OTCQB Adopts Eligibility Requirements

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OTC Markets Group announced that to be eligible to trade on OTCQB, the middle marketplace of OTC Markets Group, companies will be required to meet a bid price test, submit an annual certification and pay application and annual fees.

OTC Markets Group states that the new eligibility standards are being implemented in order to make OTCQB a better venture stage marketplace. To do so, OTC Markets Group is creating standards to improve transparency and exclude companies that are most likely to be associated with stock promoters and other nefarious operators, and improve the information and level of engagement companies have with their marketplace.

To be eligible for initial trading on OTCQB, SEC reporting companies must meet the following initial requirements:

  • Meet an initial bid price test of $0.01 as of the close of business for each of the previous 30 calendar days;
  • Be current in all periodic reporting requirements on EDGAR; and
  • Post an initial certification signed by the CEO and/or CFO on the OTC Markets website. The certification states that the company is current in its reporting obligations in addition to providing some other information about the company.

In addition, SEC reporting companies must meet the following ongoing requirements:

  • Meet an ongoing minimum bid price test of $0.01 as of the close of business for at least one of every 30 calendar days;
  • Post current SEC disclosure on EDGAR; and
  • Post an annual certification signed by the CEO and/or CFO on the OTC Markets website.

Certain non-U.S. companies will be eligible for trading on OTCQB under different standards. To be eligible for initial trading on OTCQB, non-U.S. companies must meet the following initial requirements:

  • Meet an initial bid price test of $0.01 as of the close of business for each of the previous 30 calendar days;
  • Be compliant with SEC Rule 12g3-2(b) and be listed on a Qualified Foreign Exchange (e.g. Toronto Stock Exchange, TSX Venture Exchange or Canadian Securities Exchange);
  • Submit a “letter of Introduction” from a qualified Principal American Liaison (“PAL”) stating that the PAL has a reasonable belief that the company is in compliance with 12g3-2(b), is listed on a Qualified Foreign Exchange, and has posted required disclosure on OTC Markets website; and
  • Post on the OTC Markets website previous two years’ of disclosure required under 12g3-2(b) (except press releases) in English and an initial certification signed by the CEO and/or CFO.

In addition, non-U.S. companies must meet the following ongoing requirements:

  • Meet an ongoing minimum bid price test of $0.01 as of the close of business for at least one of every 30 calendar days; and
  • Post on the OTC Markets website disclosure required under 12g3-2(b) in English, including quarterly reports and audited annual reports (except press releases) and an annual certification signed by the CEO and/or CFO.

OTCQB is requiring an annual fee of $10,000 for trading on the OTCQB. For current OTCQB companies that apply for OTCQB in 2014, the annual fee will be discounted to $7,500 for each of the first two years. In addition, new companies upgrading to OTCQB are required to pay a one-time application fee of $2,500. Current OTCQB companies are not required to pay application fees.

All current OTCQB companies that do not meet the ongoing minimum bid test (i.e. minimum bid price of $0.01 per share as of the close of business for at least one of the previous 30 consecutive calendar days) will be removed from OTCQB beginning May 1, 2014. Companies that are not on OTCQB as of April 30, 2014 must submit an application and follow the new procedure in order become traded on OTCQB. Securities will no longer be automatically put on OTCQB when a new Form 211 is cleared by FINRA or an OTC Pink company becomes current in its reporting.

Current OTCQB companies will have to comply with the new OTCQB procedures 120 days after their fiscal year end. Companies with the year ended March 31, 2014 will be the first group of current OTCQB companies subject to the new eligibility standards; they will have to comply with the new standards by July 31, 2014.

Current OTCQB companies that do not comply with new procedures within the required time frame will be downgraded to OTC Pink.

If you have questions about trading on the OTCQB, contact any member of Clark Wilson’s Corporate Finance & Securities Group.