Delisted Companies Part of Paradigm Shift to OTC Market Group’s OTCQB Listing
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Delisted Companies Part of Paradigm Shift to OTC Market Group’s OTCQB Listing

By: News

Friday, April 1, 2011

For those investors who tread regularly in the Over the Counter exchange, most have seen countless press releases from companies over the last six months or so explaining that they have been dropped from the Bulletin Boards to the Pinksheets as a result of market maker activity. The companies certainly weren’t incorrect in stating that it was out of their control (many were blindsided by the news) as more than one thousand companies listed on the bulletin boards have been delisted over the last year, including companies such as Cellceutix Corporation (OTCQB:CTIX) and Applied DNA Sciences, Inc. (OTCQB:APDN) for “Failure to comply with Rule 15c2-11”. This rule states that companies quoted on the OTCBB must maintain at least one registered market maker.

This is not the “be all, end all” that is so often perceived by investors; rather it is a misconception because of a lack of public information as to the real situation. In all honesty, it is a bit of a smack in the mouth by market makers and a testament to the incondite system as news such of “delisting” caused a drop in share price for many of those companies for absolutely no reason. To be fair, though, investors need to understand that the Financial Industry Regulatory Authority (FINRA) fee for OTCBB market makers is $6.00 per security traded each month, so market makers were finding it more and more challenging to continue to pull-in profits on companies with lower trading activity.

The reality is that for the vast majority of the companies, absolutely nothing has changed and is by no means a signal as to the company’s quality or SEC reporting status. They are still fully reporting to the Security and Exchange Commission and are still going about business as usual. There is an ongoing paradigm shift from a telephonic trading platform to an electronic platform and, as a result, the antiquated methods of the Bulletin Boards (a telephone platform) are being transitioned to quotations and listings through the OTC Markets Group’s OTC Link. To date, over 95% of all broker/dealer quotations are now published on OTC Markets Group’s three-tier platform with the few remaining percent that are quoted exclusively on the Bulletin Boards hanging by a thread with only one of two market makers on each company.

OTC Market Group’s tiered system consists of the OTCQX, OTCQB and OTC Pink and is designed to increase transparency and separate listed companies in a similar fashion to the tiers of the NASDAQ exchange. The OTCQX is the upper echelon and carries financial standards and listing requirements that, in simple terms, are similar to NASDAQ’s Capital Markets continued listed terms, only it does not carry the hefty price tag of the NASDAQ listing. OTC Pink is the lowest tier and is where companies that are non-SEC compliant are relegated. The middle tier is the most common and carries basically the same requirements as the OTCBB does/did and, as a result of the aforementioned SEC Rule violation, where most of the companies that were “delisted” landed. Companies must be current and fully-reporting to the SEC in order to be OTCQB-listed.

The current problem is that not all financial websites have updated their information systems to reflect the reality of the situation. Highly-trafficked website such as Yahoo Finance and have companies listed as “Pinksheets” which still carries a negative stigma and the generic nature of the term is no longer an accurate reflection of the given companies status with regards to the SEC. Why this is leaves most investors and companies scratching their heads and certainly is misleading to novices in the investment community who do not understand that “pink” can now mean different things. The situation is extremely tangled and the reason that some people are starting to figure it out is due to the hundreds of press releases issued by companies trying to explain it to their investors, which is at least shedding some light on it all. If the reason for the lack of updates by major financial websites is monetary, those sites really should do the investment community a huge favor and loosen their purse strings and make the changes to provide the most informative data possible.

In a recent conversation with Tim Ryan, Managing Director at OTC Markets Group, Inc. (OTCQX:OTCM), Mr. Ryan expressed his concerns over the integration of the new system by all financial websites and the confusion that is being created, but remained extremely optimistic about the future and new structuring of the OTC space. He commented, “At OTC Market Groups, we have worked extremely hard to innovate the OTC arena to create a very clear and transparent marketplace for both companies and investors. We are proving that we have an honest concern to organize an industry that was relatively chaotic to allow publicly-traded companies to reach fair valuation based on their own merit while providing the tools and information for investors to perform their due diligence.” Mr. Ryan continued, “We are continuously reaching-out to collaborate with financial websites and are willing to assist them in any manner to ensure that every company’s ticker accurately reflects their SEC status. The future of the OTC markets is much brighter now than ever before. While gaining momentum as more people are understanding and appreciating the new tier system, it is still a major trend shift and it is going to take some time to get everyone on board.”

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