2018 Regulatory Initiatives & Targeted Rulemaking: Improving Transparency, Focusing on Market Efficiency

Over the past 20 years, the reputation and recognition of the OTC markets has grown.  Part of that positive transformation has come from technology, both at OTC Markets Group and from the broker-dealer community, that has fostered a vibrant, data-driven, electronic trading market. It has also come from working closely with lawmakers and regulators, submitting comment letters and rule proposals, to achieve regulatory modernizations and targeted rulemaking that can increase transparency and improve market efficiency.

These initiatives have led regulators to recognize the role of our OTCQX and OTCQB markets for OTC equity securities.  Based on the price transparency and current public information available for free on our website, these markets are recognized by the SEC as “Established Public Markets” and have Blue Sky secondary trading exemptions in 30 states. We continue to engage regulators and lawmakers on how to improve our public markets by updating restrictive and outdated regulations.

In 2018, we are focused on the following initiatives

Blue Sky Exemptions

State Blue Sky laws impact all companies trading on our markets.  Over the past two years, we have worked with state regulators towards our goal of nationwide Blue Sky recognition for our OTCQX and OTCQB markets.

As of April 2018, we have achieved secondary trading exemptions in 30 states – with 27 states recognizing both the OTCQX and OTCQB markets and 3 states solely recognizing the OTCQX market. Each state adopted a tailored approach to granting these exemptions, using no-action letters, rule changes, administrative orders and existing statutory exemptions.

JOBS Act Online Capital Raising

We believe that the future of capital raising is online, and we support changes to make the JOBS Act more efficient and accessible. On June 6, 2016, we filed a Rulemaking Petition with the SEC, advocating that SEC reporting companies be permitted to conduct an online public offering under Regulation A+.  Experienced reporting companies with comprehensive disclosure and investor relations processes in place are ideal candidates to use Reg A+.

In 2017, the House of Representatives passed the Improving Access to Capital Act, based in large part on our SEC Petition for Rulemaking, and on March 14, 2018, the Senate passed the Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155).  Each bill includes a provision allowing SEC reporting companies to leverage Reg A+.  We will continue to track the progress of these bills and support other legislative proposals aimed at strengthening the JOBS Act.

Regulations Impacting Small Public Companies: Margin Eligibility and ESOPs

The OTC equities market is often subject to decades-old regulations that were adopted during a time when OTC trading was conducted via printed quotes and phone calls, and company information was scarce.  Our markets have changed dramatically since the pre-internet days, and outdated laws now impose unnecessary restrictions on small company capital formation and limit the value of an investors’ holdings in these companies.

For example, common-sense legislative amendments would allow qualified securities on our markets to become margin-eligible.  Prior to 1999, the Board of Governors of the Federal Reserve System regularly published a list of OTC stocks that were deemed “marginable” based on certain financial and liquidity standards.  The Fed ceased that practice several years later, leaving no path for OTC stocks to become margin eligible.  Updating these rules would allow shareholders to access additional value by borrowing against their holdings and would have a direct impact on the issuer’s ability to raise additional capital.

We also want to see a more efficient pathway for OTC issuers to offer Employee Stock Ownership Plans (known as “ESOPs”) to their employees. Current IRS regulations force public companies quoted on our premium OTCQX and OTCQB markets to treat their stock as “private” for ESOP purposes.

As a result, despite having a publicly-quoted price that is recognized as a Level 1 price source by the Financial Accounting Standards Board (FASB), current regulations require OTCQX and OTCQB companies to use an independent appraisal to establish the value of their securities.   The cost and risk involved ultimately deters many smaller public companies on our markets from offering ESOPs to their employees.

The 72 U.S. companies* that trade on our OTCQX Premier market have an aggregate market capitalization of over $8.7 billion and employ over 20,000 employees.  These companies and their employees should not be prohibited from accessing the benefits that come with being a public company. (* Data as of April 18, 2018)

Investor Protection: Stock Promotion and Share Ownership Disclosure

Our transparency-focused mission closely ties to our ongoing efforts to combat securities fraud.  We recognize the damage that can be created by “pump-and-dump” schemes and other manipulative activities involving paid stock promotion.  In our experience, disclosure and transparency most effectively combat and deter fraudulent activities in our public markets.

In 2006, we submitted a Rulemaking Petition to the SEC, and more recently submitted regulatory recommendations, each seeking to increase disclosure obligations for paid stock promotion activities under Section 17(b) of the Securities Act, including disclosure of the parties paying for the promotion and the amount of such payments.

Similarly, we advocate for increased regulation and disclosure requirements for transfer agents, company affiliates and insiders. Bringing greater transparency to the share ownership and transfer history would go a long way to deter bad actors.

As we continue to push ahead with these policy initiatives, we encourage issuers, investors, advisors, regulators and other market participants to contact us to explore how you can help.


Click here for more information about our Public Policy Advocacy.


As Associate General Counsel, Cass supports regulatory and policy making initiatives at OTC Markets Group, focusing on equity market structure, online capital raising and emerging Fintech and RegTech trends. She represents the company on public panels and before regulatory and legislative groups. Prior to joining OTC Markets Group, Cass represented issuers, broker-dealers and individuals in securities litigation, financing, and various corporate and regulatory matters. Cass earned her JD from Hofstra University School of Law and received her BA from Mount Holyoke College. Cass is a member of the New York Bar.

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