OTC Markets Group continues to develop products and solutions that make our markets more transparent, efficient and cost-effective for our issuers, market participants and investors. We are therefore excited to announce the launch of our new Blue Sky Compliance data service.
This latest market data offering is designed to assist OTC issuers in broadening their investor outreach, help broker-dealers ensure they are in compliance with state security laws for secondary trading, and create additional opportunity for advisors, brokers and research analysts to recommend and cover OTC equities and fixed income. We hope to simplify the inherent complexity of the 54 different Blue Sky rulesets– allowing subscribers to automate what is often a very manual process.
What are Blue Sky laws? Why are they important for OTC securities?
‘Blue Sky’ is a general term used to describe state securities laws. Our focus is the portion of Blue Sky which regulates the secondary trading of equity and fixed income securities. It is important to note that these rules are NOT applicable to exchange-listed securities. The SEC pre-empts state regulations for exchange-listed securities as it pertains to secondary trading.
There are a wide range of ‘Blue Sky’ restrictions for secondary trading that predominantly focus around the concepts of solicitation and recommendation. Brokers may not solicit or offer any type of recommendation to residents of a state where the respective OTC equity or fixed income security does not qualify for an exemption. These restrictions also limit the publication of research (often a form of recommendation) and the inclusion of OTC securities in Separately Managed Accounts (SMA) / Wrap accounts.
Such restrictions can be problematic for both OTC issuers and broker dealers. For issuers, Blue Sky rules limit an issuer’s ability to leverage the broker/RIA community to tell their story, increase liquidity and grow their investor base. For broker- dealers, the complexity and variability of Blue Sky rules across all 54 jurisdictions (50 states + DC, Guam, Puerto Rico, Virgin Islands) drive higher compliance costs and inhibit the expansion of coverage/services for OTC securities.
The Solution – Blue Sky Compliance Data
As a market operator for over 11,000 U.S. and global securities, we understand the importance of Blue Sky compliance and the need for current and reliable information. Utilizing OTC Markets’ proprietary data sets and employing a cloud-based architecture, we’ve created a simple, cost effective solution that is comprehensive, intuitive and tailored specifically to the OTC market.
Our solution leverages our understanding of the OTC Market in three unique ways:
- Coverage – Our data set spans the entire OTC equity universe of approx. 16,000 securities (including more than 6,000 Grey Market securities). The Blue Sky Data premium offering employs third-party data from Mergent, FTSE, SEC Edgar and FFIEC combined with proprietary OTC data sets (e.g. Alternative Reporting Standard) — providing the most comprehensive, timely and accurate exemption data. Referencing key OTC Market-specific data points such as OTC Tier and Caveat Emptor, subscribers can easily harmonize compliance rules across all OTC equities (View User Guide). The data set also covers more than 80,000 corporate fixed income securities including convertibles and other equity linked issues.
- Delivery –Blue Sky Data is created and delivered daily at 7:00 am in complete and delta formats. Additionally, Blue Sky data will be available in our Compliance UI – Canari. Canari is an intuitive, easy to use application which contains key OTC compliance data points along with Blue Sky data. The application allows users to search by ticker or CUSIP and contains current and historical blue sky compliance data.
- Support – A deep understanding of OTC issuers, securities, regulations and data enable us to provide an unparalleled level of support. Our applications allow us to easily drill into detailed questions on specific rules and jurisdictions. More importantly, the insights we glean through subscriber questions and feedback help enhance product performance.
The Blue Sky Data solution underscores our commitment to add transparency and efficiency to the OTC Market through the use of technology and data. We look forward to continuing to work closely with our issuers and broker-dealers to solve for blue sky compliance issues, enhance our compliance product offerings and develop new data products that improve the OTC market trading experience.