OTC Markets Newsletter
OTC Markets Group News JUNE 2014
Flash Forward: How Technology is Changing Trading and Investor Relations

The publication of the new book, “Flash Boys,” by author Michael Lewis has stirred up a lot of controversy about the role of high-speed trading in public equity markets. Lewis argues the use of computers to buy and sell stocks at lightning speed has put retail investors at a disadvantage, while proponents of the practice point to evidence that electronic trading has resulted in more efficient, dynamic markets, lower trading costs and an overall better experience for small investors.

Whatever your opinion about high-speed trading, one thing is certain: the partnership between technology and progress will make equity markets more electronic in the future, and investors and companies will need to adjust their strategies accordingly.

For big investors, “Flash Boys” was a reminder that the old days of trading in large sizes over the phone are gone. According to The Economist, block trades have declined from almost 50% of equity share volume in the mid 1990's to less than 7% today.1 Expensive salesmen and traders who handled large trades have been replaced by high speed computers with FIX protocol connections slicing million share orders into thousands of individual hundred share tranches. These trades are executed across numerous venues to deliver the lowest cost and blend in with the orders of retail investors and proprietary traders. With Internet networks there is no longer one central stock exchange but numerous exchanges, alternative trading systems and broker-dealers knitted together with technology to offer diverse choices for producers and consumers of liquidity.

Successful buy-side firms have stayed ahead of these changes by investing in technology to give them greater control over their execution quality and costs. For other firms, “Flash Boys” was a wakeup call that they need to get up to speed on market structure and order routing to fulfill their fiduciary duties. Progress means that more trading is moving to computer screens and relationships will be judged by hard data and historical analysis.

Click to read more.

For companies, the growing electronification of our markets means they will need to expand how and where they focus their investor relations efforts. As institutional investors dice their trades into ever smaller pieces, it has become harder for companies to succeed by serving only the biggest investors. Successful secondary markets need depth and breadth of investor sized and trading strategies.

Going forward, corporate management teams will need to diversify their efforts by informing and engaging all types of investors – retail, institutional and proprietary – using new and traditional media, professional trading screens, electronic brokers and financial portals. The more companies focus on expanding visibility and accessibility for all investors, the greater liquidity they’ll see in their stock and the lower their cost of capital.

For OTCQX, OTCQB and OTC Pink companies, the electronification of our markets means several other things. It means making sure all the screens where investors analyze, value or trade securities have current, consistent and correct information about your company. It means distributing your presentations, press releases and disclosure widely through multiple networks so all potential investors receive your latest news.

It means using your U.S. stock symbol and marketplace designation in press releases and your “cash tag” on Twitter so investors can easily research information, get real-time alerts and know where your securities are traded. And it means removing restrictions on trading and investing in your securities by becoming Blue Sky compliant so investors and advisors can analyze and trade your stock.

It means providing your investors real-time transparency into the trading of your stock so they can see the liquidity in your securities, understand where larger trades can be executed and know they are getting the best price available for their investment.

OTC Markets Group is working on enhancements to our services that will allow OTCQX and OTCQB companies to monitor their trading activity trends and the quality of liquidity in their shares. Insight into bid/ask spreads, volatility, and volumes, as well as where trades are taking place in relation to the best bids and offers will give companies real-time feedback on their investor relations efforts.

Modern companies should view a future of high-speed and algorithmic trading with anticipation, not trepidation. OTCQX, OTCQB and OTC Pink companies have numerous tools at their disposal to help them maximize visibility and liquidity for their securities. As our markets become more electronic, OTC Markets Group can help you provide consistent and correct information however and wherever investors analyze, value or trade your securities.

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1 "Going Broke in Stocks" - The Economist - May 11th 2013

U.S. banks on OTCQX must appoint a “Corporate Broker,” a FINRA member broker-dealer specializing in trading in and advising banks, to provide guidance on the trading of their stock and access to institutional investors, trading expertise and wealth management services.

The following firms have been approved to serve as Corporate Brokers for banks on OTCQX:

  Boenning & Scattergood, an independent securities, asset management and investment banking firm serving the Mid-Atlantic and Midwest

  D.A. Davidson & Co., a full-service investment firm whose division Crowell, Weedon & Co. has been serving the financial needs of banks in the Western U.S. for more than 80 years

  FIG Partners, an employee-owned broker-dealer specializing in financial institutions

  KBW, a full-service, boutique investment bank and broker-dealer and wholly-owned subsidiary of Stifel Financial Corp. (NYSE: SF)

  Monroe Financial Partners, a boutique investment bank which has been serving U.S. financial institutions since 1968

  McAdams Wright Ragen, Inc., a majority employee-owned investment firm headquartered in the Pacific Northwest

  StockCross Financial Services, a discount and full-service financial brokerage firm and market maker with offices nationwide.

To qualify for OTCQX, U.S. community banks must meet high quantitative and qualitative financials standards, and be current in their reporting to a bank regulator or, if applicable, the SEC. Learn more about the requirements for banks on OTCQX.
Get to Know Your Community
[photo] Interview with Bradley Scott, Associate Director of IR Solutions for SNL Financial

This month, we speak with Bradley Scott, Associate Director of IR Solutions for SNL Financial, a premier provider of financial data and analysis as well as investor relations services for U.S. financial institutions. Mr. Scott talks to us about recent shifts in investor relations programs for community banks and how technology has played an important role in communicating with investors. He highlights the importance for banks to provide transparency and build trust in order to distinguish themselves in the community bank market.

OTC Markets Group (OTCM): Tell me about SNL Financial.

Bradley Scott (BS): SNL Financial is the premier provider of breaking news, financial data and expert analysis on business sectors critical to the global economy. SNL's database includes detailed profiles on more than 20,000 U.S. financial institutions, including all publicly-traded banks and thrifts, privately held institutions and credit unions. SNL is the trusted information partner for the 50 largest commercial banks in the U.S. as well as hundreds of regional and community banks. 100% of the investment banks with any substantive financial institution industry practice are SNL subscribers.

In addition to SNL’s presence as a financial data provider, we also build and manage investor relations websites for more than 700 publicly traded companies, including more than 400 banks. SNL’s approach to IR webhosting centers around the idea IR websites should be an extension of the conversation clients have with their shareholders. 10-Qs and 8-Ks don't paint the whole picture, and investors are looking for that something extra that makes a company stand out from its peers. IR sites should offer more than standardized filings; they should tell the company’s unique financial story to the investment community.

OTCM: How has community bank investor relations changed over the years?

BS: I would say the most significant change has been how IR departments communicate their investment story and how they leverage technology to do so. The catalyst for these changes, not surprisingly, was the rash of failures and closures resulting from the credit crisis. From 2009 to 2011, nearly 400 banks were shuttered by the FDIC, with assets totaling nearly $400 billion. If there was ever a reason for community banks to take a look at their communication strategies, that was it.

Click to read more.

Prior to that, community banks were extremely conservative with respect to their disclosure practices. Rarely did banks do much beyond what was required by regulators, and usually this meant limiting their communications to quarterly or annual filings, and maybe a quarterly earnings conference call to discuss their results. It was rare that there would even be an accompanying webcast allowing investors to listen to the call online.

IR websites weren’t much different. The majority of them had really just been document repositories that maintained themselves with a few automated feeds. They’d get updated a couple times a year with a new branch or asset count in their company description, but that was about it.

During and after the peak of the crisis, however, that changed measurably. There was a noticeable effort by banks to put more emphasis on their online presence. We saw a big jump in the number of companies using outside firms to help with corporate branding, and this carried over to their investor relations efforts as well.

Community bank IROs were no longer treating their sites as filing cabinets, but rather as an opportunity to communicate the investment story the same way they would in meeting or on the phone. This meant including a lot more content outside of what was strictly required – detailed branch and deposit data, capital ratios, and asset quality metrics. Investors were measuring banks by these statistics, and banks realized that if they disclosed them up front, they could better control the story and provide context – an opportunity they wouldn’t have if investors never went to their IR websites.

OTCM: What makes SNL’s IR Solutions for publicly-traded community banks and thrifts superior to competing IR offerings?

BS: Because of our sector coverage, SNL is uniquely positioned to provide the banking community with unparalleled advantages when it comes to both the quality of content on their IR websites, and the ease of maintaining it. We have the ability to seamlessly power a bank’s IR website with the data that the investment community depends on. This includes detailed GAAP financials for SEC filing companies, robust charting capabilities for both financial and stock performance, customized peer analysis, deposit market share, and branch mapping. Data is also source-tagged back to the original document so site visitors can see exactly where the numbers are coming from. For ratios and calculated metrics, we also break down the formulas for complete transparency.

Beyond sector specific financial data, we have what we like to call an “obsession” with client support. In addition to the standard practice of receiving and executing on client requests for day-to-day site maintenance, the team takes a decidedly proactive approach with our client base. In 2013, we handled nearly 15,000 support cases, 10% of which were initiated by SNL as proactive suggestions for ways to improve a client’s website. We also survey our clients after every interaction to glean feedback, and last year 99% of our clients said they would recommend SNL to a peer or colleague if asked.

OTCM: Eight banks recently joined our OTCQX marketplace under new, tailored qualification standards for community banks we rolled out last month. What traits do you think distinguish the most shareholder-friendly community banks and thrifts?

BS: It really comes down to clear and open communication. From an investor’s perspective, there is a lot of supply in the community banking space. The companies that are most successful in maintaining strong relationships with shareholders dedicate a lot of time to financial disclosure and making sure that they provide context around financial performance. This doesn’t just mean more information; it also means providing that information in formats that are helpful.

For example, many investors are checking in on companies while away from their desks –companies of all sizes should be thinking about their mobile presence, and provide a mobile-friendly way to access content like recent news, filings, and event details. Companies hosting quarterly earnings calls should be webcasting them so shareholders can access them live online, and have an easy way to listen to the replay for an extended period of time.

Banks should be asking themselves how they can make the lives of their shareholders easier. It may depend slightly on the bank, but generally if they think about the day-to-day lives of their shareholders and what their challenges are, it opens up a lot of insight into simple ways to make improvements.

OTCM: What is your #1 piece of advice to community banks that are looking to increase their profile with investors?

BS: The biggest piece of advice I can offer is to be transparent. Because of disclosure requirements, and the data resources available in the marketplace, community bank investors can get extremely detailed analysis on the industry and a company’s performance. Making them pore through paper filings and manually enter data into their spreadsheets and models is not going to help a company make friends in the investment community.

We recently surveyed professional investors, and of the more than 550 responses we received, the #1 thing they told us that would make investor relations websites more valuable was more financial data. These include peer analysis, Excel supplements, and industry-specific content. The trick is to make that information accessible to them in a form that is easy to use and digest.

You want investors coming directly to you when they have questions, not relying exclusively on third parties. By being transparent you build trust, and in an industry where community bank investors have a lot of choices, trust is invaluable.

Click to close.

Light Up The Market
Follow us on Twitter at @OTCMarket to keep up with OTCQX companies
Lighting Up Their Market!
GWR Global Water Resources Corp. (OTCQX: GWGWF)

Enerpulse Technologies, Inc. (OTCQX: ENPT) Lights up the Market to mark joining OTCQX!
GWR Global Water Resources Corp. (OTCQX: GWGWF)

Matthew Chaloner (center), CFO of Net Dimensions (OTCQX: NETDY), visits the OTCQX Market Center to Light up the Market! Mr. Chaloner is joined by Cromwell Coulson (left), CEO of OTC Markets, and Greg Giebel of Roth Capital Partners
GWR Global Water Resources Corp. (OTCQX: GWGWF)

Ximen Mining Corp. (OTCQX: XXMMF) celebrates trading on OTCQX by Lighting up the Market!
Monthly Trade Summary

May 2014

Marketplace Designations # of Securities* Monthly Dollar Volume Monthly Dollar Volume
per Security
YTD Dollar Volume Aggregate Market Capitalization
(in Millions)*
OTCQX® 354 $2,484,991,733 $7,019,751 $15,675,450,243 $1,637,998
OTCQB® 2,699 $5,093,859,511 $1,887,314 $38,260,886,389 $209,346
OTC Pink® Current Information 3,606 $10,424,888,366 $2,890,984 $51,480,534,033 $12,330,702
OTC Pink Limited Information 576 $232,615,833 $403,847 $1,223,969,380 $15,190
OTC Pink No Information 2,663 $1,247,745,174 $468,549 $6,571,758,699 $58,469
Totals 9,898 $19,484,100,617 $1,968,489 $113,212,598,744 $14,251,704
*Data as of May 31, 2014
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Events, Webinars & Sponsorships
OTCM Hosted Events and Webinars:

Community Bank Webinar Series: A Conversation with D.A. Davidson and OTC Markets Group (June 25, 2014)

OTCQB: A Venture Stage Marketplace - for International Companies (Archived Replay of June 11 webinar)

OTCM Co-hosted Events and Webinars:

Edison Group: OTCQB A Venture Stage Marketplace in the US - London, UK (June 23, 2014)

Szaferman Lakind: New OTCQB Eligibility Standards - Webinar (Archived Replay of May 22 webinar)

OTCM CEO to speak at:

2014 STANY Golf Outing - New York (July 28, 2014)

IR Magazine Awards - Brazil 2014 - Sao Paulo, Brazil (July 22, 2014)

IR Magazine Awards - Europe 2014 - London, UK (June 24, 2014)

FISD General Meeting and Index Forum - New York (June 18, 2014)

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

Virginia National Bancshares: An Undervalued Regional Bank With Strong Fundamentals - Seeking Alpha (June 22, 2014)

Coastal Banking begins trading on OTCQX - SNL Financial (June 16, 2014)

OTC Markets Group Approves Monroe Financial Partners as Corporate Broker for Banks on OTCQX - press release (June 9, 2014)

Mediabistro Inc. Begins Trading on OTCQX® - press release (June 6, 2014)

OTC Markets Group Congratulates Gulf Coast Ultra Deep Royalty Trust on NASDAQ Listing - press release (June 2, 2014)

OTC Markets Group Adds Six Brokers to Advise Banks on OTCQX - Traders Magazine online (May 29, 2014)

Travis Perkins Plc Begins Trading on OTCQX® - press release (May 27, 2014)

Market Data Updates
The OTC Compliance Data File user guide has been updated. The file provides broker-dealers and compliance/risk mitigation teams with key compliance data points:
Data on 10,000 U.S. and global securities on the OTCQX, OTCQB, and OTC Pink marketplaces.
Penny Stock, bankruptcy, shell, and caveat emptor status, as well as marketplace designations.
Delivered 2x daily in pipe-delimited format.
Click here to learn more.

The OTC History File will no longer be available via CD on a monthly basis. The file will be still be available via FTP on a daily basis.

For more information, contact our Market Data Services at + or marketdata@otcmarkets.com.
Fact of the Month
1/3 of companies on the DAX Index, a benchmark of the 30 largest and most liquid companies in Germany, have chosen to trade on the OTCQX marketplace in the U.S.
Regulation & Compliance
New FINRA ORF Platform
  Firms must begin reporting OTC equity security trades and trades in restricted equity securities effected pursuant to Securities Act Rule 144A to the new OTC Reporting Facility (ORF) technology platform starting September 15, 2014. Additional information can be found here. FINRA has also published a new FINRA OTC Reporting Facility (ORF) Migration Website. The SEC has approved amendments to the Equity Trade Reporting and OATS Rules that will also be effective on September 15, 2014. Broker-dealers that utilize a service bureau to report trades on their behalf are reminded that they must complete the FINRA Transparency Services Participation Agreement,FINRA Transparency Services Uniform Service Bureau/Executing Broker Agreement and for those firms that have a service bureau reporting via a FIX connection, the FINRA Services Port Request Form.

Proposed Amendment to Require New Certification upon Filing a Form 211
  FINRA has filed with the SEC a proposal to amend FINRA Rule 6432 (Compliance with the Information Requirements of SEC Rule 15c2-11) that would require members to certify that they have not accepted any payment or other consideration for market making from issuers and related persons. OTC Markets Group’s comment letter on this proposal may be found here. More information may be found here.

New Requirements Require Alternative Trading Systems to Report Weekly Volume Information
  Effective May 12, 2014, FINRA Rule 4552 requires Alternative Trading Systems (ATS) to (i) report to FINRA weekly volume information and number of securities transactions within the ATS by security and (ii) acquire and use a single, unique market participant identifier (MPID) when reporting information to FINRA. OTC Link® ATS reports under this rule. The full notice can be found here. ATS Transparency Data can be found here.

SEC Releases Proposed Rules on Regulation A+

  On December 18, 2013, the SEC released proposed rules on Regulation “A+” that are intended to increase access to the capital markets for smaller issuers as mandated by Title IV of the JOBS Act. The proposed rule amendments can be found here. Comments to the rule proposal can be found here. OTC Markets Group’s letter commenting on the proposed rules may be found here.
OTCQX New Additions
Our Marketplaces
16 new companies joined OTCQX in May:

A complete list of OTCQX companies is available on otcmarkets.com.
The Best Marketplace

The Venture Stage Marketplace

OTC Pink
The Open Marketplace
Contact Us
To learn more about OTC Market Group visit us at www.otcmarkets.com // +1.212.896.4420 // issuers@otcmarkets.com
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