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OTC Markets

ANTHONY, LINDER & CACOMANOLIS, PLLC, is a premium service provider with OTC Markets and is a registered OTCQB and OTCQX sponsor.

The OTC Markets divide issuers into three levels of quotation marketplaces: OTCQX, OTCQB and OTC Pink Open Market. The OTC Pink Open Market, which involves the highest-risk, highly speculative securities, is further divided into three tiers: Current Information, Limited Information and No Information. Companies trading on the OTCQX, OTCQB and OTC Pink tiers of OTC Markets have the option of reporting directly to OTC Markets under its Alternative Reporting Standards. The Alternative Reporting Standards are more robust for the OTCQB and OTCQX in that they require audited financial statements prepared in accordance with U.S. GAAP and audited by a PCAOB-qualified auditor in the same format as would be included in SEC registration statements and reports.

Companies that report to the SEC under Regulation A and foreign companies that qualify for the SEC reporting exemption under Exchange Act Rule 12g3-2(b) may also qualify for the OTCQX, OTCQB and OTC Pink Current Information tiers of OTC Markets if they otherwise meet the listing qualifications.

On September 28, 2021, amended Rule 15c2-11 became effective. From a high level, the amended rule requires that a company have current and publicly available information as a precondition for a broker-dealer to either initiate or continue to quote its securities; narrows reliance on certain of the rules exceptions, including the piggyback exception, adds new exceptions for lower risk securities and adds the ability of OTC Markets itself to confirm that the requirements of Rule 15c2-11 or an exception have been met and allows broker-dealer to rely on that confirmation.

OTCQB And OTCQX Listing Requirements

OTC Markets also has qualitative and quantitative listing standards, which increase based on the tier being quoted on and whether a company reports to the SEC or, alternatively, to OTC Markets. Note: I did not include the listing qualifications for the OTCQX Premier, which have increased qualitative standards across the board.

Criteria OTCQB U.S. OTCQB International OTCQX U.S. OTCQX International
Audit Requirements Audited Financials in accordance with U.S. GAAP by PCAOB auditor Audited under qualified foreign exchange requirements, which must be either IFRS, home country GAAP or U.S. GAAP Audited Financials in accordance with U.S. GAAP by PCAOB auditor Audited under qualified foreign exchange requirements, which must be either IFRS, home country GAAP or U.S. GAAP
Reporting and Disclosure SEC reporting, Regulation A reporting, Bank Reporting or Alternative Reporting Listed on a qualified foreign exchange and compliant with Exchange Act Rule 12g3-2(b) or be SEC reporting

If foreign exchange must post reports on OTC Markets through the OTCIQ System.

SEC reporting, Regulation A reporting, Bank Reporting or Alternative Reporting Listed on a qualified foreign exchange and compliant with Exchange Act Rule 12g3-2(b) or be SEC reporting

If foreign exchange must post reports on OTC Markets through the OTCIQ System.

Minimum Bid Price* $.01 $.01 $.25 $.25
Round Lot Shareholders 50 50 50 50
Freely tradeable Public Float** 10% of the total issued and outstanding trading security 10% of the total issued and outstanding trading security 10% of the total issued and outstanding trading security 10% of the total issued and outstanding trading security
Transfer Agent Must participate in the Transfer Agent Verified Share Company Must be SEC registered Must participate in the Transfer Agent Verified Share Company Must be SEC registered
OTC Sponsor N/A Must have a letter of introduction from a qualified OTC Markets Sponsor Must have a letter of introduction from a qualified OTC Markets Sponsor Must have a letter of introduction from a qualified OTC Markets Sponsor
Company Profile Submit a verified company profile through OTCIQ Submit a verified company profile through OTCIQ Submit a verified company profile through OTCIQ Submit a verified company profile through OTCIQ
Certification Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors
Penny Stock Rule*** N/A N/A Must not be a penny stock Must not be a penny stock
Market Capitalization N/A N/A $10 million $10 million
Market Makers N/A N/A N/A 1
Dilution Risk (for more on this, see https://securities-law-blog.com/2021/06/08/otc-markets-rule-144-the-spcc/) A key consideration in the application process A key consideration in the application process A key consideration in the application process A key consideration in the application process
Listing Fee $5,000 application fee; $14,220 a year $5,000 application fee; $14,220 a year $5,000 application fee; $23,400 a year $5,000 application fee; $23,400 a year
IPO Expenses**** Approximately $400,000 Approximately $60,000 Approximately $400,000 Approximately $75,000

* Must meet the minimum closing bid price for each of the 30 consecutive days immediately preceding the company’s application. If listing in conjunction with an IPO, OTC Markets may exempt this requirement, but the company must have a market maker meet the minimum closing bid price quote within 3 days of confirmation of quotation eligibility under Rule 15c2-11.

** OTC Markets may grant an exemption to this requirement if (i) at least 5% of the public float is freely tradeable and has a market value of $2 million or more; or (ii) the company has a separate class of securities traded on a national exchange.

*** Company must be penny stock exempt based on audited financials dated within 15 months of the listing. Must meet one of the following penny stock exemptions: (i) Net tangible assets – at least $5 million if less than three years of operations or at least $2 million if three-plus years of operations; (ii) Revenue – $6 million average for last three years or (iii) Bid price of $5 or more and one of the following (a) net income of $500,000 (b) net tangible assets of $1 million (c) revenue of $2 million or (d) total assets of $10 million.

**** Includes legal, accounting, audit, underwriter expense reimbursement, SEC filing fee, road show expenses, EDGAR fees, listing fee, FINRA filing fee and DTC eligibility. Does not include underwriter commission/discount. For international companies, this presumes no concurrent capital raise.

OTC Qualitative And Governance Standards

Requirement OTCQB U.S. OTCQB International OTCQX U.S. OTCQX International
Bankruptcy or Reorganization Proceedings Company does not qualify Company does not qualify Company does not qualify Company does not qualify
Independent Directors If Alternative Reporting must have at least two independent directors N/A Two independent directors N/A
Audit Committee If Alternative Reporting must have an audit committee with a majority of independent directors N/A Audit committee with a majority of independent directors N/A
Shell Company or Blank Check Company N/A N/A Company does not qualify N/A
Shareholder Meetings N/A N/A Must conduct an annual shareholder meeting and make financial reports available to its shareholders at least 15 calendar days prior to such a meeting N/A

OTC Application Process

Regardless of whether you are applying to list on the OTC Markets or a national securities exchange, the process is similar.  All venues conduct background checks on officers/directors/significant shareholders, conduct thorough due diligence on the applicant company and engage in a comment and response process.  In addition, both the Nasdaq and NYSE MKT consider the companies ability to maintain the continued listing requirements in the future, generally for a minimum period of 18 months (6 quarters) considering assets, cash flows, burn rates, and reductions in shareholder’s equity.

Inquiries Of A Technical Nature Are Always Encouraged

The attorneys at ANTHONY, LINDER & CACOMANOLIS, PLLC, can provide expert counsel on all your OTC Markets needs. Contact us now by sending an email inquiry or calling our firm’s office at 877-541-3263.