The SEC amended Exchange Act Rule 15c2-11, which is a crucial element of the over-the-counter (OTC) market regulatory system. The changes are intended to improve the rule, which was last considerably changed about thirty years ago, and to take into account developments in communications technology.
Prior to actually posting quotations in OTC securities, broker-dealers must analyze current and information available to the public, according to the modified rule. To improve investor protection, the amendments also restrict some of the exemptions available under Rule 15c2-11 and add new exclusions for low-risk securities.
Given the current rule’s timeliness and modifications, its practical implementation streamlines the process of small-cap companies going public. For firms accessing the OTCQB and OTCQX markets, OTC Markets Group can now undertake “Initial Reviews” under Rule 15c2-11, which is a replacement to the regular FINRA Form 211 process.
The revisions to the Securities and Exchange Commission’s rules are aimed at improving investor information, preventing fraud, and easing the burden on broker-dealers who quote OTC securities. To be publicly quoted on OTC Link ATS, companies will henceforth be required to post updated information. The regulation, in these new conditions, will demand that current information about an issuer be publicly present in order for a security to be quoted initially and continue to be quoted, under the revised “piggyback exemption”. Quotations that are “unsolicited” will still be allowed under the revised Rule, but they will be susceptible to extra conditions.
All these changes imply that OTC Markets Group will become more involved in attracting companies to their markets. This trading platform now will operate as a “certified interdealer quotation system” which allows brokers to count on OTC’s current information designations instead of completing a Form 211 to FINRA, under the revised Rule. According to the new status, it will make it easier for companies that are up to date on their disclosure responsibilities to enter the public market.
On the other hand, firms that don’t provide updated information available to the public and don’t satisfy the conditions for continuous quoting will be transferred to Expert Market. This type of market will only accept “unsolicited” quotes. The fundamental feature of this type of market is that quotations in Expert Market securities are not available to the general public. These quotes can only be viewed by broker-dealers and professionals or sophisticated investors. All these indicate that this market provides a controlled trading environment in which broker-dealers can meet their greatest responsibilities. This means it provides access to information that would otherwise remain concealed in the Grey Market.
