Will New Rule Disrupt the Over The Counter Market this Fall?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Photo by Kim Gorga on Unsplash

On September 16, 2020, the SEC amended its Exchange Act Rule 15c2-11. The new changes took effect on September 28th. Ultimately the new rule means everyday retail traders are no longer able to buy securities on the Pink market. 

OTC Markets Group is the largest U.S. market for OTC securities with 12,871 securities as of Aug. 31st 2021. The securities are in three tiers based on the quality and quantity of the companies’ information and disclosures. 

OTCQX is the top tier of the three tiers with only 595 securities. Securities that trade on this forum must meet the most stringent qualification criteria compared to the other levels.

OTCQB, also known as "The Venture Market," consists of early-stage and developing U.S. and international companies and has 1,095 securities.

The Pink market is the most speculative tier of the three markets for the trading of over-the-counter with 11,181 securities. 

This tiered structure provides different levels of transparency, so investors know what type of information is available for each company they wish to trade and allows investors and traders to buy securities in companies not on exchanges like the New York Stock Exchange or the NASDAQ.  

The Pink market had over 11,000 securities as of August 31st that could be affected by the amendment and potentially pushed down to the Expert Market if they don’t become current with their filings. 

What Is Pink No Information?

To see how these new rules will impact traders, we must understand how the new amendment seeks to modernize Pink No information Securities. This will be done by:

• Requiring that information about the issuer and its security be current and publicly available before a broker-dealer can begin quoting that security
• Limit broker-dealers’ reliance on certain exceptions to the rule when issuer information is not current and publicly available
• Provide exceptions to reduce unnecessary burdens on broker-dealers to quote certain OTC securities that may be susceptible to fraud and manipulation

How Will the New Regulations Impact that Market?

The SEC says this amendment “enhances disclosure and investor protection in the OTC market by ensuring that broker-dealers, in their role as professional gatekeepers to this market, do not publish quotations for an issuer’s security when current issuer information is not publicly available, subject to certain exceptions.”

The biggest concern among traders is that this new rule will create fewer trading opportunities. The new regulations will push securities that currently trade on the Pink Market and do not disclose financial information onto the Expert Market where securities have been suspended from official trading. OTC Markets expected prior to the change that 2800 companies of the over 11,000 pink securities could disappear from the Pink market and be pushed to the Expert Market. With ~20% fewer companies to watch, some investors’ attention will have to focus on the remaining 80%. Meaning those securities left standing may see a boost in interest.

Where Should Traders Look? 

Rather than looking at the remaining Pink securities, it could perhaps be more interesting to look at early-stage OTCQB tech companies that have recently moved over the summer in the look for the next rising star. If the trading of the OTC market stays the same a dollar volume of YTD $0.5Trillion* (annualized $0.75B). 

To be eligible to be on the OTCQB, companies must be current in their reporting, undergo annual verification and certification, meet a $0.01 bid test, not be in bankruptcy, have at least 50 beneficial shareholders, each owning at least 100 shares, and a public float more than 10% of the total shares outstanding. Companies on the OTCQB report to a U.S. regulator such as the SEC and must follow standards to improve transparency.

Wikisoft Corp. - Potential Rising Stars

Wikisoft Corp. WSFT has had an explosive journey. After new management took over a bit more than a year ago Wikisoft have managed to launch an investor site (wikisoft.com), relaunched their flagship platform (wikiprofile.com), $20M in funding, and shifted to OTCQB in August. 

Wikisoft’s vision is to create opportunities globally for business professionals and businesses to make informed career and hiring decisions. This is achieved on Wikiprofile.com platform which provides relevant and valid information to make informed career and hiring decisions globally for business professionals with a database now exceeding 175 million business profiles. The platform offers a free and simple sign-up process with an automatic database look-up to make it easy to join the platform. 

Wikisoft Corp. entered into a Common Stock Purchase Agreement with White Lion Capital LLC a millennial-run fund based out of Los Angeles that seeks to make investments into growing public companies that seek to become industry leaders. The Purchase Agreement provides that the Company has the right, but not the obligation to cause White Lion Capital to purchase up to $20,000,000 of the Company's common stock. Is the tech-savvy millennial-run fund on to something? 

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.