OTC Markets 101

by Brenda Hamilton

The OTC Markets Group, Inc. ("OTC Markets") is a private company that operates an electronic inter-dealer quotation system that displays quotes and last-sale information for securities. OTC Markets does not require companies whose securities are quoted on its system to meet any eligibility requirements. Many companies quoted by OTC Markets do not file periodic reports or audited financial statements with the Securities and Exchange Commission ("SEC"), and many have not filed registration statements with the SEC. As such, it can be difficult for the public to find current, reliable information about these companies.

Companies quoted by OTC Markets are categorized, according to the level of disclosure they provide to the public through OTC Markets' website. The OTC Markets' disclosure tiers are discussed below. It is important to note that the anti-fraud provisions of the federal securities laws are applicable to both reporting and non-reporting issuers quoted on the OTC Markets.

OTCQX

OTCQX is the top disclosure tier of OTC Market. To list on this tier a company must undergo a qualitative review and meet financial standards. The OTCQX is a market tier for companies who have filed registration statements or who are registered with and file reports to the SEC.

OTCQB

The OTCQB is in the middle disclosure tier of OTC Market. The only requirement for companies in this tier is that they are reporting with the SEC. Companies in this tier have often filed registration statements with the SEC.

OTC Pink

OTC Pink is the third tier of OTC Markets. OTC Pink companies can choose the level of disclosure they provide to investors and may have current, limited or no public disclosure. Being listed on the OTC Pink tier indicates that a company has either submitted information no older than six months to the Pink Sheets News Service or that they have made a filing on the SEC's EDGAR system in the previous six months. This category includes shell companies or development stage companies with little or no operations as well as companies without audited financial statements and as such companies on this tier should be considered extremely speculative by investors. Issuers in this tier have typically not filed registration statements with the SEC.

Current SEC reporting companies and non-U.S. companies that are listed on a qualified foreign stock exchange automatically qualify for the Pink Sheets Current Information Tier.Issuers not reporting with the SEC must meet the following requirements to be quoted with a Pink Sheets Current Information tier:

1. Subscribe to the OTC Disclosure and News Service; 2. File an Initial Information and Disclosure Statement with the OTC Markets Service; 3. Submit a signed Attorney Letter Agreement; 4. Post a legal opinion from a securities lawyer stating among other things that they have provided adequate public information; 5. Publish annual updates to the Disclosure Statements filed including unaudited GAAP compliant; 6. Post financial information on the OTC Markets website no later than 90 days after the end of each fiscal year; 7. Publish Quarterly Updates to disclosure statements, including unaudited GAAP compliant financial statements, for posting on the OTC Markets website no later than 45 days after the end of each fiscal quarter; 8. Publish current updates within 10 business days in the event that any of the information contained in the disclosure statement (including information contained in any prior update) has become materially inaccurate or incomplete, or upon the occurrence of certain material events; and 9. Publish a quarterly attorney letter regarding the adequacy of the issuer's public disclosures.

Limited Information

The Limited Information tier is designed for companies that are unwilling or unable to meet Pink Sheets' guidelines for providing adequate current information. These are often companies with financial reporting problems, economic distress, or that are in bankruptcy.

This tier indicates companies that are unwilling or unable to provide disclosure to the public markets - either to a regulator, a stock exchange or OTC Markets. Companies in this category do not make current information available. This category includes defunct companies that have ceased operations, as well as 'dark' companies with questionable management and market disclosure practices. Publicly traded companies that are unwilling to provide investors with information should be treated with suspicion and their securities should be considered highly risky.

Caveat Emptor - Buyer Beware

This tier indicates the obvious and often includes companies that are subject to an SEC trading suspension, spam campaign, stock promotion or known investigation of fraudulent activity committed by the companies insiders.

About the Author

http://www.securitieslawyer101.com/otc-markets-101/ go public, direct public offering, going public, registration statement, reverse merger, public shell company, sec attorney, securities offering, otc market, pink sheets

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