Cass Sanford, an Associate General Counsel who supports regulatory and policy-making initiatives at OTC Markets Group, notes that the US Securities and Exchange Commission’s (SEC) amendments to Rule 15c2-11 may eliminate public quoting in securities of issuers that don’t make current information “publicly available.”
Sanford, who focuses on equity market structure, online capital formation, and the latest Fintech and Regtech developments, explains that this means that without having an alternative approach, these securities on the Pink Market “will fall to the Grey Market.” She adds that the Grey Market is “an opaque market where broker-dealers are not willing or able to publicly quote OTC securities given the lack of investor interest, company information or regulatory compliance.”
Sanford, who represents the OTC Markets Group on public panels and before regulatory and legislative groups, points out that the company has filed a proposal documents with the SEC in order “to operate an Expert Market as an alternative to the Grey Market.”
Sanford goes on to mention that the OTC Markets Group already runs an Expert Market within OTC Link for a relatively small number of firms. But the suggested Expert Market may operate differently, Sanford clarifies while adding that after the planned or upcoming changes to Rule 15c2-11, the Expert Market tier will “include the broader group of companies that will no longer be eligible for public quoting under the rule and will serve the pricing and best execution needs of qualified investors.”
She further noted that broker-dealers will then have the option to quote and trade Expert Market securities on OTC Link, but quotes in Expert Market securities “will only be available to certain sophisticated investors, known as ‘Qualified Experts,'” Sanford noted.
Sanford, who has experience representing issuers, broker-dealers and individuals in securities litigation, financing, and corporate and regulatory issues, adds that the Expert Market may provide an alternative to the Grey Market: “a regulated trading venue where Qualified Experts can value these securities, access transparent price discovery and receive best execution through their FINRA member broker-dealer.”
She also mentioned that without an electronic or digital platform to source liquidity, brokers may experience challenges “satisfying their best-execution requirements in Grey Market securities.” She also noted that it provides regulators “valuable insight into quotation activity that would otherwise be hidden in the opaque Grey Market.”
She went on to confirm that Qualified Experts may include broker-dealers, institutions and accredited investors.
While commenting on whether firms will be impacted by these changes, Sanford noted:
“The answer to this depends on the market on which your securities trade. For companies that trade on the Pink Market, the guidelines and procedures will change to ensure that the current information required under the Rule is available on an ongoing basis. If your security trades on the Pink Market, you risk being shifted to the Expert Market unless you take the necessary steps to make current disclosure available. Visit the Information for Pink Companies section of our website for further details.”
She also mentioned that the important dates for the Implementation of Rule 15c2-11 should be noted. She added that firms “will need to provide the required disclosure to OTC Markets by June 30th.” She pointed out that this “will ensure that our Issuer Compliance Team has sufficient time to review and update market status for a company’s securities prior to the rule’s compliance date on September 28th.”
Sanford also noted that securities that “fail to comply will be removed from Pink as of the September deadline.”