Author Topic: Proposed new SEC rules for OTC securities, relevant for us?  (Read 4908 times)

Foreign Tuffett

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Re: Proposed new SEC rules for OTC securities, relevant for us?
« Reply #10 on: December 23, 2019, 12:03:46 PM »
I continue to be concerned about this. The good news is that at least one of the five current SEC Commissioners (Hester Pierce) seems aware of the issues this new rule might cause:

"Initial commentary in response to our proposal is admittedly not very supportive. Encapsulating early sentiment, one commentator wrote, “This is a terrible proposal, one that will destroy wealth and value for savvy investors who spend extensive time researching and gleaning information from OTC-traded companies, even if those companies do not report to the SEC.”[9] Admittedly, getting the balance right is difficult. As we finalize the rule, we need to make sure that it hinders fraudsters without killing the market for micro-cap stocks. I look forward to further commentary to assist us in properly designing the rule to achieve our objective of ensuring that retail investors can get the information they need to make decisions without imposing undue costs on broker-dealers, issuers, or investors."

https://www.sec.gov/news/speech/peirce-broken-windows-51st-annual-institute-securities-regulation


Interesting that the OTC Markets Group met with Pierce only 10 days after she gave the above speech.

https://www.sec.gov/comments/s7-14-19/s71419.htm


The bad news is that OTC Markets seems to think the below is a good idea:

"Securities in companies that do not provide current information under the Rule, or otherwise fail
to meet an exception, should be eligible for quoting on an “Expert Market”, where quote
distribution is limited to professional investors. By using commonly understood market data
licenses intended only for professional investors, retail investors would not have access to quote
information in these securities, giving effect to the Proposal’s call for increased retail investor
protection while not disadvantaging the more experienced, sophisticated investors that make up
the bulk of the Proposal’s comment file to date. Many broker-dealer compliance teams already
use our “No Information” designation and other data-driven methods to make suitability
decisions. This results in broker-dealers putting up “gates” that restrict retail investors’ access
to “No Information” and other high-risk securities. The Commission can build on these industry
best practices to modernize the Rule and provide for an “Expert” market where brokers to [sic]
execute orders for financially sophisticated and risk tolerant investors."


https://www.sec.gov/comments/s7-14-19/s71419-6471877-199389.pdf
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Spekulatius

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Re: Proposed new SEC rules for OTC securities, relevant for us?
« Reply #11 on: December 23, 2019, 01:12:32 PM »
Yes, I believe it is correct to be concerned about this. Once the gears of bureaucracy start to move, it can be hard to stop them. I would also think that the OTC probably is biased as they would benefit even if just some compansies chose to disclose financials on their system, regardless of collateral damage to investors into those companies that don’t.

Then on the other hand, there might be unique bargains available to individual investors who are willing to play a long term game regardless of liquidity issues. Any fund that might own these stocks now may be forced to sell these stocks, if the rule indeed gets implemented.
« Last Edit: December 27, 2019, 03:51:21 AM by Spekulatius »
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oddballstocks

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Re: Proposed new SEC rules for OTC securities, relevant for us?
« Reply #12 on: December 26, 2019, 08:38:57 PM »
I hate to say it, but my gut is that the SEC just rolls with this proposed rule.

Reason being...

I had a long conversation with a former regulator a few years ago, he worked in the pink/otc area.  He said 90% was fraud and scammy companies (which we all know), and in the 10% there could be value.  His boss held the view that ALL pink sheet companies were junk, and if a company was respectable they should just uplist.  If they didn't uplist it just proved they were a scam.  He was on a mission to eliminate the pink sheet stocks, that was the source of most of their regulatory problems, in their view.

Fast forward, changes keep rolling forward.  It's hard to trade most of these as-is, and now the SEC wants to make it harder.  They will be successful.

The irony of this is while they make public companies with some information hard to trade they are encouraging people to invest in private companies in venture rounds.

In many ways it makes no sense to be public anymore.  What's the point?  You can raise capital easily as a private company, and being public brings no additional benefit.
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Jurgis

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Re: Proposed new SEC rules for OTC securities, relevant for us?
« Reply #13 on: December 26, 2019, 10:50:13 PM »
The irony of this is while they make public companies with some information hard to trade they are encouraging people to invest in private companies in venture rounds.

In many ways it makes no sense to be public anymore.  What's the point?  You can raise capital easily as a private company, and being public brings no additional benefit.

This is partly true: yes, people can invest in private companies with way less info, way less liquidity, and way less business results (and quite often pre-business) compared to public companies or even pink sheet companies.

OTOH, even in this world of money sloshing around, it's not that "easy" to raise money as private company. Depends a lot on your business and your numbers. Although for companies that have the numbers to go public it's likely possible to raise and stay private.
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InspireByReason

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Re: Proposed new SEC rules for OTC securities, relevant for us?
« Reply #14 on: April 22, 2020, 12:06:49 AM »
Has anyone heard any updates on this?

capitalg

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Re: Proposed new SEC rules for OTC securities, relevant for us?
« Reply #15 on: September 17, 2020, 04:10:33 AM »
I haven't fully digested, but the SEC adopted an amendment to Rule 15c2-11 yesterday:  https://www.sec.gov/news/press-release/2020-212

Full text of final rule:  https://www.sec.gov/rules/final/2020/33-10842.pdf

writser

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Re: Proposed new SEC rules for OTC securities, relevant for us?
« Reply #16 on: September 17, 2020, 06:20:05 AM »
Good Twitter thread: https://twitter.com/alluvialcapital/status/1306445134624681984 . We shall see how this works out in practice.
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