In these troubled economic times there is an alternative trading market developing to the main stream SEC scrutinized and heavily regulated registered securities exchange system which belies the notion that more government regulation is better -maybe not- ethical business can govern and police itself if they choose to do so- free enterprise seems alive and well and this seems to be a perfect example. The alternative market avenue is the OTCQX Market, a part of the more general alterative market place oft referred to as the "Pink Sheets". The image of the this alternative market has heightened and improved as a result of its restructuring in establishing its current tier system with listing criteria designed to recognize higher quality listings, and, because of the increased regulatory environment within which SEC registered companies now operate the OTCQX has become a cost effective alternative. Essentially the Pink OTC Markets Inc. operations presents a non-governmental organized alternative securities market system not subject to what is presently viewed by many small to mid range companies as a more onerous and costly government regulatory environment burdened SEC registered marketplace, which latter regulatory status is viewed by many to have potential for more rather than less regulatory oversight in light of the recent economic downturn. There is now what we feel is a viable alterative available to a company being public through the currently heavily SEC government regulated securities marketplace by way of the OTCQX privatized tier system. The new tier strengthening criteria based admission character of the OTCQX market has added a security aspect which should allow, and has, a more serious consideration to participation as an alternative to the regulatory and cost restrictive plagued SEC registered market. It will be interesting to see how this fairly new market may develop. Its mechanics appear in a more developmental stage than the historically more mature SEC oversight markets but its basis in logic seems current and correct. Interesting is that it does recognize the need for oversight but its manner of approach to such supervision aspect allows attorneys an entrance to assistance and refreshingly in the process exhibits a trust in their leadership and integrity and the advantages that gives to the market place. It also allows the brokerage community a participation in oversight but allows an alternative to that plagued corridor in recognizing the avid usefulness also of attorney oversight. This alternative market place we believe allows an avenue to continue trading for those companies seeking shelter from the economic storm and resultant securities trading regulatory restrictions. We can assist companies in entering and participation in this alternative market.
The OTCQX alternative market allows for a DAD (Designated Advisor for Disclosure) to participate to meet oversight requirements. Our firm has qualified to act as such and we currently do so for our long standing, well received, quality recognized public client, Synergy Brands Inc., who has chosen to explore this alternative market for all the reasoning we outline herein. We remain available to discuss our participation and act in such capacity for companies interested in observing this intriguing trading market alternative. The use of a DAD in oversight participation is a counterpart to broker firm oversight, and both are alternatives presented to more heightened government oversight as in other SEC registered markets.
There is an actual independent organization present within the OTCQX Market with ultimate authority over continued listing and there are other financial and development character related criteria, and an actual bid threshold at the premier tier level, but flexibility built into the developing mechanics of the system is present evidencing the usefulness of a less tightened structure, appearing as designed to allow more reasonable access to trading in public securities then is being witnessed to exist in the more established but much more highly regulated and therefore more restrictive and cost burdened SEC registered market place. Also structured into this burgeoning alternative market to bolster the information channels and enhance the trading mechanics are the utilization of market makers as in the SEC Registered Market and these market makers are NASD regulated broker dealers and are many of the same firms participating in the SEC registered market place, and what skepticism as exists concerning the broker dealer contingent also apply here, but when utilized effectively as mechanical facilitators rather than in a advisory capacity and with the same astute recognition of and willingness to review available information on the status of listed company participants to confirm information upon which investment decisions should be made, in a more realistic based market place with the key being access to sufficient information, all as appear available in this relatively new market place, should advantage the potential investor but also not dissuade quality company listing participants because of the lure of significantly lower cost and continued accountability but with less regulatory oversight, the cost savings of which such companies could redirect to other company operations better enhancing their financial bottom line. SEC regulation under Sarbanes Oxley is now well documented as having carried with it significant costs that act as a deterrent to mainstream market listing, and most of such often criticized regulation is not applicable to the OTCQX because mainly of its privatized element.
This alternative OTCQX Market Place has lessened government oversight scrutiny, such being replaced by the more grass roots concept of self governance and preservation through flexible company effort concentrated disclosure with non governmental oversight based in ethics as well as licensing. Free enterprise seems here alive and well. This new market place acts both as an alternative and an adjunct to the SEC regulated disclosure market place and a company may participate in both. There is an application process for admission and companies with SEC registered market participation are also included and automatically meet certain of the entry criteria, allowing possible conjunctive experimentation into this alterative securities trading forum. It will be interesting reviewing how this alternative opportunity develops to see whether it will mature into a seasoned market as the SEC registered marketplace has become, as it appears well on its way to also becoming.
The balance of the information as stated herein is taken significantly from disclosure on the OTCQX website and presented with approval thereof © and this and further information on this exciting alternative market can be accessed on the web at www.otcqx.com
Companies That Can Benefit from an OTCQX Listing
- Operating companies with reputable managements that want to distinguish themselves from the rest of the OTC market.
- Non SEC-reporting companies with GAAP audited financials that want to efficiently and affordably create useful disclosure for investors without having regulatory scrutiny.
- OTC Bulletin Board-traded companies seeking to enhance their visibility and capital raising opportunities from PIPE financings.
- U.S. companies not publicly traded looking to access public capital markets.
- U.S. companies delisting/deregistering due to SOX that wish to provide their shareholders an acceptable alternative to an exchange listing.
- U.S. companies that are not SEC registered and listed offshore on the AIM or TSX Venture marketplace.
- Non-U.S. Level I ADRs and international exchange-listed companies that wish to access U.S. secondary markets while minimizing SOX compliance.
OTCQX SM is a new listing service offered by Pink OTC Markets Inc., itself a privately created free enterprise system that brings an innovative trading, quotation and disclosure venue to the U.S. over-the-counter markets with minimal regulatory scrutiny but in its place a private sector company independent approved Disclosure Overseer, which we qualify to be, such being a concept that makes sense through familiarity combined with accountability where the DAD is also corporate counsel as we strive to be, which is a recognized exception to what might in other contexts constitute arguable conflict because familiarity and independent accountability should trump potential conflict in this instance. This market and this method of disclosure and accountability is designed to meet the particular needs of small to medium sized public companies and non-U.S. companies listed on international stock exchanges with minimum regulatory scrutiny. OTCQX aims to promote companies that have strong operating models and that provide high quality disclosure to the marketplace and continued quality of presentation is made possible by this market limiting inclusion to companies that are engaging in business operations and have a well advised disclosure process.
In designing OTCQX to be a home for reputable operating companies, Pink OTC Markets Inc. has taken the best ideas from existing stock markets that have already created proven and successful models for smaller public companies. From the London Stock Exchange, it recognized the usefulness of the AIM's Nomads - skilled securities professionals who work closely with companies to provide advice on disclosure and securities law compliance. AIM companies have benefited from the skilled advice provided by Nomads and the Nomad community has found a worldwide demand for their services. With OTCQX, they have created a similar role called Designated Advisors for Disclosure ("DAD"). The DAD advisor's role is to guide its client on the level of disclosure that is appropriate for that specific company while working within the framework of the principles-based disclosure rules of OTCQX.
The advisors' involvement with U.S. issuers is a pivotal component of OTCQX and is designed to bolster investor confidence in the quality of disclosure by OTCQX-listed companies. It also ensures that small and growing companies have a more accessible and lesser cost professional structure resource for guidance and advice needed to create credible disclosure and for securities-related matters. Although the DAD - Issuer relationship is a cornerstone for companies that list on OTCQX, it is important to note that the issuer and its management are ultimately responsible for disclosure.
For non-U.S. companies that have already demonstrated their integrity by listing on a qualified international stock exchange, Pink OTC Markets Inc. has created the International OTCQX Visa Program to allow these world-leading companies to access U.S. markets while avoiding duplicative reporting requirements of SEC registration. Companies on International OTCQX are expected to represent leading non-U.S. companies trading OTC and will be required to retain a Principal American Liaison (PAL) (similar to the DAD concept utilized with domestic issuers) to advise them on American market practices and to help them communicate with U.S. investors which services we can also supply.
The Primary Role of a DAD is to:
- Provide professional guidance to the issuer as they build long-term relationships with management;
- Help companies discern what information is material to the market and optimal to be disclosed to investors; and
- Provide a professional review, not affirmation, of the company's disclosure.
A DAD is to be a skilled professional who is knowledgeable regarding the informational needs of investors and the disclosure requirements of U.S. securities laws. The DAD is appointed and compensated by the OTCQX-listed company. DAD eligibility is limited to NASD member investment banking firms or reputable securities attorneys. Further, each prospective DAD must submit an application to Pink OTC Markets Inc. to show evidence that the firm is qualified to be an OTCQX advisor. Once approved by Pink OTC Markets Inc., the firm will be placed on a list of DADs published on the OTCQX website. Their website at OTCQX.com may be referenced to confirm our listing as an eligible DAD thereon.
Pink OTC Markets Inc. innovation in the trading environment has proven to be substantially beneficial for market makers and it is expected that the DAD program will have the same positive effect for skilled advisors of OTC-traded companies. DADs that achieve status as a top-tier advisor look to create a reputation as an expert in the small and micro cap marketplace.
The DAD participation is designed to build long-term relationships with their subjects as they guide and provide professional assistance to OTCQX listed issuers. The advisor will help management and boards of directors to discern what information is material and needs to be disclosed to investors, while not over-burdening companies with complex one-size-fits-all requirements. An advisor should know the company and understand their business, as he or she will be required to provide an annual letter to Pink OTC Markets Inc. describing the work performed by the DAD and stating that based on a review of the company's supplied disclosure, the company meets the eligibility and disclosure requirements of OTCQX.
The DAD letter of introduction and annual update is provided only to Pink OTC Markets Inc. after a review by the DAD of the issuer's disclosure to confirm an issuer's eligibility for OTCQX listing and compliance with the OTCQX disclosure guidelines. This limited purpose is described on the OTCQX website, which is intended to preclude shareholder claims based on the statements in the letter and annual update brought by clients of the U.S. plaintiff's bar, but not regulatory investigations. However, there has never been a case decided on this issue; so, the legal effect of this preclusion has not been determined.
The DAD letter is a statement regarding the work performed by the DAD. The letter is not a guarantee of correctness of the issuer's disclosure. OTCQX Guidelines for Providing Adequate Current Information are patterned after those requirements that an attorney ordinarily provides issuers in preparation of a securities trading disclosure document. The services provided by DADs should not involve a significantly greater expenditure of legal time and effort, or greater cost, than would ordinarily be involved in advising an issuer regarding its disclosure obligations under Section 13 of the Exchange Act.
Summary of DAD Review Responsibilities
- Confirm the issuer satisfies the OTCQX requirements for listing;
- Determine that the company has addressed the disclosure requirements set forth in the OTCQX Rules as published on www.otcqx.com;
- Obtain and examine documents and other evidence that the DAD deems appropriate to investigate statements made by the issuer in connection with material contracts, issuance of stock, officers and directors.
- Provide professional review, not affirmation, of the issuer provided disclosure;
- Provide an annual letter to the OTCQX describing the work performed by the DAD;
- If the DAD is an attorney, the DAD is asked to provide the negative assurance that the DAD has no reason to believe, and has not been made aware while rendering its service, that the issuer's disclosure contains an untrue statement of material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading;
- Assist and advise the issuer in satisfying the OTCQX disclosure requirements; and
- Help management and boards discern what information is material and needs to be disclosed to investors.
INTERNATIONAL COMPANY LISTINGS
The International OTCQX Visa Program is a simple idea designed for international exchange-listed companies that wish to access U.S. secondary markets while minimizing SEC reporting and trading compliance requirements. Because these companies have already proven themselves by undergoing the listing process of their primary exchange, the International OTCQX listing process is simple and non-duplicative. International OTCQX companies are able to utilize the SEC's 12g3-2b exemption which provides a safe harbor from SEC registration compliance for non-U.S. issuers. But, since 12g3-2b disclosure is presently a paper filing that is not readily available to U.S. investors on EDGAR, International OTCQX solves this problem by requiring listed companies to post their home-country disclosure in English on the OTCQX websites for easy access by U.S. investors.
All companies on International OTCQX will be required to appoint a Principal American Liaison (PAL) to help them with the listing process and be available as a trusted resource regarding all aspects of U.S. market protocols and investor information needs.
The PAL eligibility is open to any OTCQX approved DAD; or, a company with a sponsored ADR program may have its ADR bank serve as its PAL.
Fundamental Responsibilities of the PAL
- Review that the issue satisfies the listing perquisites of the tier for which it applies. In essence, the PAL is simply acknowledging and relying on the work already completed by an international company to list on its primary exchange.
- Act as a liaison between the issuer and the U.S. market. The PAL must have the resources and knowledge base to help the issuer communicate effectively with the U.S. investment community.
ABOUT PINK OTC MARKETS INC.
Pink OTC Markets Inc., a privately owned company headquartered in New York City, is the leading provider of pricing and financial information for over-the-counter securities markets. Pink OTC Markets Inc. has made tremendous strides in improving the transparency and efficiency of trading in American over-the-counter markets.
In the past ten plus years, Pink OTC Markets Inc. has transformed itself from a nearly dormant paper-based quotation service to a fully integrated electronic trading system that achieved almost $50 billion in volume of trading by the first half of 2006. Pink OTC Markets Inc. has market-maker participation from near 200 of the largest securities firms with an average of seven competing market makers per security. And, because of its highly efficient trading platform, over 90% of inter-dealer trading OTC Bulletin Board securities now trade through Pink OTC Markets Inc. systems. The company's centralized information network includes services designed to benefit market makers, issuers, brokers and investors. Pink OTC Markets Inc. information enhances the efficiency of OTC trading, provides better executions for investors and improves the capital formation process for publicly traded companies.
In addition, pinksheets.com, which registers over 100 million page views each month, is a reliable and trusted resource for financial and corporate information on the nearly 5,000 securities that are exclusively quoted on the Pink OTC Markets securities trading systems.