OTC Markets’ New Stock Promotion Policy

On November 7th, the OTC Markets Group released a new stock promotion policy. This policy aims to improve the overall market transparency for investors, while addressing the issue of misleading, manipulative, or fraudulent stock promotion.

Market Transparency and Fraudulent Promotional Campaigns

The wide use of digital media has allowed companies to interact and reach investors in a variety of new and different ways. While this can be beneficial by allowing companies to reach more investors, it can also easily be abused and used to disseminate fraudulent information. The SEC issued an investor alert on stock promotion in April, stating that stock promotion scams could take the form of social media posts, online advertisements, chat rooms, and more.

When information is used to disrupt the efficient market pricing for a security, OTC Markets Group considers it to be misleading and manipulative. Companies can interrupt this pricing through false or exaggerated claims, omitting material, or simply purposefully predicting unrealistic prices.

OTC Markets Group monitors all potential promotional activity to watch for fraudulent promotions, because they state that all companies have an obligation to provide accurate information. They monitor any paid promotions and potential connections to bad actors, and then evaluate the promotion’s potential impact. Beginning in the First Quarter of 2018, in order to publicly identify securities that are the subject of stock promotion, OTC Markets Group will place a “promotion” risk flag next to the stock symbol on their website, intended to provide an alert for the potential risks that could occur from trading this security. In addition to the flag symbol, they may also ask some companies who are the subject of stock promotion to notify investors. Additionally, if they deem a security a threat, they will also label the security with a scull-and-crossbones icon (“Caveat Emptor”), which is already a symbol in use by OTC Markets Group intended to notify investors to exercise additional care, but this broadens the potential usage for the “Caveat Emptor”.

If a security is marked with this promotion risk flag and is the subject of an active promotion campaign, the OTC Markets Group may not approve the company for trading on OTCQX or OTCQB. They may also not approve a security if it has a history of having misleading and/or manipulative information. OTC Markets Group also reserves the right to remove a security from OTCQX or OTCQB if they feel that it could have a potentially negative impact on the integrity of the market.

The OTC Markets Group has also filed a petition with the SEC to create more market transparency for investors. R. Cromwell Couson, President and CEO of OTC Markets Group, stated that they “believe the SEC should modernize its promotion regulations to ban anonymous, paid stock promotion and require clear disclosure when there is promotion paid for by third-parties, allowing for markets to better identify market manipulators”, which helps increase overall market transparency.

Shelby Wayment
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