International Companies.  All companies must either be listed on a Qualified Foreign Stock Exchange and eligible to rely on the exemption from registration provided by Rule 12g3-2(b), be an SEC Reporting Company or be a Regulation A Reporting Company. Exemptions for companies listed on a foreign exchange that is not a Qualified foreign Exchange and for companies that cannot rely on the exemption provided by 12g3-2(b) because they do not meet the definition of “foreign private issuer” have been eliminated from the rules.

International companies that are SEC or Regulation A reporting and not listed on a qualified foreign exchange must have a public float of at least 10%.