OTC Markets Newsletter October 2013

SEC Lifts Ban on General Solicitation and Advertising: What OTCQX, OTCQB and OTC Pink Companies Should Know

On September 23, the JOBS Act-mandated SEC rule permitting general solicitation and advertising of private offerings conducted under SEC Rules 506(c) and Rule 144A went into effect, opening a key door to capital for U.S. and global companies. We explain what the new rule means for OTCQX, OTCQB and OTC Pink companies, some issues companies consider before engaging in general solicitation of a Rule 506(c) or Rule 144A offering, and what rules have still to be approved.

What do the new rules mean for OTCQX, OTCQB and OTC Pink companies?

Companies that are raising money in offerings under Rule 506(c) of Regulation D or Rule 144A of the Securities Act will now be able to share information publicly, including offering documents. This is a great step forward for improving access to capital and making secondary markets more efficient.

Previously, companies were banned from publicly disclosing information relating to securities offerings unless the offerings were registered with the SEC. Lifting the ban lifts the veil of secrecy that has existed in private offerings, allowing companies to be transparent about the money they are looking to raise in private offerings. In short, an S-1 registration statement is no longer the only means by which a company can raise money transparently.

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Lifting the ban on transparency in private offerings will also aid in producing more efficient pricing for private and publicly-traded companies, as investors will be able to price in the performance of a private offering into a company’s valuation. It could create a standard for more companies to share information in the public markets, creating a virtuous circle for issuers and investors. Companies that are providing insight into their business operations and financials for the first time may be inclined to continue providing ongoing news and disclosure, whether on their website or through a public disclosure service like OTC Markets Group’s OTC Disclosure & News Service. This should lead to more efficient markets and a lower cost of capital for companies.

As an advocate for transparency in our public markets, OTC Markets Group strongly supports the added transparency these new rules bring to the private offering process, and we have proposed that the SEC mandate minimum disclosure requirements in Rule 506(c) offerings to create a baseline of disclosure for all companies.

To what companies does this apply?

The new rule applies to any qualifying U.S. or global company looking to raise money in a Rule 506(c) or Rule 144A offering. Rule 506 has traditionally been the most popular method by which companies raise capital in unregistered offerings. The SEC’s recent rule change created a new Rule 506(c) for companies seeking to take advantage of general solicitation and advertising in their offerings.

Rule 144A offerings are related to the resale of securities to qualified institutional buyers (“QIBs”), which are typically large institutions with over $100 million in assets under management. Rule 144A offerings are frequently used by international companies doing private offerings to U.S. investment managers. Lifting the restrictions on general solicitation in Rule 144A offerings should make global companies more comfortable distributing information into the U.S. market.

What is a verified, accredited investor and how do I verify if an investor is accredited?

While general solicitation of Rule 506(c) offerings is now permitted, purchasers in a Rule 506(c) offering must be “accredited investors.” The SEC defines the term “accredited investor” in Rule 501(a). Generally, individuals are considered accredited investors if they have a net worth greater than $1 million (excluding their primary residence) or incomes in excess of $200,000 in the last two years with the expectation of the same in the current year (or $300,000 with a spouse).

Under the new rule, companies are required to take “reasonable steps” to verify an investor is accredited by doing things like reviewing W-2 Forms or other personal financial statements of investors. This is likely to be an onerous process for companies and off-putting to many investors, so a number of investor accreditation-verification services have arisen to help companies surmount this challenge. Companies should talk to a qualified securities attorney prior to determining an investor’s accredited status.

How can I publicize my offering on the OTC Markets Group website and through the OTC Disclosure & News Service?

Companies that are current subscribers to our OTC Disclosure & News Service have the ability to publish company disclosure, including offering documents, prospectuses, investor presentations and other materials via www.otciq.com, our investor relations and market intelligence portal, which directly feeds to their quote page on www.otcmarkets.com and is distributed to market data distributors, financial information providers and our broker-dealer community. Companies should talk to a qualified securities attorney prior to posting any offering documents through the OTC Disclosure & News Service or otherwise.

OTC Disclosure & News Service subscribers that are also customers of PR Newswire or Marketwired may also use these news distribution services to issue press releases about news and offerings, which will be fed automatically to the company’s news page on OTC Markets Group’s websites, eliminating duplication and expanding distribution for these companies. These companies may also use www.otciq.com to distribute press releases through PR Newswire’s expansive network of local, national and Reg. FD compliant news portals – all at discounted rates.

Companies that are not current subscribers to our OTC Disclosure & News Service can find out more about the service here.

What rules have still to be approved?

In connection with the new rules permitting general solicitation and advertising, the SEC has proposed some amendments that would place theseplace additional restrictions and notification requirements on Rule 144A and Rule 506(c) offerings.

Among these is a proposal requiring companies to file an advance notice on a “Form D” with the SEC 15 days prior to engaging in general solicitation in a Rule 506(c) offering. This is in addition to an existing rule that requires companies file a Form D within 15 days after the date of the first sale of securities.

Another proposal would ban from Rule 506(c) offerings for one year any issuer that has failed to comply with Form D filing requirements within the past five years.

OTC Markets Group believes these restrictive rule proposals undermine Congress’ intent as expressed in the JOBS Act. The “Advance Form D” requirement and the complex nature of the Form D process may also leave companies in technical non-compliance with the rules, effectively shutting them out of the capital markets for a year. We detailed our objections to the new rule proposals in a comment letter to the SEC which you can read here.

Who should I talk to if I am considering generally soliciting investors in a Rule 506(c) or Rule 144A offering?

Companies should talk to a knowledgeable securities attorney if they are considering generally soliciting investors under the new rule.

Companies that have questions about how to publish offering documents and prospectuses on the OTC Markets Group website or through our OTC Disclosure & News Service after speaking with their attorney should contact OTC Markets Group’s Issuer Services division at +1 (212) 896-4420 or is@otcmarkets.com.

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Newsletter Sponsors

CEO Clips Scottsdale Capital Advisors

Monthly Trade Summary — September 2013

Marketplace Designations # Securities* Monthly Dollar Volume Monthly Dollar Volume
per Security
Aggregate Market Capitalization
(in Millions)*
OTCQX® 371 $2,773,429,680 $7,475,552 $1,450,098
OTCQB® 3,204 $3,907,626,814 $1,219,609 $324,561
OTC Pink® Current Information 2,915 $7,983,067,280 $2,738,617 $12,248,181
OTC Pink Limited Information 532 $96,872,650 $182,091 $12,709
OTC Pink No Information 2,982 $980,602,142 $328,840 $65,475
Totals 10,004 $15,741,598,566 $1,573,530 $14,101,024
* Selected data as of September 30, 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.

STANY's 23rd Annual International Reception (November 20, 2013)

The PIPEs Conference 2013 (November 4, 2013)

STA Annual Conference (October 22-25, 2013)

Angel Capital Association’s 2013 Leadership Workshop (October 17-18, 2013)

NASAA Annual Conference (October 6-8, 2013)

IR Magazine Think Tank – Canada 2013 (October 3, 2013)

STA 80th Annual Market Structure Conference (October 2-5, 2013)

Euro Pacific Capital Global Investment Conference (September 10, 2013)

Data Transparency 2013 (September 10, 2013)

Liolios Group 2nd Annual Gateway Conference (September 10, 2013)

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


Is Nasdaq and NYSE Neglect Breaking the Humble Stock Ticker? - Bloomberg BusinessWeek (September 26, 2013)

OTC Markets Group and PR Newswire Announce Enhanced News Distribution for SEC Reporting Companies, Expanded International Distribution - press release (September 26, 2013)

OTC Markets Group and Marketwired Announce News Distribution Agreement for OTCQX(R), OTCQB(R) and OTC Pink(R) Companies - press release (October 1, 2013)

Kickstarter for your start-up: Finding accredited investors - Marketplace Morning Report (September 23, 2013)

Shout it out: New rules allow startups to advertise fundraising - Upstart Business Journal (September 23, 2013)

SEC to Exchanges: Straighten Out Your IT - Or Else - Traders Magazine (September 12, 2013)

OTC Markets Group Congratulates Altisource Asset Management on NYSE MKT Listing - press release (September 12, 2013)

Product Updates

Share your videos with your investors!

Last month, we enhanced the OTC Disclosure & News Service to enable companies to post videos. To date, 120 videos and investor presentations have been uploaded by companies that would like to share more information with their investors. These videos feed to the homepage of our website and the company’s quote page on www.otcmarkets.com, a financial portal receiving 800,000 visits each month. See some recent videos posted by investor-focused companies.

CEO Clips   CEO Clips   CEO Clips


Expand your news distribution through our partnerships with PRNewswire and Marketwired! Check it out.


To learn more about OTC Disclosure & News Service and our other Corporate Services, contact Issuer Services at 212.896.4420 or issuers@otcmarkets.com or visit www.otciq.com.

Market Data Updates

•   Investis now offers Real-Time Level 1+ (OTCQX, OTCQB, OTC Pink, OTC Bonds) Quotes through the data feeds that it provides for corporate IR websites.

•   The OTCM BNY Mellon ADR Index rose 11.12% in the third quarter and is up 12.75% year-to-date. See highlights from third quarter here.

•   OTCM has updated the fee schedule for market data fees and licenses. View the updated schedule here.

•   The OTC Markets Multicast Data Feed (version 3.0) has been updated to include three new binary channels — OTC Link Trade Channel, Reference Data Channel, Reference Data with Cusip Channel — and additional data fields. The OTC Markets Multicast Data Feed specifications may be found here.

For more information, contact our Market Data Services at 212.220.2166 or marketdata@otcmarkets.com.

How an ADR Works and Why They’re Valuable to Companies and Investors

The below diagram demonstrates how cross-border convertibility between home market shares and ADRs creates efficient U.S. prices and helps to drive liquidity in a company’s home market.

To view our recent webinar on How To Improve Your U.S. IR Strategy Using an ADR and OTCQX, click here.

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 Adopts Amendments to Rule 506 and Rule 144A



On July 10th, the SEC adopted amendments to Rule 506 and Rule 144A that eliminate the prohibition against general solicitation and general advertising in Rule 506 and Rule 144A offerings. The amendments went into effect on September 23, 2013.  The adopting release can be found here.

FINRA Updates Forms for Private Placement



In August, FINRA released updates to the Forms used by firms engaged in private placements. The regulatory notice can be found here.

SEC Proposes Regulation SCI



On March 8th, the SEC proposed Regulation Systems Compliance and Integrity (SCI) that would revamp the regulatory requirements relating to market center technology systems. The proposed release can be found here. OTC Markets Group’s comments can be found here.

OTCQX - New Additions

One new company joined OTCQX in September:

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.