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Thinking about the OTCBB? Comments

John Gazy   |   February 07, 2008
Have you ever heard of Adidas (ADDF) or Foster�s Group (FBRWF)? I bet you have. In case you have been living in a desert for the last 30 something years you can go to OTCBB and learn about these companies including their quotations. The OTC Bulletin Board� (OTCBB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information on over-the-counter (OTC) equity securities. What is OTC security? OTC equity security is actually any equity that is not listed or traded on NASDAQ or any national securities exchange.

As a matter of fact, the OTCBB is a competitor of the Pink Sheets for securities traded in over-the-counter markets. The OTC Bulletin Board was created in June 1990 as part of important market structure reforms. According to the Penny Stock Reform Act of 1990, the SEC was obliged to organize an electronic system that would meet the requirements of Section 17B of the Exchange Act. This system was launched to provide transparency in the OTC equities market. Therefore, effective December, 1993, firms have been required to report trades in all domestic OTC equity securities through the Automated Confirmation Transaction ServiceSM(ACTSM) within 90 seconds of the transaction.

In January, 1999, the SEC approved the OTCBB Eligibility Rule. According to this Rule, companies with the OTCBB securities are required to report their current financial information to the SEC or other regulators in order to meet eligibility requirements. By June 2000, all financial information about domestic companies quoted on the OTCBB became publicly available.

What are the listing requirements for the issuers? The OTCBB is the quotation system for market makers only. That is why there are no listing requirements for the issuers willing to quote their securities on the OTCBB. These companies do not have any filing or reporting requirements with the NASDAQ Stock Market or FINRA. The only requirement is to find a market maker willing to quote the securities. Market makers, however, are not permitted to begin quotation of those securities whose issuers fail file Form 211 or do not remain current in their filings with the SEC or applicable regulatory authority, as it�s stated in the OTCBB Eligibility Rule.

However, despite the lack of the listing requirement, the OTCBB issuers are subject to many of the provisions of the Sarbanes-Oxley Act of 2002, some of which are now in effect. In particular, the OTCBB issuers are currently obliged to meet the Section 302 Sarbanes-Oxley Act requirements. Issuers that are found not to be in compliance with these requirements subject their securities to removal from the OTCBB on the basis that the issuer is delinquent in its required filings with the SEC or applicable regulatory authority. You may learn more on OTCBB Rules on its website.

So what is the difference between the OTCBB and the Pink Sheets? I�ll remind you that the electronic quotation system Pink Sheets is actually managed by Pink Sheets LLC, and is yet another over-the-counter market. However, there is a key difference between the two electronic systems. Though both the Pink Sheets and the OTCBB have no registration requirements, the biggest difference is that the Pink Sheets companies do not have to disclose their financial results regardless of the fact that the Pink Sheets itself strongly encourages them to do so. On the other hand, the Pink Sheets companies are not forbidden to provide such documents. The companies aiming to move from the Pink Sheets to the OTCBB or such exchanges as AMEX or NASDAQ, start filing such disclosure documents and financial reports to have everything done before they apply to the OTCBB or any exchange.

Investors willing to trade their OTCBB securities must contact a broker/dealer to trade OTCBB securities. Investors do not have direct access to the OTCBB service. Issuers, however, should be aware that since the OTCBB companies are obliged to file their disclosure documents with the SEC, they are more attractive for the investors than the Pink Sheets companies. Well, you�ve got to choose!
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