Quantifying Listed Low Price Security Risk – Small Cap Compliance Risk Scoring

The events of 2020 have raised plenty of compliance issues within the equity markets including the explosion of retail activity, day-to-day event driven volatility and the influx of COVID-19/health care sector securities.  They have also highlighted an issue that has often been overlooked during more sanguine markets – the large number of ‘Low Priced Securities’ (LPS) on U.S. exchanges.

Low Priced or Microcap securities have always been a part of listed markets; however, the macroeconomic climate created by COVID-19 has increased the number of these securities significantly.  There are currently 1,843 sub 300 MM securities trading on listed markets, which is an 11.5% increase vs. end of Q4 2019.

This increase is an issue for compliance departments, as often their LPS policies do not extend to the listed markets.  Regulatory scrutiny of OTC equities and OTC Markets’ tiering/compliance regime has resulted in significant enhancements to OTC LPS policies and processes street wide.  Bad actors are aware of this paradigm and often target the small cap listed markets.  Enforcement has followed with a number of actions involving listed securities within the past year (e.g. MiMedX, Longfin, Honig case).

Small Cap Risk Scoring

In response to these issues and based on feedback received from compliance departments, OTC Markets has enhanced our Small Cap Listed Compliance product to include “risk scoring.”  In concept, the product design is very similar to the OTC Compliance Analytics product.  A wide range of red flags (13) are evaluated and assigned a point value with the sum of those individual data points becoming the total risk score.  Key data points include: Promotion, Hot Sector Status, Shell and Former Shell Status, Penny Stock Status, Microcap Status, OTC Graduate Status, Price and Trading Volatility.  Due to differences in data points, the scoring scale for the Small Cap Listed product (0 – 40)  does not match the OTC Compliance Analytics product (0 – 55), but the value to Compliance departments is equivalent – a simple way to quantify risk and put in place processes to triage use cases and automate policies.

View Small Cap Compliance Risk Algorithm

*Data Analysis

The inherent similarities between OTC securities and the small cap listed market (in terms of issuer size and liquidity) results in similar risk scoring distribution across markets.  Scoring distribution bunches at relatively low risk scores with a long tail of  higher risk scores which highlights these securities’ outlier status.  The chart below and data points from the end of Q2 (6/30) illustrate these findings.

* Data Analysis is based on Small Cap Listed compliance product which is limited to corporate securities with a Market Capitalization < 500 MM.


Below are some additional key data points from the end of Q2 (6/30) which highlight the similarities across LPS markets:

  • Actively Promoted Securities: 12
  • Hot Sector Securities (Cannabis, COVID, Crypto): 29
  • *Penny Stocks: 194
  • Former Shells: 127
  • Price < $1.00: 256

* Penny Stock Status notes listed securities would be considered penny stocks if not for the exchange listed exemption.


Small Cap Listed risk scoring allows compliance departments to easily extend policies and processes established for OTC securities to the listed markets.  The number of LPS securities within listed markets will most likely continue to increase over the next 12 months, garnering additional scrutiny by regulators.  Ultimately, compliance departments that look at LPS holistically and develop comprehensive automation strategies across markets will be well-prepared for the inevitable inquiries.

For more information on Small Cap Listed risk scoring, and to view sample data, please email marketdata@otcmarkets.com or call 212.220.2166.




Matthew Fuchs, EVP of Market Data, leads the product development, distribution and sales of market data at OTC Markets Group. Prior to joining OTC Markets Group, he served in a number of financial technology roles at the National Research Exchange, Bearing Point and Arthur Andersen. Matt received a BA from Columbia University

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