OTC Markets Newsletter - July 2013

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OTC Markets Newsletter June 2013

Cromwell Coulson Testifies Before Congress on Reducing Barriers to Capital Formation

Cromwell Coulson, President and CEO of OTC Markets Group, testified before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises on June 12 on reducing barriers to capital formation for small companies. In his prepared oral testimony, Mr. Coulson discussed the importance of transparency in the public markets and presented proposals for creating greater access for smaller companies.

Click to Play Video

“Chairman Garrett, Ranking Member Maloney and members of the committee, my name is Cromwell Coulson, president, CEO and director of OTC Markets Group Inc.

I appreciate the opportunity to testify. As an operator of public marketplaces for small companies and a publicly-traded small company in our own right, I hope I can provide the committee with greater insight into barriers to capital formation that should be removed.

We are all here because we recognize the value of public trading to small, growing companies and to the U.S. economy as a whole. The visibility, valuation, liquidity, capital and trust that public trading provides can create the most successful and sustainable companies.”

Click to read more.

We have provided fifteen concrete suggestions in our written testimony that together will make our public markets more open, transparent and connected for smaller public companies while lowering complexity and cost.

Our marketplaces, like all public markets, are better informed and more efficient when there is transparency of trading activity and company information. We work with broker-dealers on the trading process, but need to engage companies to provide better information for investors. Transparency builds trust, and we have designed our tiered marketplaces to encourage companies to make more current information publicly available and clearly warn investors when there is not.

The JOBS Act, particularly through ending the ban on general solicitation and new more inclusive capital, takes great strides towards achieving the type of transparency our markets need to thrive. We can do more to reduce barriers to capital formation by thoughtfully enhancing our secondary markets. Capital has greater value if it is liquid and transferable. A carefully crafted “tick size” pilot program applicable to quotes and orders, but not trades, could provide a much-needed improvement for small company liquidity.

U.S. equity markets have the most regulated trading of all our financial markets. Our anti-fraud provisions already give regulators a broad sword when they see wrongdoing.

Regulators should think like investors. Give investors the information they need to make intelligent decisions, but let them make their own choices. Our limited resources should be used to protect investors by driving transparency and should smartly target the biggest problems, not just create the longest regulatory filings nobody reads or the largest number of enforcement actions.

We urgently need more transparency of the people behind SEC reporting companies that are being widely promoted on the Internet. These advertisements of penny stock without any information about the people promoting them makes a mockery of our regulatory regime. Our promotion disclosure regulations are written for an era when investment advice came through the mail; it needs to catch up with the digital age.

We want equality of regulation; there should be margin eligibility for all higher quality public companies, not just exchange-traded companies. This will help the value of 600 community banks traded on our marketplaces by providing them greater access to capital. These banks and other smaller companies also deserve consistent disclosure of institutional investors’ holdings.

Investors also deserve equality of information when insiders or affiliates are trading in non-SEC reporting companies.

With market structure, we should also be careful not to govern by fear. Markets, like all U.S. industries, need diverse choice and healthy competition to promote growth and innovation. Some use the term “fragmentation” to paint a picture of a broken marketplace in need of repair. Fragmentation may sound dark and dangerous, but it is just a spin doctor’s word used by those losing market share to more dynamic competitors.

When Nasdaq was primarily a market for smaller companies, it was not a centralized stock exchange but an automated quotation system with fragmented trading connected by technology and transparency. Promoting competition and efficiency is what drives a successful small company marketplace, and it would be a step in the wrong direction to centralize all small company trading on one monopoly exchange. Please carefully question the economic implications of any attempt to create a “trade-at rule” or regulation that would mandate centralized trading on a stock exchange.

Thank you again for inviting me to testify. While the issues I discuss may seem diverse, each is a vital component to reducing barriers to capital formation by creating better informed, more efficient marketplaces. I look forward to discussing these and other ideas with you today.

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Click here to read Mr. Coulson’s full written testimony and watch an archived webcast of the hearing.


Get to Know Your Community:
Interview with Nimish Patel, Co-Founder and Managing Partner of Richardson & Patel LLP

Richardson & Patel LLP, a securities law firm with offices in Los Angeles, New York, Princeton, NJ, and Orange County, CA, was recently approved as a DAD/PAL for OTCQX companies. We talked to Nimish Patel, JD/MBA/CPA, Co-Founder and Managing Partner, to learn more about the firm’s view on the role of OTCQX for public companies, the potential impact of the JOBS Act, and adding value through advocacy on legislation affecting small and mid-cap companies.

OTCM: Tell us a little about Richardson & Patel LLP and the clients you serve.

Nimish Patel: For the past 15 years, Richardson & Patel, LLP has served a diversified base of clients with a principle focus on corporate and securities law, mergers, acquisitions, corporate finance and business litigation. Our clients include public and private companies across a broad range of industries both domestic and international.

Our strategy is to serve our clients as value-added business advisors. We make every effort to thoroughly understand our clients’ businesses and play an active role in the enhancement of shareholder value. Many of our attorneys have MBAs, CPAs, or broker dealer licenses to complement their legal education and have prior experience working at large law firms, governmental regulatory agencies, or private enterprises.

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We compete directly with the national large law firms in representing publicly trading companies. As with large firms, we have the knowledge base and the talent pool to effectively service our clients. However, what sets our law firm apart from the large firms is our ability to staff projects with competent and experienced attorneys who have the ability to respond and directly interact with our clients at a cost well below what large law firms would charge. We do not staff inexperienced attorneys on projects who may cause inefficiencies to our clients based upon time spent educating the attorney. As a result, we are able to provide the highest quality of work at a cost-effective price.

For our publicly traded clients, our highly qualified transactional corporate securities attorneys are able to advise senior management on corporate governance, federal and state securities laws and of course on the OTCQX, OTCQB and OTC Pink marketplaces and the national exchanges. We also routinely, economically and timely assist in the preparation of all requisite SEC and state regulatory filings, including Form S-1 registration statements, Forms 10Qs and 10K, proxy solicitations, shareholder compliance reports and material event reporting. We are actively involved in our client’s financing and acquisition transactions. We have many contacts within the finance and investment banking community and can assist with introductions for financings including private placements, PIPE offerings, Registered Directs, IPOs and traditional commercial banking.

OTCM: What motivated you to become a DAD/PAL for OTCQX companies?

NM: Our close involvement in the world of public securities and capital markets has kept us tuned in to trends. One trend we see developing is the competitiveness of OTC Markets Group in offering viable exchange alternatives to many publicly traded companies. Having always been at the forefront of adapting to current market conditions, we believe it is a good investment to make. Providing leadership in the industry of microcap companies is something we’ve always prided ourselves in and being a DAD for OTCQX companies is a natural evolution for us to make. We are privileged to be an early leader for the OTCQX marketplace and look forward to helping it grow.

OTCM: You represent companies trading on NASDAQ and NYSE as well as on our marketplaces. What types of your clients do you think will be helped by qualifying for OTCQX?

NM: I think all of our clients could benefit from OTCQX. It is hard to predict if any would be prepared to turn away from NASDAQ or NYSE in exchange for OTCQX. But as the regulatory environment becomes more burdensome and various issuers find the challenge of NASDAQ and/or NYSE to be too cumbersome, it is certainly possible that some of them may choose to explore switching gears. It is obviously a very personal choice and decision that is not easy to make. Many factors can play in to the exchange choice like investor relations, filing expenses, market sentiment, etc. Our firm will play the role we’ve always played, which is to be an honest and authentic provider of information to anyone showing interest in OTCQX and help them to understand its benefits.

OTCM: What impact will the JOBS Act have for your clients once the final rulemaking is complete?

NM: Unfortunately, it is difficult to tell when, if and how the final rulemaking will take shape. Certainly if everything that has been contemplated in the JOBS Act is implemented by the SEC then we expect to see a positive outcome for our existing issuers and future public market players. We were very involved in helping to draft the legislation because we believed strongly in what it could provide in terms of easing capital formation. But as democracy holds true, not everything we wanted got included and now we certainly see that even the things that made it in the bill are slow to be implemented.

We are hopeful that as the SEC tackles the Act and implements the changes, that we’ll see an increase in financings, which will result, of course, in job growth and economic prosperity for all of us. The most significant changes we’re hoping to see implemented soon are the solicitation rules and cap on investor count. If those two things come to fruition, we suspect we’ll see many of our clients benefit directly by easing in raising money to grow their companies.

OTCM: In your opinion, what else can be done to increase access to capital for small companies?

NM: That is a broad-based question and is difficult to answer. But further tweaking of various rules that have been in existence since the original passing of the ’33 and ’34 Acts would greatly change how companies access capital. Various restrictions were rightfully implemented to protect the investor community. But in this day and age, with the speed and ubiquitous access to information, it is hard to justify keeping various rules in place. There are also smaller rules with things like tick sizes that can indirectly increase access to capital because of the linkage between liquidity of an issuer and ability to raise funds. There is developing legislation with JOBS Act 2.0 that we hope will address some of the exchange-related logistics that could help increase capital access for small companies.

OTCM: You have been getting more active in Washington, D.C. on behalf of your clients. Tell us more about what you are doing on the regulatory and government side to help your clients that are smaller publicly-traded companies.

NM: We’ve had an interest in Washington D.C. for a long time, and one of our partners, David Feldman, has actually been testifying to the SEC for years. Keeping tabs on the regulatory body and taking its temperature has always been an effective tool for us in keeping our clients on the right path. Our recent foray in to being more involved on the Hill has to do with getting involved earlier in the lifecycle of legislation and its resulting impact on capital markets and our clients.

Being an advocate for the ecosystem our issuer clients exist in is important to us and has helped us add more value to our clients. Our firm has ventured in to extending our service offering to include what some might call “government affairs” to help our small to midcap companies interested in keeping a closer eye on developing trends and legislation that could impact their businesses. Cutting across many industries from alternative energy to health care to transportation, we provide a wide range of services on the spectrum of government and/or public affairs. These services range from simple legislative analysis to awareness campaigns with elected officials.

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Newsletter Sponsor Continental Stock Transfer & Trust

Monthly Trade Summary — June 2013

OTC Marketplace # Securities* Monthly Dollar Volume Monthly Dollar Volume
per Security
Aggregate Market Capitalization
(in Millions)*
OTCQX® 378 $2,164,950,102 $5,727,381 $1,292,223
OTCQB® 3,209 $6,710,911,537 $2,091,278 $175,455
OTC Pink® Current Information 2,755 $6,500,510,507 $2,359,532 $10,799,106
OTC Pink Limited Information 599 $129,476,890 $216,155 $12,837
OTC Pink No Information 3,058 $720,817,272 $235,715 $52,162
Totals 9,999 $16,226,666,310 $1,622,829 $12,331,785
* Selected data as of June 28, 2013.

Congratulations to Organovo

Organovo Holdings, Inc. (NYSE MKT: ONVO), a biotechnology company focused on delivering breakthrough three-dimensional (3D) bioprinting technology, qualified for trading on OTCQX®, the best marketplace, in October 2012.  Since joining, the company’s stock price has more than doubled to $5.40 and its market capitalization is now $318 million.  Its management team has also rapidly increased shareholder value and achieved liquidity of over 120 million shares traded, representing approximately $478 million of dollar volume.

On July 11th, Organovo graduated from OTCQX to NYSE MKT. We wish them the best of luck as they execute their business plan  and continue to grow their company. Keith Murphy, Chairman and CEO of Organovo, spoke about the company’s experience on OTCQX and its relationship with OTC Markets Group:

“OTCQX helped us expand our investor base and increase our average daily trading volume, which was instrumental in enabling us to qualify for an NYSE MKT listing. We recognize the impact OTCQX has had on our success and appreciate the support OTC Markets Group has provided to ensure that success.”


Proposed Regulation SCI spooks industry - The Trade USA (June 25, 2013)

JOBS Act Sequel in the Works - Compliance Week (June 25, 2013) (subscription or free registration required)

OTC Markets Group Approves Richardson & Patel LLP as DAD PAL for OTCQX Companies - press release (June 20, 2013)

OTC Markets Group CEO Cromwell Coulson Speaks Before House Financial Services Subcommittee on "Reducing Barriers to Capital Formation - press release (June 14, 2013)

OTC Markets Group's Coulson Testifies to House Capital Markets Committee - Growth Capitalist (June 14, 2013)

Securities experts advise SEC on capital access for small businesses - WashingtonPost.com (June 13, 2013)

EXCLUSIVE: OTC Markets Group’s CEO Answers the Question: 'Is it Wise to Go Public?' - Benzinga (June 12, 2013)

Events & Sponsorships

OTC Markets Group has attended or will attend the following events to educate investors, broker-dealers, and OTCQX, OTCQB and OTC Pink companies about our marketplaces.

The Southern California Investor Conference (August 8, 2013)

STANY's Annual Golf Classic (July 29, 2013)

RXi Pharmaceuticals Investor and Analyst Symposium (July 12, 2013)

IR Brazil Awards (July 3, 2013)

OneMedForumNY 2013 (June 26-27, 2013)

IR Europe Awards (June 20, 2013)

SIIA FISD General Meeting (June 20, 2013)


Contact us if you are interested in meeting us at one of these events.

Product Updates

Verify Your Company Profile!

In our ongoing effort to improve the availability and quality of company information in our market, OTC Markets Group has introduced a new company profile verification program. A green “verified” checkmark will appear on the Company Info page of a company’s stock page on www.otcmarkets.com indicating to investors that its profile has been updated by a verified company representative within the previous six months. To verify your company profile, contact our Issuer Services division at 212.896.4420 or issuers@otcmarkets.com.

OTC Markets Group and Exchange Data International Launch OTC Corporate Actions Data Service

OTC Markets Group and Exchange Data International (EDI), a premier provider of back and front office financial and securities data, have launched the OTC Corporate Actions Data Service to provide timely, comprehensive corporate action data for companies trading on the OTCQX, OTCQB and OTC Pink marketplaces. Click here to read more.

Market Data Updates

•   MSN Money now displays our delayed Level 1 quote data (price and size) and marketplaces for 10,000 OTCQX, OTCQB and OTC Pink securities.
•   YCharts now takes our delayed quote data. Investors who use its platform now have access to Level 1 data on 10,000 OTCQX, OTCQB and OTC Pink securities.
•   tradeMONSTER upgraded to an Enterprise Level 1+ license, allowing all its users access to real-time quote data on 10,000 OTCQX, OTCQB and OTC Pink securities.
•   Google Finance correctly identifies companies as OTCMKTS instead of PINK.

Regulation & Compliance

FINRA Amends Trade Reporting Period

In May, FINRA announced that effective November 4, 2013, FINRA Rule 6622 will be amended to require trades to be reported as soon as possible but no later than 10 seconds after execution. The new rule can be found here.

SEC Proposes Regulation Systems Compliance and Integrity (Regulation SCI)

On March 8, the SEC proposed Regulation Systems Compliance and Integrity (Regulation SCI). The proposed regulation would require certain systematically important entities involved in securities trading to comply with requirements with respect to their automated systems. A copy of the proposed Regulation SCI can be found here. Comments to the proposed rule are due by July 8, 2013. Comment letters received by the Commission can be found here.

OTCQX - New Additions

8 new companies joined OTCQX in June:

A complete list of OTCQX companies is available on www.otcqx.com.

Our Marketplaces

The Best Marketplace with Qualified Companies

The Venture Stage Marketplace with U.S. Reporting Companies

OTC Pink
The Open Marketplace with Variable Reporting Companies

For questions, please contact OTC Markets Group.
www.otcmarkets.com • 212-896-4420 • info@otcmarkets.com

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© 2013 OTC Markets Group Inc.