Late last year, OTC Markets Group published a new Stock Promotion policy, along with Best Practices for public companies. These policies outline OTC Markets efforts to establish best standard practices, improve market transparency and better address the problem of fraudulent stock promotion. Stock promotion is misleading and manipulative when the information disseminated disrupts efficient market pricing. By establishing disclosure-based standards and best practices for companies to use when they are hiring third-party providers and creating content for investor awareness campaigns, and by calling on issuers to publicly address misleading promotion, we are working to change the dynamics of fraudulent stock promotion and the damage it does to investors and markets.
Stock promotion harms investors, impedes capital formation and disrupts efficient pricing mechanisms across all trading markets.
Manipulative and misleading stock promotion remains an industry-wide concern that affects trading on both national exchanges and in the OTC markets. Our historical stock promotion data show that promotion is not just a problem that impacts the smallest companies– as 70% of the dollar volume impact occurs in securities listed on a national exchange.
Promotion Risk Flag
To further enhance market transparency and investor protection, OTC Markets Group recently introduced a “Promotion Risk“ flag. The Promotion Risk flag, shaped like a megaphone, appears on the promoted company’s quote page on otcmarkets.com.
The Promotion Risk flag is separate from the Caveat Emptor Risk flag, which identifies companies that are the subject of public interest concern, including fraudulent promotion.
The new Promotion Risk flag help investors identify securities that are the subject of an active stock promotion campaign.
OTC Markets Group’s Issuer Compliance team proactively monitors a variety of sources to determine if a security is being promoted, collects input from our strong network of market participants and conducts research prior to publishing the Promotion Risk flag on otcmarkets.com. Generally, the Promotion Risk flag remains on the company’s quote page until 15 days after the last promotional material is distributed.
Shell Risk Flag
In addition to the new Promotion Risk flag, we’ve also added a “Shell Risk” flag which indicates that a company displays characteristics common to shell companies, including limited operations. This designation is made at OTC Markets’ discretion based upon a comprehensive analysis of the company’s annual financial data and may differ from an issuer’s self-reported “shell classification” in their own public filings.
Both the new stock promotion and shell risk flags, featured on the individual quote pages of those categorized securities, can be found on our website www.otcmarkets.com. In addition, the most recent aggregate compliance-related data is featured on our Compliance Statistics page. This compliance-related data will soon be available for broker-dealers, clearing firms and custody banks in our compliance analytics file and other market data products.
Better disclosure, provide timely information, create additional investor protections
These initiatives reinforce OTC Markets Group’s commitment to market surveillance programs that encourage better disclosure, provide timely information and create additional investor protections to ensure a fair market pricing process. Collectively, these data points alert investors to the presence of promotional activity, while helping the broker-dealer community enhance its compliance and AML processes.
OTC Markets Group continues to leverage the vast amounts of available data to identify bad actors and combat fraudulent stock promotion. We continue to engage securities regulators to advance the narrative and work collaboratively to implement solutions.
As always, we welcome thoughtful feedback from our community of issuers and stakeholders. You can email us at email@example.com.