OTC Markets Group

OTC Markets Group, Inc.

Type	Public
Traded as	OTCQX: OTCM
Industry	Financial Services
Predecessor	National Quotation Bureau, Pink Sheets, Pink OTC Markets
Founded	1913 (1913)
Headquarters	New York City, New York, United States
Key people	R. Cromwell Coulson (President, Chief Executive Officer and Director)[1]
Revenue	US$ 42.2 million (2014)[2]
Operating income	US$ 12.9 million (2014)[2]
Net income	US$ 7.9 million (2014)[2]
Total assets	US$ 33.2 million (2014)[2]
Total equity	US$ 18.3 million (2014)[2]
Divisions	OTC Link ATS, Market Data Licensing, Corporate Services
Website	www.otcmarkets.com

OTC Markets Group, (previously known as Pink Sheets) is a United States financial marketplace providing price and liquidity information for almost 10,000 over-the-counter (OTC) securities.^[3] The group has its headquarters in New York City. OTC-traded securities are organized into three marketplaces to inform investors of opportunities and risks: OTCQX, OTCQB and OTC Pink.

R. Cromwell Coulson
(President, Chief Executive Officer and Director)

History

The company was first established in 1913 as the National Quotation Bureau (NQB). For decades, the NQB reported quotations for both stocks and bonds, publishing the quotations in the paper-based Pink Sheets and Yellow Sheets respectively. The publications were named for the color of paper on which they were printed. In September 1999, the NQB introduced the real-time Electronic Quotation Service.^[4] The National Quotation Bureau changed its name to Pink Sheets LLC in 2000 and subsequently to Pink OTC Markets in 2008. The company eventually changed to its current name, OTC Markets Group, in 2010.^[5] Today, a network of over 160 broker-dealers price and trade a wide spectrum of securities on the OTC Markets platform.^[5]

To be quoted on the platform, companies are not required to file with the SEC, although many choose to do so.^[6] A wide range of companies are quoted on OTC Markets, including firmly established foreign firms, mostly through American depositary receipts (ADRs).^[7] In addition, many closely held, extremely small and thinly traded U.S. companies have their primary trading on the OTC Markets platform.

Many foreign issuers adhere to the listing requirements of qualified foreign stock exchanges^[8] and make their home country disclosure available in English.^[9] There are also a significant number of U.S.-based issuers who are current in their reporting to regulators^[10] such as the U.S. Securities and Exchange Commission (SEC) or make available ongoing quarterly and audited annual financial reports through OTC Markets Group.^[9] Many companies in the lower market tiers of the OTC categorization system do not meet the United States' listing requirements for trading on a stock exchange such as the New York Stock Exchange or NASDAQ. Many of these issuers do not file periodic reports or make available audited financial statements, making it very difficult for investors to find reliable, unbiased information about those companies. For these reasons the SEC views many of the lower-tier companies traded on OTC Markets as "among the most risky investments" and advises potential investors to heavily research the companies in which they plan to invest.^[11]

Market tiers

OTC Markets Group established a categorization system to indicate the level of financial and corporate disclosure provided by the companies using its quotation system. Apart from the OTCQX tier, the disclosure categories do not signify issuer quality or merit of any security. Categorization is based on the level and timeliness of a company's disclosure and OTCQB and any of the OTC Pink categories can include both high quality as well as speculative, distressed, or questionable companies. Investors are encouraged to use caution when considering many of these companies for investment.^[10]

OTCQX

The OTCQX marketplace includes both multinational companies seeking access to U.S. investors and domestic growth companies.^[12] To be traded on this tier, companies must undergo a qualitative review by OTC Markets Group.^[13] Companies are not required to be registered with or reporting to the SEC, but they must post financial information with OTC Markets Group. In addition, U.S. companies must be ongoing operations (i.e., no shells) and may not be in bankruptcy, while foreign issuers must meet the requirements of qualified foreign exchanges.^[9][14] Additional oversight of OTCQX securities is provided by requiring every issuer to be sponsored by approved third-party investment banks or law firms, called Principal American Liaison (PAL) for non-U.S. issuers and Designated Advisors For Disclosure (DADs) for U.S. issuers.^[9][12][14]

OTCQB

On May 1, 2014, OTCQB implemented a one penny ($0.01) bid price requirement "intended to remove companies that are most likely to be the subject of dilutive stock fraud schemes and promotions". Each company verifies via an annual OTCQB Certification, signed by the company CEO or CFO, that their company information is current, including information about a company’s reporting status, company profile, information on management and boards, major shareholders, law firms, transfer agents, and IR / PR firms. Investor confidence improves when there is more information about a company’s ownership structure, professional advisors and service providers. This certification will be required for any security newly qualified to be publicly quoted by a broker-dealer under SEC Rule 15c2-11, or when an OTC Pink traded company becomes a current SEC reporting company, beginning May 1, 2014. For companies already traded on OTCQB, there will be an annual management certification requirement throughout 2014 and 2015 based on a company’s Fiscal Year End ("FYE"). The first set of certifications will be due by July 31, 2014, for companies that have a FYE of March 31, 2014.

Also on May 1, 2014, International Reporting companies were allowed to upgrade from OTC Pink to OTCQB if they published their 12g3-2(b) compliant disclosure online and verify their company profile. There is an annual fee for the OTCQB marketplace of $10,000 per year and a one-time $2,500 application fee.^[15]

OTC Pink

OTC Pink is an open marketplace that has no financial standards or reporting requirements. The stock of companies in the OTC Pink tier are not required to be registered with the SEC. Companies in this category are further categorized by the level and timeliness of information they provide to investors and may have current, limited, or no public disclosure.^[16]

OTC Pink Current Information

Companies submitting regular Quarterly and Annual Reports go into the Current category. This category can still include shell companies or development stage companies with little or no operations as well as companies without audited financial statements. Companies in this category must not only have Quarterly reports duly posted every three months, but most have Annual reports for at least the preceding two years on file.^[17]

OTC Pink Limited Information

Companies that have submitted information no older than six months to the OTC Markets data and news service or have made a filing on the SEC's EDGAR system in the previous six months are rated as having limited information. Companies that are unwilling or unable to meet OTC Markets' Guidelines for Providing Adequate Current Information with Quarterly and Annual Reports every three months, but which still submit information at least every six months, are in this category. These are often companies with financial reporting problems, economic distress, or in bankruptcy. These companies have a Yield sign on the OTC website.^[17]

OTC Pink No Information

This tier indicates companies that are unwilling or unable to provide disclosure to the public markets. Companies in this category do not make current information available via OTC Markets disclosure and news service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as "dark" companies with questionable management and market disclosure practices. Securities of publicly traded companies that are not willing to provide information to investors are considered highly risky. These companies have a Stop sign on the OTC website.

Caveat emptor - buyer beware

There is a public interest concern associated with the company. This may include a spam campaign, stock promotion or known investigation of fraudulent activity committed by the company or insiders. During a spam campaign, any stock that is not in the Current Information category will also have its quotes blocked on otcmarkets.com.

Other OTC markets

OTCBB

The OTC Bulletin Board (OTCBB) is only a listing of securities that are also traded "over the counter" similar to the OTC Markets. The OTCBB as an exchange was closed by owner FINRA. OTCBB companies are required to file timely reports to a U.S. regulatory agency. Almost all OTCBB companies are now quoted via OTC Markets' OTC Link ATS because its fully electronic trading platform better meets the needs of automated broker-dealers.

Grey Market

Securities that are not listed on any stock exchange nor formally quoted on OTC Markets or OTCBB are considered to be in the Grey Market. Unsolicited transactions are processed independently and not centrally listed or quoted. Trades are reported to a self-regulatory organization (SRO), which then passes the data on to market data companies.

References

External links

• Official website
• SEC information about OTC Markets
• SEC Listing and Delisting Requirements