Amended SEC Rule 15c2-11 Impact | A more transparent, global OTC Markets

On Tuesday, September 28, 2021, amended SEC Rule 15c2-11 became effective.  The modernized Rule sets minimum public company disclosure standards for broker-dealer quotations. Its implementation represents a transformational moment for OTC Markets Group, as a Qualified Interdealer Quotation System operator[1] — recognizing our mission-critical role[2] and aligning with the data-driven disclosure standards we’ve created as the core foundation of our OTCQX, OTCQB and Pink markets.

By requiring companies to provide current, public disclosure as a pre-requisite for general distribution of proprietary market maker quotes, the Rule facilitates better-informed, more efficient financial markets and upholds our commitment to investor protection.  It codifies our role as the market operator to onboard new securities and monitor ongoing publication of company disclosure.

One week post the Rule’s effective date, preliminary analysis indicates that these changes created more transparency for investors while also significantly increasing the number of quoted global securities.  Over 3,000 securities became eligible for public market maker price quotations on OTC Markets after meeting the new rule’s requirements.

Snapshot of High-level Numbers:

  • Nearly 1,000 companies subscribed to provide public disclosure in 2021
  • The total number of Proprietary (Market Maker) Quote Eligible securities increased to 10,016 – a 12% increase
  • 2,247 former Pink No Information securities shifted to the Expert Market tier, where securities may only be quoted on an Unsolicited (customer order) basis. While this represents a large number of securities, it represented less than 5% of the total dollar volume
  • 1,757 Pink No Information securities lost Proprietary (Market Maker) Quote Eligibility status
  • 1,119 Grey Market securities gained Proprietary Quote Eligibility and shifted to either the Pink Current or Pink Limited tiers. These securities qualified under the Large Company Exemption available under amended 15c2-11.  The Large Company Exemption is available to international securities which have total assets greater than $50 million, shareholder equity greater than $10 million and average worldwide dollar volume for the past 60 days greater than $100,000
  • No changes in Proprietary Quote Eligibility status for OTCQX and OTCQB securities

The Data above compares security level information on October 8th with data from September 27th (the final day of the prior rule set).

OTC Securities which gained and lost Propriety Quote Eligibility:

Gained Proprietary Quote Eligibility (PQE):

Gained PQE 3,055
Gained PQE – From Grey 1,119
Gained PQE – From Pink Limited/Current (Unsolicited only) 1,936
Gained PQE – Foreign (ADR or F share) 3,043
Gained PQE – Median Price $10.20
Gained PQE – Median Market Cap $1,600,438,941

These shifts offer greater opportunity in many of the higher-priced international securities, driving the dollar volume across our markets, representing a significant increase in market transparency.

Gained PQE – Foreign Security Snapshot for Key Regions

Japan 628
Hong Kong 356
UK 294
Canada 245
Australia 209

In contrast, securities that were downgraded to a lower tier market were those not providing adequate ongoing disclosure to investors.  In moving many of these securities to the Expert Market, we were able to restrict general distributions of quotes. The Expert Market is a regulated and transparent market for broker-dealers to meet their best execution responsibilities and serve the needs of sophisticated investors in different types of restricted[3] securities.

Lost Proprietary Quote Eligibility (PQE):

Lost PQE 1,983
Lost PQE – Foreign 338
Lost PQE – Median Price $0.02
Lost PQE – Median Mkt Cap $360,153

As a regulated entity and Qualified Interdealer Quotation System, we’ve assumed greater responsibility and are now the trusted information source for broker-dealers.  All of these changes underscore the evolution of the market and solidify our trajectory as a global, transparent market operator that empowers today’s investors with data to make informed decisions.

Questions, Comments – please email marketdata@otcmarkets.com .

[1] OTC Link ATS and OTC Link ECN are SEC regulated ATSs, operated by OTC Link LLC, member FINRA/SIPC.

[2] “The central role that the SEC has given Qualified IDQSs in the Final Rule will likely consolidate the collection and review of issuer information and the ability of broker-dealers to rely on an exception to the Final Rule. This will both increase the importance of Qualified IQDSs in the OTC markets and foster consistency in application of the Final Rule.” SEC Significantly Amends Information Review Requirements for Quotations of OTC Securities, Cleary Gottlieb https://www.clearygottlieb.com/-/media/files/alert-memos-2020/sec-significantly-amends-information-review-requirements-for-quotations-of-otc-securities.pdf

[3] Restrictions can be based on 15c2-11 disclosure standards, issuer requirements, security attributes, investor accreditation and/or suitability risks.

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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