Proposed Rules Seek to Force OTC Companies to Provide Greater Disclosure

Date: January 27, 2020

Proposed SEC Rule Amendments Regarding Broker Quotations of OTC Securities

The Securities and Exchange Commission (“SEC”) has proposed amendments to Exchange Act Rule 15c2-11, which contains requirements for brokers to comply with before they publish quotations for securities in the over-the-counter (“OTC”) market. The proposed amendments would remove and/or limit certain exemptions on which many brokers currently rely when providing quotations for smaller companies (such as the current “piggyback exemption”). In particular, the proposed amendments would provide that brokers cannot publish quotations of a company’s securities on the OTC Markets if adequate current financial and other information about the company is not filed publicly.

Impact of Proposed Amendments on OTC Companies with “Limited Information” or “No Information”

In short, the proposed amendments could cause trades in a company’s stock to no longer be quoted on the OTC Markets. If the SEC adopts the proposed amendments, smaller companies quoted on the OTC Markets that do not currently provide any information about the company, provide only financial statements or otherwise limited information about the company, or are not current in their disclosures may lose the ability for their securities to be quoted by brokers on the OTC Markets, making it difficult for their investors to buy and sell their stock.

Effective Date

These amendments have not yet become effective. The public comment period ended at the end of 2019. If the SEC adopts these amendments as proposed, OTC companies that report below “Pink Current” level, or do not report at all, may face significantly curtailed broker ability to quote their stock, potentially with no public quote available.

Next Steps

OTC companies that provide limited or no public information about the company, or are not timely in their disclosures, should consider whether to update and enhance their public disclosure on the OTC Markets. Companies may also want to consider potentially changing from the OTC Pink to the OTCQX “premier” tier of the OTC Markets or, perhaps, uplisting to a stock exchange such as the Nasdaq, NYSE or NYSE American, if the exchange listing standards can be met.

The OTC Markets publishes the Pink Basic Disclosure Guidelines for OTC Pink Current companies, which set out the requirements for the OTC reports that are essentially simplified versions of SEC periodic reports. The Pink Basic Disclosure Guidelines are designed to prescribe the information necessary satisfy the current public information requirements under the rule.

Our team can assist you with evaluating the impact of these proposed amendments and the implementation of potential enhanced disclosure.


For more information, please contact:

Jurgita Ashley

Derek D. Bork

or any member of our Corporate Transactions & Securities group.

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