STA Open Call — April 29, 2020

Road to Modernize the Over-the-Counter Market

Jacob Rappaport, INTL FCStone
Dan Zinn, OTC Markets

Executive Summary

In September 2019, the SEC announced proposed amendments designed to modernize Rule 15c2-11 and enhance investor protection by requiring that current and publicly available issuer information is accessible to investors. The OTC market has seen significant technological improvements since the last substantive review by the SEC in 1991. The comment letter file has over 150 letters which is a good indication that the breadth of securities that trade OTC is extensive and so are the types of investors who transact there.

The proposed amendments seek to: facilitate the availability of current issuer information; Limit certain exceptions to provide greater protections to investors; and reduce burdens for broker-dealers with proposed new exceptions where there is less concern regarding fraud and manipulation.

While overall industry support for the proposed amendments is strong, there are certain areas where the industry recommends changes or further consideration. These include:

• Impact to investors and issuers due to the criteria for determining “no information” securities leading to a large migration of securities (estimate is 3,000) from OTC to the Grey markets.
• Securities that do not provide current information should be allowed to quoted on a “Professional” market where visibility to prices is limited to professional investors – definition/standard of professional investors is tbd.
• The burden placed on BDs to ensure that issuer information is “accurate” vs “current”.
• Clear criteria for determining “shell companies”.

Resources

• SEC Office of the Advocate for Small Business Capital Formation Video (3 minutes)
• Yahoo Finance – Exploring the SEC Plan. Article
• SEC Proposal Fact Sheet
• Chair Clayton’s public Remarks
• Dan Zinn, OTC Markets Video

STA Webinar

Our next Open Call is Wednesday, May 6th on the title is “Unlocking your inner entrepreneur”. The format will be a Zoom webinar with past STA presenter; Eleanor Beaton. We’ve all been working in isolation, having to rely more on ourselves and this experience may have sparked or even deepen thoughts of doing something on your own. So, whether you’re trying to cope with isolation or thinking of starting your own business, you should dial-in, as Eleanor is very good at what she does.