Changes to the SEC Rule 15c2-11 went into effect on September 28, 2021. The new rules address amended 15c2-11 application requirements, requirements for public disclosure of information before quoting a security, unsolicited quotes, and the expanded role of the OTC Markets Group. See our previous articles about the exact requirements:
- SEC Denies Anticipated OTC Expert Market as proposed by OTC
- OTC Markets Taking Over 15c2-11 Application Process in September 2021
The article covers some major impacts of the recent amendment and looks at financial and reporting requirements for companies to list securities on the OTCQX, OTCQB and Pink tiers on OTC Markets.
FAQs for SEC Rule 15c2-11 Amendment
Below are frequently asked questions about the new 15c2-11 amendments effective at the end of September.
How do rule 15c2-11 changes affect companies going public?
Private companies can list securities in one of two ways:
- For OTCQX and OTCQB listings, companies can have OTC Markets submit Form 211 on their behalf, rather than going through a broker-dealer.
- For OTC Pink listings, companies can file Form 211 with FINRA through a broker-dealer.
Such companies available to apply for such listings include:
- Private companies seeking a public market
- Non-U.S. companies traded on a foreign stock exchange
- Companies with delinquent reporting requirements
- Companies selling Gray Market securities
When will OTC Markets Group begin conducting an initial review?
The new rule took effect on September 28, 2021- so any time after that date, initial Form 211 reviews can take place.
Is there a new Form 211?
No. OTC Markets Group now completes initial reviews for OTCQX and OTCQB qualifying companies. Shell Companies applying to the OTCQB Market or OTC Pink should find a broker-dealer to assist with the completion of Form 211 and file the form with FINRA.
How can companies comply with Rule 15c2-11?
OTC Markets Group has modified its reporting standards to collect the information required by the amended Rule 15c2-11.
To comply with the amended rule, your company will need to make certain information public, follow existing reporting customs under federal securities laws, and make required disclosures public. If your company meets OTC Markets reporting standards and utilizes the OTC Disclosure & News Service then you comply with Rule 15c2-11.
Companies that will remain eligible for public markets will include companies that comply with OTCQX Rules, OTCQB Standards and Pink Basic Disclosure Guidelines, and those that comply with SEC (or equivalent home country organization) requirements. There will be restrictions on shell companies and unsolicited quoting.
How can international reporting companies listed on a foreign exchange remain current?
International reporting companies must provide disclosures that meet their home country requirements. The disclosures must be available in English for inclusion in the “Pink Current Information” tier.
OTC Markets Group must be able to confirm the disclosures were made within the previous eight months.
If the foreign exchange listing a company doesn’t require English language disclosures, the company can file the disclosures through OTCIQ.
Non-U.S. issuers with an American Depositary Receipt can have the depositary bank provide the relevant interest to OTC Markets Group.
How do SEC-registered companies keep their reporting current?
Rule 15c2-11 allows additional time (180 days) to file quarterly reporting requirements. For example: If your company has a fiscal year-end of December 31st, you would retain “Current Information” status on your second quarter 10-Q, if you filed by the August 16, 2021 deadline. And, if the third quarter 10-Q isn’t filed by the November 15th deadline, you can continue to list quotes until December 27, 2021 (180 days later) on the “Limited Information” tier. Afterwhich, you enter a 14-day grace period and move to unsolicited quoting on the Expert Market.
How to List onto OTCQX and OTCQB
Both OTCQX (most stringent) and OTCQB (venture market) securities must qualify for proprietary broker-dealer quotes (PBQ). Let’s look at steps required to list onto these two tiers:
OTCQX
In order to list onto OTCQX, companies must do the following:
- Comply with the updated listing requirements for OTCQX companies.
- Submit application materials including:
- OTCQX applications
- Listing fees
- OTCQX US agreement
- Background Check Authorization Form for each insider or beneficial owner with more than 5% ownership
- Current Shareholder List from company’s transfer agent – see Colonial Stock Transfer’s transfer agent services.
- The Company’s logo (high-resolution file)
- Once the application is submitted, OTC will send email confirmation of receipt usually within 5 business days.
- The company will then be granted access to the OTC Disclosure & News Service to post its initial disclosure (if the company is not an SEC Reporting Company under the Exchange Act Reporting requirements or Regulation A). It should be an information statement prepared according to OTC guidelines including financial statements.
- The OTCQX Sponsor now will submit letter of introduction.
- OTC Markets will then review the application and may require an opinion, require changes, or deny the application.
- If approved, the company and sponsor will provide a letter listing any material changes since the original application within 30 days of the approval date.
OTCQB
In order to list onto OTCQB, companies must do the following:
- Comply with the updated listing requirements for OTCQB companies.
- Submit application materials including:
- OTCQB Application Fees
- Background Check Authorization Form for each insider or affiliate of the company.
- Current shareholder list from stock transfer agent – see Colonial Stock Transfer’s transfer agent services.
- Once all is received, the applicant will receive access to OTC Disclosure & News Service so the company may file its initial disclosure (if the company is not an SEC Reporting Company under the Exchange Act Reporting requirements or Regulation A). It should be an information statement prepared according to OTC guidelines including financial statements.
- OTC Markets will then review the application and may require an opinion, require changes, or deny the application.
- If approved, OTC will allocate the securities on OTCMarkets.com as OTCQB traded securities, permit the company to identify itself to the public as an OTCQB Company, and get Level 2 Quote Display on OTC Markets websites.
For listing requirements, see also: https://www.colonialstock.com/otc-listings.htm.
In general, issuers must comply with public disclosures in order to list securities and continue to list them. Unsolicited quotes are still permitted as long as they meet the amended requirements for affiliates and insiders.
OTC Markets Group will now handle processes previously covered by FINRA Form 211. This significantly streamlines the process of listing OTCBX and OTCQB securities on the market. To facilitate the process, Colonial Stock Transfer can introduce your company to OTC Markets and help you navigate the listing process.
How to List on OTC Pink
OTC Pink is the most speculative market and must also comply with SEC rules set up for reporting under this classification, as follows:
- Securities can be listed as proprietary broker quotes (PBQ) or unsolicited quotes (UNS-ONLY). There is no confirmation for non-affiliates.
- Companies registered with the SEC must meet Reg A and other reporting requirements submitted in a disclosure per EDGAR.
OTC Pink securities have additional requirements for international and bank reporting, as follows:
- For international reporting, the security must already be listed on a non-U.S. exchange and provide public disclosure on the exchange in English (12g3-2(b)).
- It must either a) list on a non-US exchange requiring disclosure in English b) Provide a 12g3-2(b) Certification through OTCIQ, or c) have a DR Bank provide representation.
- For bank reporting, security must comply with disclosures required for the OTC Pink classification. Additionally, OTC Pink security issuers must provide Annual Reports, Call Reports and a Verified Profile.
For the OTC Pink market, broker-dealers handle the Form 211 (15c2-11) process, including the initial review and ongoing maintenance. Colonial Stock Transfer handles the appropriate referrals to ease clients through the process.
OTC Transfer Agent Services
Colonial Stock Transfer acts as a professional stock transfer agent. Let us help you maintain productive shareholder relationships and meet SEC compliance under the amendments to Rule 15c2-11. Reach out to us at 877-285-8605 to discuss the needs of your company today.