Understanding Securities Law
The business professional's guide to securities laws
There are two non-listed markets on which your stock can trade:
There are five listed markets on which your stock can trade:
What is the difference between a non-listed and a listed trading market?
Listed trading markets including NASDAQ and the registered exchanges, such as NYSE or NYSE AMEX Equities have specific listing and maintenance standards, which are stringently monitored and enforced. Companies listed on a stock market have reporting obligations not just to the SEC but also to the market itself. Companies trading on a listed market have on-going regulatory relationship with the market itself. OTC quotation services including OTCBB, Pink Sheets merely facilitate quotation of unlisted securities.
Your stock is technically not “listed” in the OTCBB or the Pink Sheets. Your stock is merely “qualified for quotation.”
What is the difference between the OTC Bulletin Board and the Pink Sheets?
Both the Bulletin Board and the Pink Sheet show quotations and facilitate trading in OTC securities, which in general mean securities that are not listed or traded on NASDAQ or a national securities exchange such as NYSE AMEX Equities or the NYSE. However, there are significant differences in the two.
OTC Bulletin Board
The OTCBB is displays real-time bid and ask price quotations, last-sale prices, and volume information in OTC equity securities.
The OTCBB is a quotation medium for subscribing members, not an issuer listing service, unlike NASDAQ or a national securities exchange such as AMEX or the NYSE.
There are no minimum standards such as price, number of shareholders, independent directors, corporate governance requirements and the like.
SEC and FINRA rules limit quotations on the OTCBB to the securities of companies that are required to file reports with the SEC under the 1934 “Filing Reports” Act and that are current in their reports filed with the SEC.
Issuers do not have any filing or reporting requirements with The Nasdaq Stock Market, Inc., or FINRA.
NASDAQ has no business relationship with the issuers of securities quoted on the OTCBB.
Investors must contact a broker/dealer to trade OTCBB securities. Investors do not have direct access to the OTCBB service. The OTCBB provides access to more than 3,300 securities and includes more than 230 participating Market Makers
The Pink Sheets is a centralized quotation service that collects and publishes market maker quotes for OTC securities in real-time. Pink Sheets is neither an SEC Registered Stock Exchange nor a Broker-Dealer.
What is the primary difference?
Pink Sheets and the OTCBB are competing quotation services for OTC securities. Pink Sheets is a privately owned company, while NASDAQ operates the OTCBB.
The primary difference between the two is that to be quoted on the OTCBB, a company must be required to file reports with the SEC under the 1934 “Filing Reports” Act and that are current in their reports filed with the SEC. Pink Sheet companies do not have to be SEC reporting companies, although some are.
How do you get you company’s securities qualified for quotation on the non-listed OTCBB or Pink Sheets?
Securities can only be qualified for quotation on the OTCBB or the Pink Sheets by a special class of broker/dealer, called a Market Maker, filing a form, called a Form 15(c)-211 or Form 211, with FINRA. SEC Rule 15(c)-211 specifies the information that must be included in the Form 211. No one besides a Market maker can make this filing.
FINRA will review the Form 211 to assure that your company has:
What if you ONLY want to trade on Pink Sheets?
The bottom line is this: You must have free trading shares. For the Pink Sheets, this means shares that have been held by non-insider shareholders for at least one year.
No one year non-insider stock, No Pink Sheet only “listing.”
There is an alternative: File a full SEC Registration statement with full disclosure and full audit. Wait until the end of your fiscal year and file with the SEC to stop being an SEC Reporting company. However, this means you must file and clear with the SEC and file Q’s and K’s with the SEC until the end of your fiscal year.
What are the primary listed markets?
NASDAQ OMX Group
The NASDAQ markets are owned by a public company named NASDAQ OMX Group, Inc. It is the world’s largest exchange company. It delivers trading, exchange technology and public company services across six continents, with over 3,800 listed companies. It offers trading across multiple asset classes including equities, derivatives, debt, commodities, structured products and exchange-traded funds. NASDAQ originally stood for National Association of Securities Dealers Automated Quotations.
Nasdaq was founded in 1971 as a wholly-owned subsidiary of the Financial Industry Regulatory Authority, or FINRA (then known as the National Association of Securities Dealers, Inc.). Beginning in 2000, FINRA restructured and broadened ownership in Nasdaq by selling shares to FINRA members, investment companies and issuers listed on The NASDAQ Stock Market.
In connection with this restructuring, Nasdaq applied to the SEC to register The NASDAQ Stock Market as a national securities exchange. Prior to operating as an exchange, The NASDAQ Stock Market operated under an SEC-approved plan that provided a delegation of legal authority from FINRA to The NASDAQ Stock Market to operate as a stock market. FINRA fully divested its ownership of Nasdaq in 2006, and The NASDAQ Stock Market became fully operational as an independent registered national securities exchange in 2007.
In 2006, Nasdaq also reorganized its operations into a holding company structure. As a result, our exchange licenses and exchange and broker-dealer operations are held by its subsidiaries.
On February 27, 2008, Nasdaq and OMX AB combined their businesses and Nasdaq was renamed The NASDAQ OMX Group, Inc. Prior to the combination, OMX AB owned and operated the largest securities marketplace in Northern Europe.
NASDAQ operates three primary trading markets in the U.S. on which your securities can be listed:
NYSE Euronext is the world’s most diverse exchange group. It offers a broad array of products and services in cash equities, futures, options, swaps, exchange-traded products, bonds, market data, and commercial technology solutions, all designed to meet the evolving needs of issuers, investors, financial institutions and market participants.
It is also the world’s leading, most liquid equities exchange group. With more listed issues than any other exchange group, trading on NYSE Euronext’s equity markets represents more than one-third of the world’s cash equities volume.
NYSE Euronext operates three primary trading markets in the U.S. on which your securities can be listed:
In 1921 the roar of the market activities on the street dictated a move indoors into the building where it still resides on Trinity Place in New York City. The Amex was referred to as the New York Curb Exchange from 1929 to 1953 when it changed its name to the American Stock Exchange.
What are the listing standards for the NASDAQ, NYSE AMEX Equities and NYSE markets?
There are both quantitative and qualitative standards for listing on these markets.
The numerical or quantitative listing requirements are in the following areas:
A detailed list of the specific requirements to list on these listed markets is set forth in the detailed information section of this website and can be accessed by clicking on the name button of the market.
In addition to meeting the minimum numerical standards listed above, there are other subjective factors which are considered. The company must be a or be the successor to a going concern.
These markets have broad discretion regarding the listing of a company. They may deny listing or apply additional or more stringent criteria based on any event, condition, or circumstance that makes the listing of the company inadvisable or unwarranted in the opinion of the Exchange. Such determination can be made even if the company meets the standards set forth above.
The primary subjective factors considered are:
Nature of a company's business.
The required corporate governance procedures relate to:
What is the Depository Trust & Clearing Corporation, or DTCC?
The DTCC processes all transaction in your company’s stock.
The DTCC's helps automate, centralize, standardize and streamline processes that are critical to the safety and soundness of the capital markets.
DTCC, through its subsidiaries, provides clearing, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks.
DTCC's depository provides custody and asset servicing for 3.5 million securities issues from the United States and 110 other countries and territories, valued at $28 trillion. In 2008, DTCC settled more than $1.88 quadrillion in securities transactions.
If you are the owner of a publicly-traded company, you are certainly interested in adding volume and increasing the price of your company’s stock. Your problem is that it is almost impossible your small but growing company to attract the attention of the investment world. Research analysts do not follow your company because you are too small.
Thus, you may turn to an investor relations firm for services such as:
Stock Promotion firms charge cash, stock or a combination of both. Stock promotion firms cannot be compensated with S-8 free trading stock. Stock promotion firms are required to disclose the amount of your stock they own and the compensation they receive when promoting your company’s stock under SEC Rules.
You should due your due diligence on any stock promotion firm you are considering hiring. Ask for and investigate their track records and references.
In the end, however, there is only one sure way to add volume and increase the price of your company’s stock:
If you lose site of these principals, no amount of stock promotion will, in the long run, improve the trading price and volume of your company’s stock.
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