Three Strong Points for SME Markets

Barriers of Entry to Equity Market Financing for SMEs

Earlier in 2017, The World Federation of Exchanges (WFE) released their report highlighting major barriers of entry to equity market financing for Small and Medium Enterprises (SMEs). In conjunction with a survey infrastructure supported by the Milken Institute, the WFE made three key recommendations to securities market regulators and exchanges:

  1. The complexity, cost and scale of listing, and maintaining a listing, should be reduced, to incentivize the use of equity markets by SMEs.
  2. The quality, not the quantity, of information available about SMEs should be enhanced. This includes information that SMEs disclose for regulatory compliance as well as that from third-parties.
  3. Mechanisms should be introduced to enhance secondary market liquidity in SME stocks and on SME markets, such as: dedicated market makers; expanding and diversifying the investor base; and exploring alternative secondary market trading models such as a quote-driven market.

Approach to Assist Small Public Companies

When I read the WFE report, I couldn’t help but draw parallels between these findings and the unique public market framework we have built at OTC Markets Group to help smaller public companies succeed.

So, what exactly are we doing?

  1. Require Fewer Resources to be a Public Company. We have streamlined and simplified requirements that lower the complexity and cost for SME listing and compliance

We work hard to make being public less painful. A study from the IPO Task Force cited that the average cost for smaller companies to go public on a national exchange is $2.5 million. And with ever growing management burdens and continually rising costs to maintain an exchange listing (legal, accounting, advisory and compliance costs) averaging $1.5 million per year, listing has become a big-ticket time and capital commitment for any company. Fortunately, a costly exchange IPO isn’t the only means by which small companies can participate in capital creation and access public markets. OTC Markets strongly supports alternative methods such as Reverse mergers, Slow PO’s and Regulation A+ which provide a more efficient, less expensive and less burdensome path to the public markets.

Our “information first” market model empowers U.S. and Global companies to improve the quality of information available and allows investors to decide on the merits of an investment.  We strive to help alleviate the burden of unnecessarily complex and duplicative regulatory and disclosure requirements.

For example, we recognize several disclosure standards for providing adequate current information to the investing public.

  1. Empower Investors and Brokers with Information. We focus on quality not quantity of data available to investors

We believe that data is key to helping investors to decide the merits of investments and take responsibility as they analyze, value and trade securities.  In our disclosure and data-driven markets, investors can see real-time prices, access market data and up-to-date company information through multiple channels, including Bloomberg, Thomson Reuters, and other leading market data providers.  Investors are well serviced by a wide selection of online and institutional brokers.  Our OTC Compliance Data File provides broker-dealers and compliance/risk mitigation teams with critical data points on OTCQX, OTCQB, Pink and Grey securities.  The tiered market structure incentivizes public companies to provide higher quality disclosure, while highlighting less transparent and riskier securities for brokers to restrict access to.

And, as a result, the high-quality market data and information we make available on our website,, is helping companies demonstrate timely disclosure and financial standards for State Blue Sky regulatory compliance. This September, we reached a pivotal halfway mark with the majority of states that now recognize our OTCQX Best Market for the purposes of their “Blue Sky Manual Exemption” for secondary trading.  Coupled together, these unique features increase the level of transparency necessary to create more efficient markets, while not needlessly wasting resources for public companies.

  1. A Quote Driven Market that Offers Fair Competition Between Brokers and Dealers.  We deliver mechanisms to connect secondary market liquidity and execution providers, allowing investors to trade through the broker of their choice                                                                               

Most gratifying is the reports’ validation that quote driven markets provide an effective solution that delivers a cost-effective, less complex, scaled listing process with improved information quality.

We understand that a broker-dealer network is a critical component of market quality for small-cap stocks, which often lack the deep order books and natural share liquidity of larger cap stocks.  While the exchanges operate high frequency matching engines, designed for the largest listed companies, broker-dealer markets on OTC Link® ATS, our quote-driven, SEC regulated Alternative Trading System, treat liquidity as a resource that needs to be provided by diverse market participants.  This open platform enables investors to buy and sell securities through the institutional, retail, or online broker-dealer of their choice, enlisting market makers to provide competitive trading, so public companies can create a more diversified investor base.

OTC Markets Group believes in connected, data-driven and transparent markets. Among the diverse and competitive landscape, our goal remains the same– continue to provide choice markets for the public companies of today on our OTCQX Best Market and OTCQB Venture Market who will support the growth of the public companies of tomorrow.

R. Cromwell Coulson is President, CEO and a Director of OTC Markets Group, responsible for the company’s overall growth and strategic direction. Since leading the acquisition of OTC Markets’ predecessor business in 1997, Cromwell has transformed the company from a privately-held publisher of broker-dealer quotations into a publicly-traded company operating three public markets for 12,000 securities that trade nearly $445 billion in dollar volume annually. Cromwell is a strong advocate of improving capital formation, supporting a diverse ecosystem of broker-dealers, and empowering investors with increased disclosure and transparency. He has testified before Congress and spoken on these and other issues at numerous industry conferences. Cromwell is currently the Co-chair of the STANY Market Structure Committee and a former Chair (2017-2018) of the FINRA Market Regulation Committee that advises FINRA on rulemaking and trading issues. Prior to OTC Markets, Cromwell was an institutional trader and portfolio manager at Carr Securities Corporation. He holds an OPM from Harvard Business School and received his BBA from Southern Methodist University.

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