OTC Markets: Rule 15c2-11 Amendments FAQs

OTC Markets Group recently hosted a webinar to discuss the SEC’s Amendments to Rule 15c2-11 and how these changes will impact companies and their market designations as the rule goes into effect on September 28, 2021. The webinar covered key topics such as:

  • Overview of Rule 15c2-11
  • Requirements for Domestic and International Companies to meet Current Information Standards
  • Action Required for Pink No Information and Non-Reporting Companies
  • What happens to securities that do not meet the Rule’s disclosure standards

Continue reading for OTC Markets Group Senior Management’s answers to some of the most frequently asked questions.

What Does the Rule 2-11 Change Mean for OTCQX and OTCQB Companies?

The SEC guidelines for what’s required to be current in your disclosure match our OTCQB and OTCQX rules. If you are an OTCQX or OTCQB issuer currently, you are in compliance. On September 28th, you are fine and will continue to have your public quote on our OTCQX and OTCQB markets.

In order to maintain that public quote on OTCQX and OTCQB, you’ll just need to continue to do what’s always been required of you as an OTCQB or OTCQX issuer. This rule impacts companies that are currently on our Pink Market.

What happens if a company becomes delinquent subsequent to the rule going into effect? Will the issuer lose their public quote status?

We focus on September 28th, but this rule is going to exist in perpetuity after that. So there is always this continued information requirement under the rule. That was the purpose, from the SEC standpoint, of passing the rule. If a company goes delinquent, and no longer has current information at any point after September 28th, they would lose their public quote and go either to the Expert market or otherwise trade without access to that public market.

What’s changed about the Pink Current and Pink Limited guidelines and what will those two tiers look like moving forward?

We have revised our Pink Current and Pink Limited guidelines on the information that’s required by companies to qualify for each, which are publicly available on our website. The Pink Limited tier, and the information required to be qualified as Pink Limited is more basic — what you need under Rule 15c2-11.

Pink Current goes above that. In order to meet those guidelines you’re going to need to have specific financial information — more than the Pink Limited guidelines. Both will allow a security to be quoted on an ongoing basis, but the Pink Current guidelines are more stringent. And with respect to the impact of being on one tier versus the other, brokers that are quoting those securities may place restrictions on the Pink Limited tier that they do not place on Pink Current.

Companies that trade on our Market are subject to the Blue Sky laws in the 50 states and four territories. OTCQX and OTCQB get you certain manual exemptions for purposes Blue Sky in a growing number of states. That also is impacted depending on whether or not you are Current or Limited. As an example, for companies that come in Current that are making their information available to us, you would gain a state like Illinois. It will have an impact not just on a broker’s potential restrictions on trading Limited versus Current, but also on the Blue Sky status of individual states.

Can you clarify the timing of financial reports that need to be made available for the Pink Limited tier?

The biggest change that we’ve made for Pink Limited disclosure guidelines recently, is to change the timing of the financials that are due. We lowered those requirements to line up more clearly with the SEC’s guidelines. The bottom line is, we need an annual report that’s dated for a period within the last 16 months and we need the company to verify their profile information that’s displayed on OTC Markets to the public.

Can you expand on the new process for filing a 2-11 vs. the current process?

Right now, for a company to start being quoted on our Market, a broker has to file a form 2-11 with FINRA and go through that back and forth process. Ultimately, FINRA signs off on that form and once they do, OTC Markets is permitted to open that security for quoting just for the broker that made the filing. If there’s more than one broker that files a 2-11 that gets cleared, we can open it just for those brokers for a period of 30 days. After 30 days, it becomes available to all brokers.

Going forward, that avenue still exists. But there is another avenue that 15c2-11 creates: allowing OTC Markets to do that review. There’s no form 2-11 filing with us. This process means a company will come to us and we will work directly with them to determine whether the information is available to either have them come in through our Disclosure News Service product or be on OTCQX or OTCQB — a more streamlined review process. Once we do that, we have to make it publicly available that we have done so and that we believe the company meets the rule. Then, any broker can begin quoting that security, though there is no guarantee that a broker will. We also have compliance obligations on the back end between us and FINRA, but those don’t involve whether the company can start to be quoted. Once we make that determination, the quote will open up.

Changes for OTCQX & OTCQB Applicants

The traditional process of filing a 2-11 with FINRA involves much back and forth, along with Q&A for many issuers. But the most painful part of the process is the timing. It can take anywhere from a day to months before an issuer knows when the security will be available to be publicly quoted and traded.

With the rule change – this process turns into a day. Our review process for an OTCQX and OTCQB application replaces FINRA’s role. For a company that wants to join OTCQX, we can work with the company to pick the start date for trading and ensure that the full review is completed, and the company is eligible for public quoting on that specific day.

It streamlines the process and gives us the ability to onboard an issuer in a way that’s much more seamless and looks a lot more like the kind of IPO process or the direct listing process on an exchange.

What is the difference between the June 30th deadline and what was required at that time and the date of the rule going into effect on September 28th?

The June 30th deadline was created because there’s a tremendous amount of work that goes in to getting this information, making sure companies are on our OTCIQ platform and have the ability to send in the information required, and for us to do the review. The June 30th deadline was created by us for the sole purpose of being able to say that we know that we would have ample time to be able to review those applications and get those companies up to date before the compliance date comes into effect on September 28th.

That September 28th is a date that the SEC has put out there. Any company that has not been reviewed, cleared, and marked as Current on that date, whether or not you called us the day before or sent an application the week before, will be coming off if they don’t meet the standard.

We created that June 30th standard so we knew that if we had it before June 30th, we would have ample time – so that companies would not be impacted by our inability to get it done in a timely manner. There’s nothing to say that if you submitted on July 15th we won’t get to it before the September 28th deadline. But we cannot guarantee it. The reason that we put the the date so early is so that not only we have time to review the applications, but that then companies have time to actually post their disclosure for us to then review.

Once you receive OTCIQ access be sure to post your disclosure as early as possible, that will help ensure that the company has met the compliance requirements for September 28th.

If companies already have DNS (Disclosure News Service) access and are making disclosure available in OTCIQ, is there anything that they need to do differently?

The answer is no. If you already have OTCIQ access and you are posting disclosure and you are in the Current or Limited information categories, you are doing what you need to be doing. However, we are going to have to ask all of the companies that have DNS access to re-verify their profile. Please look out for emails regarding profile re-verification and respond in a timely fashion. There’s some information that we have not previously collected from issuers in those profiles that is required by the SEC under the new 2-11 amendments.

To view the full webinar, visit: https://youtu.be/PpdfQ3fDIu4

Share

Jason Paltrowitz is Executive Vice President, Corporate Services at OTC Markets Group, where he is responsible for managing the firm’s international and domestic Corporate Services business. Drawing upon his expertise in cross-border trading and as a recognized proponent of Reg A+ and small company capital raising, Jason is an advocate for small cap issuers, start-ups, and entrepreneurial innovators working to alleviate the cost, time and complexity associated with being a public company. Prior to joining OTC Markets in October 2013, Jason was Managing Director and Segment Head at JP Morgan Chase responsible for the custody, clearing and collateral management business in the Corporate and Investment Bank division. Jason also held multiple senior management positions at BNY Mellon, most notably, as Head of M&A for the Financial Markets and Treasury Services Sector and 11 years as the Head of the Global Capital Markets Group in the Depositary Receipt Division. Jason currently serves on the Board of Directors of the Crowdfunding Professional Association (CfPA) and also served as a member of the Board of Directors at OTC Markets Group from 2008 – 2011. Jason holds a Bachelor's degree in International Relations from Boston University and received his MBA from the NYU Stern School of Business.

%d bloggers like this: